1 United States Securities and Exchange Commission Washington, D.C

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE --- SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 1999 ------OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE ---- SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ______to ______

Commission File No. 1-9410

COMPUTER TASK GROUP, INCORPORATED ------(Exact name of Registrant as specified in its charter)

State of New York 16-0912632 ------(State of incorporation) (I.R.S. Employer Identification No.)

800 Delaware Avenue, Buffalo, New York 14209 ------(Address of principal executive offices) (Zip Code)

(716) 882-8000 ------Registrant's telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered ------

Common Stock, $.01 par value New York Stock Exchange Rights to Purchase Series A Participating Preferred Stock New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None ----

(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES X NO ------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the Registrant's voting stock held by non-affiliates at March 15, 2000 was $197,645,761. Solely for the purposes of this calculation, all persons who are or may be executive officers or directors of the Registrant and all persons who have filed a Schedule 13D with respect to the Registrant's stock have deemed to be affiliates.

The total number of shares of Common Stock of the Registrant outstanding at March 15, 2000 was 20,875,056.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference in the following parts of this report: Parts I, II and IV - the Registrant's 1999 Annual Report to Shareholders; Parts II and III - the Registrant's definitive Proxy Statement as filed with the Securities and Exchange Commission and as used in connection with the solicitation of proxies for the Registrant's annual meeting of shareholders to be held on April 26, 2000.

PART I ------

FORWARD-LOOKING STATEMENTS

Statements included in this document, or incorporated herein by reference, that do not relate to present or historical conditions are "forward looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21F of the Securities Exchange Act of 1934, as amended. Additional oral or written forward looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission. Such forward looking statements involve risks and uncertainties which could cause results or outcomes to differ materially from those expressed in such forward looking statements. Forward-looking statements may include, without limitation, statements relating to the Company's plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts," "intends," "possible," "expects," "estimates," "anticipates," or "plans" and similar expressions are intended to identify forward-looking statements. Among the important factors on which such statements are based are assumptions concerning the anticipated growth of the information technology industry, the continued need of current and prospective customers for the Company's services, the availability of qualified professional staff, and price and wage inflation.

ITEM 1. BUSINESS

Computer Task Group, Incorporated (the Company, CTG, or the Registrant) was incorporated in Buffalo, New York on March 11, 1966, and its corporate headquarters are located at 800 Delaware Avenue, Buffalo, New York 14209 (716-882-8000). CTG provides information technology (IT) professional services. CTG employs approximately 5,200 people worldwide and serves customers through an international network of offices in North America and Europe. The Company has nine operating subsidiaries: CTG Services, Inc., CTG HealthCare Solutions (Kansas), Inc., CTG HealthCare Solutions (Ohio), Inc., and Zenius, Inc., providing services primarily in North America, Inc.; Computer Task Group of Canada, Inc.; Computer Task Group (U.K.) Ltd.; Computer Task Group Nederland B.V.; Computer Task Group Luxembourg S.A.; and Computer Task Group Belgium N.V.

BACKGROUND

The Company operates in one industry segment, providing IT professional services. A typical customer is an organization with large, complex information and data processing requirements. Approximately 82.9 percent of consolidated 1999 revenue of $472.0 million was generated in North America, and 17.1 percent in Europe. In order to better market its services, in 2000 CTG trademarked its four primary services.

CTG Exemplar(TM) plans, designs, implements, and maintains start-to-finish application and IT solutions for some of the world's leading companies. At the planning stage, Exemplar helps clients assess their IT needs. Exemplar's IT and vertical industry experts examine the client organization's current technology, application portfolio, and data architecture. Solutions ranging from selection and implementation of existing software to the construction of new systems are then recommended. Once a solution has been defined, CTG Exemplar's state-of-the-art design, development, and testing services are delivered by skilled technicians supported by intensive training programs and proprietary best practices. During a project's implementation phase, new technology is integrated seamlessly into existing systems. Once implementation is complete, CTG Exemplar supports the requirements of managing and maintaining enterprise software, from rollout to subsequent updates, conversions, hosting, and help desk activities.

CTG ITCapital(TM) recruits, retains, and manages IT talent for our clients. While our Global 1000 customers focus on their core businesses, CTG manages the acquisition and deployment of the professionals they depend on for IT solutions. Using an assessment methodology to define each client's staffing needs, IT Capital builds a customized supply model to streamline everything from technical requisitions to invoices. IT Capital's strategic staffing Web tool, CTG ITCapital Select(TM), allows our clients to submit requests for help, review progress on their requisitions, and access candidate resumes online.

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ITCapital assets include Internet-based requisitions, service level agreements, customized reporting, vendor management programs, and EDI payments. Internet recruiting, recruiting to hot skills, hiring to profile, and a centralized global recruiting center define our approach. Hiring and retaining prime IT resources is closely linked with effectively managing those resources. Clients receive the benefit of a sole source provider who is closely aligned to their strategies and who can deliver resources on a national basis.

CTG HealthCare Solutions(TM), is a leading provider of information technology consulting services to health care providers and payors in North America. Using its proprietary Intellectual Advantage(TM) storehouse of knowledge and experience and its AssureWare(TM) Web-enabled engagement-management methodology, CTG HealthCare Solutions delivers services that include software application support, systems integration, information technology management, infrastructure support, and a full suite of e-business solutions. Software expertise includes SMS(R), McKessonHBOC, Lawson Software(R), IDX(TM), Cerner(R), MEDITECH, STC, HIE, and Neon, among others. In a climate of new legislation such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Balanced Budget Act of 1997, health care industry clients rely on CTG HealthCare Solutions to help them attain their financial and clinical objectives by maximizing their return on their IT hardware and software investments.

In early 2000 CTG created Zenius to capitalize on the e-commerce market place. CTG Zenius(TM) leverages CTG's expertise in supply chain management, enterprise resource planning, and customer relationship management to capitalize on the growing demand for integrated e-commerce solutions. Zenius's ability to address the enterprise integration needs behind the Web site sets Zenius apart in the marketplace. Our experience with legacy systems is a significant advantage for e-commerce initiatives of established enterprises -- the `bricks and mortar' market. Zenius' approach protects the investments companies have made in enterprise-wide applications while taking full advantage of the power of the Internet. Applying business and industry knowledge, along with our unique strategic approach using solution architects and Web developers at our Zenius High-Performance Institute, Zenius enables our clients to win in the Internet economy. We do this by adapting our clients' business strategy and building a comprehensive solution. Zenius draws on CTG's network of alliances to deliver the best combination of products, tools, and expertise to support customized e-business solutions.

International Business Machines Corporation (IBM) is CTG's largest customer. CTG's IT Capital and Exemplar businesses provide services to various IBM divisions in approximately 50 locations. In January 1999, CTG renewed a contract with IBM for one year as one of IBM's national technical service providers for the United States. In December 1999, this contract was extended until March 2000. The contract represents 81.6 percent of the total services provided to IBM by CTG in 1999. IBM accounted for a total of $128.9 million or 27.3 percent of 1999 consolidated revenue; a total of $151.4 million or 32.4 percent of 1998 consolidated revenue; and a total of $142.2 million or 34.9 percent of CTG's 1997 consolidated revenue. Although revenues from IBM were constrained in 1999, the Company expects to continue to derive a significant portion of its business from IBM in 2000 and future years. While the decline in revenue from IBM has had an adverse impact on the Company's revenue and profits, the Company believes the simultaneous loss of all IBM business is unlikely to occur due to the existence of the national contract, the diversity of the projects performed for IBM, and the number of locations and divisions involved.

The Company has registered its symbol and logo with the U.S. Patent and Trademark Office. It has entered into agreements with various software and hardware vendors from time to time in the normal course of business, none of which are material to the business.

No employees are covered by a collective bargaining agreement or are represented by a labor union. CTG is an equal opportunity employer.

ACQUISITION

On February 23, 1999, the Company acquired the stock of Elumen Solutions, Inc. (Elumen). The transaction was valued at $89 million, of which $86 million was paid in cash or through the assumption of debt, and the remainder was satisfied through the issuance of approximately 128,000 shares of CTG common stock. The acquisition was accounted for as a purchase, and the results of Elumen have been included in the Company's consolidated financial statements since the date of acquisition. CTG recorded

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approximately $84.9 million of goodwill and other identifiable intangibles from the transaction, which are being amortized on a straight-line basis over periods ranging from 10 years to 25 years.

PRICING AND BACKLOG

The majority of CTG's IT professional services business is performed on a time-and-materials basis. Rates vary based on the type and level of skill required by the customer, as well as geographic location. Agreements for work performed on a time-and-materials basis generally do not specify any dollar amount as services are rendered on an "as required" basis.

The Company performs a portion of its business on a monthly fee basis, as well as a portion of its project business on a fixed-price basis. These contracts generally have different terms and conditions regarding cancellation and warranties, and are usually negotiated based on the unique aspects of the project. Contract value for fixed-price contracts is generally a function of the type and level of skills required to complete the related project and the risk associated with the project. Risk is a function of the project deliverable, completion date and CTG's management and staff performance. Fixed-price contracts accounted for under the percentage of completion method represented approximately two percent, one percent and two percent of the Company's 1999, 1998 and 1997 consolidated revenue, respectively. Revenue from all fixed-price and monthly-fee contracts represented 11 percent, 16 percent and 17 percent of consolidated revenue in 1999, 1998, and 1997, respectively. As of December 31, 1999 and 1998, the backlog for fixed-price and managed-support contracts was approximately $42 million in both years. Approximately 78 percent of the December 31, 1999 backlog of $42 million, or $33 million, is expected to be earned in 2000. Of the $42 million of backlog at December 31, 1998, approximately 78 percent, or $33 million was earned in 1999. Revenue is subject to seasonal variations, with a minor downturn in months of high vacation and legal holidays (July, August, and December). Backlog does not tend to be seasonal, however, it does fluctuate based upon the timing of long-term contracts.

COMPETITION

The IT services market is highly competitive. The market is also highly fragmented among many providers with no single competitor maintaining a clear market leadership. The Company's competition varies by location, the type of service provided, and the customer to whom services are provided. Competition comes from four major channels: large national or international vendors, including major accounting and consulting firms; hardware vendors and suppliers of packaged software systems; small local firms or individuals specializing in specific programming services or applications; and, a customer's internal data processing staff. CTG competes against all four of these for its share of the market.

CTG has implemented a Global Management System, with a goal to achieve continuous, measured improvements in services and deliverables. As part of this program, CTG has developed specific methodologies for providing high value services that result in unique solutions and specified deliverables for its clients. The Company believes these methodologies will enhance its ability to compete. Most of CTG's offices are already ISO 9001 certified and others are preparing for certification.

The Company believes that to compete successfully it is necessary to have a local geographic presence, offer appropriate IT solutions, provide skilled professional resources, and price its services competitively.

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FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS

(amounts in thousands) 1999 1998 1997 ------

Revenue from Unaffiliated Customers: North America $ 391,496 $ 394,609 $ 360,849 Europe 80,512 73,229 46,739 ------$ 472,008 $ 467,838 $ 407,588 ======

Operating Income (Expense): North America $ 36,434 $ 46,427 $ 36,324 Europe 9,860 8,243 3,663 Corporate and other (15,461) (14,819) (11,031) ------$ 30,833 $ 39,851 $ 28,956 ======

Identifiable Assets: North America (1) $ 154,951 $ 67,128 $ 57,519 Europe 22,736 22,999 15,777 Corporate and Other (2)(3) 21,472 66,682 34,445 ------$ 199,159 $ 156,809 $ 107,741 ======

(1) When comparing 1999 to 1998, the increase in 1999 is due to the goodwill resulting from the acquisition of Elumen.

(2) Corporate and other identifiable assets consists principally of cash and temporary cash investments and other assets.

(3) When comparing 1999 to 1998, the decrease is due to the acquisition of Elumen, where the Company used the majority of its available cash and temporary cash investment balances to satisfy a portion of the purchase price.

EXECUTIVE OFFICERS OF THE COMPANY ------

PERIOD DURING OTHER POSITIONS WHICH SERVED AS AND OFFICES WITH NAME AGE OFFICE EXECUTIVE OFFICER (1) REGISTRANT ------

Gale S. Fitzgerald 49 Chairman of the Board May 6, 1991 to date Director and Chief Executive Officer

Jonathan R. Asher 54 Vice President December 16, 1996 to date None

James R. Boldt 48 Vice President and February 12, 1996 to date Treasurer Chief Financial Officer

Janice M. Cole 54 Vice President July 2, 1998 to date None

Gary M. Gershon 51 Vice President January 1, 1999 to date None

Nico H. Molenaar 44 Vice President January 1, 1996 to date None

John F. Moore 44 Vice President July 2, 1998 to date None

Thomas J. Niehaus 38 Vice President July 22, 1999 to date None

Peter P. Radetich 46 General Counsel April 28, 1999 to date Secretary

(1) BUSINESS EXPERIENCE

Ms. Fitzgerald was appointed chairman of the board and chief executive officer as of October 3, 1994 and president and chief operating officer as of July 1, 1993. She joined the Company in May 1991 as senior vice president responsible for the Company's Northeastern U.S. and Canadian operations. She was previously vice president, Professional Services at International Business Machines Corporation (IBM).

Mr. Asher joined the Company as a vice president in December 1996 and is currently responsible for CTG's North American Exemplar business. He was previously director of information technology services with IBM.

Mr. Boldt joined the Company as a vice president, chief financial officer and treasurer in February 1996. He was previously vice president of finance, secretary and chief financial officer of Pratt and Lambert United, Inc.

Ms. Cole joined the Company in April 1980, and was promoted to vice president, career development in July 1998. Prior to her promotion, Ms. Cole was a director of training services.

Mr. Gershon joined the Company as a vice president in January 1999. Prior to that he was a founder of an advanced software and consulting company.

Mr. Molenaar was promoted to vice president in January 1996 and has been employed by the Company since 1985. He has held a variety of management positions and is presently responsible for CTG's European Exemplar business.

Mr. Moore joined the Company in November 1984, and was promoted to vice president in July 1998. He is responsible for CTG's ITCapital business. Prior to his promotion, Mr. Moore was a director of business development with CTG's IBM National Team.

Mr. Niehaus joined the Company in February 1999, and was promoted to vice president of CTG HealthCare Solutions in July 1999. Previously, Mr. Niehaus was executive vice president of Elumen Solutions, Inc. from September 1997 to February 1999. Prior to that, Mr. Niehaus was vice president of Exemplar Systems.

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Mr. Radetich joined the Company in June 1988, and was promoted to general counsel and secretary in April 1999. Previously, Mr. Radetich was associate general counsel.

ITEM 2. PROPERTIES

The Company occupies a headquarters building at 800 Delaware Avenue, and an office building at 700 Delaware Avenue, both located in Buffalo, New York. Corporate headquarters consists of approximately 40,000 square feet and is occupied by the corporate administrative operations. The office building consists of approximately 39,000 square feet and is also occupied by corporate administrative operations. There are no mortgages on either of these buildings.

The Company also owns a 37,000 square foot building in Melbourne, Florida with a net book value of $1.9 million which it has leased to a third party under a five-year lease. This lease expires in 2000.

The remainder of the Company's locations are leased facilities. Most of these facilities serve as sales and support offices and their size varies, generally in the range of 1,000 to 16,000 square feet, with the number of people employed at each office. The Company's lease terms generally vary from periods of less than a year to five years and generally have flexible renewal options. The Company believes that its present owned and leased facilities are adequate to support its current and anticipated future needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings, including litigation arising in the normal course of business. In the opinion of management, an adverse outcome to any of these proceedings will not have a material effect on the financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II ------

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Information relating to the market for, and market prices of, the Company's Common Stock, the approximate number of Company shareholders, and the Company's dividend history for the past two years is included under the caption "Stock Market Information" in the Company's Annual Report to Shareholders for the year ended December 31, 1999, submitted herewith as an exhibit, and incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

A five-year summary of certain financial information relating to the financial condition and results of operations of the Company is included under the caption "Consolidated Summary - Five-Year Selected Financial Information" in the Company's Annual Report to Shareholders for the year ended December 31, 1999, submitted herewith as an exhibit, and incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's discussion and analysis of financial condition and results of operations is included in the Company's Annual Report to Shareholders for the year ended December 31, 1999, under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," submitted herewith as an exhibit, and incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company does not have any on or off balance sheet market risk sensitive instruments for which disclosure is required, and historically the Company has not been subject to material effects from foreign currency exchange rate fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company and the required Supplementary Data information are included in the Company's Annual Report to Shareholders for the year ended December 31, 1999, submitted herewith as an exhibit, and incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The information in response to this item is incorporated by reference to the information under the caption "Change in Independent Accountants from Prior Periods" presented in the Company's definitive Proxy Statement filed or to be filed under Regulation 14A and used in connection with the Company's 2000 Annual Meeting of Shareholders to be held on April 26, 2000.

II-1

PART III ------

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information in response to this item is incorporated herein by reference to the information set forth on pages 2 and 4 in the Company's definitive Proxy Statement filed or to be filed under Regulation 14A and used in connection with the Company's 2000 annual meeting of shareholders to be held on April 26, 2000, except insofar as information with respect to executive officers is presented in Part I, Item 1 hereof pursuant to General Instruction G(3) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information in response to this item is incorporated herein by reference to the information under the caption "Information about Management" presented in the Company's definitive Proxy Statement filed or to be filed under Regulation 14A and used in connection with the Company's 2000 annual meeting of shareholders to be held on April 26, 2000, excluding the Compensation Committee Report on Executive Compensation and the Company's Performance Graph.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in response to this item is incorporated herein by reference to the information under the caption "Security Ownership of the Company's Common Shares by Certain Beneficial Owners and by Management" presented in the Company's definitive Proxy Statement filed or to be filed under Regulation 14A and used in connection with the Company's 2000 annual meeting of shareholders to be held on April 26, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in response to this item is incorporated herein by reference to the information under the captions "Indebtedness of Management" and "Compensation Committee Interlocks and Insider Participation" presented in the Company's definitive Proxy Statement filed or to be filed under Regulation 14A and used in connection with the Company's 2000 annual meeting of shareholders to be held on April 26, 2000, excluding the Compensation Committee Report on Executive Compensation and the Company's Performance Graph.

III-1

PART IV ------

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

(1) The following Consolidated Financial Statements and related information are incorporated by reference from the 1999 Annual Report to Shareholders:

1999 ANNUAL REPORT PAGE REFERENCE ------

Independent Auditors' Report 16 Consolidated Statements of Income 17 Consolidated Balance Sheets 18 Consolidated Statements of Cash Flows 19 Consolidated Statements of Changes in Shareholders' Equity 20 Notes to Consolidated Financial Statements 22

(2) Index to Consolidated Financial Statement Schedules

1999 FORM 10-K PAGE REFERENCE ------

Report of Independent Auditors IV-2

Report of Independent Auditors on Financial Statement Schedule IV-3

Report of Independent Auditors on Financial Statement Schedule IV-4

Financial statement schedule:

Valuation and Qualifying Accounts (Schedule VIII) IV-5

(B) REPORTS ON FORM 8-K

None.

The Exhibits to this Form 10-K Annual Report are listed on the attached Exhibit Index appearing on pages E-1 to E-3.

(D) OTHER FINANCIAL STATEMENT SCHEDULES

None

IV-1 11

REPORT OF INDEPENDENT AUDITORS

The Board of Directors Computer Task Group, Incorporated:

We have audited the consolidated statements of income, changes in shareholders' equity and cash flows of Computer Task Group, Incorporated and subsidiaries for the year ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Computer Task Group, Incorporated and subsidiaries for the year ended December 31, 1997, in conformity with generally accepted accounting principles.

KPMG LLP February 4, 1998 Rochester, New York

IV-2

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REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of Computer Task Group, Incorporated:

Under date of February 4, 1998, we reported on the consolidated statement of income, changes in shareholders' equity, and cash flows of Computer Task Group, Incorporated and subsidiaries, for the year ended December 31, 1997, as contained in the 1999 Annual Report on Form 10-K. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule insofar as it relates to the year ended December 31, 1997 as listed in Item 14(A) of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule insofar as it relates to the year ended December 31, 1997 based on our audit.

In our opinion, such financial statement schedule, insofar as it relates to the year ended December 31, 1997 when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

KPMG LLP February 4, 1998 Rochester, New York

IV-3

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REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

Board of Directors and Shareholders Computer Task Group, Incorporated Buffalo, New York

We have audited the consolidated financial statements of Computer Task Group, Incorporated and subsidiaries as of December 31, 1999 and 1998 and for the years then ended, and have issued our report thereon dated February 4, 2000. Such financial statements and report are included in your 1999 Annual Report to Shareholders and are incorporated herein by reference. Our audit also included the consolidated financial statement schedule of Computer Task Group, Incorporated and subsidiaries, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP Buffalo, New York February 4, 2000

IV-4

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COMPUTER TASK GROUP, INCORPORATED SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)

BALANCE AT NET BALANCE AT DESCRIPTION JANUARY 1 CHANGE DECEMBER 31 ------

1999 ACCOUNTS DEDUCTED FROM ASSETS

Allowance for Doubtful Accounts $ 1,105 $ 1,205 (A) $ 2,310

Reserve for Projects $ 1,000 $ (109) $ 891

1998 ACCOUNTS DEDUCTED FROM ASSETS

Allowance for Doubtful Accounts $ 951 $ 154 (A) $ 1,105

Reserve for projects $ 1,000 $ - $ 1,000

Net Deferred Tax Assets Valuation Allowance $ 927 $ (927) (B) $ 0

1997 ACCOUNTS DEDUCTED FROM ASSETS

Allowance for Doubtful Accounts $ 975 $ (24) (A) $ 951

Reserve for projects $ - $ 1,000 (C) $ 1,000

Net Deferred Tax Assets Valuation Allowance $ 495 $ 432 (D) $ 927

(A) Reflects additions charged to costs and expenses, additions as part of the acquisition of Elumen, less accounts written off and translation adjustments.

(B) Reflects utilization of foreign net operating losses that were previously offset completely by the valuation allowance.

(D) Reflects a provision for additional foreign net operating losses for which no benefit was anticipated.

IV-5

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COMPUTER TASK GROUP, INCORPORATED

By /s/ GALE S. FITZGERALD ------Gale S. Fitzgerald, Chairman of the Board and Chief Executive Officer

Dated: March 29, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE ------

(i) Principal Executive Officer: Chairman of the March 29, 2000 Board and Chief /s/ GALE S. FITZGERALD Executive Officer ------(Gale S. Fitzgerald)

(ii) Principal Accounting and Vice President, March 29, 2000 Financial Officer Chief Financial Officer

/s/ JAMES R. BOLDT ------(James R. Boldt)

(iii) Directors

/s/ GEORGE B. BEITZEL Director March 29, 2000 ------(George B. Beitzel)

/s/ RICHARD L. CRANDALL Director March 29, 2000 ------(Richard L. Crandall)

/s/ R. KEITH ELLIOTT Director March 29, 2000 ------(R. Keith Elliott)

/s/ GALE S. FITZGERALD Director March 29, 2000 ------(Gale S. Fitzgerald)

/s/ RANDOLPH A. MARKS Director March 29, 2000 ------(Randolph A. Marks)

/s/ BARBARA Z. SHATTUCK Director March 29, 2000 ------(Barbara Z. Shattuck)

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EXHIBIT INDEX

PAGE OR EXHIBIT DESCRIPTION (REFERENCE) ------

2. Plan of acquisition, reorganization, arrangement, * liquidation or succession.

3. (a) Restated Certificate of Incorporation of Registrant. (1)

(b) Restated By-laws of Registrant. (2)

4. (a) Specimen Common Stock Certificate. (3)

(b) Rights Agreement dated as of January 15, 1989, and (1) amendment dated June 28, 1989, between Registrant and The First National Bank of Boston, as Rights Agent.

9. Voting Trust Agreement. *

10. (a) Non-Compete Agreement, dated as of March 1, 1984, (3) between Registrant and Randolph A. Marks.

(b) Stock Employee Compensation Trust Agreement, dated (3) May 3, 1994, between Registrant and Thomas R. Beecher, Jr., as trustee.

(c) Promissory Notes, dated May 3, 1994, and December 7, 1994, (3) between Registrant and Thomas R. Beecher, Jr., as Trustee of the Computer Task Group, Incorporated Stock Employee Compensation Trust

(d) Severance Compensation Agreement dated October 31, 1994, (3) between Registrant and Gale S. Fitzgerald.

(e) Stock Purchase Agreement, dated as of February 25, 1981, (4) between Registrant and Randolph A. Marks.

------

* None or requirement not applicable.

(1) Filed as an Exhibit to the Registrant's Form 8-A/A filed on January 13, 1999, and incorporated herein by reference.

(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference.

(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.

(4) Filed as an Exhibit to the Registrant's Registration Statement No. 2- 71086 on Form S-7 filed on February 27, 1981, and incorporated herein by reference.

E-1

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EXHIBIT INDEX (Continued)

PAGE OR EXHIBIT DESCRIPTION (REFERENCE) ------

10. (f) Description of Disability Insurance and Health (5) Arrangements for Executive Officers.

(g) Nondisclosure and Nonsolicitation Agreement, dated (6) July 1, 1993, between Registrant and Gale S. Fitzgerald.

(h) 1999 Key Employee Compensation Plans. (7)

(i) Management Stock Purchase Plan. (8)

(j) CTG Non-Qualified Key Employee Deferred Compensation Plan (9)

(k) 1991 Employee Stock Option Plan, as Amended (10)

(l) 1991 Restricted Stock Plan (10)

(m) Executive Supplemental Benefit Plan 1997 Restatement (11)

(n) Executive Compensation Plans and Arrangements. 19

(o) Credit Agreement among Computer Task Group, Incorporated and The Chase Manhattan Bank, as administrative agent. 20

------

(5) Filed as an Exhibit to Amendment No. 1 to Registration Statement No. 2-71086 on Form S-7 filed on March 24, 1981, and incorporated herein by reference.

(6) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.

(7) Included in the Registrant's definitive Proxy Statement dated March 29, 2000 on page 8 under the caption entitled "Annual Cash Incentive Compensation," and incorporated herein by reference.

(8) Filed as an Appendix to the Registrant's definitive Proxy Statement dated March 27, 1992, and incorporated herein by reference.

(9) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.

(10) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.

(11) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997, and incorporated herein by reference.

E-2

EXHIBIT INDEX (Continued)

PAGE OR EXHIBIT DESCRIPTION (REFERENCE) ------

11. Statement re: computation of per share earnings 94

12. Statement re: computation of ratios *

13. Annual Report to Shareholders 95

16. Letter re: change in certifying accountant. (12)

18. Letter re: change in accounting principles. *

21. Subsidiaries of the Registrant. 131

22. Published report regarding matters submitted to a vote * of security holders.

23. (a) Consent of experts and counsel. 132

(b) Consent of experts and counsel. 133

24. Power of Attorney. *

27. (a) Financial Data Schedules - 1999. 134

(b) Financial Data Schedules - 1998. 135

28. Information from reports furnished to state insurance regulatory authorities *

99. Additional exhibits. *

------

(12) Filed as an Exhibit to the Registrants Current Report on Form 8-K as of July 7, 1998, and incorporated herein by reference.

E-3

18 1

EXHIBIT 10 (n) ------

COMPUTER TASK GROUP, INCORPORATED

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

The following is a list of all plans, management contracts and compensatory arrangements in which the executive officers of the Company participate and where they can be found:

Stock Purchase Agreement with Randolph A. Marks - Registration Statement No. 2-71086 on Form S-7 filed on February 27, 1981.

First Employee Stock Purchase Plan (Eighth Amendment and Restatement) - Annual Report on Form 10-K for the year ended December 31, 1996, Exhibit 10(p).

Disability Insurance and Health Arrangements - Amendment No. 1 to Registration Statement No. 2-71086 on Form S-7 filed on March 24, 1981.

Executive Supplemental Benefit Plan 1997 Restatement, - Quarterly Report on Form 10-Q for the quarter ended March 28, 1997.

1991 Employee Stock Option Plan, as Amended - Annual Report on Form 10-K for the year ended December 31, 1996, Exhibit 10(o).

1991 Restricted Stock Plan - Annual Report on Form 10-K for the year ended December 31, 1996, Exhibit 10(q).

Management Stock Purchase Plan - definitive Proxy Statement dated March 27, 1992, Appendix A.

CTG Non-Qualified Key Employee Deferred Compensation Plan - Annual Report on Form 10-K for the year ended December 31, 1995, Exhibit 10(cc).

19 1 EXHIBIT 10 (o) ------

COMPUTER TASK GROUP, INCORPORATED

Credit Agreement among Computer Task Group, Incorporated and The Chase Manhattan Bank, as Administrative Agent.

======

CREDIT AGREEMENT

dated as of

August 24, 1999

among

COMPUTER TASK GROUP, INCORPORATED

The Lenders Party Hereto

and

THE CHASE MANHATTAN BANK, as Administrative Agent

------

THE CHASE MANHATTAN BANK, as Arranger

======

20 2

ARTICLE I

DEFINITIONS...... 1

SECTION 1.01. DEFINED TERMS...... 1 SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS...... 15 SECTION 1.03. TERMS GENERALLY...... 16 SECTION 1.04. ACCOUNTING TERMS; GAAP...... 16

ARTICLE II

THE CREDITS...... 17

SECTION 2.01. COMMITMENTS...... 17 SECTION 2.02. LOANS AND BORROWINGS...... 17 SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS...... 17 SECTION 2.04 UTILIZATION OF COMMITMENTS IN OPTIONAL CURRENCIES...... 18 SECTION 2.05. SWINGLINE LOANS...... 21 SECTION 2.06. LETTERS OF CREDIT...... 22 SECTION 2.07. FUNDING OF BORROWINGS...... 26 SECTION 2.08. INTEREST ELECTIONS...... 26 SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS...... 27 SECTION 2.10. REPAYMENT OF LOANS; EVIDENCE OF DEBT...... 28 SECTION 2.11. PREPAYMENT OF LOANS...... 29 SECTION 2.12. FEES...... 29 SECTION 2.13. INTEREST...... 30 SECTION 2.14. ALTERNATE RATE OF INTEREST...... 31 SECTION 2.15. INCREASED COSTS...... 31 SECTION 2.16. BREAK FUNDING PAYMENTS...... 32 SECTION 2.17. TAXES...... 33 SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS...... 33 SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS...... 35 SECTION 2.20. JUDGMENT CURRENCY...... 35

ARTICLE III

REPRESENTATIONS AND WARRANTIES...... 36 SECTION 3.01. ORGANIZATION; POWERS...... 36 SECTION 3.02. AUTHORIZATION; ENFORCEABILITY...... 36 SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS...... 36 SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE...... 36 SECTION 3.05. PROPERTIES...... 37 SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS...... 37 SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS...... 37 SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS...... 37 SECTION 3.09. TAXES...... 38 SECTION 3.10. ERISA...... 38 SECTION 3.11. DISCLOSURE...... 38 SECTION 3.11. LABOR CONTROVERSIES...... 38 SECTION 3.12. BURDENSOME OBLIGATIONS...... 38 SECTION 3.13. DISCLOSURE...... 38 SECTION 3.14. YEAR 2000...... 38

ARTICLE IV

CONDITIONS...... 39

SECTION 4.01. EFFECTIVE DATE...... 39 SECTION 4.02. EACH CREDIT EVENT...... 40

ARTICLE V

AFFIRMATIVE COVENANTS...... 40

SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION...... 40 SECTION 5.02. NOTICES OF MATERIAL EVENTS...... 41 SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS...... 42 SECTION 5.04. PAYMENT OF OBLIGATIONS...... 42 SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE...... 42 SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS...... 42 SECTION 5.07. COMPLIANCE WITH LAWS...... 42 SECTION 5.08. USE OF PROCEEDS AND LETTERS OF CREDIT...... 42 SECTION 5.09. UPDATES TO SCHEDULE...... 43

ARTICLE VI

NEGATIVE COVENANTS...... 43

SECTION 6.01. INDEBTEDNESS...... 43 SECTION 6.02. LIENS...... 44 SECTION 6.03. FUNDAMENTAL CHANGES...... 44 SECTION 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS...... 45 SECTION 6.05. HEDGING AGREEMENTS...... 46 SECTION 6.06. [RESERVED]...... 46 SECTION 6.07. TRANSACTIONS WITH AFFILIATES...... 46 SECTION 6.08. RESTRICTIVE AGREEMENTS...... 46 SECTION 6.09. SUBSIDIARY INDEBTEDNESS...... 46 SECTION 6.10. FINANCIAL COVENANTS...... 46 SECTION 6.11. SALE LEASEBACK...... 47 SECTION 6.12. SUBORDINATED INDEBTEDNESS PREPAYMENTS...... 47 SECTION 6.13. FISCAL YEAR...... 47

ARTICLE VII

EVENTS OF DEFAULT...... 47

ARTICLE VIII

THE ADMINISTRATIVE AGENT...... 49

22 4

ARTICLE IX

MISCELLANEOUS...... 51

SECTION 9.01. NOTICES...... 51 SECTION 9.02. WAIVERS; AMENDMENTS...... 52 SECTION 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER...... 52 SECTION 9.04. SUCCESSORS AND ASSIGNS...... 54 SECTION 9.05. SURVIVAL...... 55 SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS...... 56 SECTION 9.07. SEVERABILITY...... 56 SECTION 9.08. RIGHT OF SETOFF...... 56 SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS...... 57 SECTION 9.10. WAIVER OF JURY TRIAL...... 57 SECTION 9.11. HEADINGS...... 57 SECTION 9.12. CONFIDENTIALITY...... 57 SECTION 9.13. INTEREST RATE LIMITATION...... 58

EXHIBIT A

[Form of] Assignment and Acceptance

EXHIBIT B

[Form of] Promissory Note

EXHIBIT C

Opinion of Counsel for the Borrower

23 5

Schedule 2.01 -- Commitments Schedule 3.06 -- Disclosed Matters Schedule 6.01 -- Existing Indebtedness Schedule 6.02 -- Existing Liens Schedule 6.08 -- Existing Restrictions

24 6

CREDIT AGREEMENT dated as of August 24, 1999, among COMPUTER TASK GROUP, INCORPORATED, the LENDERS party hereto, and THE CHASE MANHATTAN BANK, as Administrative Agent.

The parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below:

"ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

"ADJUSTED EUROCURRENCY RATE" means the Eurocurrency Rate for such Loan divided by one minus the Reserve Requirement

"ADJUSTED LIBO RATE" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by

(b) the Statutory Reserve Rate.

"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder.

"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Administrative Agent.

"AFFILIATE" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greatest of

(a) the Prime Rate in effect on such day,

(b) the Base CD Rate in effect on such day plus 1% and

Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.

"APPLICABLE PERCENTAGE" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or

7 expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.

"APPLICABLE RATE" means, for any day, with respect to any ABR Loan, Eurocurrency Loan or Eurodollar Revolving Loan, or with respect to the facility fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread", "Eurocurrency Spread", "Eurodollar Spread" or "Facility Fee Rate", as the case may be, set forth in the chart below which corresponds to the range of ratios in which the Borrower's Total Funded Debt to Consolidated EBITDA Ratio as at the end of the preceding Fiscal Quarter falls:

======ABR LIBOR EUROCURRENCY FACILITY FEE TOTAL FUNDED DEBT SPREAD SPREAD SPREAD RATE TO CONSOLIDATED EBITDA RATIO ------

Equal to or Less than 0.75 to 1.0 0.0% 0.325% 0.325% 0.100%

------Greater than 0.75 to 1.0 but equal to 0.0% 0.460% 0.460% 0.125% or less than 1.50 to 1.0 ------Greater than 1.50 to 1.0 but equal to 0.0% 0.600% 0.600% 0.150% or less than 2.25 to 1.0 ------Greater than 2.25 to 1.0 0.0% 1.25% 1.25% 0.300%

======

For purposes of the foregoing, all adjustments under this definition shall be determined as of the first day of the Fiscal Quarter following the date the Borrower's financial statements and Compliance Certificate are required to be delivered pursuant to items (a), (b) and (c) of Section 5.01.

"ASSESSMENT RATE" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; PROVIDED that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders.

"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.

"AVAILABILITY PERIOD" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments.

"BASE CD RATE" means the sum of

(a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus

(b) the Assessment Rate.

"BOARD" means the Board of Governors of the Federal Reserve System of the United States of America.

"BORROWER" means COMPUTER TASK GROUP, INCORPORATED, a New York corporation.

26 8

"BORROWING" means

(a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurocurrency Loans or Eurodollar Loans, as to which a single Interest Period is in effect, or

(b) a Swingline Loan.

"BORROWING REQUEST" means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03.

"BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on which commercial banks are not authorized or required to close in New York and whenever such day relates to an Eurocurrency Loan or Eurodollar Loan or notice with respect to any Eurocurrency Loan or Eurodollar Loan, a day on which dealings in the Optional Currency are also carried out in the London interbank market and banks are open for business in London and in the country of issue of the currency of such Eurocurrency Loan (or, in the case of a Loan denominated in the euro, shall be deemed to be Frankfurt, Germany)

"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

"CASH EQUIVALENTS" means

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within 180 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's;

(c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

(d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c);

(e) interests in pooled investment funds the assets of which are invested in investments referred to in clauses (a) through (d) above, including without limitation money market funds maintained by a bank or other financial institution; and

(f) money market funds rated with the highest credit rating obtainable from S&P or from Moody's.

"CHANGE IN CONTROL" means

(a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing

27 9

more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or

(b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated.

"CHANGE IN LAW" means

(a) the adoption of any law, rule or regulation after the date of this Agreement,

(b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or

(c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

"CLASS", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.

"CODE" means the Internal Revenue Code of 1986, as amended from time to time.

"COMMITMENT" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be

(a) reduced from time to time pursuant to Section 2.09 and

(b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04.

The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $100,000,000.

"CONSIDERATION" means, with respect to any acquisition, the aggregate of (i) the cash paid by Borrower or any of its Subsidiaries, directly or indirectly, to the seller in connection therewith, (ii) the Indebtedness incurred or assumed by Borrower or any of its Subsidiaries, whether in favor of the seller or otherwise and whether fixed or contingent, (iii) any Guaranty given or incurred by Borrower or any of its Subsidiaries in connection therewith, and (iv) any other consideration given or obligation incurred by Borrower or any of its Subsidiaries in connection therewith.

"CONSOLIDATED CASH" means the Borrower's and its Subsidiaries cash consolidated in accordance with GAAP.

"CONSOLIDATED CASH EQUIVALENTS" means the Borrower's and its Subsidiaries Cash Equivalents consolidated in accordance with GAAP.

"CONSOLIDATED EBITDA" means, for any period, the consolidated net income (or net loss) of the Borrower and its Subsidiaries for such period as determined in accordance with GAAP, plus

28 10

(a) the sum of

(i) depreciation expense, (ii) amortization expense, (iii) Consolidated Interest Expense, (iv) total income tax expense, (v) extraordinary or unusual losses (including after tax losses on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or unusual losses), (vi) other non-cash charges, and (vii) the net loss of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower, less

(b) the sum of

(i) extraordinary or unusual gains (including after tax gains on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or nonrecurring gains),

(ii) other noncash credits, and

(iii) the net income of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower; provided, that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, (x) the Consolidated EBITDA of any Person disposed of by the Borrower or its Subsidiaries during such period shall be excluded for such period and (y) the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (and assuming the consummation of each such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and related consolidated statements of income and stockholders' equity and of cash flows for such period (i) have been previously provided to the Administrative Agent and the Lenders and (ii) either (A) have been reported on without qualification arising out of the scope of the audit by independent certified accountants of nationally recognized standing or (B) have been found acceptable by the Administrative Agent, and the Required Lenders.

"CONSOLIDATED INTEREST EXPENSE" means any Person's interest expense, as determined in accordance with GAAP, as appearing on the Borrower's financial statements.

"CONSOLIDATED NET WORTH" means stockholders' equity of any Person determined on a consolidated basis, as determined in accordance with GAAP consistently applied, less any Redeemable Preferred Shares.

"CONSOLIDATED RECEIVABLES" means the Borrower's and its Subsidiaries Receivables consolidated in accordance with GAAP.

"CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto.

"CURRENCY EQUIVALENT" means, on any date of determination, the equivalent in any Optional Currency of an amount in Dollars, or in Dollars of an amount in any Optional Currency, determined by using the quoted spot rate at which the London office of the Administrative Agent offers to exchange Dollars for such Optional Currency or such Optional Currency for Dollars, as applicable, in London prior to 11:00 a.m. (London time) on such date.

"DEFAULT" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

"DISCLOSED MATTERS" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.

"DOLLARS" or "$" refers to lawful money of the United States of America.

"DOLLAR EQUIVALENT" means, with respect to any amount of any currency, the Equivalent Amount of such currency expressed in Dollars.

"EFFECTIVE DATE" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).

"ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

"ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon

(a) violation of any Environmental Law,

(b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials,

(d) the release or threatened release of any Hazardous Materials into the environment or

(e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

"EQUIVALENT AMOUNT" means, at any time, as determined by the Administrative Agent (which determination shall be conclusive absent manifest error), with respect to an amount of any currency (the "Reference Currency") which is to be computed as an equivalent amount of another currency (the "Equivalent Currency"): (i) if the Reference Currency and the Equivalent Currency are the same, the amount is such Reference Currency; or (ii) if the Reference Currency and the Equivalent Currency are not the same, the amount of such Equivalent Currency converted from such Reference Currency at the Administrative Agent's spot selling rate (based on the market rates then prevailing and available to the Administrative Agent) for the sale of such Equivalent Currency for such Reference Currency at 11:00 A.M. London, England time, on the second Business Day immediately preceding the event for which such calculation is made

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

"ERISA AFFILIATE" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

"ERISA EVENT" means

(a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived);

(b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived;

30 12

(c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan;

(d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan;

(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan;

(f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or

(g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

"EURO" means the single currency of participating member states of the European Union.

"EUROCURRENCY LOAN" means any Loan denominated in Dollars or an Optional Currency that bears interest at the Adjusted Eurocurrency Rate.

"EUROCURRENCY RATE" shall mean the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the Administrative Agent (i) for any Loan denominated in other than the euro, at approximately 11:00 a.m. London time (or Paris time, if the Loan is denominated in Pounds Sterling) (or as soon thereafter as practicable) two Business Days prior to the first day of such Loan for the offering by the Administrative Agent to leading banks in the London (or Paris, as the case may be) interbank market of deposits in the currency of the Loan having a term comparable to such Loan and in an amount comparable to the principal amount of such Loan, or (ii) for any Loan denominated in the euro, at approximately 11:00 a.m. Frankfurt time two TARGET Days prior to the first day of such Loan for the offering by the Administrative Agent to leading banks in TARGET of deposits having a term comparable to such Loan and in an amount comparable to the principal amount of such Loan

"EURODOLLAR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

"EURODOLLAR LOAN" means any Loan denominated in Dollars or an Optional Currency that bears interest at the Adjusted LIBO Rate.

"EVENT OF DEFAULT" has the meaning assigned to such term in Article VII.

"EXCLUDED TAXES" means, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder,

(a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located,

(b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and

(c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending

31 13 office) or is attributable to such Foreign Lender's failure to comply with Section 2.17(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.17(a).

"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

"FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or corporate controller of the Borrower.

"FIXED RATE LOAN" means any Swingline Loan with bears interest for a fixed rate for a period of time in excess of one (1) day.

"FOREIGN LENDER" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

"FOREIGN SUBSIDIARY" means any Subsidiary organized under the laws of a jurisdiction outside than the United States.

"FOREIGN SUBSIDIARY BORROWER" means each Foreign Subsidiary to which a Revolving Loan is made pursuant to Section 2.03(h).

"GAAP" means generally accepted accounting principles in the United States of America.

"GOVERNMENTAL AUTHORITY" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

"GOVERNMENTAL RULE" means any law, statute, rule, regulation, ordinance, order, judgment, guideline or decision of any Governmental Authority.

"GUARANTEE" of or by any Person (the "GUARANTOR") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect,

(a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof,

(b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof,

(c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or

(d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; PROVIDED, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

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"HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

"HEDGING AGREEMENT" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.

"INDEBTEDNESS" of any Person means, without duplication,

(a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind,

(b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments,

(d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person,

(e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business),

(f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed,

(g) all Guarantees by such Person of Indebtedness of others,

(h) all Capital Lease Obligations of such Person,

(i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty,

(j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances and

(k) any Redeemable Preferred Shares.

The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.

"INFORMATION MEMORANDUM" means the Confidential Information Memorandum dated July, 1999 relating to the Borrower and the Transactions.

"INTEREST ELECTION REQUEST" means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.08.

"INTEREST PAYMENT DATE" means

(a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each month,

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(b) with respect to any Eurocurrency Loan or Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing or Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and

"INTEREST PERIOD" means with respect to any Eurocurrency Borrowing or Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; PROVIDED, that

(i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar or Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing or Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

"ISSUING BANK" means The Chase Manhattan Bank, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.06(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

"LC DISBURSEMENT" means a payment made by the Issuing Bank pursuant to a Letter of Credit.

"LC EXPOSURE" means, at any time, the sum of

(a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus

(b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.

"LENDERS" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender.

"LETTER OF CREDIT" means any letter of credit issued pursuant to this Agreement.

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"LIBO RATE" means, with respect to any Eurodollar Borrowing for any Interest Period

(a) with respect to Loans denominated in dollars, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period, and

(b) with respect to Loans denominated in an Optional Currency, the rate appearing on the relevant display page of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to the relevant Optional Currency deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period . In the event that such rates are not available at such time for any reason, then the "LIBO RATE" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which the relevant dollar or Optional Currency deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

"LIEN" means, with respect to any asset,

(a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset,

(b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and

(c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

"LOANS" means the loans made by the Lenders to the Borrower pursuant to this Agreement.

"LOAN DOCUMENTS" means this Agreement, any application for Letter of Credit, any Hedging Agreement executed by a Lender or an Affiliate of a Lender and the Borrower, any foreign exchange contract executed by a Lender or an Affiliate of a Lender and the Borrower, and any other agreements, instruments, certificates or documents contemplated thereby, as any of the same may be supplemented or amended from time to time in accordance herewith or therewith; and Loan Document means any of the Loan Documents.

"MATERIAL ADVERSE EFFECT" means a material adverse effect on

(a) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole,

(b) the ability of the Borrower to perform any of its obligations under this Agreement or

"MATERIAL INDEBTEDNESS" means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $3,000,000. For purposes of determining

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Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.

"MATURITY DATE" means August 24, 2004.

"MOODY'S" means Moody's Investors Service, Inc.

"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

"OPTIONAL CURRENCY" means (i) the British Pound Sterling and the Euro, or (ii) any other lawful currency (other than Dollars) that has been approved by the Administrative Agent and the Required Lenders pursuant to 2.04 (d).

"OTHER TAXES" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement.

"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

"PERMITTED ENCUMBRANCES" means:

(a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04;

(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04;

(c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations;

(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII; and

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;

PROVIDED that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness.

"PERMITTED INVESTMENTS" means:

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(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's;

(f) money market funds rated with the highest credit rating obtainable from S&P or from Moody's.

"PERSON" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

"PLAN" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.

"PRIME RATE" means the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

"RECEIVABLE" means, with respect to the Borrower or any Subsidiary, all accounts receivable, contract rights related to such account receivable, instruments, chattel paper, general intangibles related to such Receivables and all other rights to payments of moneys for any reason (whether or not evidenced by a contract, instrument, chattel paper or document), and all other rights, powers and privileges of the Borrower or any Subsidiary, as the case may be, arising thereunder or related thereto (including but not limited to all guarantees, collateral security, surety bonds, rights under letters of credit, insurance or other direct or indirect security), assertible against any Person whatever and all rebates, refunds, adjustments and returned, rejected, or repossessed goods relating thereto and all proceeds of any of the foregoing.

"REDEEMABLE PREFERRED SHARES" means any capital stock of the Borrower or a Subsidiary which is redeemable, payable or required to be purchased or otherwise retired or extinguished, or convertible into any Indebtedness at the option of the holder of such capital stock, whether or not it pays dividends at a specified or non-specified rate, and whether or not such capital stock has preference over common stock in any respect

"REGISTER" has the meaning set forth in Section 9.04.

"RELATED PARTIES" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.

"REQUIRED LENDERS" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing at least 66 2/3% of the sum of the total Revolving Credit Exposures and unused Commitments at such time.

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"REVOLVING CREDIT EXPOSURE" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and its LC Exposure and Swingline Exposure at such time.

"REVOLVING LOAN" means a Loan made pursuant to Section 2.03.

"S&P" means Standard & Poor's.

"STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject

(a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, and

(b) with respect to the Adjusted Eurocurrency Rate and Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurocurrency Loans and Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

"SUBORDINATED INDEBTEDNESS" means all Indebtedness incurred at any time by the Borrower or any Subsidiary, the repayment of which is subordinated to the Loans in form and manner satisfactory to the Administrative Agent and the Required Lenders.

"SUBSIDIARY" means, with respect to any Person (the "PARENT") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity

(a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or

(b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

"SUBSIDIARY" means any subsidiary of the Borrower.

"SWINGLINE EXPOSURE" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time.

"SWINGLINE LENDER" means The Chase Manhattan Bank, in its capacity as lender of Swingline Loans hereunder.

"SWINGLINE LOAN" means a Loan made pursuant to Section 2.05.

"TARGET" means the trans-euro real time gross settlement system.

"TARGET DAY" means any day of operation of TARGET.

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"TAXES" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

"THREE-MONTH SECONDARY CD RATE" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it.

"TOTAL FUNDED DEBT" means Indebtedness of the Borrower and its Subsidiaries consolidated in accordance with GAAP, which Indebtedness by its terms is not explicitly subordinated in a manner in form and substance satisfactory to the Administrative Agent and the Required Lenders to the payment in full of the Lender Obligations.

"TOTAL FUNDED DEBT TO CONSOLIDATED EBITDA RATIO" means, as of any date of determination, the ratio of the Borrower's Total Funded Debt as of the end of the Borrower's most recently completed Fiscal Quarter to the Borrower's Consolidated EBITDA for the Borrower's four most recently completed Fiscal Quarters treated as a single accounting period.

"TRANSACTIONS" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder.

"TYPE", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Adjusted Eurocurrency Rate, the Alternate Base Rate.

"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of this Agreement, Loans may be classified and referred to by Class (E.G., a "Revolving Loan") or by Type (E.G., a "Eurodollar Loan") or by Class and Type (E.G., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (E.G., a "Revolving Borrowing") or by Type (E.G., a "Eurodollar Borrowing") or by Class and Type (E.G., a "Eurodollar Revolving Borrowing").

SECTION 1.03. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise

(a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein),

(b) any reference herein to any Person shall be construed to include such Person's successors and assigns,

(c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof,

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(d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and

(e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04. ACCOUNTING TERMS; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; PROVIDED that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

THE CREDITS

SECTION 2.01. COMMITMENTS. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans in Dollars or Optional Currency to the Borrower from time to time during the Availability Period in an aggregate principal Dollar Equivalent that will not result in

(a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment,

(b) the sum of the total Revolving Credit Exposures exceeding the total Commitments, or

(c) the aggregate principal Dollar Equivalent of such Lender's Revolving Loans in Optional Currencies exceeding 50% of such Lender's Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.

SECTION 2.02. LOANS AND BORROWINGS.

(a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required.

(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of ABR Loans, Eurocurrency Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Subject to Section 2.05, each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurocurrency Loan or Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c) At the commencement of each Interest Period for any Eurocurrency Revolving Borrowing or Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $2,500,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000; PROVIDED that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e). Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; PROVIDED that there shall not at any time be more than a total of 5 Eurocurrency and Eurodollar Revolving Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone

(a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing,

(b) in the case of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing,

(c) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing, or

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(d) in the case of an Optional Currency Borrowing, not later than 11:00 a.m., New York City time, four Business Days before the date of the proposed Borrowing; PROVIDED that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06

(e) may be given not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

(i) the aggregate Dollar or Dollar Equivalent amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing, a Eurocurrency Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurocurrency Borrowing or a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; (v) for Borrowings to be funded in an Optional Currency, the currency in which the Borrowing is to be funded and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07.

If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency or Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing.

SECTION 2.04 UTILIZATION OF COMMITMENTS IN OPTIONAL CURRENCIES.

(a) PERIODIC COMPUTATIONS OF DOLLAR EQUIVALENT AMOUNTS OF LOANS AND LETTERS OF CREDIT OUTSTANDING. The Administrative Agent will determine the Dollar Equivalent amount of (i) proposed Loans to be denominated in an Optional Currency as of the date of the requested Borrowing, (ii) outstanding Loans denominated in an Optional Currency as of the last Business Day of each month, and (iii) outstanding Loans denominated in an Optional Currency as of the end of each Interest Period (each such date under clauses (i) through (iii), a "Computation Date").

(b) NOTICES FROM LENDERS THAT OPTIONAL CURRENCIES ARE UNAVAILABLE TO FUND NEW LOANS. The Lenders shall be under no obligation to make the Loans requested by the Borrower which are denominated in an Optional Currency if any Lender notifies the Administrative Agent by 9:00 a.m. New York City time three (3) Business Days prior to the date of the proposed Borrowing for such Loans that such Lender cannot provide its share of such Loans in such Optional Currency by reason of (i) a Governmental Rule or (ii) circumstances affecting foreign exchange markets generally. In the event the Administrative Agent timely receives a notice from a Lender pursuant to the preceding sentence, the Administrative Agent will notify the Borrower no later than 10:00 a.m. New York City time three (3) Business Days prior to the date of the proposed Borrowing that the Optional Currency is not then available for such Loans, and the Administrative Agent shall promptly thereafter notify the Lenders of the same. If the Borrower receives a notice described in the preceding sentence, the Borrower may, by notice to the Administrative Agent not later than 11:00 a.m. New York City time three (3) Business Days prior to the date of the proposed Borrowing for such Loans, withdraw the Loan request for such Loans. If the Borrower withdraws such Loan request, the Administrative Agent will promptly notify each Lender of the same and the Lenders shall not make such Loans. If the Borrower does not withdraw such Loan Request before such time,

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(i) the Borrower shall be deemed to have requested that the Loans referred to in its application shall be made in Dollars in an amount equal to the Dollar Equivalent amount of such Loans and such Loans will bear interest at the Adjusted Base Rate, and (ii) the Administrative Agent shall promptly deliver a notice to each Lender stating: (A) that such Loans shall be made in Dollars and the Loans shall bear interest under the ABR, (B) the aggregate amount of such Loans, and (C) such Lender's Applicable Percentage of such Loans.

(c) NOTICES FROM LENDERS THAT OPTIONAL CURRENCIES ARE UNAVAILABLE TO FUND RENEWALS OF EURO-RATE OPTION LOANS. If the Borrower delivers a Loan Request requesting that the Lenders renew any Eurocurrency Loan or Eurodollar Loan any portion of which is denominated in an Optional Currency, the Lenders shall be under no obligation to renew such Eurocurrency Loan or Eurodollar Loan if any Lender delivers to the Administrative Agent a notice by 9:00 a.m. New York City time three (3) Business Days prior to effective date of such renewal that such Lender cannot continue to provide Loans in such Optional Currency by reason of (i) a Governmental Rule or (ii) circumstances affecting foreign exchange markets generally.

In the event the Administrative Agent timely receives a notice from a Lender pursuant to the preceding sentence, the Administrative Agent will notify the Borrower no later than 10:00 a.m. New York City time three (3) Business Days prior to the renewal date that the renewal of such Loans in such Optional Currency is not then available, and the Administrative Agent shall promptly thereafter notify the Lenders of the same. If the Administrative Agent shall have so notified the Borrower that any such continuation of Loans denominated in an Optional Currency is not then available, any notice of renewal with respect thereto shall be deemed withdrawn, and such Loans denominated in an Optional Currency shall be re-denominated into ABR Loans with effect from the last day of the Interest Period with respect to any such Loans denominated in an Optional Currency. The Administrative Agent will promptly notify the Borrower and the Lenders of any such re-denomination, and in such notice, the Administrative Agent will state the aggregate Dollar Equivalent amount of the re-denominated Loans denominated in an Optional Currency as of the Computation Date with respect thereto and such Lender's Applicable Percentage thereof.

(d) REQUESTS FOR ADDITIONAL OPTIONAL CURRENCIES. The Borrower may deliver to the Administrative Agent a written request that Revolving Loans hereunder also be permitted to be made in any other lawful currency (other than Dollars), in addition to the currencies specifically identified in the definition of "Optional Currency"; provided that such currency must be freely traded in the offshore interbank foreign exchange markets, freely transferable, freely convertible into Dollars and available to the Lenders in the applicable interbank market. The Administrative Agent will promptly notify the Lenders of any such request promptly after the Administrative Agent receives such request. Each Lender may grant or deny such request in its sole discretion. The Administrative Agent will promptly notify the Borrower of the acceptance or rejection by each of the Lenders of the Borrower's request. The requested currency shall be approved as an Optional Currency hereunder only if the Required Lenders approve of the Borrower's request.

(e) OPTIONAL CURRENCY FEE. The Borrower shall pay to the Administrative Agent in Dollars for the Administrative Agent's sole account the Administrative Agent's then current customary fees payable with respect to Revolving Loans denominated in an Optional Currency as the Administrative Agent may generally charge or incur in connection with the funding, maintenance, modification (if any), assignment or transfer (if any), negotiation, and administration of Loans denominated in an Optional Currency.

(f) CURRENCY REPAYMENTS. Notwithstanding anything contained herein to the contrary, the entire amount of principal of and interest on any Revolving Loan made in an Optional Currency shall be repaid in the same Optional Currency in which such Revolving Loan was made and shall be repaid at the office designated by Administrative Agent in the country of issue of each such Optional Currency, provided, however, that if it is impossible or illegal for the Borrower to effect payment of a Revolving Loan in the Optional Currency in which such Revolving Loan was made, or if the Borrower defaults in its obligation to do so, the Lenders may at their option permit such payment to be made (i) at and to a different location, subsidiary, affiliate or correspondent of the Administrative Agent, or (ii) in the Equivalent Amount of Dollars or (iii) in an Equivalent Amount of such other currency (freely convertible into Dollars) as the Lenders may solely at their option designate.

Upon any events described in (i) through (iii) of the preceding sentence, the Borrower shall make such payment and the Borrower agrees to hold each Lender harmless from and against any loss incurred by any Lender arising from the cost to such Lender of any premium, any costs of exchange, the cost of hedging and covering the Optional Currency in which such Revolving Loan was originally made, and from any change in the value of Dollars, or such other currency, in relation to the Optional Currency that was due and owing. Such loss shall be calculated for the period commencing with the first day of the Interest Period for such Revolving Loan and continuing through the date of payment thereof. Without prejudice to the survival of any other agreement of the Borrower hereunder, the Borrower's obligations under this Section 2.04(f) shall survive termination of this Agreement.

(g) OPTIONAL CURRENCY AMOUNTS. Notwithstanding anything contained herein to the contrary, the Administrative Agent may, with respect to notices by the Borrower for Revolving Loans in an Optional Currency or voluntary prepayments of less than the full amount of an Optional Currency Borrowing, engage in reasonable rounding of the Optional Currency amounts requested to be loaned or repaid; and, in such event, the Administrative Agent shall promptly notify the Borrower and the Lenders of such rounded amounts and the Borrower's request or notice shall thereby be deemed to reflect such rounded amounts.

(h) CURRENCY FLUCTUATIONS. If on any Computation Date the sum of the Dollar Equivalent of all Revolving Loans made in an Optional Currency is greater than the sum of 50% of the Revolving Credit Commitments, as a result of a change in exchange rates between one (1) or more Optional Currencies and Dollars, then the Administrative Agent shall notify the Borrower of the same. Within one (1) Business Day after receiving such notice, the Borrower shall pay or prepay (subject to the Borrower's indemnity obligations under this Agreement) Revolving Loans denominated in an Optional Currency in amounts such that the sum of the Dollar Equivalent of all Revolving Loans denominated in an Optional Currency does not exceed 50% of the Revolving Credit Commitments, all after giving effect to such payments or prepayments.

(i) LOANS TO FOREIGN SUBSIDIARIES. Upon the request of the Borrower and with the consent of the Required Lenders, the Administrative Agent shall use its best efforts (but shall have no obligation) to arrange for the Banks to make Revolving Loans denominated in an Optional Currency to various Foreign Subsidiaries in lieu of the Borrower. Any Foreign Subsidiary Borrower shall become a party hereto by execution of a joinder agreement in form and content satisfactory to the Administrative Agent and the Required Banks. The Borrower shall guaranty unconditionally the repayment of all such Loans to Foreign Subsidiary Borrowers by execution of a guarantee agreement in form and content satisfactory to the Administrative Agent and the Required Banks. The Borrower shall cause to be made all payments required in connection with any such Loan to a Foreign Subsidiary Borrower on or before the due date therefor. If any such payment is not paid when due, the Administrative Agent may make such payment. Any such payment made by the Administrative Agent shall be deemed to be a Revolving Loan made ratably by the Banks based upon their respective Commitments and for the purposes of payment of interest an Alternate Base Rate Loan.

SECTION 2.05. SWINGLINE LOANS. (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in

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(i) the aggregate principal amount of outstanding Swingline Loans exceeding $10,000,000 or (ii) the sum of the total Revolving Credit Exposures exceeding the total Commitments; PROVIDED that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.

(b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 12:00 noon, New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.

(c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., New York City time, on any Business Day require the Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof. Notwithstanding the foregoing, a Lender shall not have any obligation to acquire a participation in a Swingline Loan pursuant to this paragraph if an Event of Default shall have occurred and be continuing at the time such Swingline Loan was made and such Lender shall have notified the Swingline Lender in writing, at least one Business Day prior to the time such Swingline Loan was made, that such Event of Default has occurred and that such Lender will not acquire participations in Swingline Loans made while such Event of Default is continuing.

(d) At the request of the Borrower, interest on a Swingline Loan shall bear interest at a rate per annum other than the Alternate Base Rate as may be offered by the Swingline Lender and accepted by the Borrower, but in no event with a maturity date more than seven (7) days from the date of the Swingline Loan. Any such Swingline Loan bearing interest at a rate other than the Alternate Base Rate shall be subject to the customary terms and conditions of the Swingline Lender for loans bearing interest at a similar rate, including without limitation, any requirement for the payment of indemnification or fees for prepayment.

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SECTION 2.06. LETTERS OF CREDIT.

(a) GENERAL. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

(A) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN CONDITIONS. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $10,000,000 and (ii) the sum of the total Revolving Credit Exposures shall not exceed the total Commitments.

(c) EXPIRATION DATE. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date.

(d) PARTICIPATIONS. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(e) REIMBURSEMENT. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on

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(i) the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; PROVIDED that ,if such LC Disbursement is not less than $1,000,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment be financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline Loan.

If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, MUTATIS MUTANDIS, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.

(f) OBLIGATIONS ABSOLUTE. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder.

Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; PROVIDED that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make

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payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(g) DISBURSEMENT PROCEDURES. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement.

(h) INTERIM INTEREST. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; PROVIDED that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(e) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

(i) REPLACEMENT OF THE ISSUING BANK. The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require.

After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

(j) CASH COLLATERALIZATION. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 66 2/3% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; PROVIDED that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. Subject to the terms and conditions contained in this Subsection (j), the Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 66 2/3% of the total LC Exposure), be applied to

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satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.

SECTION 2.07. FUNDING OF BORROWINGS.

(a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; PROVIDED that Swingline Loans shall be made as provided in Section 2.05. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; PROVIDED that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the Issuing Bank.

(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing.

SECTION 2.08. INTEREST ELECTIONS.

(a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurocurrency or Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurocurrency or Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings which may not be converted or continued.

(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

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(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing, a Eurocurrency Borrowing or a Eurodollar Borrowing; (iv) if the resulting Borrowing is a Eurocurrency Borrowing or a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period"; and. (v) in which Optional Currency, if any, is the Borrowing to be denominated..If any such Interest Election Request requests a Eurocurrency Borrowing or a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency or Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing

(i) no outstanding Revolving Borrowing may be converted to or continued as a Eurocurrency or Eurodollar Borrowing and (ii) unless repaid, each Eurocurrency and Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS.

(a) Unless previously terminated, the Commitments shall terminate on the Maturity Date.

(b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; PROVIDED that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $10,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the sum of the Revolving Credit Exposures would exceed the total Commitments.

(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; PROVIDED that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.

SECTION 2.10. REPAYMENT OF LOANS; EVIDENCE OF DEBT.

(a) The Borrower hereby unconditionally promises to pay

(i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date, and

(ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two (2) Business Days after such Swingline Loan is made; PROVIDED that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding other than Swingline Loans bearing interest at other than the Alternate Base Rate whose applicable interest period has not expired.

(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof.

(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in the form of Exhibit B, with blanks appropriately completed. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

SECTION 2.11. PREPAYMENT OF LOANS.

(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section.

(b) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of a Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (iii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment or (iv) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; PROVIDED that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section

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2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.

SECTION 2.12. FEES.

(a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the unused Commitment of such Lender during the period from and including Effective Date to but excluding the date on which such Commitment terminates; PROVIDED that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; PROVIDED that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate as interest on Eurodollar Revolving Loans on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.

(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of facility fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.

SECTION 2.13. INTEREST.

(a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Rate.

(b) The Loans comprising each Eurocurrency Borrowing shall bear interest at the Adjusted Eurocurrency Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(c) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.

(e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; PROVIDED that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency or Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(f) All interest hereunder shall be computed on the basis of a year of 360 days, except that (i) interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and (ii) all Loans denominated in British Pounds Sterling shall be computed on the basis of a year of 365 days (or 366 days in a leap year). Interest in all cases shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted Eurocurrency Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

SECTION 2.14. ALTERNATE RATE OF INTEREST. If prior to the commencement of any Interest Period for a Eurocurrency Borrowing or Eurodollar Borrowing:

(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted Eurocurrency Rate, the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or

(b) the Administrative Agent is advised by the Required Lenders that the Adjusted Eurocurrency Rate, the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurocurrency Borrowing or Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurocurrency or Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing; PROVIDED that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.

SECTION 2.15. INCREASED COSTS.

a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted Eurocurrency Rate or the Adjusted LIBO Rate) or the Issuing Bank; or (ii) impose on any Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans, Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan, Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered.

(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; PROVIDED that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.16. BREAK FUNDING PAYMENTS. In the event of

(a) the payment of any principal of any Eurocurrency Loan, Eurodollar Loan or Fixed Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default),

(b) the conversion of any Eurocurrency Loan or Eurodollar Loan other than on the last day of the Interest Period applicable thereto,

(c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(b) and is revoked in accordance therewith), or

54 36 (d) the assignment of any Eurocurrency Loan, or Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan or Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted Eurocurrency Rate (in the case of a Eurocurrency Loan) or the Adjusted LIBO Rate (in the case of a Eurodollar Loan) that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

SECTION 2.17. TAXES.

(a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly

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completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate.

SECTION 2.18. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS.

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. Except as set forth in Section 2.04 (f), all payments hereunder shall be made in dollars.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements and Swingline Loans; PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the

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amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b) or 2.18(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid.

SECTION 2.19. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.

(a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Commitment is being assigned, the Issuing Bank and Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

SECTION 2.20. JUDGMENT CURRENCY.

(a) CURRENCY CONVERSION PROCEDURES FOR JUDGMENTS. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder or under any note issued hereunder in any currency (the "Original Currency") into another currency (the "Other Currency"), the parties hereby agree, to the fullest extent permitted by Law, that the rate of exchange used shall be that at which in accordance with normal banking procedures each Lender could purchase the Original Currency with the Other Currency after any premium and costs of exchange on the Business Day preceding that on which final judgment is given.

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(b) INDEMNITY IN CERTAIN EVENTS. The obligation of the Borrower in respect of any sum due from the Borrower to any Lender hereunder shall, notwithstanding any judgment in an Other Currency, whether pursuant to a judgment or otherwise, be discharged only to the extent that, on the Business Day following receipt by any Lender of any sum adjudged to be so due in such Other Currency, such Lender may in accordance with normal banking procedures purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due to such Lender in the Original Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment or payment, to indemnify such Lender against such loss.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lenders that:

SECTION 3.01. ORGANIZATION; POWERS. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. The chief executive office of the Borrower and each of its domestic subsidiaries is 800 Delaware Avenue, Buffalo, New York 14209.

SECTION 3.02. AUTHORIZATION; ENFORCEABILITY. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions

(a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect,

(b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority,

(c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and

(d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.

SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.

(a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1998, reported on by Deloitte & Touche LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended March 26, 1999, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.

(b) Since December 31, 1998, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries, taken as a whole.

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SECTION 3.05. PROPERTIES.

(a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.

(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS.

(a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions.

(b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

(c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.

SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.

SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS. Neither the Borrower nor any of its Subsidiaries is

(a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or

(b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

SECTION 3.09. TAXES. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except

(a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.

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SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $3,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $3,000,000 the fair market value of the assets of all such underfunded Plans.

SECTION 3.11. LABOR CONTROVERSIES. There are no labor controversies pending or, to the best of the Company's knowledge, threatened against the Company or any Subsidiary, which could have a Material Adverse Effect.

SECTION 3.12. BURDENSOME OBLIGATIONS. The Company does not presently anticipate that future expenditures needed to meet the provisions of federal or state statutes, orders, rules or regulations will be so burdensome as to cause a Material Adverse Effect.

SECTION 3.13. DISCLOSURE. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum nor any of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

SECTION 3.14. YEAR 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Borrower's mission critical computer systems and (ii) mission critical equipment containing embedded microchips (including systems and equipment supplied by others or with which Borrower's systems interface) and the testing of all such systems and equipment, as so reprogrammed, was completed by June 30, 1999. The cost to the Borrower of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrower (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Borrower and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrower to conduct its business without Material Adverse Effect.

ARTICLE IV

CONDITIONS

SECTION 4.01. EFFECTIVE DATE. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

(b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Hodgson, Russ Andrews, Woods & Goodyear, counsel for the Borrower, substantially in the form of Exhibit C, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion.

(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel.

(d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02.

(e) The Administrative Agent shall have received Certificates of insurance evidencing the existence of all insurance required to be maintained pursuant to Section 5.05(b), such certificates to be in form and content satisfactory to the Administrative Agent, along with a certificate of a Financial Officer of the Borrower setting forth the insurance obtained by it in accordance with Section 5.05(b) and stating the such insurance is in full force and effect and that all premiums due and payable thereon have been paid.

(f) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on August 24, 1999 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

SECTION 4.02. EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:

(a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent such representations and warranties solely relate to an earlier date or time, in which event such representations and warranties shall be true and correct as of the earlier date or time.

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(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.

Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.

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ARTICLE V

AFFIRMATIVE COVENANTS

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that:

SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower will furnish to the Administrative Agent and each Lender:

(a) within 90 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;

(b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;

(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.10 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

(d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);

(e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and

(f) promptly following any request therefore, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request.

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SECTION 5.02. NOTICES OF MATERIAL EVENTS. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following:

(a) the occurrence of any Default;

(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $3,000,000; and

(d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; PROVIDED that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03.

SECTION 5.04. PAYMENT OF OBLIGATIONS. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where

(a) the validity or amount thereof is being contested in good faith by appropriate proceedings,

(b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and

(c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will, and will cause each of its Subsidiaries to,

(a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and

(b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.

SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.

SECTION 5.07. COMPLIANCE WITH LAWS. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority

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applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

SECTION 5.08. USE OF PROCEEDS AND LETTERS OF CREDIT. The proceeds of the Loans will be used only for financing the working capital needs and for general corporate purposes, including acquisitions to the extent permitted hereunder, of the Borrower and its Subsidiaries in the ordinary course of their respective businesses. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Letters of Credit will be issued only to support the working capital needs of the Borrower and its Subsidiaries in the ordinary course of their respective businesses.

SECTION 5.09. UPDATES TO SCHEDULES. Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in an material way, the Borrower shall promptly provide the Administrative Agent and the Lenders in writing with such revisions or updates to such Schedule as may be necessary of appropriate to update and correct the same; PROVIDED, however, that no such Schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy of incompleteness of any such Schedule be deemed to have been cured thereby, unless and until the Required Lenders, in their sole and absolute discretion, shall have accepted in writing such revisions or updates to such Schedule.

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ARTICLE VI

NEGATIVE COVENANTS

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that:

SECTION 6.01. INDEBTEDNESS. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:

(a) Indebtedness created hereunder;

(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided, however, that the Indebtedness set forth in Section A of Schedule 6.01 shall not be extended, renewed or replaced;

(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;

(e) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; PROVIDED that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed $6,000,000 at any time outstanding;

(f) Indebtedness of any Person that becomes a Subsidiary after the date hereof; PROVIDED that (i) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (ii) the aggregate principal amount of Indebtedness permitted by this clause (f) shall not exceed $5,000,000 at any time outstanding;

(g) other unsecured Indebtedness of the Borrower for lines of credit for the purpose of funding payroll and working capital in an aggregate principal amount not exceeding $20,000,000 at any time outstanding; and

(h) other unsecured Indebtedness of foreign Subsidiaries of the Borrower for lines of credit for the purpose of funding payroll and working capital in an aggregate principal amount not exceeding $5,000,000 at any time outstanding.

SECTION 6.02. LIENS. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:

(a) Permitted Encumbrances;

(b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02; PROVIDED that

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(i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and

(ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; PROVIDED that

(i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary , as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and

(iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

(d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; PROVIDED that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and

(iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary.

SECTION 6.03. FUNDAMENTAL CHANGES.

(a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Person may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Person may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; PROVIDED that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04.

(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.

SECTION 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except:

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(a) Permitted Investments;

(b) investments by the Borrower in the capital stock of its Subsidiaries;

(c) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary;

(d) Guarantees constituting Indebtedness permitted by Section 6.01; and

(e) the acquisition by the Borrower or any Subsidiary of the assets or securities of any other Person provided that (A) at the time of such acquisition no Default or Event of Default shall have occurred and be continuing or be caused by such acquisition, (B) the Borrower's or the relevant Subsidiary's equity ownership interest in the acquired Person, if a foreign Person owned by the Borrower or a Subsidiary and the aggregate amount of Consideration paid, incurred, given or assumed by any one or more of Borrower or its Subsidiaries in connection with such an acquisition shall exceed the Equivalent Amount of $15,000,000, shall be pledged to the Administrative Agent for the benefit of the Lenders; provided, however, the maximum amount of such acquired Person's equity pledged to the Administrative Agent shall not exceed 65% of the acquired Person's equity capitalization or such lesser amount as is the maximum amount allowed to be pledged pursuant to the laws of the jurisdiction of such Subsidiary's organization, (C) the board of directors or other equivalent governing body of such acquired Person shall have approved such acquisition, (D) the acquired Person is engaged in the information technology business or a business related thereto, and (E) the Borrower shall have delivered to the Administrative Agent and each Lender, at least five (5) Business Days prior to such acquisition, with a certificate stating that (i) such acquisition will not violate any covenants of this Agreement and (ii) establishing that, on a pro forma basis after taking into account the acquisition, the Borrower is in compliance with the financial covenants set forth in Section 6.10; provided, however, for the purposes of this Section 6.04, the ratio of the Borrower's pro forma Total Funded Debt to pro forma Consolidated EBITDA for the four (4) most recently completed Fiscal Quarters shall not exceed 1.75:1.00.

SECTION 6.05. HEDGING AGREEMENTS. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities.

SECTION 6.06. [Reserved].

SECTION 6.07. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except

(a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties and

(b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate.

SECTION 6.08. RESTRICTIVE AGREEMENTS. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon

(a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or

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(b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; PROVIDED that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and

(v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contract] restricting the assignment thereof.

SECTION 6.09. SUBSIDIARY INDEBTEDNESS. The Borrower will not permit the aggregate principal amount of Indebtedness of its Subsidiaries (excluding any Indebtedness of a Subsidiary owed to the Borrower or another Subsidiary, but including any Guarantee by a Subsidiary of Indebtedness of the Borrower) at any time to exceed $5,000,000.

SECTION 6.10. FINANCIAL COVENANTS.

(a) INTEREST COVERAGE. As of the last day of each Fiscal Quarter, the Borrower shall not permit its ratio, measured on a rolling four Fiscal Quarter basis, of Consolidated EBITDA to Consolidated Interest Expense to be less than 5.0:1.0.

(b) TOTAL FUNDED DEBT TO CONSOLIDATED EBITDA RATIO. As of the last day of each Fiscal Quarter, the Borrower shall not permit its Total Funded Debt to Consolidated EBITDA Ratio to exceed 2.5 to 1.0.

(c) TOTAL FUNDED DEBT TO TOTAL FUNDED DEBT PLUS CONSOLIDATED NET WORTH RATIO. As of the last day of each Fiscal Quarter, the Borrower shall not permit its ratio of Total Funded Debt to Total Funded Debt plus Consolidated Net Worth to exceed 0.55 to 1.0.

(d) LIQUIDITY RATIO. The Borrower shall not permit the ratio of the (A) the sum of its (1) Consolidated Cash, (2) Consolidated Cash Equivalents, and (3) Consolidated Receivables to (B) its Total Funded Debt to be less than 1.1:1.0 as of the last day of each Fiscal Quarter ending on or before December 31, 1999 and 1.25:1.00 as of the last day of each Fiscal Quarter ending thereafter.

SECTION 6.11. SALE LEASEBACK. Neither the Borrower nor any Subsidiary shall enter into any arrangement, directly or indirectly, with any person whereby the Borrower or any of its Subsidiaries shall sell or transfer any property, real or personal, and used and useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which the Borrower or any of its Subsidiaries intends to use for substantially the same purpose or purposes as the property being sold or transferred other than transactions not exceeding an aggregate sale price during the term hereof of $10,000,000.

SECTION 6.12. SUBORDINATED INDEBTEDNESS PREPAYMENTS. Neither the Borrower nor any Subsidiary shall make any principal or interest payment of any Subordinated Indebtedness prior to its due date nor modify, amend or restructure in any manner any Subordinated Indebtedness so as to the date upon which any such payment is due.

SECTION 6.13. FISCAL YEAR. Neither the Borrower nor any Subsidiary of the Borrower shall change its Fiscal Year from a period beginning January 1 and ending on the immediately succeeding December 31.

ARTICLE VII

Events of Default

If any of the following events ("EVENTS OF DEFAULT") shall occur:

(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days;

(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made;

(d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the Borrower's existence) or 5.08 or in Article VI;

(e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender);

(f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable grace period);

(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity, or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due and which continues unwaived for a period in excess of thirty (30) days, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity and which continues unwaived for a period in excess of thirty (30) days; PROVIDED that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;

(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

(i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article,

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(iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(j) the Borrower or any Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

(k) one or more judgments for the payment of money in an aggregate amount in excess of $3,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof which judgments are not discharged, vacated, bonded, or stayed pending appeal within a period of thirty (30) days from the date of entry of the same, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment;

(l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding (i) $3,000,000 in any year or (ii) $3,000,000 for all periods; or

(m) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

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ARTICLE VIII

THE ADMINISTRATIVE AGENT

Each of the Lenders and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.

The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.

The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing,

(a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing,

(b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and

(c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity.

The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

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The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(a) if to the Borrower, to it at Computer Task Group, Incorporated, 800 Delaware Avenue, Buffalo, New York 14209, Attention of James R. Boldt, Chief Financial Officer (Telecopy No. (716) 887-7370);

(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention: James Tabois (Telecopy No. (212) 552-5650), with a copy to The Chase Manhattan Bank, 2300 Main Place Tower, Buffalo, New York 14202, Attention: Computer Task Group, Incorporated Account Officer (Telecopy No. (716) 843-4939);

(c) if to the Issuing Bank, to it at The Chase Manhattan Bank, 2300 Main Place Tower, Buffalo, New York 14202, Attention: Computer Task Group, Incorporated Account Officer (Telecopy No. (716) 843-4939);

(d) if to the Swingline Lender, to it at The Chase Manhattan Bank, 2300 Main Place Tower, Buffalo, New York 14202, Attention: Computer Task Group, Incorporated Account Officer (Telecopy No. (716) 843-4939); and

(e) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

SECTION 9.02. WAIVERS; AMENDMENTS.

(a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; PROVIDED that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender,

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(ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; PROVIDED FURTHER that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Issuing Bank or the Swingline Lender hereunder without the prior written consent of the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be.

SECTION 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER.

(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, the Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) The Borrower shall indemnify the Administrative Agent, the Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby (other than out-of-pocket expenses incurred by such parties, including the reasonable fees, charges and disbursements of their respective counsel, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof), (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of

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competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee.

(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.

(d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.

(e) All amounts due under this Section shall be payable not later than 10 days after written demand therefor.

SECTION 9.04. SUCCESSORS AND ASSIGNS.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); PROVIDED that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender's obligations in respect of its LC Exposure or Swingline Exposure, the Issuing Bank and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and PROVIDED FURTHER that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and

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the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section.

(c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(e) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Issuing Bank or the Swingline Lender, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender.

(f) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Lender.

(g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment

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to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; PROVIDED that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 9.05. SURVIVAL. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.

SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 9.07. SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and Enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.08. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.

(a) This Agreement shall be construed in accordance with and governed by the law of the State of New York.

(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in Erie and New York Counties and of the United States District Court of the Western and Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby

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irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.

(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.12. CONFIDENTIALITY. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed

(a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential),

(b) to the extent requested by any regulatory authority,

(d) to any other party to this Agreement,

(e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder,

(f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement,

(g) with the consent of the Borrower or

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(h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "INFORMATION" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower; PROVIDED that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

SECTION 9.13. INTEREST RATE LIMITATION. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "CHARGES"), shall exceed the maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

COMPUTER TASK GROUP, INCORPORATED, THE CHASE MANHATTAN BANK, individually and as Administrative Agent,

By By ------Name: James R. Boldt Name: Alan E. Boyce Title: Vice-President and Title: Vice-President Chief Financial Officer

FLEET NATIONAL BANK KEY BANK NATIONAL ASSOCIATION

By By ------Name: Name: Mark F. Wachowiak Title: Title: Assistant Vice-President

HSBC BANK USA MANUFACTURERS AND TRADERS TRUST COMPANY

By By ------Name: Carol V. Kociela Name: Robert J. Daigler Title: Senior Vice-President Title: Vice-President

By ------Name: Stephen O. Schlosser Title: Banking Officer

EXHIBIT A

[FORM OF]

ASSIGNMENT AND ACCEPTANCE

Reference is made to the Credit Agreement dated as of August 24, 1999 (as amended and in effect on the date hereof, the "Credit Agreement"), among Computer Task Group, Incorporated, the Lenders named therein and The Chase Manhattan Bank, as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein with the same meanings.

The Assignor named on the reverse hereof hereby sells and assigns, without recourse, to the Assignee named on the reverse hereof, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth on the reverse hereof, the interests set forth on the reverse hereof (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the reverse hereof in the Commitment of the Assignor on the Assignment Date and Revolving Loans owing to the Assignor which are outstanding on the Assignment Date, together with the participations in Letters of Credit, LC Disbursements and Swingline Loans held by the Assignor on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement.

This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 2.17(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit Agreement.

This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York.

Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee's Address for Notices:

Effective Date of Assignment ("Assignment Date"):

======Percentage Assigned of Facility/Commitment (set forth, to at least 8 decimals, as a Principal Amount Assigned percentage of the Facility and the aggregate Commitments of all Lenders THEREUNDER)

FACILITY ------Commitment Assigned: $ % ------Revolving Loans: ------Swingline Exposure ------L/C Exposure ======

The terms set forth above and on the reverse side hereof are hereby agreed to:

[NAME OF ASSIGNOR] , as Assignor ------

By: ------Name: Title:

[NAME OF ASSIGNEE] , as Assignee ------

By: ------Name: Title:

The undersigned hereby consent to the within assignment: 8/ -

Computer Task Group, Incorporated The Chase Manhattan Bank, as Administrative Agent,

By: By: ------Name: Name: Title: Title:

The Chase Manhattan Bank, as The Chase Manhattan Bank, as Swingline Lender, as Issuing Bank

By: By: ------Name: Name: Title: Title:

------/Consents to be included to the extent required by Section 9.04(b) of the Credit Agreement.

85 67 EXHIBIT B

PROMISSORY NOTE (REVOLVING LOAN)

$20,000,000 August 24, 1999 Buffalo, New York

FOR VALUE RECEIVED, COMPUTER TASK GROUP, INCORPORATED, a New York corporation (the "Borrower"), hereby promises to pay to ______(the "Lender"), at such of the offices of The Chase Manhattan Bank as shall be notified to the Borrower from time to time, the principal sum of Twenty Million and no/100 Dollars ($20,000,000) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Revolving Loans made by the Lender to the Borrower under the Credit Agreement) in lawful money of the United States of America (or if such Revolving Loan was made in an Optional Currency, in the Optional currency of such Loan) and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Revolving Loan, at such office, in like money and funds, for the period commencing on the date of such Revolving Loan until such Revolving Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement.

The date, amount and currency, type, interest rate and duration of Interest Period (if applicable) of each Revolving credit Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books, and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof, PROVIDED that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Revolving Loans made by the Lender.

This Note is one of the notes referred to in the Credit Agreement dated as of August 24, 1999 (as modified and supplemented and in effect from time to time, the "CREDIT AGREEMENT") between the Borrower, the lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent and evidences Revolving Loans made by the Lender thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Credit Agreement.

The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein.

Except as permitted by Section 9.04 of the Credit Agreement, this Note may not be assigned by the Lender to any other Person.

This Note shall be governed by, and construed in accordance with the laws of the State of New York.

COMPUTER TASK GROUP, INCORPORATED

By: Title:

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SCHEDULE OF REVOLVING CREDIT LOANS

This Note evidences the Revolving Loans made, continued or converted under the within-described Credit Agreement to the Borrower, on the dates, in the principal amounts and currencies, of the Types, bearing interest at the rates and having Interest Periods (if applicable) of the durations set forth below, subject to the payments, continuations, conversions and prepayments of principal set forth below:

------Date Made, Principal Type of Interest Rate if Duration of Amount Paid, Unpaid Notation Continued or Amount of Loan Loan Eurodollar or Interest Prepaid, Principal Made By Converted and Optional Eurocurrency Loan Period Continued or Amount Currency, if Converted any ------

------

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EXHIBIT C

OPINION OF COUNSEL FOR THE BORROWER

88 70

Computer Task Group, Incorporated Schedule 3.06 to Credit Agreement

Commitments

THE CHASE MANHATTAN BANK $ 20,000

FLEET NATIONAL BANK $ 20,000

KEY BANK NATIONAL ASSOCIATION $ 20,000

HSBC BANK USA $ 20,000

MANUFACTURERS AND TRADERS TRUST COMPANY $ 20,000

89 71

Computer Task Group, Incorporated Schedule 3.06 to Credit Agreement

Disclosed Matters

None

90 72

Computer Task Group, Incorporated Schedule 6.01 to Credit Agreement

Existing Indebtedness

Balances Presented on a Consolidated Basis As of August 11, 1999

Section A

Unsecured lines of credit in North America, as follows:

HSBC Bank USA $ 23,700,000 M&T Bank 5,000,000 The Chase Manhattan Bank 5,000,000

33,700,000

Section B

CTG Belgium bank debt 97,425 Assets under capital leases 392,140

Total Outstanding Indebtedness $ 34,189,565

Computer Task Group, Incorporated Schedule 6.02 to Credit Agreement

Existing Liens

Assets under capital leases

The lessor has a security interest for those assets, which CTG has under capital leases, which leases have an aggregate unpaid balance as of August 11, 1999 of $392,140 on a consolidated basis.

Computer Task Group, Incorporated Schedule 6.08 to Credit Agreement

Existing Restrictions

None

93 1 EXHIBIT 11 ------

COMPUTER TASK GROUP, INCORPORATED

COMPUTATION OF DILUTED EARNINGS PER SHARE UNDER TREASURY STOCK METHOD SET FORTH IN STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE"

(amounts in thousands, except per share data)

YEAR ENDED DECEMBER 31: ------

1999 1998 1997* 1996* 1995* ------

Weighted-average number of shares outstanding during year...... 16,401 16,216 16,758 16,980 16,658 Add Common Stock equivalents, Incremental shares under stock option plans...... 279 697 857 620 741 ------

Number of shares on which diluted earnings per share is based...... 16,680 16,913 17,615 17,600 17,399

Net income for the year...... $ 16,701 $ 24,045 $ 17,862 $ 11,080 $ 10,776 Diluted earnings per share...... $ 1.00 $ 1.42 $ 1.01 $ 0.63 $ 0.62 Basic earnings per share...... $ 1.02 $ 1.48 $ 1.07 $ 0.65 $ 0.65

* Restated to reflect a 2-for-1 stock split effective June 2, 1997.

1 EXHIBIT 13 ------

COMPUTER TASK GROUP, INCORPORATED

1999 ANNUAL REPORT TO SHAREHOLDERS.

We were IT We are IT

For more than 30 years, information technology (IT) consulting has been CTG's core competency. Founded in 1966, CTG today is a $472 million information technology and e-business solutions firm helping Global 2000 clients achieve competitive advantage through the use of IT. Our 55 offices in North America and Europe, 5,000+ IT professionals, and suite of proprietary, ISO 9001-certified service methodologies enable us to manage knowledge globally and deliver high-value IT solutions when and where our clients need them. CTG clients include some of the world's leading companies, in industries such as health care, retail, manufacturing and distribution, financial services, and telecommunications. As a strategic partner with our clients, CTG provides IT services tailored to their needs at every phase of the business life cycle.

TABLE OF CONTENTS

1 Message from the CEO 2 ZeniusTM. 4 ExemplarTM 6 ITCapitalTM 8 CTG HealthCare SolutionsTM 10 Financial Section 11 Consolidated Summary--Five-Year Selected Financial Information 12 Management's Discussion and Analysis 16 Auditors' Report 17 Consolidated Financial Statements 22 Notes to Consolidated Financial Statements 32 Corporate Information 33 Officers & Board of Directors

OFFICERS:

Jonathan R. Asher Vice President, CTG Exemplar North America Henri Bersoux Vice President, CTG Zenius James R. Boldt Vice President, Global Support Services and Chief Financial Officer Janice M. Cole Vice President, Global Career Development Gale S. Fitzgerald Chairman and Chief Executive Officer Joel I. Ivers Chief Marketing Officer Nico Molenaar Vice President, CTG Exemplar Europe John F. Moore Vice President, CTG ITCapital Thomas Niehaus Vice President, CTG HealthCare Solutions

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BOARD OF DIRECTORS

George B. Beitzel Retired Senior Vice President and Director of IBM

Richard L. Crandall Managing Director of Arbor Partners LLC Retired Chairman and Chief Executive Officer of Comshare, Inc.

R. Keith Elliott Chairman and former Chief Executive Officer of Hercules Incorporated

Gale S. Fitzgerald Chairman and Chief Executive Officer of CTG

Randolph A. Marks Co-Founder and former Chairman, President, and Chief Executive Officer of CTG Retired Chairman of American Brass Company

Barbara Z. Shattuck Managing Director of Shattuck Hammond, a division of PriceWaterhouseCoopers Securities

We will be IT

As the second century of information technology begins, the vast opportunity of the Internet is driving our business and the new economy. In February 2000, CTG aligned its business to capitalize on that opportunity and to focus on the markets where we are strongest and where there is the greatest potential to grow our business. As one of the largest and most responsive IT services and solutions firms in the industry, CTG now provides its services through three major businesses: ZeniusTM, ExemplarTM, and ITCapitalTM, along with a focus on the health care market through CTG HealthCare SolutionsTM. Each of these businesses provides IT solutions to help our clients compete in their respective marketplaces:

ZeniusTM develops end-to-end e-business solutions, empowering clients to win in the Internet economy and enhance their relationships with customers, suppliers, partners, and employees through the creation of a unique, Web-based communication system called the Zenius WebTM.

ExemplarTM designs, implements, and manages comprehensive application and IT solutions--encompassing software applications, technology assessments and selections, project management, and outsourcing--which are in demand by clients with critical IT needs.

ITCapitalTM delivers IT talent management and professional services solutions. With a long record of success in supporting the large and complex IT talent needs of Global 1000 companies, CTG provides a valuable talent deployment and management solution for its clients. As a result, clients can focus on their core businesses.

CTG HealthCareSolutionsTM brings CTG's Zenius, Exemplar, and ITCapital services and solutions to the health care provider and payor to help its clients achieve their IT and business goals.

CTG has a strong track record and foundation upon which to build our business. With a more than 30-year history in IT behind us, we've been where you want to goTM. We were, we are, and we will be IT.

FROM THE CEO

Dear Fellow Shareholder,

Nineteen ninety-nine was a challenging year for our business and our industry. CTG held its own in this environment, generating revenues of $472.0 million compared to revenues of $467.8 million in 1998. Net income for 1999 was $16.7 million or $1.00 per diluted share compared to $24.0 million or $1.42 per diluted share in 1998. CTG's 1999 financial performance reflects the dramatic slowdown in information technology (IT) spending in 1999 and the important investments we are making to position our business for future growth.

As many of you are aware, the focus of the Y2K issue shifted in 1999 from companies preparing their systems for Y2K compliance to their widespread reluctance to undertake any major systems work until after the actual transition into 2000. The magnitude of the resulting slowdown in IT activity and projects surprised everyone, although it was difficult to predict given the extraordinary nature of the Y2K event and the heightened level of Y2K-related anxiety that took hold as the year 2000 approached. In hindsight, CTG's decision to limit Y2K-related work to no more than 15% of our business was a sound one, because it allowed us to focus our energies and talents on the areas of our business where there are the greatest opportunities for sustained long-term growth.

While the actual event of Y2K passed without major incident, it remains with us in its impact on IT activity, which is currently expected to remain at reduced levels through the first half of this year. Beyond 2000, however, we see enormous long-term opportunity to build our business, given the power of information technology to increase competitive advantage and the growing impact of the Internet and e-commerce on the global economy.

The IT services market served by Exemplar and ITCapital is projected to grow at an approximate annual rate of 15% (Source: Dataquest). Growth projections for the Internet and e-commerce development market served by CTG's newly formed Zenius business are significantly higher, with that sector projected to grow at a compound annual rate of 58.7% by 2003 (Source: International Data Corporation). We have positioned CTG to capitalize on these opportunities by concentrating our business focus on the markets where we are strongest and where there is the greatest potential to add value for our clients and to support them in their growth.

In our over 30-year history, CTG has evolved and functioned as a provider of IT solutions on many levels. By forming Zenius in February 2000, we have further extended CTG's strengths into the Internet arena to capture today's highest growth opportunity in IT services on a global basis. As we establish Zenius as an important business for CTG and as a major driver of our future growth, we also remain focused on generating growth in our ongoing IT solutions and services business through Exemplar and ITCapital.

We are confident in our ability to win a greater share of the IT solutions and e-business segments for the following reasons:

- - Intellectual capital: The collective experience and expertise of CTG's more than 5,000 colleagues in a broad range of IT and business disciplines, called our Intellectual AdvantageTM, is an important differentiator in our ability to add value for clients. Our commitment to knowing our clients' business enables us to focus on and extend our clients' value chain and consistently produce workable solutions. - - Industry-specific expertise: CTG has a significant depth of experience in several high-growth industries, including health care, retail, financial services, telecommunications, and manufacturing and distribution. Our industry-specific expertise has been and will continue to be an important differentiator in winning new business. - - Strong client relationships: As a consulting organization with a long history of success, our delivery organization is adept in meeting client expectations and building client relationships. With thousands of successful engagements behind us, CTG has many established client relationships to leverage as we expand our focus on e-business. - - E-commerce capabilities: CTG has significant expertise in several e-commerce-related competencies, including supply chain, customer relationship, and enterprise resource management. The combination of this expertise with CTG's substantial experience in interfacing with enterprise-wide

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systems will be an important contributor to our success in serving the e-business needs of large, established organizations--our target market. - - Global business experience: CTG has a strong European presence and has significant business experience with multinational clients. Our track record and ability to work on an international level are important assets as enterprises continue to seek IT and business solutions that consider an increasingly global marketplace. - - Strong training and recruiting organizations: CTG's commitment to training and colleague professional development is widely known throughout the industry, giving us an advantage in attracting top-level talent and skills to our organization. Our world-class training and career development organization, coupled with our strong recruiting capabilities, provide CTG with an effective solution to address IT skill needs. - - Ability to partner: CTG has developed a network of alliances and partnerships to deliver the best combination of products, tools, and expertise to support customized solutions. CTG also significantly increased its e-business resources and capabilities in 1999 by partnering with several software and e-business service providers.

There were also a number of developments in our business during 1999 that bode well for CTG in 2000 and beyond. CTG secured a number of significant contracts in 1999 with a broad range of clients, including a major textile manufacturer, two large regional health care providers, a leading retail grocery chain, two large steel industry companies, a global oil and gas enterprise, a large software developer, an energy services company, a global networking solutions provider, and a global communications services company. We also expanded our business in the financial services sector, reaching significant agreements with KeyCorp, a leading U.S. financial services company, and Liberty Insurance Services, one of North America's largest third-party life and health insurance administrators.

CTG also continues to extend our business reach through partnerships and alliances. One of our most successful strategic partnerships has been with Longview Solutions, a software solution provider in the intelligent e-business marketplace, for its KhalixTM product. Khalix is an industry-leading technology that supports planning, budgeting, consolidation, and analytics for Global 2000 companies. During 1999, the CTG Exemplar team successfully implemented Khalix in 27 companies.

In February 1999, CTG added substantially to our vertical business expertise and our client base with the acquisition of Elumen Solutions, which we combined with our own health care practice to form CTG HealthCare Solutions. This acquisition established CTG as one of the largest health care IT consulting firms in North America. We are optimistic that the long-term growth prospects for IT investment in health care are strong based on industry consolidation, the value IT brings to productivity and cost management, and the opportunity to help clients address issues related to the Health Information Portability and Accountability Act (HIPAA).

In the fourth quarter of 1999, CTG created a global marketing organization to drive revenue growth and increase our visibility and brand equity in all the markets we serve. Joel Ivers was appointed as Chief Marketing Officer in January 2000. Joel brings over 20 years of marketing and sales management experience to CTG with a significant focus on technology marketing and new business, product, and service launches. In February 2000, Henri Bersoux joined CTG as a Vice President leading our newly launched Zenius business. Henri comes to CTG from Ernst & Young, LLP, and brings extensive experience in e-commerce, digital strategy, and Web development, as well as strategic marketing and communications. Both Joel and Henri are excellent additions to CTG's executive team with strong track records of executing new growth strategies quickly and successfully.

Although the after-effect of Y2K continues to have an industry-wide impact on IT activity, we remain very confident in CTG's strategy and long-term growth prospects. This year will be one where we will make significant investments in e-business to ensure that we are well positioned to capitalize on the significant opportunity it holds for us. CTG has a very solid business and financial foundation, along with many other strengths, to leverage for the benefit of our shareholders. Foremost among these strengths are the more than 5,000 colleagues of CTG who continue to make the greatest contribution to our success, delivering IT solutions in 1999 to nearly 800 clients, including many of the world's leading companies.

Thank you for your interest and continued support of CTG.

CTG ZeniusTM leverages CTG's expertise in supply chain management, enterprise resource planning, and customer relationship management to capitalize on the growing demand for integrated e-commerce solutions.

Our ability to address the enterprise integration needs behind the Web site sets Zenius apart in the marketplace. Our experience with legacy systems is a significant advantage for e-commerce initiatives of established enterprises--the `clicks and mortar' market. Zenius' approach protects the investments companies have made in enterprise-wide applications while taking full advantage of the power of the Internet.

Applying business and industry knowledge, along with our unique strategic approach using solution architects and Web developers at our Zenius AcceleratorTM, Zenius enables our clients to win in the Internet economy. We do this by adapting our clients' business strategy and building a comprehensive Web solution. Zenius draws on CTG's network of alliances to deliver the best combination of products, tools, and expertise to support customized e-business solutions.

BUSINESS TO BUSINESS FOR SEIC: Delivering a Global Intranet/Extranet Solution

Sakhalin Energy Investment Company (SEIC), a joint venture company operating in the Russian Far East, called on CTG Zenius to recommend, design, and implement a global intranet/extranet solution that would meet its aggressive security and time requirements. The CTG Zenius solution enabled SEIC to safely distribute highly sensitive information to its shareholders via the Internet, saving valuable time and money over manual distribution. Additionally, it enabled SEIC to share information with multiple business units worldwide.

BUSINESS TO EMPLOYEE FOR BP AMOCO: Building an Online Job Fair

For the last three years, CTG Zenius has been providing intranet-related services to British Petroleum (BP). When BP and Amoco merged in early 1999, the $174 billion petroleum giant called on CTG Zenius to create an application that would help employees affected by the merger find new opportunities. The CTG Zenius solution, a Web-based `Continuous Job Fair,' provides an exclusive, free service that enables eligible client employees to post resumes and search job listings, and enables employers to post job openings. The Web site has received international media attention. More than 1,900 resumes have been posted on the site since it was piloted in February 1999, and roughly 1,100 companies have listed job opportunities.

BUSINESS TO CONSUMER FOR PROCARE: Maximizing Web Power

PROCARE, a chain of automotive service centers in the eastern U.S., called on CTG Zenius to help upgrade its image on the Internet. PROCARE wanted a Web site with consumer and market appeal that would provide accurate, up-to-date information about its services and locations. CTG Zenius created an information- and marketing-oriented Web site that is easily searchable and maintainable, and that incorporates customer feedback mechanisms. The CTG Zenius solution helped PROCARE maximize the effectiveness of its Web site as a marketing and customer service tool.

CTG ExemplarTM plans, designs, implements, and maintains start-to-finish application, application management, and IT solutions for clients in industries worldwide.

At the planning stage, CTG Exemplar helps clients assess their IT needs. Our IT and vertical industry experts examine the client organization's current technology, application portfolio, and data architecture. Then we recommend solutions ranging from selection and implementation of existing software to the construction of new systems.

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Once a solution has been defined, CTG Exemplar's state-of-the-art design, development, and testing services are delivered by skilled technicians supported by intensive training programs and proprietary best practices.

During a project's implementation phase, new technology is integrated seamlessly into existing systems. Once implementation is complete, CTG Exemplar supports the requirements of managing and maintaining enterprise software, from rollout to subsequent updates, conversions, hosting, and help desk activities.

A SEVEN-YEAR IT PARTNERSHIP WITH LONE STAR STEEL

Lone Star Steel is a $500 million U.S. manufacturer and distributor of tubular steel products. To improve IT services, Lone Star outsourced all IT functions to CTG, including application management, operations, network management, telephony, help desk, and PC repair. According to Byron Dunn, Lone Star Steel's President and CEO, "The relationship with CTG has been very important to Lone Star--from everyday hardware maintenance to legacy systems Y2K compliance. But even more importantly, we look to CTG Exemplar's expertise to help ensure the success of our current ERP implementation project and other future strategic IT initiatives."

PROTECTING ALYESKA'S PIPELINE

As a major Alaska-based pipeline system operator, Alyeska spends approximately $30 million annually on corrosion management and systems integrity. To ensure safe operation of its pipeline system, Alyeska asked CTG Exemplar to help develop a corrosion management system with maximal functionality to integrate corrosion data from several sources.

CTG Exemplar managed a project to design, develop, and implement an application that monitors corrosion data and acts as a decision support tool. The new system has improved user productivity and efficiency, has enabled the client to realize substantial cost savings, and has helped increase the level of pipeline safety, while enhancing Alyeska's reputation as a leader in the field of pipeline corrosion management.

MAKING THE TELECOM CONNECTION WITH ONE 2 ONE

One 2 One is a major U.K. digital mobile phone service provider owned by Deutsche Telekom, one of the world's largest telecommunications companies. In this competitive, fast-changing industry, One 2 One has encountered critical speed-to-market challenges and unprecedented growth in its customer base, placing increasing demands on the smooth interaction between One 2 One's business operations and its IT systems. Through a range of business consultancy services--including e-business strategy development, project management, systems and business analysis, applications management, and data warehousing--CTG Exemplar and One 2 One have worked together in partnership to succeed in meeting those challenges.

SUPPORTING THE ARTHRITIS FOUNDATION

In 1997 the Arthritis Foundation, a U.S. nonprofit health organization, called on CTG Exemplar to assess its business and technology strategies. The assessment led to a variety of projects for CTG, including standardization of the client's technical environment across its headquarters and 55 local chapters, 69 branches, and other locations. Currently CTG Exemplar manages and supports the majority of the Arthritis Foundation's portfolio of IT needs.

CTG ITCapitalTM recruits, retains, and manages IT talent for our clients. While our Global 1000 customers focus on their core businesses, CTG manages the acquisition and deployment of the professionals they depend on for IT solutions. Using an assessment methodology to define each client's staffing needs, we build a customized supply model to streamline everything from technical requisitions to invoices. Our strategic staffing Web tool, CTG ITCapital SelectTM, allows our clients to submit requests for help, review progress on their requisitions, and access candidate resumes online. ITCapital assets include Internet-based requisitions, service level agreements, customized reporting, vendor management programs, and EDI payments.

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Internet recruiting, recruiting to hot skills, hiring to profile, and a centralized global recruiting center define our approach. Hiring and retaining qualified IT professionals is closely linked with effectively managing those professionals. We give our clients the benefit of a sole source provider who is closely aligned to their strategies and who can deliver resources on a national basis.

A PREFERRED PROVIDER FOR IBM

In 1995, CTG ITCapital was chosen as one of nine vendors in the U.S. to provide technical services to IBM. Vendor selection was based on price, quality, and the ability to respond quickly to IBM's high-volume requirements. CTG remains committed to IBM's service level agreements and has a dedicated team serving the corporation's needs. Under a recently extended contract, CTG ITCapital will continue as one of IBM's key providers of technical services.

PROVIDING IT SERVICES TO LIBERTY INSURANCE SERVICES

Liberty Insurance Services (LIS), one of North America's largest third-party life and health insurance administrators, expressed interest in reducing contingent workforce dollars and cutting the number of its IT vendors without sacrificing quality. Using our PartnerProcess methodology, CTG ITCapital assessed LIS' current staffing processes through facilitated sessions and one-on-one interviews. Based on our findings and recommendations, the company developed a leading-edge strategy to serve its IT consulting needs over the coming years.

IT SUPPORT FOR ELI LILLY AND COMPANY

Eli Lilly and Company, a global pharmaceutical company, selected CTG ITCapital as one of only nine preferred IT services vendors in the U.S. CTG's IT services include project management, application management, and help desk support. In addition, CTG ITCapital was selected as one of three companies in the U.S. to provide contracted statistical sciences and consulting services to this pharmaceutical giant.

As a preferred vendor, CTG ITCapital's services are customized to Eli Lilly and Company's industry, environment, and work approaches. This level of interaction requires a strong business understanding and effective communication that fosters trust and generates results.

AN APPROVED SUPPLIER FOR KPN TELECOM

KPN Telecom is the Netherlands' largest telecommunications firm, with 1998 revenues of $8 billion. CTG has provided flexible staffing services to KPN since 1994. The relationship was recently expanded when CTG ITCapital was named an approved supplier, partnering with KPN to provide a wide range of services on strategic, tactical, and operational levels. Currently, CTG ITCapital is managing multiple LAN migration projects for KPN, which regards us as one of its primary partners for information technology services.

HEALTHCARE SOLUTIONSTM

CTG HealthCare SolutionsTM is a leading provider of information technology consulting services to health care providers and payors in North America. Using its proprietary Intellectual AdvantageTM storehouse of knowledge and experience and its AssureWareTM Web-enabled engagement-management methodology, CTG HealthCare Solutions delivers services that include software application support, systems integration, information technology management, infrastructure support, and a full suite of e-business solutions. Software supported includes SMS(R), McKessonHBOC, Lawson Software(R), IDXTM, Cerner(R), MEDITECH, STC, HIE, and Neon, among others.

In a climate of new legislation such as HIPAA and the Balanced Budget Act of 1997, health care industry clients rely on CTG HealthCare Solutions to help them attain their financial and clinical objectives by maximizing the return on their IT hardware and software investments.

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A SEAMLESS SYSTEMS SWITCH FOR OHIO HEALTH NETWORK

Ohio Health Network, an integrated delivery network of six hospitals, decided to migrate from an SMS Medical Information System to a new McKessonHBOC system for its registration, business office, and financial accounting needs. The dilemma was how to continue supporting the SMS system while learning and developing the new McKessonHBOC system. CTG HealthCare Solutions' comprehensive solution: outsource all of Ohio Health's SMS needs with 24-hour, on-call support.

IMPLEMENTING HNA MILLENNIUMTM FOR AURORA HEALTHCARE

Aurora Healthcare--a 13-hospital, 200-clinic health system headquartered in Milwaukee, Wisconsin--asked CTG HealthCare Solutions to meet the challenge of implementing and seamlessly integrating the latest version of HNA MillenniumTM services across multiple environments. CTG HealthCare Solutions trained the project team, developed system management procedures, and converted and tested the new systems.

UPGRADING BLOOD BANK TECHNOLOGY FOR THE NEW ENGLAND MEDICAL CENTER

New England Medical Center's (NEMC) Blood Bank performs testing to determine blood product donor/recipient compatibility. CTG HealthCare Solutions performed critical MEDITECH system upgrades for this client--including a conversion of the system's blood bank module--while ensuring the highest standards of accuracy and consistency for the blood bank's performance and maintaining rigorous safety measures for patient care. The conversions met strict regulatory agency requirements for blood bank validation and enabled the NEMC Blood Bank to maintain daily operations throughout the project. visit us on the web at www.ctg.com

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FINANCIAL SECTION

Table of Contents 11 Consolidated Summary--Five-Year Selected Financial Information 12 Management's Discussion and Analysis 16 Auditors' Report 17 Consolidated Financial Statements 22 Notes to Consolidated Financial Statements

REVENUE IN MILLIONS OPERATING INCOME IN MILLIONS

$ 472.0 '99 $ 30.8* '99 $ 467.8 '98 $ 39.9 '98 $ 407.6 '97 $ 29.0 '97 $ 365.1 '96 $ 18.5 '96 $ 339.4 '95 $ 12.8 '95

DILUTED NET INCOME PER SHARE

$ 1.00* '99 $ 1.42 '98 $ 1.01 '97 $ 0.63 '96 $ 0.62** '95

* Includes the expense of a non-recurring arbitration award, which lowered operating income by approximately $2.5 million, and diluted net income per share by $0.09

** Includes a non-recurring tax benefit of $0.18 diluted net income per share related to losses associated with the Company's European operations

CONSOLIDATED SUMMARY - Five-Year Selected Financial Information (amounts in millions, except per share data)

CONSOLIDATED SUMMARY 1999 1998 1997 1996 1995 ------OPERATING DATA

Revenue $ 472.0 $ 467.8 $ 407.6 $ 365.1 $ 339.4 Operating income $ 30.8* $ 39.9 $ 29.0 $ 18.5 $ 12.8 Income before income taxes $ 29.9* $ 40.8 $ 30.3 $ 18.5 $ 12.0 Net income $ 16.7* $ 24.0 $ 17.9 $ 11.1 $ 10.8** Basic net income per share $ 1.02* $ 1.48 $ 1.07 $ 0.65 $ 0.65** Diluted net income per share $ 1.00* $ 1.42 $ 1.01 $ 0.63 $ 0.62** Cash dividend per $ 0.05* $ 0.05 $ 0.05 $ 0.05 $ 0.05 per share

FINANCIAL POSITION Working capital $ 35.2 $ 74.9 $ 47.1 $ 61.5 $ 49.5 Total assets $ 199.2 $ 156.8 $ 107.7 $ 121.3 $ 104.8 Long-term debt $ 31.4 $ - $ - $ $ 3.6 Shareholders' equity $ 94.9 $ 83.4 $ 55.3 $ 71.5 $ 61.5

* Includes the expense of a non-recurring arbitration award, which lowered operating income and income before income taxes by approximately $2.5 million, net income by approximately $1.5 million, and basic and diluted net income per share by $0.09 ** Includes a non-recurring tax benefit of $3.2 million ($0.19 basic net income per share and $0.18 diluted net income per share) related to losses associated with the Company's European operations

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF Results of Operations and Financial Condition

FORWARD-LOOKING STATEMENTS

Statements included in this Management's Discussion and Analysis of Results of Operations and Financial Condition and elsewhere in this document that do not relate to present or historical conditions are "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21F of the Securities Exchange Act of 1934, as amended. Additional oral or written forward-looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission. Such forward-looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in such forward-looking statements. Forward-looking statements may include, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts," "intends," "possible," "expects," "estimates," "anticipates," or "plans" and similar expressions are intended to identify forward-looking statements. Among the important factors on which such statements are based are assumptions concerning the anticipated growth of the information technology (IT) industry, the continued need of current and prospective customers for the Company's services, the availability of qualified professional staff, and price and wage inflation.

Results of Operations

To better understand the financial trends of the Company, the following table sets forth data as contained on the consolidated statements of income, with the information calculated as a percentage of consolidated revenues.

Year ended December 31, 1999 1998 1997 (percentage of revenue)

Revenue 100.0% 100.0% 100.0% Direct costs 67.0% 68.6% 70.9% Selling, general, and administrative expenses, less non-recurring charge 26.0% 22.9% 22.0% Non-recurring charge 0.5% - - Operating income 6.5% 8.5% 7.1% Interest and other income (expense) (0.2)% 0.2% 0.3% Income before income taxes 6.3% 8.7% 7.4% Provision for income taxes 2.8% 3.6% 3.0% Net income 3.5% 5.1% 4.4%

1999 AS COMPARED TO 1998

In 1999, CTG recorded revenue of $472.0 million, an increase of 0.9 percent when compared to 1998 revenue of $467.8 million. North American revenue decreased by $3.1 million or (0.8) percent during the year, while revenue from European operations increased by $7.3 million, or 9.9 percent. In 1999, European revenues are 17.1 percent of total Company revenues.

While the Company's revenues benefited in 1999 from the acquisition of Elumen Solutions, Inc. (Elumen) and from providing higher-value services to its customers, similar to other companies in the IT professional services industry, CTG's revenues were negatively impacted as companies deferred systems development and integration work until the actual impact of year 2000 on their systems could be assessed and resolved. CTG believes that this industry-wide slowdown is a short-term phenomenon and that the long-term growth prospects for its business remain strong for 2000 and beyond.

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The 1998 to 1999 year-to-year revenue growth rate was impacted slightly by the strengthening of the U.S. dollar as compared to the currencies of the Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no change in these foreign currency exchange rates from 1998 to 1999, total consolidated revenues would have been $3.2 million higher, resulting in a year-to-year consolidated revenue growth rate of 1.6 percent. This additional $3.2 million increase in European revenue would have increased the European revenue growth rate to 14.3 percent.

In January 1999, the Company renewed a contract with IBM for one year as one of IBM's national technical service providers for the United States. In December 1999, this contract was extended until March 2000. The contract covered 81.6 percent of the total services provided to IBM by the Company in 1999. In 1999, IBM continued to be the Company's largest customer, accounting for $128.9 million or 27.3 percent of total revenue as compared to $151.4 million or 32.4 percent of 1998 revenue. Although revenues from IBM have been constrained in 1999, CTG expects to continue to derive a significant portion of its revenue from IBM in 2000 and future years. While the decline in revenue from IBM has had an adverse effect on the Company's revenues and profits, the Company believes a simultaneous loss of all IBM business is unlikely to occur due to the existence of the national contract, the diversity of the projects performed for IBM, and the number of locations and divisions involved.

Direct costs, defined as costs for billable staff, were 67.0 percent of revenue in 1999 compared to 68.6 percent of revenue in 1998. The decrease in direct costs as a percentage of revenue in 1999 as compared to 1998 is primarily due to the continuing trend of the Company providing higher-value services to its clients.

Selling, general, and administrative expenses, excluding the non-recurring charge of $2.5 million taken in the first quarter of 1999, were 26.0 percent of revenue in 1999 compared to 22.9 percent of revenue in 1998. The increase from 1998 to 1999 is primarily due to investments in 1999 in sales and marketing, recruiting, and training programs. Additionally, goodwill amortization expense related to the acquisition of Elumen increased selling, general and administrative expense year over year.

During the first quarter of 1999, CTG recorded a non-recurring charge of $2.5 million to provide for an arbitration award related to a contract dispute between the Company and one of its customers. As a percentage of consolidated revenue, this charge lowered operating income and income before taxes in 1999 by 0.5 percent, net income by 0.3 percent, and basic and diluted earnings per share by $0.09.

Operating income was 6.5 percent of revenue in 1999 compared to 8.5 percent of revenue in 1998. Without the non-recurring charge, operating income would have been 7.0 percent of revenue in 1999. The year-over-year decrease is primarily due to the non-recurring charge, and the investments discussed above. Operating income from North American and Corporate operations decreased $10.6 million or 33.6 percent from 1998 to 1999. European operations recorded operating income of $9.9 million in 1999 as compared to $8.2 million in 1998. The European improvement in profitability is primarily due to the 9.9 percent increase in revenue disclosed above and an increase in higher-value services performed in 1999.

Interest and other income (expense) was (0.2) percent of revenue for 1999, and 0.2 percent in 1998. In 1999, interest expense on indebtedness related to the acquisition of Elumen was partially offset by interest income on available cash and temporary cash investments.

Income before income taxes was 6.3 percent of revenue in 1999 compared to 8.7 percent of revenue in 1998. Without the non-recurring charge, income before income taxes would have been 6.8 percent of revenue in 1999. The provision for income taxes was 44.1 percent in 1999 and 41 percent in 1998. The increase in the effective income tax rate in 1999 was due to an increase in non-deductible expenses related to the Elumen acquisition.

Net income for 1999 was 3.5 percent of revenue, or $1.02 basic earnings per share (EPS) and $1.00 diluted EPS, compared to 5.1 percent of revenue or $1.48 basic EPS and $1.42 diluted EPS in 1998. Earnings per share was calculated using 16.4 million (basic EPS) and 16.7 million (diluted EPS) and 16.2 million (basic EPS) and 16.9 million (diluted EPS) equivalent shares outstanding in 1999 and 1998,

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respectively. The decrease in equivalent shares outstanding for diluted earnings per share is primarily due to the stock purchases by the Company's Stock Trusts in 1999.

Relative to year 2000 computer concerns, the Company had completed all of its remediation and systems testing with respect to its mission critical computer systems and mission critical non-IT systems prior to December 31, 1999. The Company had determined that mission critical systems or vendors were those that were vital to the operations of the Company. As part of CTG's year 2000 compliance program, the Company has not made any changes to its hardware or software for its mission critical computer systems since June 30, 1999 and into the year 2000. The total amount spent and expensed in 1998 and 1999 to address year 2000 issues totaled less than $500,000. As of the date of the filing of these consolidated financial statements with the Securities and Exchange Commission, the Company has had no material disruptions in its mission critical systems.

CTG operates in one industry segment, providing IT professional services to its clients. The services provided typically encompass the IT business solution life cycle, including phases for planning, development, and managing and maintaining the IT solution. A portion of the IT professional services the Company previously provided included assessment, planning, remediation, testing, and contingency planning services for year 2000 compliance. CTG actively managed the inherent risk in the services it provided to its clients through a thorough contract review process, and by including contractual provisions in its contracts that were designed to mitigate risk to the Company. Revenue generated from year 2000 compliance services was approximately 10 percent of CTG's consolidated revenues in 1999 and 1998.

1998 AS COMPARED TO 1997

In 1998, CTG recorded revenue of $467.8 million, an increase of 14.8 percent when compared to 1997 revenue of $407.6 million. North American revenue increased by $33.8 million or 9.4 percent during the year, while revenue from European operations increased by $26.5 million, or 56.7 percent. In 1998, European revenues were 15.7 percent of total Company revenues. Overall, the consolidated revenue increase in 1998 as compared to 1997 was mainly due to the Company providing higher-value services to its customers, and additional billable personnel.

During 1998, and for several years prior to that, the Company implemented its Key Client strategy. The first phase of the strategy was to identify and focus on selected Key Clients. To that end, CTG reduced the number of customers that it served from 1,200 in 1995 to approximately 430 by the end of 1997. The next phase of the strategy was to increase the percentage of higher-value services in the company's sales mix. CTG believes that its successful implementation of its Key Client strategy caused earnings to increase significantly faster than revenues during 1998 and 1997, and that the strategy continued to add to the Company's financial performance in 1999 through an improved direct margin.

The 1997 to 1998 year-to-year revenue growth rate was impacted slightly by the strengthening of the U.S. dollar as compared to the currencies of the Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no change in these foreign currency exchange rates from 1997 to 1998, total consolidated revenues would have been $0.4 million higher, resulting in a year-to-year consolidated revenue growth rate of 14.9 percent. This additional $0.4 million increase in revenue in Europe would have increased the European revenue growth rate to 57.6 percent.

In January 1999, CTG renewed a contract with IBM for one year as one of IBM's national technical service providers for the United States. The contract covered 59 percent of the total services provided to IBM by the Company in 1998. IBM continued to be the Company's largest customer, accounting for $151.4 million or 32.4 percent of 1998 total revenue as compared to $142.2 million or 34.9 percent of 1997 revenue. The Company continued to derive a significant portion of its revenue from IBM in 1999.

Direct costs, defined as costs for billable staff, were 68.6 percent of revenue in 1998 compared to 70.9 percent of revenue in 1997. The decrease in direct costs as a percentage of revenue in 1998 as compared to 1997 was primarily due to a trend toward CTG providing higher-value services to its clients, consistent with CTG's Key Client focus.

106 13

Selling, general, and administrative expenses were 22.9 percent of revenue in 1998 compared to 22.0 percent of revenue in 1997. The increase from 1997 to 1998 was primarily due to additional investments in 1998 in sales and marketing, recruiting, and training programs.

Operating income was 8.5 percent of revenue in 1998 compared to 7.1 percent of revenue in 1997. In dollars, there was a 37.6 percent increase year over year from $29.0 million in 1997 to $39.9 million in 1998. As mentioned above, CTG continued its focus on Key Clients, with particular emphasis on those relationships that were mutually profitable for CTG and its clients. The fourth quarter of 1998 marked the 17th straight quarter of operating income improvement for CTG. Operating income from North American and Corporate operations increased $6.3 million or 25 percent from 1997 to 1998. European operations recorded operating income of $8.2 million in 1998 as compared to $3.7 million in 1997. The European improvement in profitability was primarily due to the 56.7 percent increase in revenue discussed above and an increase in higher-value services performed in 1998.

Due to its European operations, CTG was moderately affected by the implementation of the Euro currency in most of the countries in which it operates. However, this effect was financially immaterial as the Company had upgraded its internal systems to be Euro-compliant with nominal cost to the company. Additionally, the Company did not experience pricing or competitive pressures from other IT professional services providers that materially affected either revenues or profits for CTG as a whole.

Interest and other income and expense was 0.2 percent of revenue in 1998 compared to 0.3 percent of revenue in 1997. This decrease was a result of having less cash and temporary cash investments on hand for most of 1998, as the Company's Stock Employee Compensation Trust (SECT) utilized a significant portion of the Company's available cash and temporary cash investments in the fourth quarter of 1997 to purchase CTG's stock on the open market.

Income before income taxes was 8.7 percent of revenue in 1998 compared to 7.4 percent of revenue in 1997. The provision for income taxes for 1998 and 1997 was 41 percent.

Net income for 1998 was 5.1 percent of revenue, or $1.48 basic EPS and $1.42 diluted EPS, compared to 4.4 percent of revenue or $1.07 basic EPS and $1.01 diluted EPS in 1997. Earnings per share was calculated using 16.2 million (basic EPS) and 16.9 million (diluted EPS) and 16.8 million (basic EPS) and 17.6 million (diluted EPS) equivalent shares outstanding in 1998 and 1997, respectively. The decrease in equivalent shares outstanding for diluted earnings per share was primarily due to the stock purchases by the Company's SECT in the fourth quarter of 1997.

During the first quarter of 1998, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires all items recognized as components of comprehensive income, such as foreign currency or minimum pension liability adjustments, to be reported in a financial statement equal to that of the other financial statements. The adoption of SFAS No. 130 resulted in additional disclosures, including a revision of previously disclosed information, but had no effect on the financial condition or results of operations of the Company.

During 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures About Segments of the Enterprise and Related Information." SFAS No. 131 requires disclosure of segments of a company's business based upon how a company is organized for making operating decisions and assessing performance. As the Company's disclosure of business segments did not change in 1998 from that disclosed in previous years, the adoption of SFAS No. 131 resulted in additional disclosures, but had no effect on the financial condition or results of operations of the Company.

During 1998, the Company adopted the provisions of SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits." The adoption of SFAS No. 132 resulted in additional disclosures about the Company's non-qualified defined-benefit plan and postretirement benefit plan, but had no effect on the financial condition or results of operations of the Company.

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FINANCIAL CONDITION

Cash provided by operating activities was $21.8 million in 1999. Net income totaled $16.7 million, and non-cash adjustments for depreciation expense, amortization expense, and deferred compensation expense totaled $9.3 million. Overall, accounts receivable increased due to a decline in accounts receivable turnover, and the acquisition of Elumen. Deferred income taxes increased $2.0 million due to the liabilities acquired with the acquisition of Elumen and the accrual of an arbitration award related to a contract dispute between the Company and one of its customers. Accounts payable decreased by $4.4 million due to the timing of payments at year-end 1999 as compared to year-end 1998. Accrued compensation decreased $3.6 million due to a decrease in the total number of employees year over year. Advanced billings on contracts increased $0.4 million due to the mix of the contracts outstanding at December 31, 1999, as compared to December 31, 1998. Other current liabilities increased $1.7 million primarily due to the arbitration award discussed above. At December 31, 1999, the Company's current ratio was 1.6 to 1.

Net property and equipment increased $0.3 million. Additions to property and equipment were $4.5 million, and assets acquired with the acquisition of Elumen were $1.1 million, offset by depreciation of $5.0 million and foreign currency translation adjustments of $0.3 million. The Company had no material commitments for capital expenditures at December 31, 1999. Net acquired intangibles increased $81.2 million, caused primarily by the acquisition of Elumen.

Financing activities provided $24.0 million of cash in 1999. Long-term debt increased to $31.4 million from zero due to the acquisition of Elumen. The Company borrowed $52.0 million in February 1999 under its lines of credit and made payments on the debt to reduce it to the $31.4 million mentioned above at year-end. CTG had no long-term debt prior to the acquisition.

During 1999, the Company entered into a $100 million, five-year revolving credit agreement with a bank group. At December 31, 1999, including unsecured lines of credit, the Company had $132.0 million in total credit, of which $31.4 million was outstanding.

During 1999, a total of 0.7 million shares of the Company's stock were purchased on the open market by the Company's Stock Trusts for $9.9 million. The Company received $1.1 million from employees for 64,000 shares of stock purchased under the Employee Stock Purchase Plan, and the Company also received $1.1 million for the exercise of 129,000 stock options, inclusive of the related tax benefit. The Company paid an annual dividend of $0.05 per share, totaling $0.8 million in 1999.

On October 26, 1994, the Company authorized the repurchase of 2.0 million shares and on July 21, 1995 authorized the repurchase of another 1.4 million shares of its common stock for treasury and by the Company's Stock Trusts. At December 31, 1999, approximately 3.2 million shares have been repurchased under the authorizations, leaving 0.2 million shares remaining authorized for future purchases.

At December 31, 1999, consolidated shareholders' equity totaled $94.9 million, which is an increase of $11.5 million, or 13.8 percent, from December 31, 1998. The increase is primarily due to 1999 net income of $16.7 million, offset by the stock purchases by the Company's Stock Trusts.

The Company believes existing internally available funds, cash generated by operations, and available borrowings will be sufficient to meet foreseeable working capital, stock repurchase, and capital expenditure requirements and to allow for future internal growth and expansion.

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INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders Computer Task Group, Incorporated Buffalo, New York

We have audited the accompanying consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements as of December 31, 1997 were audited by other auditors whose report, dated February 4, 1998, expressed an unqualified opinion of those statements.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 1999 and 1998 consolidated financial statements present fairly, in all material respects, the financial position of Computer Task Group, Incorporated and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.

Deloitte & Touche LLP Buffalo, New York February 4, 2000

Consolidated Statements of Income (amounts in thousands, except per share data)

YEAR ENDED DECEMBER 31, 1999 1998 1997 ------

Revenue $ 472,008 $ 467,838 $ 407,588 Direct costs 316,304 320,673 288,848 Selling, general, and administrative expenses 124,871 107,314 89,784 Operating income 30,833 39,851 28,956 Interest and other income 1,369 1,445 2,151 Interest and other expense (2,338) (539) (839) Income before income taxes 29,864 40,757 30,268 Provision for income taxes 13,163 16,712 12,406 Net income $ 16,701 $ 24,045 $ 17,862 Net income per share: Basic $ 1.02 $ 1.48 $ 1.07 Diluted $ 1.00 $ 1.42 $ 1.01

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS (amounts in thousands, except share balances)

December 31, 1999 1998

ASSETS Current Assets: Cash and temporary cash investments $ 10,684 $ 57,748 Accounts receivable, net of allowances and reserves 80,773 73,932 Prepaids and other 2,821 4,000 Deferred income taxes 3,041 1,654 Total current assets 97,319 137,334 Property and equipment, net of accumulated depreciation and amortization 13,483 13,146 Acquired intangibles, net of accumulated amortization of $9,151 and $6,002 respectively 84,008 2,808 Deferred income taxes 3,685 2,801 Other assets 664 720 Total assets $ 199,159 $ 156,809

LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 10,834 $ 14,265 Accrued compensation 27,567 29,258 Income taxes payable 10,423 9,157 Advance billings on contracts 761 384 Other current liabilities 12,532 9,409 Total current liabilities 62,117 62,473 Long-term debt 31,380 - Deferred compensation benefits 9,953 10,300 Other long-term liabilities 785 587 Total liabilities 104,235 73,360

SHAREHOLDERS' EQUITY: Common stock, par value $.01 per share, 150,000,000 shares authorized; 27,017,824 shares issued 270 270 Capital in excess of par value 110,895 106,010 Retained earnings 82,046 66,172 Less: Treasury stock of 6,141,823 and 6,269,668 shares, at cost (31,279) (31,850) Stock Trusts of 4,823,173 and 4,422,500 shares, at cost (61,306) (52,463) Unearned portion of restricted stock to related parties (43) (69) Other comprehensive income: Foreign currency adjustment (4,786) (2,374) Minimum pension liability adjustment (873) (2,247) Accumulated other comprehensive income (5,659) (4,621) Total shareholders' equity 94,924 83,449

Total liabilities and shareholders' equity $ 199,159 $ 156,809

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)

Year ended December 31, 1999 1998 1997

Cash flows from operating activities: Net income $ 16,701 $ 24,045 $ 17,862 Adjustments: Depreciation expense 5,009 4,406 4,532 Amortization expense 3,471 596 896 Loss on sales or disposals of assets 23 10 30 Deferred compensation expense 797 216 542 Changes in assets and liabilities, net of assets acquired and liabilities assumed: (Increase) decrease in accounts receivable 837 (12,830) (5,692) (Increase) decrease in prepaids and other 984 (1,551) 16 Increase in deferred income taxes (1,988) (665) (94) (Increase) decrease in other assets 319 (123) (19) Increase (decrease) in accounts payable (4,356) 4,805 267 Increase (decrease) in accrued compensation (3,647) 7,431 4,493 Increase (decrease) in income taxes payable 1,638 4,546 (555) Increase (decrease) in advance billings on contracts 377 (774) (1,326) Increase in other current liabilities 1,681 4,179 390 Decrease in other long-term liabilities (39) (304) (345)

Net cash provided by operating activities 21,807 33,987 20,997

Cash flows from investing activities: Acquisition, net of cash acquired (86,775) -- -- Additions to property and equipment (4,509) (5,057) (4,770) Proceeds from sales or disposals of property and equipment 39 22 15 Net cash used in investing activities (91,245) (5,035) (4,755)

Cash flows from financing activities: Proceeds from long-term revolving debt, net 31,380 -- -- Proceeds from Employee Stock Purchase Plan 1,094 1,448 1,155 Purchase of stock for treasury (13) (77) (118) Purchase of stock by Stock Trusts (9,940) (2,455) (37,018) Proceeds from other stock plans, inclusive of the related tax benefit 2,298 5,474 4,266 Dividends paid (827) (812) (837) Net cash provided by (used in) financing activities 23,992 3,578 (32,552)

Effect of exchange rate changes on cash and temporary cash investments (1,618) 185 (173) Net increase (decrease) in cash and temporary cash investments (47,064) 32,715 (16,483) Cash and temporary cash investments at beginning of year 57,748 25,033 41,516

Cash and temporary cash investments at end of year $ 10,684 $ 57,748 $ 25,033

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

------(amounts in thousands, except per data share)

Capital in Common Stock Excess of Retained Stock Trusts Shares Amount Par Value Earnings Shares Amount

------

Balance as of December 31, 1996 13,467 $135 $159,512 $25,914 3,131 $(31,655)

Two-for-one stock split 13,467 135 (135) - 3,131 - Employee Stock Purchase Plan share issuance ------Stock Option Plan share issuance 82 - 3,228 - - - Deferred Compensation Plan share issuance ------Purchase of stock - - - - 5 (118) Restricted Stock Plan: Award 2 - 44 - - - Amortization ------Stock Employee Compensation Trust adjustment to - - 53,379 - - - fair value Cash dividends - $.05 per share - - - (837) - - Comprehensive Income: Net income - - - 17,862 - - Foreign currency adjustment ------Minimum pension liability adjustment ------Total Comprehensive Income - - - 17,862 ------

Balance as of December 31, 1997 27,018 270 216,028 42,939 6,267 (31,773)

Employee Stock Purchase Plan share issuance ------Stock Option Plan share issuance - - 2,359 - - - Other share issuance ------Purchase of stock - - - - 3 (77) Restricted Stock Plan: Award ------Amortization ------Stock Employee Compensation Trust adjustment to cost - - (112,377) - - - Management Stock Purchase Plan repayments ------Cash dividends - $.05 per share - - - (812) - - Comprehensive Income: Net income - - - 24,045 - - Foreign currency adjustment ------Minimum pension liability adjustment ------Total comprehensive income - - - 24,045 ------Balance as of December 31, 1998 27,018 270 106,010 66,172 6,270 (31,850)

Acquisition - - 2,616 - (129) 584 Employee Stock Purchase Plan share issuance - - 824 - - - Stock Option Plan share issuance - - 564 - - - Other share issuance - - 881 - - - Purchase of stock - - - - 1 (13) Restricted Stock Plan - Amortization ------Cash dividends - $.05 per share - - - (827) - - Comprehensive Income: Net income - - - 16,701 - - Foreign currency adjustment ------Minimum pension liability adjustment ------Total comprehensive income - - - 16,701 ------

Balance as of December 31, 1999 27,018 $270 $110,895 $82,046 6,142 $(31,279) ======

------(amounts in thousands, except per data share)

Unearned Minimum Portion of Loans to Foreign Pension Stock Trusts Restricted Related Currency Liability Shares Amount Stock Parties Adjustment Adjustment

------

Balance as of December 31, 1996 1,825 $(78,715) $ - $ (54) $(2,039) $(1,594) - Two-for-one stock split 1,825 - - - - - Employee Stock Purchase Plan share issuance (39) 1,155 - - - - Stock Option Plan share issuance (207) 955 - - - - Deferred Compensation Plan share issuance (3) 73 - - - - Purchase of stock 1,293 (37,018) - - - - Restricted Stock Plan: Award - - (44) - - - Amortization - - 10 - - - Stock Employee Compensation Trust adjustment to - (53,379) - - - - fair value Cash dividends - $.05 per share ------Comprehensive Income: Net income ------Foreign currency adjustment - - - - (1,167) - Minimum pension liability adjustment - - - - - (321) ------Total Comprehensive Income - - - - (1,167) (321) ------

Balance as of December 31, 1997 4,694 (166,929) (34) (54) (3,206) (1,915)

Employee Stock Purchase Plan share issuance (45) 1,448 - - - - Stock Option Plan share issuance (272) 1,985 - - - - Other share issuance (32) 1,051 - - - - Purchase of stock 80 (2,455) - - - - Restricted Stock Plan: Award (2) 60 (60) - - - Amortization - - 25 - - - Stock Employee Compensation Trust adjustment to cost - 112,377 - - - - Management Stock Purchase Plan repayments - - - 54 - - Cash dividends - $.05 per share ------Comprehensive Income: Net income ------Foreign currency adjustment - - - - 832 - Minimum pension liability adjustment - - - - - (332) ------Total comprehensive income - - - - 832 (332) ------

Balance as of December 31, 1998 4,423 (52,463) (69) - (2,374) (2,247)

Acquisition ------Employee Stock Purchase Plan share issuance (64) 270 - - - - Stock Option Plan share issuance (129) 550 - - - - Other share issuance (65) 277 - - - - Purchase of stock 658 (9,940) - - - - Restricted Stock Plan - Amortization - - 26 - - - Cash dividends - $.05 per share ------Comprehensive Income: Net income ------Foreign currency adjustment - - - - (2,412) - Minimum pension liability adjustment - - - - - 1,374 ------Total comprehensive income - - - - (2,412) 1,374 ------

Balance as of December 31, 1999 4,823 $(61,306) $(43) $- $(4,786) $(873) ======

------(amounts in thousands, except per data share)

Total Shareholders' Equity ------

Balance as of December 31, 1996 $71,504

Two-for-one stock split - Employee Stock Purchase Plan share issuance 1,155 Stock Option Plan share issuance 4,183 Deferred Compensation Plan share issuance 73 Purchase of stock (37,136) Restricted Stock Plan: Award - Amortization 10 Stock Employee Compensation Trust adjustment to - fair value Cash dividends - $.05 per share (837) Comprehensive Income: Net income 17,862 Foreign currency adjustment (1,167) Minimum pension liability adjustment (321) ------Total Comprehensive Income 16,374 ------

Balance as of December 31, 1997 55,326

Employee Stock Purchase Plan share issuance 1,448 Stock Option Plan share issuance 4,344 Other share issuance 1,051 Purchase of stock (2,532) Restricted Stock Plan: Award - Amortization 25 Stock Employee Compensation Trust adjustment to cost - Management Stock Purchase Plan repayments 54 Cash dividends - $.05 per share (812) Comprehensive Income: Net income 24,045 Foreign currency adjustment 832 Minimum pension liability adjustment (332) ------Total comprehensive income 24,545 ------

Balance as of December 31, 1998 83,449

Acquisition 3,200 Employee Stock Purchase Plan share issuance 1,094 Stock Option Plan share issuance 1,114 Other share issuance 1,158 Purchase of stock (9,953) Restricted Stock Plan - Amortization 26 Cash dividends - $.05 per share (827) Comprehensive Income: Net income 16,701 Foreign currency adjustment (2,412) Minimum pension liability adjustment 1,374 ------Total comprehensive income 15,663 ------

Balance as of December 31, 1999 $94,924 ======

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Computer Task Group, Incorporated, and its subsidiaries (the Company or CTG), located primarily in North America and Europe. All intercompany accounts and transactions have been eliminated. Certain amounts in the prior years' consolidated financial statements and notes have been reclassified to conform to the current year presentation. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Such estimates primarily relate to allowances for doubtful accounts and deferred tax assets, a reserve for projects, and estimates of progress toward completion and direct profit or loss on fixed-price contracts. Actual results could differ from those estimates.

CTG operates in one industry segment, providing information technology (IT) professional services to its clients. The services provided typically encompass the IT business solution life cycle, including phases for planning, development and implementation, and managing and maintaining the IT solution.

REVENUE AND COST RECOGNITION

The Company primarily recognizes revenue on monthly fee and time-and-materials contracts as hours are expended and costs are incurred. Fixed-price contracts accounted for under the percentage-of-completion method represented 2 percent of 1999, 1 percent of 1998, and 2 percent of 1997 revenue, respectively. Such revenue is determined by the percentage of labor and overhead costs incurred to date to total estimated labor and overhead costs for each contract. Fixed-price contract costs include all direct labor and material costs and those indirect costs related to contract performance.

Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. In addition to an allowance for doubtful accounts of approximately $2.3 million and $1.1 million at December 31, 1999 and 1998, respectively, accounts receivable is further reduced by a reserve for projects of $0.9 million at December 31, 1999 and $1.0 million at December 31, 1998, respectively. Selling, general, and administrative costs are charged to expense as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. At December 31, 1999 and 1998, the carrying amounts of the Company's financial instruments, which include cash and temporary cash investments, accounts receivable, and long-term debt approximate fair value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of two years to 30 years. The cost of property or equipment sold or otherwise disposed of, along with related accumulated depreciation, is eliminated from the accounts, and the resulting gain or loss is reflected in current earnings. Maintenance and repairs are charged to expense when incurred, while significant betterments are capitalized.

ACQUIRED INTANGIBLES

Acquired intangibles consist of goodwill and other identifiable intangibles. Amortization is computed using the straight-line method based on estimated useful lives of 10 years to 25 years.

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IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of, if any, are reported at the lower of the carrying amount or fair value less costs to sell. There were no adjustments to long-lived assets or identifiable intangibles in either 1999 or 1998.

INCOME TAXES

The Company provides deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred income taxes relate principally to deferred compensation, non-deductible accrued expenses, and accelerated depreciation and amortization methods.

Tax credits are accounted for as a reduction of the income tax provision in the year in which they are realized (flow-through method).

STOCK-BASED COMPENSATION

The Company accounts for its Stock-Based Compensation Plans in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

STOCK SPLIT

During 1997, the Board of Directors approved a 2-for-1 split of the Company's common stock, effective June 2, 1997, to shareholders of record as of May 19, 1997. Shares of common stock, treasury stock, and shares held by the Stock Employee Compensation Trust (SECT) at December 31, 1996, have been restated to reflect this split on the Company's consolidated balance sheets. All references elsewhere throughout this annual report to the number of shares, per share amounts, stock option data, and market prices of the Company's common stock give effect to the stock split.

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NET INCOME PER SHARE

Basic and diluted earnings per share for the years ended December 31, 1999, 1998, and 1997 are as follows:

(amounts in thousands, Weighted Earnings except per share data) Income Average per Share

FOR THE YEAR ENDED DECEMBER 31, 1999 Basic EPS $ 16,701 16,401 $ 1.02 Dilutive effect of outstanding stock options - 279 Diluted EPS $ 16,701 16,680 $ 1.00

FOR THE YEAR ENDED DECEMBER 31, 1998 Basic EPS $ 24,045 16,216 $ 1.48 Dilutive effect of outstanding stock options - 697 Diluted EPS $ 24,045 16,913 $ 1.42

FOR THE YEAR ENDED DECEMBER 31, 1997 Basic EPS $ 17,862 16,758 $ 1.07 Dilutive effect of outstanding stock options - 857 Diluted EPS $ 17,862 17,615 $ 1.01

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign subsidiaries is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for assets and liabilities using current exchange rates in effect at the balance sheet date, for equity accounts using historical exchange rates, and for revenue and expense activity using the applicable month's average exchange rates.

STATEMENT OF CASH FLOWS

For purposes of the statement of cash flows, cash and temporary cash investments are defined as cash on hand, demand deposits, and short-term, highly liquid investments with a maturity of three months or less.

Interest paid during 1999, 1998, and 1997 amounted to $2.0 million, $0.1 million, and $0.3 million, respectively, while net income tax payments totaled $12.9 million, $10.4 million, and $9.7 million for the respective years.

During 1998, as a non-cash financing activity, the shares of common stock held by the Company's Stock Employee Compensation Trust were adjusted to original cost basis, with a decrease to capital in excess of par value of $(112.4) million. During 1997, as a non-cash financing activity, the shares of common stock of the SECT were adjusted to fair value, with an increase to capital in excess of par value of $53.4 million (see Note 9, Stock Trusts).

ACCOUNTING STANDARDS PRONOUNCEMENTS

During the first quarter of 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires all items recognized as components of comprehensive income, such as foreign currency or minimum pension liability adjustments, to be reported in a financial statement equal to that of the other financial statements. The adoption of SFAS No. 130 resulted in additional disclosures, including a revision of previously disclosed information, but had no effect on the financial condition or results of operations of the Company.

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For the years ended December 31, 1999, 1998, and 1997, the tax benefit (expense) associated with the minimum pension liability adjustment was $0.3 million, $(0.1) million, and $(0.1) million, respectively.

During 1998, the company adopted the provisions of SFAS No. 131, "Disclosures About Segments of the Enterprise and Related Information." SFAS No. 131 requires disclosure of segments of a company's business based upon how a company is organized for making operating decisions and assessing performance. As the Company's disclosure of business segments did not change in 1998 from that disclosed in previous years, the adoption of SFAS No. 131 resulted in additional disclosures, but had no effect on the financial condition or results of operations of the Company.

During 1998, the Company adopted the provisions of SFAS No. 132, "Employers' Disclosure About Pensions and Other Postretirement Benefits." The adoption of SFAS No. 132 resulted in additional disclosures about the Company's non-qualified defined-benefit plan and postretirement benefit plan, but had no effect on the financial condition or results of operations of the Company.

2. Acquisition

On February 23, 1999, the Company acquired the stock of Elumen Solutions, Inc. (Elumen). The transaction was valued at $89 million, of which $86 million was paid in cash or through the assumption of debt, and the remainder was satisfied through the issuance of approximately 128,000 shares of CTG common stock. The fair value of the assets acquired totaled $11.2 million, while liabilities assumed totaled $7.1 million.

The acquisition was accounted for as a purchase, and the results of Elumen have been included in the accompanying consolidated financial statements since the date of acquisition. CTG recorded approximately $84.9 million of goodwill and other identifiable intangibles from the transaction, which are being amortized on a straight-line basis over periods ranging from 10 years to 25 years.

The unaudited pro forma consolidated results of operations as though Elumen had been acquired as of January 1, 1998, are as follows:

(amounts in thousands, 1999 1998 except per share data) Revenue $ 479,935 $ 504,689 Net income $ 16,523 $ 22,188 Net income per share: Basic $ 1.01 $ 1.36 Diluted $ 0.99 $ 1.30

These pro forma results are not necessarily indicative of what would have actually occurred if the acquisition had been completed as of the beginning of the periods presented, nor do they purport to be indicative of the results that will be obtained in the future.

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3. Property and Equipment

Property and equipment at December 31, 1999 and 1998 are summarized as follows:

December 31, 1999 1998 (amounts in thousands) Land $ 886 $ 886 Buildings 6,515 6,515 Equipment 21,879 23,984 Furniture 6,188 5,447 Software 3,442 3,739 Leasehold improvements 1,050 1,031 39,960 41,602 Less accumulated depreciation (26,477) (28,456) $ 13,483 $ 13,146

At December 31, 1999, the Company owned three buildings, two of which are in use by the Company. The third building, with a net book value of $1.9 million, is leased to a third party under a five-year lease, which ends in 2000. Receipts under this lease are estimated at approximately $0.2 million in 2000.

4. Debt

During 1999, the Company refinanced its short-term debt by entering into a five-year revolving line of credit with a bank group. Under the agreement, the Company may borrow up to $100 million through August 24, 2004. At the Company's discretion, interest may be based upon the LIBOR rate, the prime rate, or other rates as quoted by the agent bank. In addition, the Company is subject to a commitment fee varying from 10 to 30 basis points of the unused available credit. There were no commitment fees paid or due during 1998 or 1997. The agreement requires the Company to maintain certain financial ratios, all of which were met by the Company.

At December 31, 1999, there was $20.0 million outstanding under the revolving credit agreement mentioned above. This outstanding debt is due in full on August 24, 2004. No amounts are due under the agreement until that time. There was no long-term debt outstanding at December 31, 1998.

The Company also has lines of credit available outside of the revolving credit agreement mentioned above, totaling $32.0 million, renewable annually at various times throughout the year, with interest at or below the equivalent of the prime rate. All borrowings under these agreements are unsecured and payable upon demand. The Company intends to refinance its borrowings under these lines of credit, totaling $11.4 million at December 31, 1999, under the revolving credit agreement discussed above. There were no borrowings under these arrangements at December 31, 1998.

The maximum amounts outstanding under borrowings during 1999, 1998, and 1997 were $59.0 million, $0.1 million, and $2.2 million, respectively. Average bank borrowings outstanding for the years 1999, 1998, and 1997 were $40.9 million, $0.1 million, and $0.7 million, and carried weighted average interest rates of 5.75 percent, 5.50 percent, and 5.00 percent, respectively.

The carrying amount of long-term debt, as determined by a comparison to similar instruments, approximates fair value at December 31, 1999.

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5. Income Taxes

The provision (benefit) for income taxes for 1999, 1998, and 1997 consists of the following: (amounts in thousands)

Domestic and foreign components of income before income taxes are as follows:

1999 1998 1997 ------

Domestic $ 21,168 $ 34,027 $ 28,825 Foreign 8,696 6,730 1,443 $ 29,864 $ 40,757 $ 30,268

The provision (benefit) for income taxes consists of:

1999 1998 1997 ------

Current Tax: U.S. Federal $ 8,359 $ 11,920 $ 10,176 Foreign 3,631 1,782 90 U.S. State and Local 2,194 3,675 2,234 14,184 17,377 12,500 Deferred Tax: U.S. Federal (836) (579) (82) U.S. State and Local (185) (86) (12) (1,021) (665) (94) $ 13,163 $ 16,712 $ 12,406

The effective and statutory income tax rate can be reconciled as follows:

1999 1998 1997 ------

Tax at statutory rate of 34 percent $ 10,153 $ 13,857 $ 10,291 Rate differential 299 408 303 State tax, net of federal benefits 1,224 2,333 1,445 Expenses for which no tax benefit is available 1,579 472 658 Change in estimate of nondeductible expenses - (927) (475) Other, net (92) 569 184 $ 13,163 $ 16,712 $ 12,406

Effective income tax rate 44.1% 41.0% 41.0%

119

The Company's deferred tax assets and liabilities at December 31, 1999 and 1998 consist of the following:

December 31, 1999 1998 (amounts in thousands)

ASSETS Deferred compensation $3,563 $2,835 Accruals deductible for tax purposes when paid 2,527 1,561 Allowance for doubtful accounts 650 292 Other 668 444 Gross deferred tax assets 7,408 5,132

LIABILITIES Amortization 236 204 Depreciation 446 473 Gross deferred tax liabilities 682 677 Deferred tax assets valuation allowance - - Net deferred tax assets $6,726 $4,455

Net deferred assets and liabilities are recorded at December 31, 1999 and 1998 as follows:

Net current assets $3,041 $1,654 Net non-current assets 3,685 2,801 $6,726 $4,455

In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the years in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences at December 31, 1999. Accordingly, no valuation allowance is required.

Undistributed earnings of the Company's foreign subsidiaries were minimal at December 31, 1999, and are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. In the event that the other foreign entities' earnings were distributed, it is estimated that U.S. federal and state income taxes, net of foreign credits, would be immaterial.

In 1999, 1998, and 1997, 264,900, 193,000, and 233,000 shares of common stock, respectively, were issued through the exercise of non-qualified stock options or through the disqualifying disposition of incentive stock options. The total tax benefit to the Company from these transactions, which is credited to capital in excess of par value rather than recognized as a reduction of income tax expense, was $1.4 million, $2.4 million, and $2.9 million in 1999, 1998, and 1997, respectively. These tax benefits have also been recognized in the consolidated balance sheets as a reduction of current taxes payable.

120 26

6. Lease Commitments

At December 31, 1999, the Company was obligated under a number of long-term operating leases. Minimum future obligations under such leases are summarized as follows:

Year ended December 31, (amounts in thousands)

2000 $ 8,508 2001 6,493 2002 3,861 2003 1,094 2004 878 Later years 1,019 Minimum future obligations $21,853

The operating lease obligations relate to the rental of office space, office equipment, and automobiles. Total rental expense under such operating leases for 1999, 1998, and 1997 was approximately $11.0 million, $9.0 million, and $6.8 million, respectively.

7. Deferred Compensation Benefits

The Company maintains a non-qualified defined-benefit Executive Supplemental Benefit Plan that previously provided certain current and former key executives with deferred compensation benefits, based on years of service and base compensation, payable during retirement. The plan was amended as of November 30, 1994, to freeze benefits for participants at that time.

Net periodic pension cost for 1999, 1998, and 1997 is as follows:

Net Periodic Pension Cost 1999 1998 1997 (amounts in thousands)

Interest cost $641 $655 $633 Amortization of unrecognized net loss 85 66 48 $726 $721 $681

The change in benefit obligation at December 31, 1999 and 1998 is as follows:

Change in Benefit Obligation 1999 1998 (amounts in thousands)

Benefit obligation at beginning of year $ 9,720 $ 9,258 Interest cost 641 655 Amortization of unrecognized net loss 85 66 Benefits paid (435) (591) Adjustment to minimum liability (791) 332 Benefit obligation at end of year 9,220 9,720 Fair value of plan assets at end of year - - Funded status 9,220 9,720 Unrecognized net actuarial loss (1,455) (2,247) Accrued benefit cost $ 7,765 $ 7,473 Weighted average discount rate 7.50% 6.75% Salary increase rate 0% 0%

Benefits paid to participants are funded by the Company as needed. The plan is deemed unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities. The Company has purchased insurance on the lives of certain plan

121 27

participants in amounts considered sufficient to reimburse the Company for the costs associated with the plan for those participants.

The Company maintains a non-qualified defined-contribution deferred compensation plan for certain key executives. The Company contributions to this plan, which were $71,000, $107,000, and $241,000 in 1999, 1998, and 1997, respectively, are based on annually defined financial performance objectives.

8. Employee Benefits

401(K) PROFIT-SHARING RETIREMENT PLAN

The Company maintains a contributory 401(k) profit-sharing retirement plan covering substantially all U.S. employees. Company contributions of cash and the Company's stock, which are discretionary, were funded and charged to operations in the amounts of $3.5 million, $3.8 million, and $2.4 million for 1999, 1998, and 1997, respectively.

OTHER RETIREMENT PLANS

The Company maintains various retirement plans covering substantially all of its European employees. Company contributions charged to operations were $0.5 million, $0.5 million, and $0.1 million in 1999, 1998, and 1997, respectively.