10-K

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, 2006

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	The NASDAQ Stock Market LLC
Rights to Purchase Series A Participating Preferred Stock	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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.   x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer  ¨            Accelerated Filer  x            Non-Accelerated Filer  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

The aggregate market value of the Registrant’s voting and non-voting common equity, computed by reference to the price at which the common equity was last sold on the last business day of the Registrant’s most recently completed second quarter was $79.4 million. Solely for the purposes of this calculation, all persons who are or may be executive officers or directors of the Registrant have been deemed to be affiliates.

The total number of shares of Common Stock of the Registrant outstanding at February 26, 2007 was 19,985,008.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days of the end of the Company’s fiscal year ended December 31, 2006, are incorporated by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the Commission as part of this Form 10-K.

PART I

Forward-Looking Statements

This report contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. The forward-looking statements contained in the report are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of, or trends in, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry conditions, including fluctuations in demand for IT services, (ii) the availability to us of qualified professional staff, (iii) domestic and foreign industry competition, (iv) rate and wage inflation or deflation, (v) risks associated with operating in foreign jurisdictions, (vi) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the IT solutions and staffing industry, taxes and the Company’s operations in particular, (vii) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (viii) consolidation among the Company’s competitors or customers, (ix) the partial or complete loss of the revenue the Company generates from IBM, and (x) the risks described in Item 1A of this annual report on Form 10-K and from time to time in the Company’s reports filed with the Securities and Exchange Commission.

Item 1. Business

Overview

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 is an international information technology (IT) solutions and staffing company. CTG employs approximately 3,300 people worldwide and serves customers through an international network of offices in North America and Europe. During 2006, the Company had five operating subsidiaries: Computer Task Group of Canada, Inc., providing services in Canada; and Computer Task Group Belgium N.V., Computer Task Group IT Solutions, S.A., Computer Task Group Luxembourg PSF, and Computer Task Group (U.K.) Ltd., each primarily providing services in Europe. During December 2006, CTG incorporated a new subsidiary in Germany, CTG Deutschland GmbH, which had no 2006 operations. During 2005, the Company merged its subsidiary CTG Healthcare Solutions (Kansas), Inc., and during 2004, the Company merged its subsidiary CTG Services, Inc. into the Company.

Services

The Company operates in one industry segment, providing IT services to its clients. These services include IT Staffing and IT Solutions. CTG provides these primary services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT application. A typical customer is an organization with large, complex information and data processing requirements. Approximately 82% of consolidated 2006 revenue of $327.3 million was generated in North America and 18% in Europe. The Company promotes a majority of its services through three vertical market focus areas: Technology Service Providers, Healthcare (which includes services provided to health care providers, health insurers, and life sciences companies), and Financial Services. Revenue through these three vertical areas totaled 41%, 24%, and 10% of total consolidated revenue in 2006, 41%, 24%, and 8% of total consolidated revenue in 2005, and 28%, 28%, and 13% of total consolidated revenue in 2004, respectively. A brief discussion of the Company’s IT Staffing and IT Solutions services is as follows:

• IT Staffing: CTG recruits, retains, and manages IT talent for its clients. The Company services both large organizations with multiple locations and high-volume IT requirements, and companies that need to augment their own staff on a flexible basis. Our recruiting organization works with customers to define their staffing requirements and develop competitive pricing to meet those requirements.

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• IT Solutions: CTG’s services in this area range from helping clients assess their business needs and identifying the right IT solutions to meet these needs, to the delivery of services that include the selection and implementation of packaged software and the design, construction, testing, and integration of new systems. Also included in IT Solutions is Application Management Outsourcing (AMO). In an AMO project, a client outsources the management of some or all of its applications so that their internal management and staff can focus on projects that will help them in creating and fostering initiatives that will aid in delivering a competitive advantage to the company. CTG’s services in this area include support of single or multiple applications, help desk, and facilities management through a full suite of cost-effective maintenance, enhancement, and systems development and integrated solutions.

International Business Machines Corporation (IBM) is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During 2004, the Company signed an addendum to the Technical Services Agreement it has with IBM making it a predominant supplier to IBM’s Systems and Technology Group. This addendum has an expiration date which was extended during 2006 to December 31, 2008. The agreement and the addendum accounted for approximately 94.8% of all of the services provided to IBM by the Company in 2006. In 2006, 2005, and 2004, IBM accounted for $115.4 million or 35.3%, $105.5 million or 35.8%, and $52.6 million or 22.2% of consolidated revenue, respectively. The Company expects to continue to derive a significant portion of its revenue from IBM in 2007 and in future years. However, a significant decline or the loss of the revenue from IBM would have a significant negative effect on the Company’s revenue and profits. No other customer accounted for more than 10% of the Company’s revenue in 2006, 2005 or 2004.

Pricing and Backlog

The majority of CTG’s services are 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. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended.

A portion of the Company’s business is performed pursuant to contracts with periodic billing schedules, primarily monthly, as well as a small portion performed 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. Revenue from contracts with periodic billing schedules totaled approximately 6%, 5%, and 7% of 2006, 2005, and 2004 consolidated revenue, respectively. Fixed-price contracts accounted for under the percentage of completion method represented approximately 4%, 3%, and 4% of 2006, 2005, and 2004 consolidated revenue, respectively. As of December 31, 2006 and 2005, the backlog for fixed-price and all managed-support contracts was approximately $34.3 million and $19.7 million, respectively. Approximately 76% of the December 31, 2006 backlog or $26.1 million is expected to be earned in 2007. Of the $19.7 million of backlog at December 31, 2005, approximately 92%, or $18.0 million was earned in 2006. 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 with 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 channels for its share of the market. 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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CTG has implemented a Global Management System, with the 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. CTG initially achieved worldwide ISO 9001:1994 certification in June 2000. CTG received its worldwide ISO 9001:2000 certification in January 2003. The Company believes it is the only IT services company of its size to achieve worldwide certification.

Intellectual Property

The Company has registered its symbol and logo with the U.S. Patent and Trademark Office and has taken steps to preserve its rights in other countries where it operates. 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.

Employees

Our business depends on our ability to attract and retain qualified professional staff to provide services to our customers. The Company has a structured recruiting organization that works with our clients to meet their requirements by recruiting and providing high quality, motivated staff. We have approximately 3,300 employees worldwide, with 2,750 in the United States and Canada and 550 in Europe. Of these, approximately 2,870 are IT professionals and 430 are individuals who work in sales, recruiting, delivery, administrative and support positions. We believe that our relationship with our employees is good. No employees are covered by a collective bargaining agreement or are represented by a labor union. CTG is an equal opportunity employer.

Financial Information Relating to Foreign and Domestic Operations

	2006			2005			2004
	(amounts in thousands)
Revenue from External Customers:
United States	$	265,386		$	243,223		$	191,648
Belgium		41,500			32,940			28,694
Other European countries		17,447			15,384			14,724
Other countries		2,920			2,918			2,056
Total revenue	$	327,253		$	294,465		$	237,122
Operating Income (Loss):
United States	$	18,957		$	16,627		$	16,207
Europe		2,801			1,884			849
Other countries		(194	)		(11	)		(87	)
Corporate and other		(14,710	)		(13,575	)		(13,871	)
Total operating income	$	6,854		$	4,925		$	3,098
Identifiable Assets:
United States	$	76,689		$	100,620		$	76,765
Europe		18,849			13,817			13,202
Other countries		838			834			586
Corporate and other (1)		15,341			13,029			13,290
Total identifiable assets	$	111,717		$	128,300		$	103,843

⁽¹⁾ Corporate and other identifiable assets consist principally of cash and cash equivalents, investments, deferred income taxes, and other assets

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Disposition of Operations

During the first quarter of 2004, the Company disposed of its Dutch operating subsidiary, CTG Nederland B.V. The effective date of the disposition was January 1, 2004, and the transaction has been treated as discontinued operations in the Company’s consolidated financial statements contained in this report. As part of the transaction, the Company retained the assets and liabilities related to the defined-benefit plan for its previous employees in The Netherlands (NDBP). At the time of the disposition, the net assets of the plan totaled approximately $0.5 million. The activities of the NDBP are discussed in note 9, “Deferred Compensation Benefits,” included in the Company’s consolidated financial statements in this Form 10-K under Item 8, “Financial Statements and Supplementary Data.” This unit had previously been included in the financial results of the Company’s European operations.

The loss from discontinued operations resulting from this divestiture totaled approximately $4.4 million in 2004, with approximately $4.3 million of that loss incurred in the first quarter of 2004. The loss includes a cumulative loss on disposal of approximately $3.9 million, and approximately $0.5 million from a foreign currency adjustment which had previously been reported as a direct charge to shareholders’ equity. All activities related to this subsidiary have been removed from the Company’s individual accounts and subsequently combined and included on the line entitled “Loss from discontinued operations” on the Company’s Consolidated Statements of Operations.

Executive Officers of the Company

As of December 31, 2006, the following individuals were executive officers of the Company:

Name	Age	Office	Period During Which Served as Executive Officer	Other Positions and Offices with Registrant
James R. Boldt	55	Chairman, President and Chief Executive Officer	June 21, 2001 for President, July 16, 2001 for Chief Executive Officer, May 2002 for Chairman, all to date	Director
		Executive Vice President	February 2001 to June 2001
		Vice President, Strategic Staffing	December 2000 to September 2001
		Acting Chief Executive Officer	June 2000 to November 2000
		Vice President and Chief Financial Officer	February 12, 1996 to October 1, 2001
Michael J. Colson	44	Senior Vice President	January 3, 2005 to date	None
Arthur W. Crumlish	52	Senior Vice President	September 24, 2001 to date	None
Paul F. Dimouro	64	Senior Vice President	May 5, 2004 to date	None
Filip J.L. Gyde	46	Senior Vice President	October 1, 2000 to date	None
Brendan M. Harrington	40	Senior Vice President, Chief Financial Officer	September 13, 2006 to date	None
		Interim Chief Financial Officer	October 17, 2005 to September 12, 2006	None
Thomas J. Niehaus	45	Senior Vice President	July 22, 1999 to date	None
Peter P. Radetich	53	Senior Vice President, General Counsel	April 28, 1999 to date	Secretary

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Mr. Boldt was appointed President and joined CTG’s Board of Directors on June 21, 2001, and was appointed Chief Executive officer on July 16, 2001. Mr. Boldt became the Company’s Chairman in May 2002. Mr. Boldt joined the Company as a Vice President and its Chief Financial Officer and Treasurer in February 1996.

Mr. Colson joined the Company as Senior Vice President of Solutions Development in January 2005. Prior to that, Mr. Colson was Chief Executive Officer of Manning and Napier Information Services, a software and venture capital firm from September 1998 until the time he joined CTG.

Mr. Crumlish was promoted to Senior Vice President in September 2001, and is currently responsible for the Company’s Strategic Staffing Services organization. Prior to that, Mr. Crumlish was Controller of the Strategic Staffing Services organization. Mr. Crumlish joined the Company in 1990.

Mr. Dimouro serves as Senior Vice President responsible for the Company’s logistics solutions practice and the commercial accounts other than IBM in the Company’s Strategic Staffing Services organization. Mr. Dimouro joined the Company in June 2001.

Mr. Gyde was promoted to Senior Vice President in October 2000, and is currently responsible for all of the Company’s European operations. Prior to that, Mr. Gyde was Managing Director of the Company’s Belgium operation. Mr. Gyde has been with the Company since May 1987.

Mr. Harrington was promoted to Senior Vice President and Chief Financial Officer on September 13, 2006. Previously he was Interim Chief Financial Officer and Treasurer from October 17, 2005 to September 12, 2006. Prior to that he held the position of Corporate Controller for the Company since May 2005. Mr. Harrington joined the Company in February 1994 and served in a number of managerial financial positions in the Company’s corporate and European operations before being appointed Corporate Controller.

Mr. Niehaus joined the Company in February 1999, and was promoted to Senior 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.

Mr. Radetich joined the Company in June 1988 as Associate General Counsel, and was promoted to General Counsel and Secretary in April 1999.

Available Company Information

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and reports pertaining to the Company filed under Section 16 of the Exchange Act are available without charge on the Company’s website at www.ctg.com as soon as reasonably practicable after the Company electronically files the information with, or furnishes it to, the Securities and Exchange Commission. The Company’s code of ethics, committee charters and governance policies are also available without charge on the Company’s website at www.ctg.com/investors/corporategov.htm.

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Item 1A. Risk Factors

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. The following section describes some, but not all, of the risks and uncertainties that could have a material adverse effect on our business, financial condition, results of operations and the market price of our common stock, and could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.

The recent increase in demand for information technology (IT) services and staffing may only be temporary and another significant decline in demand similar to that experienced from 1999 through 2003 would cause an adverse effect on our revenue and operating results.

There was a steady decline in demand in the technology services sector from the second half of 1999 through 2003 as a recession in the technology industry negatively affected spending for IT services. We believe that staffing demand began to increase in 2004, and returned to more normalized levels in 2005 for the first time in five years. Overall, staffing demand was positive in 2006. However, the Company experienced a significant decline in headcount requirements from its significant customer during 2006. Declines in spending for IT services in 2007 or future years may again adversely affect our operating results in the future as it has in the past.

Our business depends on a large number of highly qualified professionals and, if we are not able to recruit and retain a sufficient number of these professionals, we would not be able to provide high quality services to our current and future customers, which would have an adverse effect on our revenue and operating results.

We actively compete with other IT service providers for qualified professional staff. The availability or lack thereof of qualified professional staff may affect our ability to provide services and meet the needs of our customers in the future. An inability to fulfill customer requirements due to a lack of available qualified staff at agreed upon compensation rates may adversely impact our operating results in the future.

Increased competition and the bargaining power of a significant customer may cause our billing rates to decline, which would have an adverse effect on our revenue and, if we are unable to control our personnel costs accordingly, our operating results.

While the rates at which we billed our customers for services stabilized somewhat from 2004 to 2006, there had been a general decline in these rates as a result of the technology recession from the second half of 1999 through 2003. We have experienced several significant reductions in the rates for which we bill for services for our significant customer in the past several years. Additionally, we actively compete against many other companies for business with new and existing clients. Competitive pressures may lead to a further decline in the rates that we bill our customers for services, which may adversely affect our operating results in the future.

The currency, legislative, tax, regulatory and economic risks associated with international operations could have an adverse effect on our operating results if we are unable to mitigate or hedge these risks.

We have operations in the United States and Canada in North America, and in Belgium, the United Kingdom and Luxembourg in Europe. Although our foreign operations conduct their business in their local currencies, they are subject to currency fluctuations. Each of our operations is subject to legislation, employment and tax law changes, and economic climates. These factors related to our foreign operations are different than those of the United States. Although we actively manage these foreign operations with local management teams, economic conditions or other changes beyond our control may negatively affect our overall operating results.

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We derive a significant portion of our revenue from a single customer and a significant reduction in the amount of IT services requested by this customer would have an adverse effect on our revenue and operating results.

In 2006, International Business Machines (IBM) was our largest customer, accounting for $115.4 million or 35.3% of consolidated revenue. The Company’s accounts receivable balance from IBM at December 31, 2006 totaled $10.9 million. During 2005, we signed an addendum to the Technical Services Agreement we have with IBM making us a predominant supplier to IBM’s Systems and Technology Group. This addendum has an expiration date which was extended during 2006 to December 31, 2008. We expect to continue to derive a significant portion of our revenue from IBM in 2007 and in future years. However, a significant decline or the loss of the revenue from IBM would have a significant negative effect on our operating results. No other customer accounted for more than 10% of our revenue in 2006, 2005 or 2004.

The IT services industry is highly competitive and fragmented, which means that our customers have a number of choices for providers of IT services and we may not be able to compete effectively.

The market for our services is highly competitive. The market is fragmented, and no company holds a dominant position. Consequently, our competition for client requirements and experienced personnel varies significantly by geographic area and by the type of service provided. Some of our competitors are larger and have greater technical, financial, and marketing resources and greater name recognition than we have in the markets we collectively serve. In addition, clients may elect to increase their internal IT systems resources to satisfy their custom software development and integration needs.

Changes in government regulations and laws affecting the IT services industry, including accounting principles and interpretations and the taxation of domestic and foreign operations, could adversely affect our results of operations.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations which, in many instances, is due to their lack of specificity. As a result, the application of these new standards and regulations in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our independent auditors’ audit of that assessment has required the commitment of significant internal, financial and managerial resources.

The Financial Accounting Standards Board, SEC or other accounting rulemaking authorities may issue new accounting rules or standards that are different than those that we presently apply to our financial results. Such new accounting rules or standards could require significant changes from the way we currently report our financial condition, results of operations or cash flows.

U.S. generally accepted accounting principles have been the subject of frequent interpretations. As a result of the enactment of the Sarbanes-Oxley Act of 2002 and the review of accounting policies by the SEC as well as by national and international accounting standards bodies, the frequency of future accounting policy changes may accelerate. Such future changes in financial accounting standards may have a significant effect on our reported results of operations, including results of transactions entered into before the effective date of the changes.

We are subject to income taxes in the United States and numerous foreign jurisdictions. Our provision for income taxes and our tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our financial condition, results of operations and cash flows in future periods.

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Our customer contracts generally have a short term or are terminable on short notice and a significant number of failures to renew, early terminations or renegotiations of our existing customer contracts could adversely affect our results of operations.

Our clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under exclusive long-term contracts. We perform approximately 90% of our services on a time and materials basis. As such, our customers generally have the right to terminate a contract with us upon written notice without the payment of any financial penalty. Client projects may involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages of a project or that a client will cancel or delay additional planned engagements. These terminations, cancellations or delays could result from factors that are beyond our control and are unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client, changes in client strategies or the economy in general. When contracts are terminated, we lose the associated revenue and we may not be able to eliminate the associated costs in a timely manner. Consequently, our operating results in subsequent periods may be lower than expected. Our clients can cancel or reduce the scope of their engagements with us on short notice. If they do so, we may be unable to reassign our professionals to new engagements without delay. The cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of our professionals, which would have a negative impact on our business, financial condition, and results of operations. As a result of these and other factors, our past financial performance should not be relied on as a guarantee of similar or better future performance. Due to these factors, we believe that our results of operations may fluctuate from period-to-period in the future.

The introduction of new IT products or services may render our existing staffing, IT solutions, or outsourcing offerings to be obsolete, which, if we are unable to keep pace with these corresponding changes, could have an adverse effect on our business.

Our success depends, in part, on our ability to implement and deliver strategic staffing, IT solutions, and outsourcing services that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis, and our offerings may not be successful in the marketplace. Also, services, solutions and technologies developed by our competitors may make our staffing, solution or outsourcing offerings uncompetitive or obsolete. Any one of these circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.

Existing and potential customers are outsourcing or considering outsourcing their IT requirements to foreign countries in which we may not currently have operations, which could have an adverse effect on our ability to obtain new customers or retain existing customers.

In the past few years, more companies are using or are considering using low cost offshore outsourcing centers to perform technology related work and complete projects. Currently, we have partnered with clients to perform services in Russia and India to mitigate and reduce this risk to our Company. However, the risk of additional increases in the future in the outsourcing of IT solutions overseas could have a material, negative impact on our future operations.

A significant portion of our total assets consists of goodwill, which is subject to a periodic impairment analysis and a significant impairment determination in any future period could have an adverse effect on our results of operations even without a significant loss of revenue or increase in cash expenses attributable to such period.

We have goodwill totaling approximately $35.7 million at December 31, 2006 resulting from our acquisition of Elumen Solutions, Inc. (Elumen) in early 1999. Elumen provided IT services into healthcare and related companies, and was merged with the Company’s existing staff which also served the healthcare industry. At least annually, we evaluate this goodwill for impairment based on the fair value of the business operations to which this goodwill relates. This estimated fair value could change if we are unable to achieve operating results at the levels that have been forecasted, the market valuation of such companies decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by this business unit. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge to our results of operations.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company owns and occupies a headquarters building at 800 Delaware Avenue, and an office building at 700 Delaware Avenue, both located in Buffalo, New York, operated by CTG of Buffalo, and part of the Company’s North American operations. The corporate headquarters consists of approximately 40,000 square feet and is occupied by corporate administrative operations. The office building consists of approximately 39,000 square feet and is also occupied by corporate administrative operations. At December 31, 2006, these properties were not mortgaged or pledged as collateral against the Company’s existing revolving credit agreement.

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 approximately 250 to 11,000 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 and its subsidiaries are involved from time to time in various legal proceedings arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders in the fourth quarter of 2006.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Market Information

The Company’s stock is traded on The NASDAQ stock market under the symbol CTGX. Prior to June 6, 2006, the Company’s stock was traded on the New York Stock Exchange under the symbol CTG. The following table sets forth the high and low sales prices for the Company’s common stock for the previous two years.

Stock Price	High		Low
Year ended December 31, 2006
Fourth Quarter	$	4.90	$	3.57
Third Quarter	$	5.00	$	3.40
Second Quarter	$	6.00	$	3.91
First Quarter	$	4.60	$	3.80
Year ended December 31, 2005
Fourth Quarter	$	4.20	$	3.40
Third Quarter	$	4.00	$	3.50
Second Quarter	$	3.90	$	2.83
First Quarter	$	5.71	$	3.50

On February 26, 2007, there were 2,727 record holders of the Company’s common shares. The Company has not paid a dividend since 2000. The Company paid an annual cash dividend of $.05 per share from 1993 to 2000 and, prior to that, paid $.025 per share annually since 1976 plus a 10% share dividend in 1980. The Company is required to meet certain financial covenants under its current revolving credit agreement in order to pay dividends. The Company was in compliance with these financial covenants at December 31, 2006. The determination of the timing, amount and payment of dividends on the Company’s common stock in the future is at the discretion of the Board of Directors and will depend upon, among other things, the Company’s profitability, liquidity, financial condition, capital requirements and compliance with the aforementioned financial covenants.

For information concerning common stock issued in connection with the Company’s equity compensation plans, see “Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

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Issuer Purchases of Equity Securities

The chart below reflects purchases by the Company of its common stock during its fourth quarter ended December 31, 2006.

Period	Total Number of Shares Purchased	Average Price Paid per Share *		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
October 1 - October 31	5,894	$	4.14	5,894	486,935
November 1 - November 30	37,862	$	4.18	37,862	449,073
December 1 - December 31	107,844	$	4.50	107,844	341,229
Total	151,600	$	4.40	151,600	341,229

During May 2005, the Company announced a 1.0 million share repurchase authorization. The share repurchase program does not have an expiration date, nor was it terminated during the fourth quarter of 2006. A prior share repurchase authorization with approximately 0.2 million shares was fully utilized during 2005. During the February 2007, the Company’s Board of Director’s authorized an additional 1.0 million shares for future stock repurchases.

* Includes commissions paid

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Company Performance Graph

The following graph shows a five-year comparison of cumulative total shareholder returns for the Company’s common stock, the S&P 500 Index, and a Peer Group, assuming a base index of $100 at the end of 2001. The cumulative total return for each annual period within the five years presented is measured by dividing (1) the sum of (A) the cumulative amount of dividends for the period, assuming dividend reimbursement, and (B) the difference between the Company’s share price at the end and the beginning of the period by (2) the share price at the beginning of the period. The calculations were made excluding trading commissions and taxes.

	Base Period	INDEXED RETURNS Years Ending
	Dec 01	Dec 02	Dec 03	Dec 04	Dec 05	Dec 06
Computer Task Group, Inc.	100	88.58	98.73	142.13	100.25	120.56
S&P 500 Index	100	77.90	100.25	111.15	116.61	135.03
Peer Group	100	44.86	62.29	65.58	73.61	70.62

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Item 6. Selected Financial Data

Consolidated Summary – Five-Year Selected Financial Information

The selected operating data and financial position information set forth below for each of the years in the five-year period ended December 31, 2006 has been derived from the Company’s audited consolidated financial statements. This information should be read in conjunction with the audited consolidated financial statements and notes thereto included in Item 8. “Financial Statements and Supplementary Data” included in this report. Information reported for the years 2002 and 2003 has been revised, as applicable, to reflect the disposition of CTG Nederland, B.V. effective January 1, 2004.

(amounts in millions, except per-share data)	2006			2005		2004			2003		2002
Operating Data
Revenue	$	327.3		$	294.5	$	237.1		$	245.5	$	256.1
Operating income	$	6.9	*	$	4.9	$	3.1		$	5.5	$	6.0
Income from continuing operations before cumulative effect of change in accounting principle	$	3.5	*	$	2.4	$	3.0		$	2.7	$	2.8
Net income (loss)	$	3.5	*	$	2.4	$	(1.4	)**	$	2.7	$	(35.7	)***
Basic net income per share from continuing operations before cumulative effect of change in accounting principle	$	0.21		$	0.14	$	0.18		$	0.16	$	0.17
Basic net income (loss) per share	$	0.21		$	0.14	$	(0.09	)**	$	0.16	$	(2.15	)***
Diluted net income per share from continuing operations before cumulative effect of change in accounting principle	$	0.21		$	0.14	$	0.17		$	0.16	$	0.16
Diluted net income (loss) per share	$	0.21		$	0.14	$	(0.08	)**	$	0.16	$	(2.11	)***
Cash dividend per share	$	–		$	–	$	–		$	–	$	–
Financial Position
Working capital	$	21.7		$	40.3	$	17.2		$	16.5	$	16.5
Total assets	$	111.7		$	128.3	$	103.8		$	101.4	$	105.3
Long-term debt	$	–		$	23.2	$	–		$	–	$	8.5
Shareholders’ equity	$	61.6		$	57.5	$	57.0		$	56.6	$	52.8	****

* During 2006, the Company adopted the provisions of FAS 123R, “Share-Based Payment” and related interpretations. The Company recognized compensation expense of $856,000 in its consolidated statement of operations as selling, general and administrative expenses. The tax benefit recorded for this compensation expense was $260,000, resulting in a net after tax cost to the Company of $596,000 for 2006.

** Includes a loss from discontinued operations of approximately $4.4 million, or $0.27 per basic share and $0.25 per diluted share from the disposition of CTG Nederland, B.V. effective January 1, 2004.

*** Includes a charge for the cumulative effect of a change in accounting principle related to the adoption of Financial Accounting Standard (FAS) No. 142, “Goodwill and Other Intangible Assets,” which reduced net income by $37.0 million, basic net income per share by $2.23, and diluted net income per share by $2.19.

**** During 2005 and 2006, the Company identified certain errors that affected the Company’s retained earnings and accumulated other comprehensive loss balances as of December 31, 2002. These balances have been revised to include the net impact of those adjustments which totaled an increase of approximately $0.3 million to the Company’s shareholders’ equity balance. See note 2, “Adjustment to Shareholders’ Equity as of December 31, 2003” included in this Form 10-K under Item 8, “Financial Statements and Supplementary Data.”

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Statements

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. These forward-looking statements are based on information as of the date of this report. The Company assumes no obligation to update these statements based on information from and after the date of this report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry trends or conditions and the business environment, and statements regarding future levels of, or trends in, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry conditions, including fluctuations in demand for IT services, (ii) the availability to us of qualified professional staff, (iii) domestic and foreign industry competition, (iv) rate and wage inflation or deflation, (v) risks associated with operating in foreign jurisdictions, (vi) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the IT solutions and staffing industry, taxes and the Company’s operations in particular, (vii) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (viii) consolidation among the Company’s competitors or customers, (ix) the partial or complete loss of the revenue the Company generates from IBM, and (x) the risks described in Item 1A of this annual report on Form 10-K and from time to time in the Company’s reports filed with the Securities and Exchange Commission.

Industry Trends

The market demand for the Company’s services is heavily dependent on IT spending by major corporations, organizations and government entities in the markets and regions that we serve. The pace of technology change and changes in business requirements and practices of our clients all have a significant impact on the demand for the services that we provide. Competition for new engagements and pricing pressure has been strong. We have responded to these challenging business conditions by focusing on two main services, which are providing strategic staffing and IT solutions to our clients. We have in turn promoted a majority of our services through three vertical market focus areas, which are technology service providers, healthcare (which includes services provided to health care providers, health insurers, and life sciences companies), and financial services. Revenue from these three vertical areas totaled 41%, 24%, and 10% of total consolidated revenue in 2006, 41%, 24%, and 8% of total consolidated revenue in 2005, and 28%, 28%, and 13% of total consolidated revenue in 2004, respectively. Finally, we have closely monitored and managed the utilization of our billable personnel, and managed our selling, general and administrative costs as a percentage of revenue.

The IT services industry is extremely competitive and characterized by continuous changes in customer requirements and improvements in technologies. Our competition varies significantly by geographic region, as well as by the type of service provided. Many of our competitors are larger than we are and have greater financial, technical, sales and marketing resources than we have. In addition, we frequently compete with a client’s own internal IT staff. Our industry is being impacted by the growing use of lower-cost offshore delivery capabilities (primarily India). There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that future competition will not have a material adverse effect on our results of operations and financial condition.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably assured. For time-and-material contracts revenue is recognized as hours are incurred and costs are expended. For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue for fixed price contracts is recognized as per the proportional method of accounting using an input-based approach whereby salary and indirect labor costs incurred are measured and compared to the total estimate of costs at completion for a project. Revenue is recognized based upon the percent complete calculation of total incurred costs to total estimated costs.

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Revenue from time-and-material, periodic fee, and fixed price contracts accounted for using the percentage of completion method of accounting, as a percentage of total consolidated revenue, totaled approximately 90%, 6%, and 4% in 2006, 92%, 5%, and 3% in 2005, and 89%, 7%, and 4% in 2004, respectively.

Stock-Based Employee Compensation

On January 1, 2006, the Company adopted the provisions of FAS 123R, “Share-Based Payment” and related interpretations on a modified prospective basis, which required the Company to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption. This FAS establishes standards for the accounting for transactions in which the Company exchanges its equity instruments for goods or services. The standard requires the Company to measure the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of the award. Currently, the Company issues stock options and restricted stock in exchange for employee and director services. With the adoption of the standard, the calculated cost of its equity-based compensation awards is recognized in the Company’s statement of operations over the period in which an employee or director is required to provide the services for the award. Compensation cost will not be recognized for employees or directors that do not render the requisite services. The Company recognizes the expense for equity-based compensation in its statements of operations on a straight-line basis based upon awards that are ultimately expected to vest. As part of the adoption of the standard, the Company is required to estimate forfeitures. These estimates will be revised, as applicable, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information related to stock-based compensation for periods prior to January 1, 2006 (see note 1, “Summary of Significant Accounting Policies” for “Stock-Based Employee Compensation” included in the Company’s consolidated financial statements in this Form 10-K under Item 8, “Financial Statements and Supplementary Data”), the Company accounted for forfeitures as they occurred.

For the year ended December 31, 2006, the Company recognized compensation expense of $856,000 in its consolidated statement of operations as selling, general and administrative expenses. The tax benefit recorded for this compensation expense was $260,000, resulting in a net after tax cost to the Company of $596,000 for 2006. No compensation cost was recognized in the statements of operations for either 2005 or 2004 as the Company continued to apply the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) and related interpretations, as all options granted by the Company had an exercise price that was equal to or greater than the underlying common stock at the date of grant.

On November 16, 2005, the Board of Directors of the Company approved the acceleration of the vesting of all unvested out-of-the money stock options previously awarded to its employees, including its executive officers and its directors under the Company’s equity compensation plans having an exercise price greater than $3.48, which was the closing price of the Company’s common stock on that date. Options to purchase approximately 1.1 million shares of the Company’s common stock became exercisable immediately. The weighted-average exercise price of the options subject to the acceleration was $4.69.

The purpose of the acceleration was to enable the Company to eliminate future compensation expense the Company would otherwise recognize in its statements of operations with respect to these accelerated options upon the adoption of FAS 123R. The Board of Directors took the action in the belief that it is in the best interest of the shareholders to minimize future compensation expense associated with stock options upon adoption of FAS 123R. The estimate of the maximum future compensation expense that would have been recorded in the Company’s statements of operations had the vesting of these options not been accelerated was approximately $1.4 million.

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Results of Operations

The table below sets forth data as contained on the consolidated statements of operations, with the percentage information calculated as a percentage of consolidated revenue as reported on the Company’s Consolidated Statements of Operations as included in this Form 10-K under Item 8, “Financial Statements and Supplementary Data.”

Year ended December 31,	2006		2005		2004
(percentage of revenue)
Revenue	100.0	%	100.0	%	100.0	%
Direct costs	77.3	%	77.0	%	73.0	%
Selling, general, and administrative expenses	20.6	%	21.3	%	25.7	%
Operating income	2.1	%	1.7	%	1.3	%
Interest and other expense, net	0.2	%	0.5	%	0.3	%
Income from continuing operations before income taxes	1.9	%	1.2	%	1.0	%
Provision (benefit) for income taxes	0.8	%	0.4	%	(0.3	)%
Income from continuing operations	1.1	%	0.8	%	1.3	%
Income (loss) from discontinued operations	0.0	%	0.0	%	(1.9	)%
Net income (loss)	1.1	%	0.8	%	(0.6	)%

2006 as compared to 2005

In 2006, the Company recorded revenue of $327.3 million, an increase of 11.1% compared to revenue of $294.5 million recorded in 2005. Revenue from the Company’s North American operations totaled $268.4 million in 2006, an increase of 9% when compared to 2005 revenue of $246.2 million. Revenue from the Company’s European operations totaled $58.9 million in 2006, an increase of 21.9% when compared to 2005 revenue of $48.3 million. The European revenue represented 18% and 16.4% of 2006 and 2005 consolidated revenue, respectively. The Company’s revenue includes reimbursable expenses billed to customers. These expenses totaled $9.4 million and $9.2 million in 2006 and 2005, respectively.

In North America, the revenue increase in 2006 over 2005 is primarily the result of adding approximately 1,200 billable staff from January 1, 2005 through the end of the second quarter of 2006, largely due to the expansion of the IBM staffing business. During 2005, the Company signed an addendum to the Technical Services Agreement it has with IBM making it a predominant supplier to IBM’s Systems and Technology Group. The revenue increase in North America in 2006 from the addition of billable staff was partially offset as the Company entered a cash discount advance payment program with a significant customer which reduced revenue and operating income by approximately $1.6 million.

On July 24, 2006, the Company was informed by a significant customer of a reduction in their need for approximately 350 of CTG’s staff. The reduction was not a result of CTG’s performance, but rather a change in our client’s business needs. The reduction, which ultimately totaled approximately 450 staff of the 1,200 staff added between January 2005 and June 2006, occurred in the Company’s lower margin staffing business. This staff reduction equates to a reduction of approximately $35 million of annual revenue.

During 2006, the Company has experienced a slight increase in demand for the high-growth IT solutions business in which it is focused. The areas of greatest demand in the solutions practice have been testing, clinical transformation projects, and transitional outsourcing. As a result of this increase in demand, coupled with the reduction in the 2006 third quarter of the staffing headcount previously discussed, the mix of the Company’s staffing/solutions revenue increased to 70%/30% at December 31, 2006 from 71%/29% at December 31, 2005.

The significant increase in revenue in the Company’s European operations was also primarily due to the addition of billable staff as compared to the prior year as demand for the Company’s solution offerings, primarily in the testing area, remains strong. The staffing business in Europe has remained relatively consistent year-over-year. Adding to the increase in year-over-year revenue was the strength of the currencies of Belgium, the United Kingdom, and Luxembourg, the countries in which the Company’s European subsidiaries operate. In Belgium and Luxembourg, the functional currency is the Euro, while in the United Kingdom the functional currency is the British pound. Had there been no change in these exchange rates from the 2005 to 2006, total European revenue would have been approximately $0.5 million lower, or $58.4 million as compared to the $58.9 million reported.

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In 2006, IBM was the Company’s largest customer, accounting for $115.4 million or 35.3% of consolidated revenue as compared to $105.5 million or 35.8% of 2005 consolidated revenue. A significant portion of the staff added in North America from January 1, 2005 to June 30, 2006 was with IBM. During 2004, the Company signed an addendum to the Technical Services Agreement it has with IBM making it a predominant supplier to IBM’s Systems and Technology Group which has driven a large portion of the increase in the demand for the Company’s staffing services. In 2006, the Company signed an addendum to this agreement which extends its expiration date to December 31, 2008. We expect to continue to derive a significant portion of our revenue from IBM in 2007 and in future years. However, a significant decline or the loss of the revenue from IBM, as occurred in the 2006 third quarter, would have a significant negative effect on our operating results. The Company’s accounts receivable from IBM at December 31, 2006 and December 31, 2005 amounted to $10.9 million and $33.9 million, respectively. No other customer accounted for more than 10% of the Company’s revenue in either 2006 or 2005.

Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 77.3% of revenue in 2006 as compared to 77% of 2005 revenue. The increase in direct costs as a percentage of revenue in 2006 as compared to 2005 is primarily due to an increase in revenue of approximately $20 million for the Company’s staffing business in 2006 as compared to 2005, which generally yields lower direct profit margins than the remainder of the Company’s business.

Selling, general and administrative (SG&A) expenses were 20.6% of revenue in 2006 as compared to 21.3% of revenue in 2005. The decrease in SG&A expense as a percentage of revenue reflects the Company’s continued efforts to control and reduce its SG&A costs in various areas as a percentage of revenue. On January 1, 2006, the Company adopted the provisions of FAS 123R, “Share-Based Payment” and related interpretations. With the adoption of the standard, the calculated cost of its stock-based compensation awards is recognized in the Company’s statement of operations over the period in which an employee or director is required to provide the services for its award. The Company recognized compensation expense of $856,000 in 2006.

Operating income was 2.1% of revenue in 2006 as compared to 1.7% of revenue in 2005. The Company’s operating income as a percentage of revenue generally increased throughout 2006 primarily due to the reductions, as a percentage of revenue, of SG&A costs. Operating income from North American operations was $4.1 million in 2006 as compared to $3.0 million in 2005, while European operations recorded operating income of $2.8 million in 2006 and $1.9 million in 2005.

Interest and other expense, net was 0.2% of revenue in 2006 and 0.5% in 2005. The decrease as a percentage of revenue from 2005 to 2006 is primarily due to lower average outstanding debt balances in 2006 resulting from a cash discount advance payment program entered into with a significant customer in the first quarter of 2006. During 2006, the average outstanding debt balance was $6.6 million as compared to $17.3 million in 2005.

The effective tax rate (ETR) resulting from the provision for income taxes from continuing operations was 43.2% in 2006. The ETR is calculated quarterly based upon current assumptions relating to the full years estimated operating results, and various tax related items. The ETR in 2006 was increased primarily due to several items that increased tax expense by approximately $0.2 million. The Company added approximately $0.1 million to its tax reserves due to a change in estimate of recoverability, and increased the valuation allowance for the net operating loss for Canada by approximately $0.1 million in the fourth quarter of 2006. Without these items the ETR in 2006 would have been approximately 39.5%. The ETR in 2005 was 31.8%. The ETR rate in 2005 was reduced primarily due to several items that created net tax benefits totaling approximately $0.3 million. The Company released a net amount of approximately $0.1 million from its tax reserves primarily due to a change in judgment and settlement of open items, and also reduced a valuation allowance for its net operating loss for Canada by approximately $0.2 million in the fourth quarter of 2005. Without these items the Company’s ETR in 2005 would have been approximately 40.1%.

Net income from continuing operations for 2006 was 1.1% of revenue or $0.21 per diluted share, compared to net income from continuing operations of 0.8% of revenue or $0.14 per diluted share in 2004. Diluted earnings per share were calculated using 16.7 million and 17.1 million weighted-average equivalent shares outstanding in 2006 and 2005, respectively. The year-over-year decrease in shares is primarily due to treasury stock purchases made in 2006.

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2005 as compared to 2004

In 2005, the Company recorded revenue of $294.5 million, an increase of 24.2% compared to revenue of $237.1 million recorded in 2004. Revenue from the Company’s North American operations totaled $246.2 million in 2005, an increase of 27.1% when compared to 2004 revenue of $193.7 million. Revenue from the Company’s European operations totaled $48.3 million in 2005, an increase of 11.3% when compared to 2004 revenue of $43.4 million. The European revenue represented 16.4% and 18.3% of 2005 and 2004 consolidated revenue, respectively. The Company’s revenue included reimbursable expenses billed to customers. These expenses totaled $9.2 million and $8.3 million in 2005 and 2004, respectively.

In North America, the revenue increase in 2005 over 2004 was primarily the result of adding approximately 1,000 or 55% additional billable staff in 2005, which was largely due to the expansion of the IBM staffing business. During 2005, the Company signed an addendum to the Technical Services Agreement it has with IBM making it a predominant supplier to IBM’s Systems and Technology Group. This addendum had, at that time, an expiration date of December 31, 2007. Although the North American billable staff increased by approximately 55%, North American revenue only increased 27.1% as a large percentage of the increase was in the Company’s staffing business which generally yields lower bill rates than the remainder of the Company’s business, and the staff were added throughout the year rather than being in place for the entire year.

In 2005, IBM was the Company’s largest customer, accounting for $105.5 million or 35.8% of consolidated revenue as compared to $52.6 million or 22.2% of 2004 revenue. No other customer accounted for more than 10% of the Company’s revenue in either 2005 or 2004.

The increase in revenue in the Company’s European operation in 2005 as compared to 2004 was primarily due to an increase in demand in 2005 for the testing services offered by the Company. There was a nominal effect on revenue for changes in year-over-year foreign currency exchange rates. In Belgium and Luxembourg, the functional currency is the Euro, while in the United Kingdom the functional currency is the British pound. Had there been no change in these exchange rates from 2004 to 2005, total European revenue would have been approximately $0.1 million higher, or $48.4 million in total in Europe as compared to the $48.3 million reported in 2005.

Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 77.0% of revenue in 2005 as compared to 73.0% of 2004 revenue. The increase in direct costs as a percentage of revenue in 2005 as compared to 2004 was primarily due to the significant increase in the headcount for the Company’s staffing business, which generally yields lower direct profit margins than the remainder of the Company’s business.

Selling, general and administrative (SG&A) expenses were 21.3% of revenue in 2005 as compared to 25.7% of revenue in 2004. The decrease in SG&A expense as a percentage of revenue reflected a higher concentration of staffing business in the Company’s sales mix in 2005, which required a lower level of support from the Company’s SG&A staff than the remainder of the Company’s business. The decrease in the year-over-year percentage of revenue was in contrast to an increase in SG&A expense from 2004 to 2005 totaling approximately $1.9 million. The increase in SG&A in 2005 as compared to 2004 was primarily due to additional recruiting costs incurred of approximately $2.3 million to respond to the increase in demand for the Company’s staffing services, and approximately $0.5 million of additional audit fees offset by approximately $0.1 million for the increase in cash surrender value for company owned life insurance policies that had previously not been recorded, and the Company’s continued efforts to control and reduce its SG&A costs in various areas as a percentage of revenue.

Operating income was 1.7% of revenue in 2005 as compared to 1.3% of revenue in 2004. The Company’s operating income as a percentage of revenue generally increased throughout 2005 primarily as certain transition costs associated with the significant amount of staffing business added during the first quarter of 2005, which totaled approximately 700 of the total 1,000 billable staff added during 2005 ended. Operating income from North American operations was $3.0 million in 2005 as compared to $2.3 million in 2004, while European operations recorded operating income of $1.9 million in 2005 and $0.8 million in 2004.

Interest and other expense, net was 0.5% of revenue in 2005 and 0.3% in 2004. The increase as a percentage of revenue from 2004 to 2005 was primarily due to an increase in the average outstanding debt during 2005 as the Company utilized its revolving line of credit to fund higher accounts receivable during 2005 resulting from the additional billable staff added during the year. Additionally, there were higher interest rates in 2005 on the Company’s revolving debt, and

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the Company realized a loss of approximately $0.1 million for the settlement of inter-company transactions with the Company’s foreign subsidiaries.

The estimated effective tax rate (ETR) resulted from the provision for income taxes from continuing operations was 31.8% in 2005. The ETR is calculated quarterly based upon current assumptions relating to the full years estimated operating results, and various tax related items. The ETR rate in 2005 was reduced primarily due to several items that created net tax benefits totaling approximately $0.3 million. The Company released a net amount of approximately $0.1 million from its tax reserves primarily due to a change in judgment and settlement of open items, and also reduced a valuation allowance for its net operating loss for Canada by approximately $0.2 million. Without the aggregate tax benefit for all of these items totaling approximately $0.3 million, the Company’s ETR in 2005 would be approximately 40.1%. In 2004, the ETR was a benefit of (22.6)%. During 2004, the ETR was reduced by approximately $0.6 million for a release of reserve due to a change in judgment resulting from legislation enacted in The Netherlands, the reversal of approximately $0.5 million of valuation allowances offsetting deferred tax assets related to the Company’s European and Canadian operations, $0.4 million for state tax net operating loss tax benefits that had previously been offset by a valuation allowance, and a net amount of approximately $0.2 million from the release of other deferred tax items. Without these items, the ETR in 2004 would have been approximately 48.0%.

Net income from continuing operations for 2005 was 0.8% of revenue or $0.14 per diluted share, compared to net income from continuing operations of 1.3% of revenue or $0.17 per diluted share in 2004. Diluted earnings per share were calculated using 17.1 million weighted-average equivalent shares outstanding in both 2005 and 2004.

Disposition of Operations

During the first quarter of 2004, the Company disposed of its Dutch operating subsidiary, CTG Nederland B.V. The effective date of the disposition was January 1, 2004, and the transaction has been treated as discontinued operations in the Company’s consolidated financial statements contained in this report. As part of the transaction, the Company retained the assets and liabilities related to the defined-benefit plan for its previous employees in The Netherlands (NDBP). At the time of the disposition, the net assets of the plan totaled approximately $0.5 million. The activities of the NDBP are discussed in note 9, “Deferred Compensation Benefits,” included in the Company’s consolidated financial statements in this Form 10-K under Item 8, “Financial Statements and Supplementary Data.” This unit had previously been included in the financial results of the Company’s European operations.

The loss from discontinued operations resulting from this divestiture totaled approximately $4.4 million in 2004, with approximately $4.3 million of that loss incurred in the first quarter of 2004. The loss includes a cumulative loss on disposal of approximately $3.9 million, and approximately $0.5 million from a foreign currency adjustment which had previously been reported as a direct charge to shareholders’ equity. All activities related to this subsidiary have been removed from the Company’s individual accounts and subsequently combined and included on the line entitled “Loss from discontinued operations” on the Company’s Consolidated Statements of Operations.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” This Interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FAS 109, “Accounting for Income Taxes.” The Interpretation documents recognition and measurement attributes for the financial statement recognition and measurement of tax positions taken or expected to be taken on a company’s tax return. This new Interpretation is effective for the Company for the fiscal year beginning January 1, 2007. Although the Company is currently in the process of completing its evaluation of the effect that the adoption of this Interpretation will have on its financial condition or results of operations, it does not believe the impact will be material.

In September 2006, the FASB issued FAS 157, “Fair Value Measurements.” This FAS defines fair value, provides guidance for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This FAS will be effective for the Company for the fiscal year beginning January 1, 2008. Although the Company is currently evaluating the effect that the adoption of this FAS will have on its financial condition or results of operations, it does not believe the impact, if any, will be material.

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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires the Company’s management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s significant accounting policies are included in note 1 to the consolidated financial statements contained in this Form 10-K under Item 8, “Financial Statements and Supplementary Data.” These policies, along with the underlying assumptions and judgments made by the Company’s management in their application, have a significant impact on the Company’s consolidated financial statements. The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company’s financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company’s most critical accounting policies are those related to goodwill valuation, income taxes, specifically relating to deferred taxes and valuation allowances, and the discount rates and expected return on plan assets, as applicable, used to calculate the Company’s pension obligations.

Goodwill Valuation

The goodwill balance of $35.7 million is evaluated annually or more frequently if facts and circumstances indicate impairment may exist. This evaluation, as applicable, is based on estimates and assumptions that may analyze the appraised value of similar transactions from which the goodwill arose, the appraised value of similar companies, or estimates of future discounted cash flows. The estimates and assumptions on which the Company’s evaluations are based necessarily involve judgments and are based on currently available information, any of which could prove wrong or inaccurate when made, or become wrong or inaccurate as a result of subsequent events.

Under FAS 142, “Goodwill and Other Intangible Assets,” the Company is required to test our goodwill for impairment at least annually. During 2006, the Company changed its annual impairment test date from January 1 (effective valuation date of December 31) to the end of its October fiscal month-end. The Company believes its October fiscal month-end is preferable as it provides additional time prior to the Company’s year-end of December 31 to complete the impairment testing and report the results of those tests in its annual filing on Form 10-K. At our respective measurement dates for 2006, 2005 and 2004, with the assistance of an independent appraisal company, the Company completed its annual valuation of the business unit to which the Company’s goodwill relates. These valuations indicated that the estimated fair value of the business unit exceeded the carrying value of this unit in each period. Additionally, there are no facts or circumstances that arose during 2004, 2005 or 2006 that led management to believe the goodwill was impaired. Accordingly, the Company believes no impairment was required to be recorded in its consolidated financial results. Changes in business conditions which could impact future valuations however, could lead to impairment charges.

Income Taxes – Deferred Taxes and Valuation Allowances

At December 31, 2006, the Company had a total of approximately $6.2 million of current and non-current net deferred tax assets recorded on its balance sheet. The changes in deferred tax assets and liabilities from period to period are determined based upon the changes in differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for tax purposes, as measured by the enacted tax rates when these differences are estimated to reverse. The Company has made certain assumptions regarding the timing of the reversal of these assets and liabilities, and whether taxable income in future periods will be sufficient to recognize all or a part of any gross deferred tax asset of the Company.

At December 31, 2006, the Company has deferred tax assets recorded resulting from net operating losses. This includes assets resulting from net operating losses in various states totaling approximately $0.4 million, in The Netherlands of approximately $2.4 million, and approximately $0.3 million in various other countries. Management of the Company has analyzed each jurisdiction’s tax position, including forecasting potential taxable income in future periods, and the expiration of the net operating loss carryforwards as applicable, and determined that it is unclear whether all of these deferred tax assets will be realized at any point in the future. Accordingly, at December 31, 2006, the Company has offset a portion of these assets with a valuation allowance totaling $2.8 million, resulting in a net deferred tax asset from net operating loss carryforwards of approximately $0.3 million.

21

During 2006 the valuation allowance was increased by approximately $0.2 million, net primarily due to a variety of factors including foreign currency and tax rate changes in The Netherlands of approximately $0.1 million and $0.1 million related to the establishment of a Canadian valuation allowance due to a change in estimate. In 2005, The Netherlands tax authorities settled an audit of the Company’s Netherlands foreign subsidiary’s 2001 income tax return. A resulting decrease in The Netherlands company’s net operating loss carry forward of $0.9 million, with a corresponding decrease in the valuation allowance for this deferred tax asset, was primarily due to the disallowance of interest expense on an intercompany loan with its U.S. parent under thin capitalization rules recently affirmed by The Netherlands court system.

The Company’s deferred tax assets and their potential realizability are evaluated each quarter to determine if any changes should be made to the valuation allowance. Any additional change in the valuation allowance in the future could result in a change in the Company’s ETR. The increase in the valuation allowance of approximately $0.1 million for the Company’s Canadian operations increased the ETR by approximately 2.2%. An additional 1% increase in the ETR would have reduced net income in 2006 by approximately $61,000.

Defined Benefit Pension Plans – Discount Rates and Expected Return on Plan Assets

The Company maintains a non-qualified defined-benefit Executive Supplemental Benefit Plan (ESBP) that provides one current and certain 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. The Company also retained a contributory defined-benefit plan for its previous employees located in The Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V., in the first quarter of 2004. Benefits paid under the NDBP are a function of a percentage of career average pay. The NDBP was curtailed for additional contributions in January 2003.

For the ESBP, the discount rate used in 2006 to calculate the benefit obligation was 5.8%, which is reflective of a series of bonds that are included in the Moody’s Aa long-term corporate bond yield. The Company selected this rate as it anticipates making payments to participants under the ESBP for 20-30 years in the future, and this rate is reflective of specific bonds within the Moody’s Aa index that cover that time period. This rate was an increase of 20 basis points from the rate used in the prior year to calculate the benefit obligation. For 2006, the Company made payments totaling approximately $0.7 million to participants. There is no salary increase rate assumption for the plan as it is frozen for additional benefits, and the plan is deemed to be unfunded as the Company has not specifically set aside assets to be used to discharge the deferred compensation benefit liability. Payments to participants under the ESBP are funded by the Company as needed.

For the NDBP, the discount rate used in 2006 to calculate the benefit obligation was 4.6%, which is reflective of the current return on long-term corporate bonds that have a remaining life of greater than 10 years which corresponds to the remaining average life of the plan. This rate was an increase of 50 basis points from the rate used in the prior year to calculate the benefit obligation. There is no salary increase rate assumption for the plan as it is frozen for additional benefits. During 2006, the Company made a contribution of approximately $0.2 million to fund the NDBP. The expected return on plan assets for 2006 was approximately $0.3 million. The assets in the NDBP are 20% invested in the Aegon World Equity Fund. This fund invests in global equities, with a small portion of the fund in new or emerging economies. The remaining 80% of the assets are invested as determined by Aegon with no direction from the Company, with a guaranteed minimum return to the Company of 4%. The Company’s investments were allocated as indicated above in 2004, 2005 and 2006, and the Company does not anticipate changing these allocation percentages going forward. The expected return on plan assets for 2006 was a function of the average historical return of 4.5% on the 80% of the funds invested by Aegon, and an estimated return of 9% on the 20% of the funds invested in the Aegon Equity Fund. The three year return to the Company on the Aegon Equity Fund was approximately 14.8%. In 2006, the actual return on plan assets approximated the expected return on plan assets.

The Company has also made a number of estimates and assumptions relating to the reporting of other assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Such estimates primarily relate to the valuation of stock options for recording equity-based compensation expense, allowances for doubtful accounts receivable, investment valuation, legal matters, and estimates of progress toward completion and direct profit or loss on contracts, as applicable. Actual results could differ from these estimates.

22

Financial Condition and Liquidity

Cash provided by operating activities was $28.8 million in 2006. Net income from continuing operations was $3.5 million, while other non-cash adjustments, primarily consisting of depreciation expense, equity-based compensation, deferred income taxes, and deferred compensation totaled $3.7 million. The accounts receivable balance decreased $21.1 million as compared to December 31, 2005 primarily due to the Company entering into a cash discount advance payment program with a significant customer. Accordingly, the decrease in the timing of the collection of outstanding invoices resulted in a decrease in days sales outstanding to 63 days at December 31, 2006 from 85 days at December 31, 2005. Prepaid and other assets increased $0.6 million due to the purchase of certain items prior to year-end, while other assets increased $0.5 million primarily due to the increase in cash surrender value of Company owned life insurance policies and the additional funding provided for the NDBP. Income taxes payable, net, increased $0.3 million primarily due to the timing and amount of payments in 2006 as compared to 2006 tax expense. Advance billings on contracts increased $0.7 million due to the timing of billings on customer accounts near the end of 2006.

Investing activities used $1.8 million in 2006, which primarily represented the additions to property and equipment. The Company has no significant commitments for the purchase of property or equipment at December 31, 2006.

Financing activities used $24.9 million of cash in 2006. For 2006, payments on the Company’s revolving credit line totaled $23.2 million. The Company is required to meet certain financial covenants in order to maintain borrowings under the Agreement, pay dividends, and make acquisitions. The Company was in compliance with these covenants at December 31, 2006. The Company borrows or repays its revolving debt as needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll. Daily average borrowings for 2006 were $6.6 million.

During 2006, the Company used $2.2 million to purchase approximately 0.5 million shares of its stock for treasury. At December 31, 2006, approximately 0.7 million shares have been repurchased in total under the current authorization, leaving 0.3 million shares authorized for future purchases.

At December 31, 2006, consolidated shareholders’ equity totaled $61.6 million, an increase of $4.1 million from the December 31, 2005 total of $57.5 million. The increase was primarily due to net income in 2006 of $3.5 million, a foreign currency adjustment of $1.2 million, shares released from the stock trusts valued at $1.4 million, offset by the $2.2 million spent to purchase approximately 0.5 million shares of the Company’s stock for treasury.

During the first quarter of 2006, the Company determined that it owned but had previously not recorded marketable securities that were issued to the Company in 2001 resulting from the demutualization of an insurance company. During the late 1990’s and early 2000’s, CTG purchased medical benefits for its employees from this company through a broker. The company converted from a mutual to a public company in late 2001, and CTG was to receive shares in the new, publicly traded entity. However, due to an error on the part of the issuing company, CTG did not receive notification of the ownership of such shares until late March 2006.

CTG has determined that an asset of approximately $0.2 million, an increase to retained earnings of approximately $0.1 million, net of tax, and an increase in accumulated other comprehensive loss of approximately $0.1 million, net of tax should have been recorded at December 31, 2003. The Company has recorded this asset and adjustments as of December 31, 2003, and has subsequently accounted for this investment as an available-for-sale security in succeeding years. The investment, deferred income taxes, retained earnings, and accumulated other comprehensive loss account balances as displayed on the Company’s consolidated balance sheets for the periods ended December 31, 2004, 2005 and 2006 reflect the accounting for this investment as if it had been recorded in 2001, as well as the current valuation of the investment on those dates (see note 4, “Investments” in the Company’s consolidated financial statements in the Form 10-K under Item 8, “Financial Statements and Supplementary Data).

At December 31, 2006, the Company has restricted use to approximately $0.3 million of its cash and cash equivalents as the funds are held as a guarantee by a financial institution for leased office space.

The Company believes existing internally available funds, cash potentially generated from operations, and available borrowings under the Company’s revolving line of credit totaling approximately $34.6 million at December 31, 2006, will be sufficient to meet foreseeable working capital, capital expenditure, and stock repurchase requirements, and to allow for future internal growth and expansion.

23

Off-Balance Sheet Arrangements

The Company did not have off-balance sheet arrangements or transactions in either 2006 or 2005.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s primary market risk exposures consist of interest rate risk associated with variable rate borrowings and foreign currency exchange risk associated with the Company’s European operations. See Item 7A, “Quantitative and Qualitative Disclosure about Market Risk.”

24

Contractual Obligations

A summary of the Company’s contractual obligations at December 31, 2006 is as follows:

(in millions)		Total		Less than 1 year		Years 2-3		Years 4-5		More than 5 years
Long-term debt	A	$	–	$	–	$	–	$	–	$	–
Capital lease obligations	B		0.0		0.0		–		–		–
Operating lease obligations	C		15.2		5.2		6.9		1.7		1.4
Purchase obligations	D		2.0		1.8		0.2		–		–
Deferred compensation benefits (United States)	E		9.2		1.1		1.5		1.5		5.1
Deferred compensation benefits (Europe)	F		–		–		–		–		–
Other long-term liabilities	G		0.6		0.2		0.2		0.1		0.1
Total		$	27.0	$	8.3	$	8.8	$	3.3	$	6.6

A On April 20, 2005, the Company entered into a new revolving credit agreement (Agreement) which allows the Company to borrow up to $35 million. This Agreement has a term of three years and expires in April 2008. The Company uses this facility to fund its working capital obligations as needed, primarily including funding the U.S. bi-weekly payroll.

The Company currently has two outstanding letters of credit totaling approximately $0.4 million that collateralize an office lease and an employee benefit program.

B The Company has one capital lease totaling less than $50,000, and is not committed to enter any other capital lease obligations at this time.

C Operating lease obligations relate to the rental of office space, office equipment, and automobiles leased in the Company’s European operations. Total rental expense under operating leases in 2006, 2005, and 2004 was approximately $6.3 million, $6.3 million, and $7.4 million, respectively.

D The Company is currently obligated for purchase obligations in 2007 to spend approximately $1.8 million, including $0.7 million for software maintenance and support fees, $0.2 million for computer-based training courses, $0.8 million for telecommunications, and $0.1 million for equipment. In both 2008 and 2009, the Company’s total purchase obligations for similar services totals $0.1 million in each year.

E The Company is committed for deferred compensation benefits in the United States under two plans. The Executive Supplemental Benefit Plan (ESBP) provides one current and certain former key executives with deferred compensation benefits. The ESBP was amended as of November 30, 1994 to freeze benefits for participants at that time. Currently, 13 individuals are receiving benefits under this plan. The ESBP is deemed to be unfunded as the Company has not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities.

The Company also has a non-qualified defined-contribution deferred compensation plan for certain key executives. Contributions to this plan in 2006 were $0.2 million The Company anticipates making contributions totaling approximately $0.4 million in 2007 to this plan for amounts earned in 2006.

F The Company retained a contributory defined-benefit plan for its previous employees located in The Netherlands when the Company disposed of its subsidiary, CTG Nederland B.V., in the first quarter of 2004. This plan was curtailed on January 1, 2003 for additional contributions. As this plan is fully funded at December 31, 2006, the Company does not anticipate making significant additional payments to fund the Plan in future years.

G The Company has other long-term liabilities including payments for a postretirement benefit plan and payments for taxes.

25

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

The Company’s primary market risk exposures consist of interest rate risk associated with variable rate borrowings and foreign currency exchange risk associated with the Company’s European operations.

On April 20, 2005, the Company entered into a new revolving credit agreement which allows the Company to borrow up to $35 million based upon available collateral. At December 31, 2006 and 2005, there were $0 and $23.2 million outstanding, respectively, under this agreement. Additionally, at December 31, 2006 and 2005, there were $0.4 million and $0.3 million, respectively, outstanding under letters of credit under this agreement.

The maximum amounts outstanding under the Company’s revolving credit agreements during 2006, 2005, and 2004 were $23.9 million, $29.4 million, and $14.7 million, respectively. Average bank borrowings outstanding for the years 2006, 2005, and 2004 were $6.6 million, $17.3 million, and $8.6 million, respectively, and carried weighted-average interest rates of 7.8%, 6.0%, and 3.5%, respectively. Accordingly, during 2006 a one percent increase in the weighted-average interest rate would have cost the Company an additional $66,000. The Company incurred commitment fees totaling approximately $0.1 million in each of 2006, 2005 and 2004 relative to the agreements.

During 2006, there was a nominal affect on revenue for year-over-year foreign currency exchange rate changes of Belgium, the United Kingdom, and Luxembourg, the countries in which the Company’s European subsidiaries operate. In Belgium and Luxembourg, the functional currency is the Euro, while in the United Kingdom, the functional currency is the British pound. Had there been no change in these exchange rates from 2005 to 2006, total European revenue would have been approximately $0.5 million lower, or $58.4 million in total in Europe as compared to the $58.9 million reported in 2006. Operating income in Europe was not significantly affected by year-over-year exchange rate changes in these countries. The Company has historically not used any market risk sensitive instruments to hedge its foreign currency exchange risk.

26

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Computer Task Group, Incorporated:

We have audited the accompanying consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Computer Task Group, Incorporated and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Notes 1 and 9 to the consolidated financial statements, during 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), Shared-Based Payment and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Computer Task Group, Incorporated’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 7, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Buffalo, New York

March 7, 2007

27

Consolidated Statements of Operations

Year ended December 31, (amounts in thousands, except per - share data)	2006			2005			2004
Revenue	$	327,253		$	294,465		$	237,122
Direct costs		253,101			226,663			173,025
Selling, general, and administrative expenses		67,298			62,877			60,999
Operating income		6,854			4,925			3,098
Interest and other income		204			101			103
Interest and other expense		(909	)		(1,472	)		(780	)
Income from continuing operations before income taxes		6,149			3,554			2,421
Provision (benefit) for income taxes		2,654			1,131			(546	)
Income from continuing operations		3,495			2,423			2,967
Loss from discontinued operations (including loss on disposal of $3.9 million)		–			–			(4,411	)
Net income (loss)	$	3,495		$	2,423		$	(1,444	)
Basic net income (loss) per share:
Continuing operations	$	0.21		$	0.14		$	0.18
Discontinued operations		–			–			(0.27	)
Basic net income (loss) per share	$	0.21		$	0.14		$	(0.09	)
Diluted net income (loss) per share:
Continuing operations	$	0.21		$	0.14		$	0.17
Discontinued operations		–			–			(0.25	)
Diluted net income (loss) per share	$	0.21		$	0.14		$	(0.08	)

The accompanying notes are an integral part of these consolidated financial statements.

28

Consolidated Balance Sheets

December 31, (amounts in thousands, except share balances)	2006			2005
Assets
Current Assets:
Cash and cash equivalents	$	4,758		$	2,248
Accounts receivable, net of allowances of $866 and $1,087
in 2006 and 2005, respectively		52,544			71,940
Prepaids and other		2,704			1,978
Deferred income taxes		1,185			1,725
Investments		813			–
Total current assets		62,004			77,891
Property and equipment, net of accumulated depreciation of $26,685 and $25,377 in 2006 and 2005, respectively		5,918			6,616
Goodwill		35,678			35,678
Deferred income taxes		4,990			4,727
Other assets		2,679			2,118
Investments		448			1,270
Total assets	$	111,717		$	128,300
Liabilities And Shareholders’ Equity
Current Liabilities:
Accounts payable	$	9,561		$	9,277
Accrued compensation		23,162			22,153
Advance billings on contracts		2,047			1,312
Other current liabilities		5,125			4,773
Income taxes payable		455			70
Total current liabilities		40,350			37,585
Long-term debt		–			23,150
Deferred compensation benefits		8,792			8,842
Other long-term liabilities		944			1,232
Total liabilities		50,086			70,809
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		111,458			111,172
Retained earnings		45,235			41,740
Less: Treasury stock of 7,019,643 and 6,525,890 shares at cost, respectively		(35,005	)		(32,811	)
Stock Trusts of 3,622,560 and 3,939,664 shares at cost, respectively		(56,189	)		(57,542	)
Accumulated other comprehensive loss		(4,138	)		(5,338	)
Total shareholders’ equity		61,631			57,491
Total liabilities and shareholders’ equity	$	111,717		$	128,300

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Cash Flows

Year ended December 31, (amounts in thousands)	2006			2005			2004
Cash flows from operating activities:
Net income (loss)	$	3,495		$	2,423		$	(1,444	)
Loss from discontinued operations		–			–			(4,411	)
Income from continuing operations		3,495			2,423			2,967
Adjustments:
Depreciation expense		2,596			2,662			2,625
Equity-based compensation expense		856			–			–
Deferred income taxes		316			(521	)		(238	)
Tax benefit on stock option exercises		–			31			18
Loss on sales of property and equipment		6			23			31
Deferred compensation		(27	)		117			(95	)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable		21,076			(26,555	)		(5,613	)
(Increase) decrease in prepaids and other		(640	)		33			345
(Increase) decrease in other assets		(481	)		(7	)		75
Increase (decrease) in accounts payable		243			(794	)		675
Increase (decrease) in accrued compensation		404			5,917			(2,687	)
Increase (decrease) in advance billings on contracts		722			(609	)		628
Increase in other current liabilities		196			7			755
Increase in income taxes payable, net		314			374			1,013
Increase (decrease) in other long-term liabilities		(288	)		704			(70	)
Net cash provided by (used in) operating activities		28,788			(16,195	)		429
Cash flows from investing activities:
Additions to property and equipment		(1,830	)		(3,422	)		(1,841	)
Proceeds from sales of property and equipment		6			92			15
Net cash used in investing activities		(1,824	)		(3,330	)		(1,826	)
Cash flows from financing activities:
Proceeds from (payments on) long-term revolving debt, net		(23,150	)		18,500			4,650
Change in cash overdraft, net		(387	)		1,165			(2,094	)
Debt refinancing costs		–			(507	)		–
Proceeds from Employee Stock Purchase Plan		147			144			162
Purchase of stock for treasury		(2,185	)		(1,395	)		–
Proceeds from other stock plans		514			228			160
Excess tax benefits from equity-based compensation		114			–			–
Net cash provided by (used in) financing activities		(24,947	)		18,135			2,878
Cash flows from discontinued operations: (revised - See note 1 for “Statement of Cash Flows”)
Cash used in operating activities		–			–			(2,308	)
Effect of exchange rate changes on cash and cash equivalents		493			(551	)		252
Net increase (decrease) in cash and cash equivalents		2,510			(1,941	)		(575	)
Cash and cash equivalents at beginning of year		2,248			4,189			4,764
Cash and cash equivalents at end of year	$	4,758		$	2,248		$	4,189

The accompanying notes are an integral part of these consolidated financial statements.

30

Consolidated Statements of Changes in Shareholders’ Equity

	Common Stock			Capital in Excess of Par Value			Retained Earnings (see note 2)			Treasury Stock				Stock Trusts					Accumulated Other Comprehensive Loss (see note 2)			Total Shareholders Equity
(amounts in thousands)	Shares	Amount								Shares	Amount			Shares		Amount
Balance as of December 31, 2003	27,018	$	270	$	111,333		$	40,761		6,149	$	(31,416	)	4,152		$	(58,446	)	$	(5,931	)	$	56,571
Employee Stock Purchase Plan share issuance	–		–		(14	)		–		–		–		(41	)		176			–			162
Stock Option Plan share issuance	–		–		(47	)		–		–		–		(53	)		225			–			178
Comprehensive income (loss):
Net loss	–		–		–			(1,444	)	–		–		–			–			–			(1,444	)
Foreign currency adjustment	–		–		–			–		–		–		–			–			1,635			1,635
Minimum pension liability adjustment, net of tax	–		–		–			–		–		–		–			–			(178	)		(178	)
Unrealized gain on investments, net of tax	–		–		–			–		–		–		–			–			125			125
Total comprehensive income (loss)	–		–		–			(1,444	)	–		–		–			–			1,582			138
Balance as of December 31, 2004	27,018		270		111,272			39,317		6,149		(31,416	)	4,058			(58,045	)		(4,349	)		57,049
Employee Stock Purchase Plan share issuance	–		–		(23	)		–		–		–		(39	)		167			–			144
Stock Option Plan share issuance	–		–		(77	)		–		–		–		(79	)		336			–			259
Purchase of stock	–		–		–			–		377		(1,395	)	–			–			–			(1,395	)
Comprehensive income (loss):
Net income	–		–		–			2,423		–		–		–			–			–			2,423
Foreign currency adjustment	–		–		–			–		–		–		–			–			(1,016	)		(1,016	)
Minimum pension liability adjustment, net of tax	–		–		–			–		–		–		–			–			(110	)		(110	)
Unrealized gain on investments, net of tax	–		–		–			–		–		–		–			–			137			137
Total comprehensive income (loss)	–		–		–			2,423		–		–		–			–			(989	)		1,434
Balance as of December 31, 2005	27,018		270		111,172			41,740		6,526		(32,811	)	3,940			(57,542	)		(5,338	)		57,491
Employee Stock Purchase Plan share issuance	–		–		(2	)		–		–		–		(35	)		149			–			147
Stock Option Plan share issuance	–		–		(274	)		–		–		–		(185	)		788			–			514
Excess tax benefits from equity-based compensation	–		–		113			–		–		–		–			–			–			113
Restricted stock issuance/forfeiture	–		–		(407	)		–		2		(9	)	(97	)		416			–			–
Purchase of stock	–		–		–			–		492		(2,185	)	–			–			–			(2,185	)
Equity-based compensation	–		–		856			–		–		–		–			–			–			856
Pension loss adjustment, net of tax	–		–		–			–		–		–		–			–			(151	)		(151	)
Comprehensive income (loss):
Net income	–		–		–			3,495		–		–		–			–			–			3,495
Foreign currency adjustment	–		–		–			–		–		–		–			–			1,183			1,183
Minimum pension liability adjustment, net of tax	–		–		–			–		–		–		–			–			174			174
Unrealized loss on investments, net of tax	–		–		–			–		–		–		–			–			(6	)		(6	)
Total comprehensive income	–		–		–			3,495		–		–		–			–			1,351			4,846
Balance as of December 31, 2006	27,018	$	270	$	111,458		$	45,235		7,020	$	(35,005	)	3,623		$	(56,189	)	$	(4,138	)	$	61,631

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 and Consolidation

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. There are no unconsolidated entities, or off balance sheet arrangements. All inter-company 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 U.S. generally accepted accounting principles. Such estimates primarily relate to the valuation of goodwill, valuation allowances for deferred tax assets, actuarial assumptions, discount rates and expected rates of return, as applicable, for the Company’s defined benefit and postretirement benefit plans, the allowance for doubtful accounts receivable, assumptions underlying stock option valuation, investment valuation, legal matters, and estimates of progress toward completion and direct profit or loss on contracts. Actual results could differ from those estimates.

The Company operates in one industry segment, providing IT staffing solutions services to its clients. These services include IT Staffing and IT Solutions. CTG provides these primary services to all of the markets that it serves. The services provided typically encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and ultimately maintaining the IT solution. A typical customer is an organization with large, complex information and data processing requirements. The Company promotes a significant portion of its services through three vertical market focus areas: Technology Service Providers, Healthcare (which includes services provided to health care providers, health insurers, and life sciences companies) and Financial Services. The Company focuses on these three vertical areas as it believes that these areas are either higher growth markets than the general IT services market and the general economy, or are areas that provide greater potential for the Company’s growth due to the size of the vertical market. The vertical areas of Technology Service Providers, Healthcare, and Financial Services totaled 41%, 24%, and 10% of total consolidated revenue in 2006, 41%, 24%, and 8% of total consolidated revenue in 2005, and 28%, 28%, and 13% of total consolidated revenue in 2004, respectively.

Revenue and Cost Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably assured. For time-and-material contracts revenue is recognized as hours are incurred and costs are expended. Revenue from time-and-material projects totaled approximately 90%, 92% and 89% of 2006, 2005, and 2004 consolidated revenue, respectively.

For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to the customer. Revenue from such projects totaled approximately 6%, 5%, and 7% of 2006, 2005, and 2004 consolidated revenue, respectively.

Revenue for fixed price contracts is recognized as per the proportional method of accounting using an input-based approach whereby salary and indirect labor costs incurred are measured and compared to the total estimate of costs at completion for a project. Revenue is recognized based upon the percent complete calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed price projects that include significant amounts of material or other non-labor related costs which could distort the percent complete within a percentage complete calculation. The Company’s estimate of the total labor costs it expects to incur over the term of the contract is based on the nature of the project and our past experience on similar projects, and includes management judgments and estimates which affect the amount of revenue recognized on fixed price contracts in any accounting period. Revenue from fixed-price contracts accounted for under the percentage-of-completion method totaled approximately 4%, 3%, and 4% of 2006, 2005 and 2004 consolidated revenue, respectively.

As required, the Company includes billable expenses in its accounts as both revenue and direct costs. These billable expenses totaled $9.4 million, $9.2 million, and $8.3 million in 2006, 2005 and 2004, respectively.

Selling, general, and administrative costs are charged to expense as incurred.

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Bad debt expense (benefit) in 2006, 2005 and 2004 was approximately $0, $(0.1) million, and $0.4 million, respectively.

Restricted Cash

At December 31, 2006, the Company has restricted use to approximately $0.3 million of its cash and cash equivalents as the funds are held as a guarantee by a financial institution for leased office space.

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, 2006 and 2005, the carrying amounts of the Company’s financial instruments, which include cash and cash equivalents ($4.8 million and $2.2 million, respectively), accounts receivable, net ($52.5 million and $71.9 million, respectively), accounts payable ($9.6 million and $9.3 million, respectively), and the current and non-current portions of long-term debt ($0 and $23.2 million, respectively), approximate fair value. The value of the Company’s investments ($1.3 million in both years) equals fair value (see note 4, “Investments”).

Investments

The Company’s investments consist of publicly traded equity securities (Equity’s) and mutual funds. The Equity’s are classified as available-for-sale securities and are recorded in the Company’s consolidated balance sheets at fair value based upon market quotes. Unrealized gains and losses on these Equity’s are recorded in shareholders’ equity as a separate component of accumulated other comprehensive loss, net of tax. The mutual funds are assets allocated to the Computer Task Group, Incorporated Non-qualified Key Employee Deferred Compensation Plan. The mutual funds are classified as trading securities and are recorded in the Company’s consolidated balance sheets at fair value based upon market quotes. Unrealized gains and losses on these securities are recorded in earnings, and were nominal in 2006, 2005 and 2004.

Property and Equipment

Property and equipment are generally stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of one year to 30 years, and begins after an asset has been put into service. 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, if any, is reflected in current earnings. Maintenance and repairs are charged to expense when incurred, while significant betterments to existing assets are capitalized.

Leases

The Company is obligated under a number of long-term operating leases primarily for the rental of office space, office equipment and automobiles based in Europe. In instances where the Company has negotiated leases that contain rent holidays or escalation clauses, the expense for those leases is recognized monthly on a straight line basis over the term of the lease.

Goodwill

Under FAS 142, “Goodwill and Other Intangible Assets,” the Company is required to test our goodwill for impairment at least annually. During 2006, the Company changed its annual impairment test date from January 1 (effective valuation date of December 31) to the end of its October fiscal month-end. The Company believes its October fiscal month-end is preferable as it provides additional time prior to the Company’s year-end of December 31 to complete the impairment testing and report the results of those tests in its annual filing on Form 10-K.

As of December 31, 2006 or 2005, the Company does not have any intangible assets other than goodwill recorded on its consolidated balance sheets. At our respective measurements dates for 2006, 2005, and 2004, with the assistance of an independent appraisal company, the Company completed its annual valuation of the business unit to which the

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Company’s goodwill relates. These valuations, as applicable, are based on estimates and assumptions that may analyze the appraised value of similar transactions from which the goodwill arose, the appraised value of similar companies, or estimates of future discounted cash flows. The valuations indicated that the estimated fair value of the business unit exceeded the carrying value of this unit in each period. Additionally, there are no facts or circumstances that arose during 2006, 2005 or 2004 that led management to believe the goodwill was impaired. Accordingly, the Company believes no goodwill impairment is required to be recorded in its consolidated financial results.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Long-lived assets 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 by sale are reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes

The Company provides for deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. In assessing the realizability of deferred tax assets, management considers within each tax 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. Tax credits, if any, are accounted for as a reduction of the income tax provision in the year in which they are realized.

For the year ended December 31, 2006, the tax expense associated with the pension loss adjustment, net was $0.1 million. For both of the years ended December 31, 2005 and 2004, the tax expense associated with the minimum pension liability adjustment was $0.1 million.

Stock-Based Employee Compensation

On January 1, 2006, the Company adopted the provisions of FAS 123R, “Share-Based Payment” (FAS 123R) and related interpretations on a modified prospective basis, which required the Company to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption. With the adoption of the standard, the calculated fair value cost of its equity-based compensation awards are recognized in the Company’s income statement over the period in which an employee or director is required to provide the services for the award. Compensation cost is not recognized for employees or directors that do not render the requisite services. The Company recognized the expense for equity-based compensation in its 2006 statement of operations on a straight-line basis based upon awards that are ultimately expected to vest. See note 12, “Stock Option Plans.”

On November 16, 2005, the Board of Directors of the Company approved the acceleration of the vesting of all unvested out-of-the money stock options previously awarded to its employees, including its executive officers and its directors under the Company’s equity compensation plans having an exercise price greater than $3.48, which was the closing price of the Company’s common stock on that date. Options to purchase approximately 1.1 million shares of the Company’s common stock became exercisable immediately. The weighted-average exercise price of the options subject to the acceleration was $4.69.

The purpose of the acceleration was to enable the Company to eliminate future compensation expense the Company would otherwise recognize in its statements of operations with respect to these accelerated options upon the adoption of FAS 123R. The Board of Directors took the action in the belief that it is in the best interest of the shareholders to minimize future compensation expense associated with stock options upon adoption of FAS 123R. The estimate of the maximum future compensation expense that would have been recorded in the Company’s statements of operations had the vesting of these options not been accelerated was approximately $1.4 million.

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The following table details the effect on net income (loss) and basic and diluted net income (loss) per share as if the Company had adopted the fair value recognition provisions of FAS 123R as they apply to stock-based employee compensation for all periods presented:

(amounts in thousands, except per-share data)	2006			2005			2004
Net income (loss), as reported for the prior periods (a)		N/A		$	2,423		$	(1,444	)
Stock-based employee compensation expense	$	856		$	3,288		$	1,280
Tax benefit		(260	)		(786	)		(198	)
Stock based compensation, net of tax (b)	$	596		$	2,502		$	1,082
Net income (loss), including stock-based compensation (a)	$	3,495		$	(79	)	$	(2,526	)
Basic net income (loss) per share, as reported for the prior periods (a)		N/A		$	0.14		$	(0.09	)
Basic net income (loss) per share, including the effect of stock-based compensation expense (b)	$	0.21		$	(0.00	)	$	(0.15	)
Diluted net income (loss) per share, as reported for the prior periods (a)		N/A		$	0.14		$	(0.08	)
Diluted net income (loss) per share, including the effect of stock-based compensation expense (b)	$	0.21		$	(0.00	)	$	(0.15	)

(a) Net income (loss), net income (loss) including stock-based compensation, and basic and diluted net income (loss) per share prior to January 1, 2006 did not include stock-based compensation expense as the Company continued to apply the recognition and expensing provisions of APB No. 25.

(b) Prior to January 1, 2006, stock-based compensation was only reported on a pro forma basis in the Company’s footnotes.

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Net Income (Loss) Per Share

Basic and diluted earnings (loss) per share (EPS) for the years ended December 31, 2006, 2005, and 2004 are as follows:

For the year ended (amounts in thousands, except per-share data)	Net Income (Loss)			Weighted Average Shares	Earnings (Loss) per Share
December 31, 2006
Basic EPS
Income from continuing operations	$	3,495		16,417	$	0.21
Loss from discontinued operations		–		16,417		–
Net income	$	3,495		16,417	$	0.21
Diluted EPS
Income from continuing operations	$	3,495		16,745	$	0.21
Loss from discontinued operations		–		16,745		–
Net income	$	3,495		16,745	$	0.21
December 31, 2005
Basic EPS
Income from continuing operations	$	2,423		16,735	$	0.14
Loss from discontinued operations		–		16,735		–
Net income	$	2,423		16,735	$	0.14
Diluted EPS
Income from continuing operations	$	2,423		17,066	$	0.14
Loss from discontinued operations		–		17,066		–
Net income	$	2,423		17,066	$	0.14
December 31, 2004
Basic EPS
Income from continuing operations	$	2,967		16,761	$	0.18
Loss from discontinued operations		(4,411	)	16,761		(0.27	)
Net loss	$	(1,444	)	16,761	$	(0.09	)
Diluted EPS
Income from continuing operations	$	2,967		17,140	$	0.17
Loss from discontinued operations		(4,411	)	17,140		(0.25	)
Net loss	$	(1,444	)	17,140	$	(0.08	)

Weighted-average shares represent the average of issued shares, less treasury shares, shares held in the Stock Trusts, and for the basic EPS calculation, unvested restricted stock. In 2006, 2005 and 2004, the dilutive effect of outstanding stock options was 328,000, 331,000, and 379,000 weighted-average shares, respectively.

Certain options representing 1.8 million, 2.3 million, and 1.8 million shares of common stock were outstanding at December 31, 2006, 2005, and 2004, respectively, but were not included in the computation of diluted earnings per share, as the options’ exercise price was greater than the average market price of the Company’s common shares.

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Foreign Currency

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. The Company recorded a loss totaling approximately $0, $(0.1) million and $0 in 2006, 2005, and 2004, respectively, from foreign currency transactions for the settlement of intercompany balances.

Statements of Cash Flows

For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand; demand deposits; and short-term, highly liquid investments with a maturity of three months or less. Additionally, as the Company does not fund its bank accounts for the checks it has written until the checks are presented to the bank for payment, the change in cash overdraft, net represents the increase or decrease in outstanding checks.

In 2006 and 2005, the Company has separately disclosed the operating cash flows from discontinued operations in 2004 (there were no cash flows from either investing or financing activities).

Interest paid during 2006, 2005, and 2004 amounted to $0.6 million, $1.1 million, and $0.4 million, respectively, while net income tax payments (receipts) totaled $1.8 million, $0.7 million, and $(1.5) million for the respective years.

Taxes Collected from Customers

In instances where the Company collects taxes from its customers for remittance to government authorities, primarily in its European operations, such taxes are recorded and presented on a net basis.

Accumulated Other Comprehensive Loss

The components that make up accumulated other comprehensive loss on the consolidated balance sheets at December 31, 2006, 2005, and 2004 are as follows:

(amounts in thousands)	2006			2005			2004
Foreign currency adjustment	$	(3,038	)	$	(4,221	)	$	(3,205	)
Pension loss adjustment, net of tax of $950 in 2006		(1,476	)		–			–
Unrealized gain on investments, net of tax of $239 in 2006, $243 in 2005, and $154 in 2004		376			382			245
Minimum pension liability adjustment, net of tax of $949 in 2005 and $903 in 2004		–			(1,499	)		(1,389	)
	$	(4,138	)	$	(5,338	)	$	(4,349	)

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2. Adjustment to Shareholders’ Equity as of December 31, 2003

During the first quarter of 2006, the Company determined that it owned but had previously not recorded marketable securities that were issued to the Company in 2001 resulting from the demutualization of an insurance company. During the late 1990’s and early 2000’s, CTG purchased medical benefits for its employees from this company through a broker. The company converted from a mutual to a public company in late 2001, and CTG was to receive shares in the new, publicly traded entity. However, due to an error on the part of the issuing company, CTG did not receive notification of the ownership of such shares until late March 2006.

CTG has determined that an asset of approximately $0.2 million, an increase to retained earnings of approximately $0.1 million, net of tax, and an increase in accumulated other comprehensive loss of approximately $0.1 million, net of tax should have been recorded at December 31, 2003. The Company has recorded this asset and adjustments as of December 31, 2003, and has subsequently accounted for this investment as an available-for-sale security in succeeding years. The investment, deferred income taxes, retained earnings, and accumulated other comprehensive loss account balances as displayed on the Company’s consolidated balance sheets for the periods ended December 31, 2004, 2005 and 2006 reflect the accounting for this investment as if it had been recorded in 2001, as well as the current valuation of the investment on those dates (see note 4, “Investments”).

3. Discontinued Operations

During the first quarter of 2004, the Company disposed of its Dutch operating subsidiary, CTG Nederland B.V. The effective date of the disposition was January 1, 2004, and the transaction has been treated as discontinued operations in these consolidated financial statements. As part of the transaction, the Company retained the assets and liabilities related to the defined-benefit plan for its previous employees in The Netherlands (NDBP). At the time of the disposition, the net assets of the plan totaled approximately $0.5 million. The activities of the NDBP are discussed in note 9, “Deferred Compensation Benefits.” This unit had previously been included in the financial results of the Company’s European operations.

The loss from discontinued operations resulting from this divestiture totaled approximately $4.4 million in 2004, with approximately $4.3 million of that loss incurred in the first quarter of 2004. The loss includes a cumulative loss on disposal of approximately $3.9 million, and approximately $0.5 million from a foreign currency adjustment which had previously been reported as a direct charge to shareholders’ equity. All activities related to this subsidiary have been removed from the Company’s individual accounts and subsequently combined and included on the line entitled “Loss from discontinued operations” on the Company’s Consolidated Statements of Operations.

4. Investments

At December 31, 2006 and 2005, the carrying value of the Company’s investments is as follows:

December 31, (amounts in thousands)	2006		2005
Trading	$	448	$	447
Available-for-sale		813		823
	$	1,261	$	1,270

At December 31, 2006 and 2005, the Company’s available-for-sale investments are summarized as follows:

December 31, (amounts in thousands)	2006		2005
Equity securities - cost	$	198	$	198
Unrealized gains		615		625
Equity securities – fair value	$	813	$	823

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There were no available-for-sale investments owned by the Company at either December 31, 2005 or 2006 that had an unrealized loss. The available-for-sale securities were classed as non-current assets at December 31, 2005 and as current assets at December 31, 2006 as the company sold these assets in the first quarter of 2007. The Company did not sell any available-for-sale assets during 2005 or 2006. At both December 31, 2006 and 2005, unrealized gains on available-for-sale investments, net of tax, was $0.4 million and was included in accumulated other comprehensive loss.

5. Property and Equipment

Property and equipment at December 31, 2006 and 2005 are summarized as follows:

December 31,	Useful Life	2006			2005
	(years)	(amounts in thousands)
Land	–	$	378		$	378
Buildings	30		4,448			4,448
Equipment	2-5		10,825			10,894
Furniture	5-10		4,738			4,510
Software	1-5		8,974			8,901
Leasehold improvements	3-10		3,240			2,862
			32,603			31,993
Less accumulated depreciation			(26,685	)		(25,377	)
		$	5,918		$	6,616

6. Debt

On April 20, 2005, the Company entered into a revolving credit agreement (Agreement) which allows the Company to borrow up to $35 million. This Agreement has a term of three years and expires in April 2008. The Agreement has interest rates ranging from 0 to 75 basis points over the prime rate and 150 to 225 basis points over Libor, and provides certain of the Company’s assets as security for outstanding borrowings. The Company is required to meet certain financial covenants in order to maintain borrowings under the Agreement, pay dividends, and make acquisitions. At December 31, 2006 and 2005, the Company was in compliance with these covenants. At December 31, 2006 and 2005, there were $0 and $23.2 million outstanding, respectively, under this Agreement. Additionally, at December 31, 2006 and 2005, there were $0.4 million and $0.3 million, respectively, outstanding under letters of credit under this Agreement.

The maximum amounts outstanding under the revolving credit agreements during 2006, 2005, and 2004 were $23.9 million, $29.4 million, and $14.7 million, respectively. Average bank borrowings outstanding for the years 2006, 2005, and 2004 were $6.6 million, $17.3 million, and $8.6 million, respectively, and carried weighted-average interest rates of 7.8%, 6.0%, and 3.5%, respectively. The Company incurred commitment fees totaling approximately $0.1 million in each of 2006, 2005 and 2004 relative to its credit agreements.

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7. Income Taxes

The provision (benefit) for income taxes for 2006, 2005, and 2004 consists of the following:

(amounts in thousands)	2006			2005			2004
Domestic and foreign components of income (loss) before income taxes are as follows:
Domestic	$	4,769		$	2,835		$	2,552
Foreign		1,380			719			(131	)
	$	6,149		$	3,554		$	2,421
The provision (benefit) for income taxes consists of:
Current tax:
U.S. federal	$	1,208		$	924		$	201
Foreign		922			532			(697	)
U.S. state and local		208			196			188
		2,338			1,652			(308	)
Deferred tax:
U.S. federal		(179	)		(613	)		12
Foreign		353			172			330
U.S. state and local		142			(80	)		(580	)
		316			(521	)		(238	)
	$	2,654		$	1,131		$	(546	)
The effective and statutory income tax rate can be reconciled as follows:
Tax at statutory rate of 34%	$	2,091		$	1,208		$	823
State tax, net of federal benefits		180			99			102
Benefit of state net operating losses previously offset by valuation allowances		3			(29	)		(356	)
Non-taxable income		(687	)		(557	)		(455	)
Non-deductible expenses		934			712			600
Change in beginning of year temporary differences		(15	)		–			(151	)
Change in estimate primarily related to recent tax legislation enacted in Europe		–			–			(639	)
Change in estimate primarily related to foreign taxes		135			(161	)		–
Change in estimate primarily related to state taxes and tax reserves		91			(88	)		–
Benefit of foreign net operating losses previously offset by valuation allowances		(17	)		(66	)		(524	)
Foreign tax rate change		–			–			47
Other, net		(61	)		13			7
Effective income tax rate	$	2,654		$	1,131		$	(546	)
		43.2	%		31.8	%		(22.6	)%

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The effective tax rate (ETR) resulting from the provision for income taxes from continuing operations was 43.2% in 2006. The ETR is calculated quarterly based upon current assumptions relating to the full years estimated operating results, and various tax related items. The ETR in 2006 was increased primarily due to several items that increased tax expense by approximately $0.2 million. The Company added approximately $0.1 million to its tax reserves due to a change in estimate of recoverability, and increased the valuation allowance for the net operating loss for Canada by approximately $0.1 million in the fourth quarter of 2006. Without these items the ETR in 2006 would have been approximately 39.5%. The ETR in 2005 was 31.8%. The ETR rate in 2005 was reduced primarily due to several items that created net tax benefits totaling approximately $0.3 million. The Company released a net amount of approximately $0.1 million from its tax reserves primarily due to a change in judgment and settlement of open items, and also reduced a valuation allowance for its net operating loss for Canada by approximately $0.2 million in the fourth quarter of 2005. Without these items the Company’s ETR in 2005 would have been approximately 40.1%.

The Company’s deferred tax assets and liabilities at December 31, 2006 and 2005 consist of the following:

December 31, (amounts in thousands)	2006			2005
Assets
Deferred compensation	$	3,653		$	3,351
Loss carryforwards		3,106			3,353
Accruals deductible for tax purposes when paid		601			758
Depreciation		246			30
Allowance for doubtful accounts		248			338
Amortization		679			798
State taxes		705			691
Gross deferred tax assets		9,238			9,319
Deferred tax assets valuation allowance		(2,768	)		(2,559	)
Liabilities
Unrealized gain on investments		(272	)		(275	)
Depreciation		(23	)		(33	)
Gross deferred tax liabilities		(295	)		(308	)
Net deferred tax assets	$	6,175		$	6,452
Net deferred assets and liabilities are recorded as follows:
Net current assets		1,185			1,725
Net non-current assets		4,990			4,727
Net deferred tax assets	$	6,175		$	6,452

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. Factors that may affect the Company’s ability to achieve sufficient forecasted taxable income in future periods may include, but are not limited to, the following: increased competition, a decline in sales or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for IT services. Based upon the levels of historical taxable income or loss and projections for future taxable income or loss over the years in which the deferred tax assets are deductible, at December 31, 2006 management believes that it is more likely than not that the Company will realize the benefits, net of the established valuation allowance, of these deferred tax assets in the future.

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The Company has various state net operating loss carryforwards totaling approximately $10.1 million. These state net operating losses have a carryforward period of 5 to 20 years and these losses began to expire in 2007. For Canada, the expiration of the net operating loss carryforward totaling $0.4 million is 7 years and begins to expire in 2008. In Europe, the expiration of the net operating loss carryforward for The Netherlands totaling $8.1 million is 9 years and begins to expire in 2009, while in the United Kingdom the net operating loss carryforward is approximately $0.3 million, and has no expiration date.

At December 31, 2006, the Company has a deferred tax asset before the valuation allowance resulting from net operating losses in various states of approximately $0.4 million, in The Netherlands of approximately $2.4 million, and approximately $0.3 million in various other countries where it does business. Management of the Company has analyzed each jurisdiction’s tax position, including forecasting potential taxable income in future years, and the expiration of the net operating loss carryforwards as applicable, and determined that it is unclear whether all of the deferred tax asset totaling $3.1 million will be realized at any point in the future. Accordingly, at December 31, 2006, the Company has offset a portion of the asset with a valuation allowance totaling $2.8 million, resulting in a net deferred tax asset from net operating loss carryforwards of approximately $0.3 million. During 2006 the valuation allowance was increased by approximately $0.2 million net, due to a variety of factors including foreign currency changes in The Netherlands of $0.1 million, and $0.1 million related to the establishment of the Canadian valuation allowance due to a change in estimate of recoverability. In 2005, The Netherlands tax authorities settled an audit of the Company’s Dutch foreign subsidiary’s 2001 income tax return. A resulting decrease in The Netherlands Company’s net operating loss carry forward of $0.9 million was due primarily to the disallowance of interest expense on an intercompany loan with its US parent under thin capitalization rules recently affirmed by The Netherlands court system. This change had no net effect on the net deferred asset after a corresponding adjustment in the valuation allowance which fully offsets the deferred tax asset.

During 2004, the Company adopted a tax planning strategy for state tax purposes whereby it combined its operating subsidiary in the United States into the parent corporation. This combination allows the Company to utilize its net operating loss in many of the various states where a net operating loss carryforward exists. Due to the adoption of this strategy at the end of the fourth quarter of 2004, the Company was able to recognize $0.5 million for state tax net operating loss tax benefits that had previously been fully offset by a valuation allowance. At December 31, 2006, there is approximately $0.2 million of valuation allowance remaining that offsets the state net operating loss deferred tax asset.

Undistributed earnings of the Company’s foreign subsidiaries were minimal at December 31, 2006, 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 foreign entities’ earnings were distributed, it is estimated that U.S. federal and state income taxes, net of foreign credits, would be immaterial.

In 2006, 2005, and 2004, 185,000, 74,000, and 37,000 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 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 $113,000, $31,000, and $18,000 in 2006, 2005, and 2004, respectively. These tax benefits have also been recognized in the consolidated balance sheets as a reduction of current taxes payable.

The Company has established reserves for tax contingencies based upon the probable outcome of tax positions taken for financial statement purposes compared to positions taken on the Company’s tax returns. The Company reviews its tax-contingency reserves on a quarterly basis to ensure they are appropriately stated. Such reviews include consideration of factors such as the cause of the action, the degree of probability of an unfavorable outcome, the Company’s ability to estimate the liability, and the timing of the liability and how it will impact the Company’s other tax attributes. At December 31, 2006, the Company believes it has adequately provided for its tax-related liabilities.

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8. Lease Commitments

At December 31, 2006, the Company was obligated under a number of long-term operating leases. Minimum future obligations under such leases are summarized as follows:

Year ending December 31, (amounts in thousands)
2007	$	5,237
2008		4,229
2009		2,701
2010		1,142
2011		489
Later years		1,368
Minimum future obligations	$	15,166

The operating lease obligations relate to the rental of office space, office equipment, and automobiles leased in Europe. Total rental expense under such operating leases for 2006, 2005, and 2004 was approximately $6.3 million, $6.3 million, and $7.4 million, respectively.

9. Deferred Compensation Benefits

The Company maintains a non-qualified defined-benefit Executive Supplemental Benefit Plan (ESBP) that provides one current and certain 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 the years ended December 31, 2006, 2005, and 2004 for the ESBP is as follows:

Net Periodic Pension Cost - ESBP (amounts in thousands)	2006		2005		2004
Interest cost	$	493	$	513	$	532
Amortization of actuarial loss		118		108		87
Net periodic pension cost	$	611	$	621	$	619

The Company also retained a contributory defined-benefit plan for its previous employees located in The Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V., in the first quarter of 2004. Benefits paid are a function of a percentage of career average pay. The Plan was curtailed for additional contributions in January 2003.

Net periodic pension benefit for the twelve month periods ended September 29, 2006, September 30, 2005, and October 1, 2004 for the NDBP is as follows:

Net Periodic Pension Cost (Benefit) – NDBP (amounts in thousands)	2006			2005			2004
Interest cost	$	241		$	252		$	232
Expected return on plan assets		(301	)		(281	)		(285	)
Amortization of actuarial loss		2			1			–
Net periodic pension benefit	$	(58	)	$	(28	)	$	(53	)

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The change in benefit obligation and reconciliation of fair value of plan assets for the year ended December 31, 2006 and 2005 for the ESBP, and for the twelve month period ended September 29, 2006 and September 30, 2005 for the NDBP are as follows:

Changes in Benefit Obligation (amounts in thousands)	ESBP						NDBP
	2006			2005			2006			2005
Benefit obligation at beginning of period	$	9,159		$	9,103		$	5,774		$	4,869
Interest cost		493			513			241			252
Benefits paid		(703	)		(698	)		(62	)		(23	)
Actuarial (gain) loss		(166	)		241			(711	)		250
Effect of exchange rate changes		–			–			290			426
Benefit obligation at end of period		8,783			9,159			5,532			5,774
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at beginning of period		–			–			5,734			5,511
Actual return on plan assets		–			–			290			441
Employer contributions		703			698			197			–
Benefits paid		(703	)		(698	)		(62	)		(23	)
Effect of exchange rate changes		–			–			319			(195	)
Fair value of plan assets at end of period		–			–			6,478			5,734
Unfunded (funded) status		8,783			9,159			(946	)		40
Unrecognized net actuarial loss		–			(2,448	)		–			(664	)
Accrued benefit cost (asset)	$	8,783		$	6,711		$	(946	)	$	(624	)
Discount rate:
Benefit obligation		5.80	%		5.60	%		4.60	%		4.10	%
Net periodic pension cost		5.60	%		5.85	%		4.60	%		4.10	%
Salary increase rate		–			–			–			–
Expected return on plan assets		–			–			5.00	%		5.00	%

For the ESBP, the accumulated benefit obligation at December 31, 2006 and 2005 was $8.8 million and $9.2 million, respectively. The amounts included in other comprehensive loss relating to the pension loss adjustment in 2006 and the minimum pension liability adjustment for 2005, net of tax, were approximately $0.2 million and $(0.1) million, respectively. 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 participants in amounts considered sufficient to reimburse the Company for the costs associated with the plan for those participants. The Company does not anticipate making contributions to the plan in 2007 and future years to fund the plan.

For the NDBP, the accumulated benefit obligation at September 29, 2006 and September 30, 2005 was $5.5 million and $5.8 million, respectively. The assets in the NDBP are 20% invested in the Aegon World Equity Fund. This fund invests in global equities, with a small portion of the fund in new or emerging economies. The remaining 80% of the assets are invested as determined by Aegon with no direction from the Company, with a guaranteed minimum return to the Company of 4%. The historical return to the Company on these investments has been approximately 4.5%. The Company’s investments were allocated as indicated above in both 2005 and 2006, and the Company does not anticipate changing these allocation percentages in 2007. The expected return on plan assets for 2005 and 2006 was a function of the average historical return of 4.5% on the 80% of the funds invested by Aegon, and a historical return of 9% on the 20% of the funds invested in the Aegon Equity Fund. The Company does not anticipate making significant additional contributions to the plan in 2007 and future years, as the plan is currently fully funded.

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Anticipated benefit payments for the ESBP and the NDBP are expected to be paid in future years as follows:

Year ending December 31, (amounts in thousands)	ESBP		NDBP
2007	$	734	$	46
2008		759		58
2009		779		63
2010		761		80
2011		749		84
2012-2016		3,587		683
	$	7,369	$	1,014

For December 31, 2006, the Company adopted the provisions of FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (FAS 158). FAS 158 required the Company to recognize the funded status of its plans, measured as the difference between the fair value of the plan assets and the benefit obligation, in its consolidated balance sheet. Additionally, FAS 158 required the Company to recognize as a component of other accumulated comprehensive loss, net of tax, the gains or losses and prior service costs or credits that arose during the period but were not recognized as components of net periodic pension cost. The disclosures below relate to the application of FAS 158 to the ESBP, the NDBP, and the postretirement benefit plan discussed in note 10, “Employee Benefits,” under the caption “Other Postretirement Benefits.”

The incremental effect of applying FAS 158 on individual line items in the Company’s consolidated balance sheet for December 31, 2006 is as follows:

(amounts in thousands)	Prior to FAS 158		Adjustment			After FAS 158
Deferred income taxes	$	5,102	$	(112	)	$	4,990
Other assets	$	2,653	$	26		$	2,679
Total assets	$	111,803	$	(86	)	$	111,717
Deferred compensation benefits	$	8,503	$	289		$	8,792
Total liabilities	$	49,797	$	289		$	50,086
Accumulated other comprehensive loss	$	3,987	$	151		$	4,138
Total shareholders’ equity	$	61,782	$	(151	)	$	61,631

The amounts included in accumulated other comprehensive loss, net of tax, that have not yet been recognized as components of net periodic benefit cost as of December 31, 2006 are as follows:

(amounts in thousands)	ESBP		NDBP			Post- Retirement Plan			Total
Unrecognized actuarial (gain) loss	$	1,325	$	(26	)	$	71		$	1,370
Unrecognized transition obligation		–		–			107			107
Unrecognized prior service cost		–		–			(1	)		(1	)
	$	1,325	$	(26	)	$	177		$	1,476

The amounts included in accumulated other comprehensive loss, net of tax, that had not yet been recognized as a component of net periodic benefit cost as of December 31, 2005 was an unrecognized actuarial loss of $1,499,000 for the ESBP.

The amounts recognized in other comprehensive loss, net of tax, for 2006, 2005, and 2004 consists of a actuarial (gain) loss of $(174,000), $110,000, and $178,000, respectively for the ESBP.

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The amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2007 are as follows:

	ESBP		NDBP			Post- Retirement Plan		Total
(amounts in thousands)
Unrecognized actuarial (gain) loss	$	99	$	(26	)	$	4	$	77
Unrecognized transition obligation		–		–			29		29
Unrecognized prior service cost		–		–			0		0
	$	99	$	(26	)	$	33	$	106

The Company also maintains a non-qualified defined-contribution deferred compensation plan for certain key executives. The Company contributions to this plan, if any, are based on annually defined financial performance objectives. There were $0.2 million in contributions to the plan in 2006 for amounts earned in 2005. There were no contributions to the plan in 2005 or 2004. The Company anticipates making contributions totaling approximately $0.4 million to this plan for amounts earned in 2006.

10. 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 consist of cash, and may include the Company’s stock, were funded and charged to operations in the amounts of $2.4 million, $2.1 million, and $1.3 million for 2006, 2005, and 2004, respectively.

Other Retirement Plans

The Company maintains various other defined contribution retirement plans covering substantially all of the remaining European employees. Company contributions charged to operations were $0.2 million, $0.2 million, and $0.1 million in 2006, 2005, and 2004, respectively.

Other Postretirement Benefits

The Company provides limited healthcare and life insurance benefits to one current and nine retired employees and their spouses, totaling 16 participants, pursuant to contractual agreements.

Net periodic postretirement benefit cost for the years ended December 31, 2006, 2005, and 2004 is as follows:

Net Periodic Postretirement Benefit Cost	2006		2005		2004
(amounts in thousands)
Interest cost	$	41	$	37	$	38
Amortization of transition amount		29		29		29
Amortization of actuarial loss		9		–		–
Net periodic postretirement benefit cost	$	79	$	66	$	67

No adjustments were made to the 2005 net periodic postretirement benefit cost due to Medicare reform as the amounts were deemed to be insignificant.

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The change in postretirement benefit obligation at December 31, 2006 and 2005 is as follows:

Change’s in Postretirement Benefit Obligation	2006			2005
(amounts in thousands)
Postretirement benefit obligation at beginning of year	$	773		$	666
Interest cost		41			37
Plan amendment		–			(2	)
Benefits paid		(54	)		(42	)
Actuarial (gain) loss		(54	)		114
Postretirement benefit obligation at end of year		706			773
Fair value of plan assets at end of year		–			–
Unfunded status		706			773
Unrecognized transition obligation		–			(205	)
Plan amendment		–			2
Unrecognized loss		–			(178	)
Accrued postretirement benefit obligation	$	706		$	392
Discount rate:
Benefit obligation		5.80	%		5.60	%
Net periodic postretirement benefit cost		5.60	%		5.85	%
Salary increase rate		–			–

Benefits paid to participants are funded by the Company as needed. Anticipated benefit payments for the postretirement medical plan are expected to be paid in future years as follows:

Year ending December 31,
(amounts in thousands)
2007	$	59
2008		64
2009		68
2010		64
2011		56
2012-2016		278
	$	589

The rate of increase in healthcare costs is assumed to be 11% for medical, 6.5% for dental, and 10% for Medicare Part B in 2006, gradually declining to 5% by the year 2013 and remaining at that level thereafter. Increasing the assumed healthcare cost trend rate by one percentage point would increase the accrued postretirement benefit obligation by $52,300 at December 31, 2006, and the net periodic postretirement benefit cost by $3,000 for the year. A one-percentage-point decrease in the healthcare cost trend would decrease the accrued postretirement benefit obligation by $46,400 at December 31, 2006, and the net periodic postretirement benefit cost by $2,700 for the year.

11. Shareholders’ Equity

Employee Stock Purchase Plan

Under the Company’s First Employee Stock Purchase Plan (Plan), employees may apply up to 10% of their compensation to purchase the Company’s common stock. Shares are purchased at the closing market price on the business day preceding the date of purchase. As of December 31, 2006, approximately 149,000 shares remain unissued under the Plan, of the total of 11.5 million shares that had been authorized under the Plan. During 2006, 2005, and 2004, approximately 35,000, 39,000, and 41,000 shares, respectively, were purchased under the plan at an average price of $4.20, $3.66, and $3.92 per share, respectively.

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Shareholder Rights Plan

The Board of Directors adopted a Shareholder Rights Plan in January 1989. Under the plan, one right was distributed for each share of common stock outstanding on January 27, 1989, and on each additional share of common stock issued after that date and prior to the date the rights become exercisable. The rights become exercisable when 20% or more of the Company’s outstanding common stock is acquired by a person or group, other than Company-provided employee benefit plans, and when an offer to acquire is made. Each right entitles the holder to purchase Series A preferred stock (which is essentially equivalent to common stock) at a 50% discount from the then-market price of the common stock or, in the event of a merger, consolidation, or sale of a major part of the Company’s assets, to purchase common stock of the acquiring company at a 50% discount from its then-market price. The Shareholder Rights Plan was amended in 1999 to provide that the rights expire in November 2008. The rights may be redeemed by the Company at a price of $.01 per right.

Stock Trusts

The Company maintains a Stock Employee Compensation Trust (SECT) to provide funding for existing employee stock plans and benefit programs. Shares are purchased by and released from the SECT by the trustee of the SECT at the request of the compensation committee of the Board of Directors. As of December 31, 2006, all shares remaining in the SECT were unallocated and, therefore, are not considered outstanding for purposes of calculating earnings per share.

SECT activity for the year’s ended December 31, 2006, 2005, and 2004 is as follows:

(amounts in thousands)	2006		2005		2004
Share balance at beginning of year	3,881		3,999		4,093
Shares purchased	–		–		–
Shares released:
Stock option plans	(185	)	(79	)	(53	)
Employee Stock Purchase Plan	(35	)	(39	)	(41	)
Restricted stock issuance	(97	)	–		–
Share balance at end of year	3,564		3,881		3,999

During 1999, the Company created an Omnibus Stock Trust (OST) to provide funding for various employee benefit programs. During 1999, the OST purchased 59,000 shares for $1 million. Shares are released from the OST by the trustee at the request of the compensation committee of the Board of Directors. During 2006, 2005, and 2004, no shares were purchased or released by the OST.

Restricted Stock Plan

Under the Company’s Restricted Stock Plan, 800,000 shares of restricted stock may be granted to certain key employees. At December 31, 2006, there are no restricted stock grants outstanding under this plan, and there was no restricted stock activity under this plan in 2004, 2005, or 2006.

Preferred Stock

At December 31, 2006 and 2005, the Company has 2,500,000 shares of par value $0.01 preferred stock authorized for issuance, but none outstanding.

12. Stock Option Plans

On January 1, 2006, the Company adopted the provisions of FAS 123R, “Share-Based Payment” and related interpretations on a modified prospective basis, which required the Company to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards

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outstanding as of the date of adoption. This FAS establishes standards for the accounting for transactions in which the Company exchanges its equity instruments for goods or services. The standard requires the Company to measure the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of the award. Currently, the Company issues stock options and restricted stock in exchange for employee and director services. With the adoption of the standard, the calculated cost of its equity-based compensation awards is recognized in the Company’s statement of operations over the period in which an employee or director is required to provide the services for the award. Compensation cost will not be recognized for employees or directors that do not render the requisite services. The Company recognizes the expense for equity-based compensation in its income statements on a straight-line basis based upon awards that are ultimately expected to vest. As part of the adoption of the standard, the Company is required to estimate forfeitures. These estimates will be revised, as applicable, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information related to stock-based compensation for periods prior to January 1, 2006 (see note 1, “Summary of Significant Accounting Policies” for “Stock-Based Employee Compensation”), the Company accounted for forfeitures as they occurred.

For the year ended December 31, 2006, the Company recognized compensation expense of $856,000 in its statement of operations as selling, general and administrative expenses. The tax benefit recorded for this compensation expense was $260,000, resulting in a net after tax cost to the Company of $596,000 for 2006. No compensation cost was recognized in the statement of operations for either 2005 or 2004 as the Company continued to apply the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) and related interpretations, as all options granted by the Company had an exercise price that was equal to or greater than the underlying common stock at the date of grant.

As of December 31, 2006, the Company has two stock-based incentive plans. On April 26, 2000, the shareholders approved the Company’s Equity Award Plan (Equity Plan). Under the provisions of the plan, stock options, restricted stock, stock appreciation rights, and other awards may be granted or awarded to employees and directors of the Company. The compensation committee of the Board of Directors determines the nature, amount, pricing, and vesting of the grant or award. All options and awards remain in effect until the earlier of the expiration, exercise, or surrender date. For the most part, options generally become exercisable in three or four equal annual installments, beginning one year from the date of grant. In certain limited instances, options granted with market price conditions are expected to vest nine and one-half years from the date of grant. As of December 31, 2006, a total of 3,500,000 shares may be awarded under this plan, and 768,125 shares are available for grant as of that date.

On April 24, 1991, the shareholders approved the Company’s 1991 Employee Stock Option Plan (1991 Plan). Under the provisions of the plan, options may be granted to employees and directors of the Company. The option price for options granted under this plan is equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Incentive stock options generally become exercisable in four annual installments of 25% of the shares covered by the grant, beginning one year from the date of grant, and expire six years after becoming exercisable. Nonqualified stock options generally become exercisable in either four or five annual installments of 20 or 25% of the shares covered by the grant, beginning one year from the date of grant, and expire up to 15 years from the date of grant. All options remain in effect until the earlier of the expiration, exercise, or surrender date. There are no options available for grant under this plan as of December 31, 2006.

The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options granted in 2006, 2005, and 2004 was $2.17, $2.12, and $2.32, respectively. The fair value of the options at the date of grant was estimated using the following weighted-average assumptions:

	2006		2005		2004
Expected life (years)	4.0		3.4		3.8
Dividend yield	0.0	%	0.0	%	0.0	%
Risk-free interest rate	5.0	%	3.7	%	2.8	%
Expected volatility	55.2	%	68.0	%	78.4	%

The Company used historical volatility calculated using daily closing prices for its common stock over periods that match the expected term of the option granted to estimate the expected volatility for the grants made in 2004, 2005 and 2006. The risk-free interest rate assumption was based upon U.S. Treasury yields appropriate for the expected term of the Company’s stock options based upon the date of grant. The expected

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term of the stock options granted was based upon the options expected vesting schedule and historical exercise patterns. The expected dividend yield was based upon the Company’s recent history of paying dividends, and the expectation of paying dividends in the foreseeable future.

During 2006, the Company issued restricted stock to certain employees and its independent directors. For the employees, the stock vests over a period of four years, with 25% of the stock issued vesting one year from the date of grant, and another 25% vesting each year thereafter until the stock is fully vested to the employee. The Company is recognizing compensation expense for these shares ratably over the expected term of the restricted stock, or four years. For the independent directors, the issued stock vests at retirement. As the directors are eligible for retirement from the Company’s board at any point, the Company recognized the expense associated with these shares on the date of grant. The restricted shares issued are considered outstanding, and are eligible to receive dividends, if any are paid, and can be voted. However, only vested shares of outstanding restricted stock are included in the calculation of basic earnings per share.

As of December 31, 2006, total remaining stock-based compensation expense for non-vested equity-based compensation is approximately $1.3 million, which is expected to be recognized on a weighted-average basis over the next 20 months. Historically, the Company has issued shares out of its Stock Employee Compensation Trust to fulfill the share requirements from stock option exercises and restricted stock grants.

A summary of stock option activity under these plans is as follows:

	Equity Plan Options		Weighted- Average Exercise Price		1991 Plan Options		Weighted- Average Exercise Price
Outstanding at December 31, 2003	1,985,250		$	3.40	1,201,375		$	14.14
Granted	944,500		$	4.05	–			–
Exercised	(28,250	)	$	3.16	(24,750	)	$	2.87
Canceled and forfeited	(167,500	)	$	3.54	(190,000	)	$	16.25
Expired	–			–	(36,587	)	$	21.30
Outstanding at December 31, 2004	2,734,000		$	3.62	950,038		$	13.74
Granted	733,500		$	4.18	–			–
Exercised	(69,500	)	$	2.89	(9,375	)	$	2.87
Canceled and forfeited	(173,250	)	$	3.71	(18,625	)	$	12.92
Expired	–			–	(53,074	)	$	20.94
Outstanding at December 31, 2005	3,224,750		$	3.76	868,964		$	13.43
Granted	473,000		$	4.54	–			–
Exercised	(172,750	)	$	2.78	(12,000	)	$	2.88
Canceled and forfeited	(176,125	)	$	3.94	(27,000	)	$	17.87
Expired	–			–	(177,138	)	$	16.75
Outstanding at December 31, 2006	3,348,875		$	3.91	652,826		$	12.55
Options exercisable at December 31, 2006	2,450,875		$	3.95	652,826		$	12.55

For 2006, 2005 and 2004, the intrinsic value of the options exercised under the Equity Plan was approximately $279,000, $72,900 and $26,900, respectively, while the intrinsic value of the options exercised under the 1991 Plan for the same year’s was $19,800, $8,900 and $30,800, respectively.

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A summary of restricted stock activity for the year-to-date period ended December 31, 2006 under the Equity Plan is as follows:

	Equity Plan Restricted Stock		Weighted-Average Market Value
Outstanding at December 31, 2005	–			–
Granted	97,500		$	4.40
Canceled and forfeited	(2,000	)	$	4.65
Outstanding at December 31, 2006	95,500		$	4.39

As of December 31, 2006, 60,000 shares of the outstanding restricted stock are vested.

A summary of options outstanding as of December 31, 2006 for the Equity and 1991 Plans is as follows:

Range of Exercise Prices	Number Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Equity Plan
$1.40 - $1.96	180,000	$	1.40	11.0	$	603,000
$2.24 - $3.26	1,239,625	$	3.08	9.0	$	2,064,311
$3.48 - $4.90	1,469,250	$	4.39	7.8	$	573,630
$5.30 - $5.94	460,000	$	5.56	8.0		–
	3,348,875				$	3,240,941
1991 Plan
$2.88	96,750	$	2.88	2.4	$	181,406
$5.13 - $6.13	260,000	$	5.93	6.1		–
$16.19 - $21.94	248,313	$	19.57	2.1		–
$26.06 - $37.19	47,763	$	31.58	3.1		–
	652,826				$	181,406

A summary of options exercisable at December 31, 2006 for the Equity and 1991 Plans is as follows:

Range of Exercise Prices	Number Exercisable	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Equity Plan
$1.40 - $1.96	180,000	$	1.40	11.0	$	603,000
$2.24 - $3.26	780,125	$	3.08	8.9	$	1,302,872
$3.48 - $4.90	1,030,750	$	4.34	7.1	$	478,480
$5.30 - $5.94	460,000	$	5.56	8.0		–
	2,450,875				$	2,384,352
1991 Plan
$2.88	96,750	$	2.88	2.4	$	181,406
$5.13 - $6.13	260,000	$	5.93	6.1		–
$16.19 - $21.94	248,313	$	19.57	2.1		–
$26.06 - $37.19	47,763	$	31.58	3.1		–
	652,826				$	181,406

51

The aggregate intrinsic values as calculated in the above charts are based upon the Company’s closing stock price on December 31, 2006 of $4.75 per share.

13. Significant Customer

International Business Machines (IBM) is the Company’s largest customer. IBM accounted for $115.4 million or 35.3%, $105.5 million or 35.8%, and $52.6 million or 22.2% of consolidated 2006, 2005, and 2004 revenue, respectively. The Company’s accounts receivable from IBM at December 31, 2006 and 2005 amounted to $10.9 million and $33.9 million, respectively. The Company expects to continue to derive a significant portion of its revenue from IBM in 2007 and in future years. However, a significant decline in revenue from IBM would have a significant negative effect on the Company’s revenue and profits. No other customer accounted for more than 10% of revenue in 2006, 2005, or 2004.

14. Litigation

The Company and its subsidiaries are involved from time to time in various legal proceedings arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

15. Enterprise -Wide Disclosures

The Company operates in one industry segment, providing information technology (IT) professional services to its clients. The services provided include flexible and strategic staffing and the planning, design, implementation, and maintenance of comprehensive IT solutions. All of the Company’s revenue is generated from these services. CTG’s reportable information is based on geographical areas. The accounting policies of the individual geographical areas are the same as those described in note 1, “Summary of Significant Accounting Policies.” All information has been revised as applicable to reflect the results from continuing operations only and therefore exclude the results of CTG Nederland, B.V. which was sold with an effective date of January 1, 2004 (see note 3 – “Discontinued Operations”).

Financial Information About Geographic Areas
(amounts in thousands)	2006		2005		2004
Revenue from External Customers
United States	$	265,386	$	243,223	$	191,648
Belgium		41,500		32,940		28,694
Other European countries		17,447		15,384		14,724
Other countries		2,920		2,918		2,056
Total revenue	$	327,253	$	294,465	$	237,122
Long-lived Assets
United States	$	5,102	$	5,950	$	5,309
Europe		816		666		766
Total long-lived assets	$	5,918	$	6,616	$	6,075
Deferred Tax Assets, Net of Valuation Allowance
United States	$	6,260	$	6,274	$	5,760
Europe		189		325		760
Other countries		21		161		–
Total deferred tax assets, net	$	6,470	$	6,760	$	6,520

52

16. Quarterly Financial Data (Unaudited)

	Quarters
(amounts in millions, except per-share data)	First			Second			Third			Fourth			Total
2006
Revenue	$	83,643		$	85,765		$	79,830		$	78,015		$	327,253
Direct costs		65,525			67,058			61,595			58,923			253,101
Gross profit		18,118			18,707			18,235			19,092			74,152
Selling, general, and administrative expenses		16,557			17,164			16,493			17,084			67,298
Operating income		1, 561			1,543			1,742			2,008			6,854
Interest and other expense, net		(322	)		(149	)		(143	)		(91	)		(705	)
Income before income taxes		1,239			1,394			1,599			1,917			6,149
Provision for income taxes		452			586			767			849			2,654
Net income	$	787		$	808		$	832		$	1,068		$	3,495
Basic net income per share	$	0.05		$	0.05		$	0.05		$	0.07		$	0.21
Diluted net income per share	$	0.05		$	0.05		$	0.05		$	0.06		$	0.21

	Quarters
(amounts in millions, except per-share data)	First			Second			Third			Fourth			Total
2005
Revenue	$	68,683		$	72,910		$	74,805		$	78,067		$	294,465
Direct costs		52,170			56,505			57,920			60,068			226,663
Gross profit		16,513			16,405			16,885			17,999			67,802
Selling, general, and administrative expenses		15,585			15,247			15,452			16,593			62,877
Operating income		928			1,158			1,433			1,406			4,925
Interest and other expense, net		(222	)		(372	)		(362	)		(415	)		(1,371	)
Income before income taxes		706			786			1,071			991			3,554
Provision for income taxes		222			163			431			315			1,131
Net income	$	484		$	623		$	640		$	676		$	2,423
Basic net income per share	$	0.03		$	0.04		$	0.04		$	0.04		$	0.14
Diluted net income per share	$	0.03		$	0.04		$	0.04		$	0.04		$	0.14

53

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)), as of the end of the period covered by this annual report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.

(a) Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may deteriorate.

Management of the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s management did not identify any control deficiencies it considered to be material weaknesses under the rules specified by the Public Company Accounting Oversight Board’s Auditing Standard No. 2, and therefore concluded that its internal control over financial reporting was effective as of December 31, 2006.

KPMG LLP, an independent registered public accounting firm, has issued a report on management’s assessment of the Company’s internal control over financial reporting, which is included herein.

54

(b) Attestation Report of the Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Computer Task Group, Incorporated:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting (Item 9A (a)), that Computer Task Group, Incorporated (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company and its subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 7, 2007, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Buffalo, New York

March 7, 2007

55

(c) Changes in Internal Control Over Financial Reporting

The Company continues to review, revise and improve the effectiveness of the Company’s internal controls on a continuous basis. There have been no significant changes in the Company’s internal controls over financial reporting in connection with the Company’s fourth quarter evaluation that would materially affect, or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

Item 9B. Other Information

None

56

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required in response to this item is incorporated herein by reference to the information set forth under “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “The Board of Directors and Committees” in relation to the “Audit Committee” subsection, and “Corporate Governance and Website Information” in the Company’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 9, 2007 (the Proxy Statement) to be filed with the Securities and Exchange Commission not later than 120 days after the end of the year ended December 31, 2006, 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 required in response to this item is incorporated herein by reference to the information under the caption “Executive Compensation and Other Information” presented in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except as set forth below, the information required 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 Proxy Statement.

The following table sets forth, as of December 31, 2006, certain information related to the Company’s compensation plans under which shares of its Common Stock are authorized for issuance:

Equity Compensation Plan Information as of December 31, 2006

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders -
Equity Award Plan	3,348,875	$	3.91	768,125
1991 Stock Option Plan	652,826	$	12.55	–
Equity compensation plans not approved by security holders -
None	–		–	–
Total	4,001,701	$	5.31	768,125

At December 31, 2006, the Company did not have any outstanding rights or warrants. All awards outstanding are options or restricted stock.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required in response to this item is incorporated herein by reference to the information under the caption “Certain Relationships and Related Transactions” presented in the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required in response to this item is incorporated herein by reference to the information under the caption “Change in Independent Public Accountants and Fees” presented in the Proxy Statement.

57

PART IV

Item 15. Exhibits and Financial Statement Schedule

(A) Index to Consolidated Financial Statements and Financial Statement Schedule

(1)	Financial Statements:
	Report of Independent Registered Public Accounting Firm	27
	Consolidated Statements of Operations	28
	Consolidated Balance Sheets	29
	Consolidated Statements of Cash Flows	30
	Consolidated Statements of Changes in Shareholders’ Equity	31
	Notes to Consolidated Financial Statements	32
(2)	Index to Consolidated Financial Statement Schedule
	Report of Independent Registered Public Accounting Firm on Financial Statement Schedule	59
	Financial statement schedule:
	Schedule II - Valuation and Qualifying Accounts	60

(B) Exhibits

      The Exhibits to this Form 10-K Annual Report are listed on the attached Exhibit Index appearing on pages 62 to 64.

58

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Computer Task Group, Incorporated:

Under date of March 7, 2007, we reported on the consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, which are included in the Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, 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.

/s/ KPMG LLP

Buffalo, New York

March 7, 2007

59

COMPUTER TASK GROUP, INCORPORATED

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

Description	Balance at January 1		Additions			Deductions			Balance at December 31
2006
Accounts deducted from accounts receivable Allowance for doubtful accounts	$	1,087	$	306	(A)	$	(527	) (A)	$	866
Accounts deducted from deferred tax assets Deferred tax asset valuation allowance	$	2,559	$	387	(B)	$	(178	) (B)	$	2,768
Accounts deducted from other assets Reserves	$	575	$	–		$	–		$	575
2005
Accounts deducted from accounts receivable Allowance for doubtful accounts	$	1,327	$	179	(A)	$	(419	) (A)	$	1,087
Accounts deducted from deferred tax assets Deferred tax asset valuation allowance	$	3,899	$	195	(B)	$	(1,535	) (B)	$	2,559
Accounts deducted from other assets Reserves	$	575	$	–		$	–		$	575
2004
Accounts deducted from accounts receivable Allowance for doubtful accounts	$	1,174	$	374	(A)	$	(221	) (A)	$	1,327
Reserve for projects	$	87	$	39	(C)	$	(126	) (C)	$	–
Accounts deducted from deferred tax assets Deferred tax asset valuation allowance	$	4,446	$	402	(B)	$	(949	) (B)	$	3,899
Accounts deducted from other assets Reserves	$	450	$	125	(C)	$	–		$	575

^(A) Reflects additions charged principally to costs and expenses, less deductions for accounts written off or collected, and foreign currency translation

^(B) Reflects additions and deductions for foreign currency translation, and deductions credited to expense

^(C) Reflects additions charged to costs and expenses, less deductions for accounts written off or collected

60

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/ James R. Boldt
	James R. Boldt,
	Chairman and Chief Executive Officer

Dated: March 7, 2007

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 and Chief Executive Officer	March 7, 2007
	/s/ James R. Boldt
	James R. Boldt
(ii)	Principal Accounting and Principal Financial Officer	Chief Financial Officer	March 7, 2007
	/s/ Brendan M. Harrington
	Brendan M. Harrington
(iii)	Directors
	/s/ Thomas E Baker	Director	March 7, 2007
	Thomas E. Baker
	/s/ George B. Beitzel	Director	March 7, 2007
	George B. Beitzel
	/s/ James R. Boldt	Director	March 7, 2007
	James R. Boldt
	/s/ Randall L. Clark	Director	March 7, 2007
	Randall L. Clark
	/s/ Randolph A. Marks	Director	March 7, 2007
	Randolph A. Marks
	/s/ John M. Palms	Director	March 7, 2007
	John M. Palms
	/s/ Daniel J. Sullivan	Director	March 7, 2007
	Daniel J. Sullivan

61

EXHIBIT INDEX

Exhibit		Description	Page Number or (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	65
4	(a)	Specimen Common Stock Certificate	(2)
	(b)	Rights Agreement dated as of January 15, 1989, and amendment dated June 28, 1989, between Registrant and The First National Bank of Boston, as Rights Agent	(1)
	(c)	Form of Rights Certificate	73
9.		Voting Trust Agreement
10.	(a)	Non-Compete Agreement, dated as of March 1, 1984, between Registrant and Randolph A. Marks	77 +
	(b)	Stock Employee Compensation Trust Agreement, dated May 3, 1994, between Registrant and Thomas R. Beecher, Jr., as trustee	80 +
	(c)	Demand Grid Note, dated October 29, 1997, between Registrant and Computer Task Group, Incorporated Stock Employee Compensation Trust	94 +
	(d)	Pledge Agreement, between the Registrant and Thomas R. Beecher, Jr., as Trustee of the Computer Task Group, Incorporated Stock Employee Compensation Trust	96 +
	(e)	Stock Purchase Agreement, dated as of February 25, 1981, between Registrant and Randolph A. Marks	(3) +

* None or requirement not applicable

+ Management contract or compensatory plan or arrangement

(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, 2000, and incorporated herein by reference

(3) 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

62

EXHIBIT INDEX (Continued)

Exhibit		Description	Page Number or (Reference)
10.	(f)	Description of Disability Insurance and Health Arrangements for Executive Officers	(4) +
	(g)	2006 Key Employee Compensation Plans	(5) +
	(h)	Computer Task Group, Incorporated Non-Qualified Key Employee Deferred Compensation Plan	99 +
	(i)	1991 Restricted Stock Plan	(6) +
	(j)	Computer Task Group, Incorporated 2000 Equity Award Plan	(7) +
	(k)	Executive Supplemental Benefit Plan 1997 Restatement	(6) +
	(l)	First Amendment to the Computer Task Group, Incorporated Executive Supplemental Benefit Plan 1997 Restatement	(6) +
	(m)	Compensation Arrangements for the Named Executive Officers	111 +
	(n)	Change in Control Agreement, dated July 16, 2001, between the Registrant and James R. Boldt	(6) +
	(o)	Employment Agreement, dated July 16, 2001, between the Registrant and James R. Boldt	(6) +
	(p)	First Employee Stock Purchase Plan (Eighth Amendment and Restatement)	(8) +
	(q)	Loan Agreement By and Among Manufacturers and Traders Trust Company and Computer Task Group, Incorporated	(9)
	(4)	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
	(5)	Included in the Registrant’s definitive Proxy Statement dated April 2007 under the caption entitled “Annual Cash Incentive Compensation,” 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, 2001, and incorporated herein by reference
	(7)	Included in the Registrant’s definitive Proxy Statement dated April 2004 as Exhibit A, and incorporated herein by reference
	(8)	Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference
	(9)	Filed as an Exhibit to the Registrants Form 8-K on April 21, 2005, and incorporated herein by reference

63

EXHIBIT INDEX (Continued)

Exhibit		Description	Page Number or (Reference)
11.		Statement re: computation of per share earnings	*
12.		Statement re: computation of ratios	*
13.		Annual Report to Shareholders	*
14.		Code of Ethics	(10)
16.		Letter re: change in certifying accountant	*
18.		Letter re: change in accounting principles	112
21.		Subsidiaries of the Registrant	113
22.		Published report regarding matters submitted to a vote of security holders	*
23.		Consent of experts and counsel	114
24.		Power of Attorney	*
31.	(a)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	115
	(b)	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	116
32.		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	117
33.		Report on assessment of compliance with servicing criteria for asset backed securities	*
34.		Attestation report on assessment of compliance with servicing criteria for asset backed securities	*
35.		Service compliance statement	*
	(10)	Included in the Registrant’s definitive Proxy Statement dated April 2007 under the caption entitled “Corporate Governance and Website Information,” and incorporated herein by reference

64

EX-3.(B)

EXHIBIT 3 (b)

RESTATED BY-LAWS

of

COMPUTER TASK GROUP, INCORPORATED

(Last amended—7/18/2000)

ARTICLE I

Shareholders’ Action

Section 1. Annual Meeting. The annual meeting of the shareholders of the Corporation, for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held at the principal business office of the Corporation or at such other place as the Board of Directors shall determine at 2:00 o’clock P.M. on the last Wednesday of April in each year. If in any year that day is legal holiday, the meeting shall be held at the same hour on the next day following that is not a Saturday, Sunday or legal holiday.

Section 2. Special Meetings. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of the shareholders for any purpose or purposes may be called only by, and shall be held at such place, date and hour as shall be designated by, (i) the Chairman of the Board, (ii) the President or (iii) the Board of Directors.

Section 3. Order of Business and Procedure.

A. Annual Meetings. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the meeting by or at the direction of the Board of Directors or (iii) brought before the meeting by a shareholder in accordance with the procedure set forth below. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given written notice thereof, either by personal delivery or by United States mail, postage prepaid, to and received by the Secretary of the Corporation not later than 60 days in advance of the Originally Scheduled Date (as defined below) of such meeting; provided, however, that if such annual meeting of shareholders is held on a date earlier than the last Wednesday in April, such written notice must be so given and received not later than the close of business on the tenth day following the date of the first public disclosure (which may be by a public filing by the Corporation with the Securities and Exchange Commission) of the Originally Scheduled Date of the annual meeting. Any such notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and in the event that such business includes a proposal to amend either the Certificate of Incorporation or By-laws of the Corporation, the language of the proposed amendment, (b) the name and address of the shareholder proposing such business, (c) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business and (d) any material interest of any shareholder in such business. No business shall be conducted at an annual meeting except in accordance with this paragraph, and the chairman of any annual meeting of shareholders may refuse to permit any business to be brought before such annual meeting without compliance with the foregoing procedure. For purposes of these By-laws, the “Originally Scheduled Date” of any meeting of shareholders shall be the date such meeting is scheduled to occur in the notice of such meeting first given to shareholders regardless of whether such meeting is continued or adjourned and regardless of whether any subsequent notice is given for such meeting or the record date of such meeting is changed.

(B) Special Meetings. At a special meeting of the shareholders, only such business as is specified in the notice of such special meeting shall come before such meeting.

65

(C) Other Procedural Matters. All other matters of procedure at every meeting of shareholders may be determined by the chairman of the meeting.

Section 4. Quorum. At every meeting of the shareholders, except as otherwise provided by law or these By-laws, a quorum must be present for the transaction of business and a quorum shall consist of the holders of record of not less than one-third of the outstanding shares of the Corporation entitled to vote, present either in person or by proxy. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders.

Section 5. Adjournments. The shareholders entitled to vote who are present in person or by proxy at any meeting of shareholders, whether or not they constitute a quorum, shall have power by a majority vote to adjourn the meeting from time to time. Subject to any notice required by law, at any adjourned meeting at which a quorum is present any business may be transacted which might have been transacted on the original date of the meeting.

Section 6. Voting; Proxies. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, each holder of record of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation shall be entitled at each meeting of shareholders of such number of votes, if any, for each share of such stock as may be fixed pursuant to resolutions adopted by the Board pursuant to Article 4 of the Certificate of Incorporation and each holder of record of Common Stock shall be entitled at each meeting of shareholders to one vote for each share of such stock, in each case registered in such holder’s name on the books of the Corporation on the record date designated by the Board of Directors. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, all questions that shall come before a meeting of shareholders shall be decided by a majority of the votes cast. A shareholder may vote either in person or by written proxy signed by such shareholder or such shareholder’s attorney-in-fact and delivered to the secretary of the meeting. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it or his personal representatives, unless it is entitled “irrevocable proxy,” in which event its revocability shall be determined by the law of the State of New York in effect at the time.

Section 7. Inspectors of Elections. Two inspectors of election, neither of whom shall be a candidate for the office of director if directors are to be elected at such meeting, may be appointed by the Board of Directors in advance of any meeting of shareholders or by the person presiding at such meeting, and shall be appointed by the person presiding if such appointment is requested by a shareholder present at such meeting and entitled to vote thereat. Such inspectors shall serve at such meeting and any adjournments thereof. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.

Section 8. Shareholders’ List. A list of shareholders as of the record date, certified by the corporate officer responsible for its preparation or by the transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding thereat, shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting.

Section 9. Action Without a Meeting. Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon.

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ARTICLE II

Notice of Meetings

Section 1. Shareholders’ Meetings. Written notice of every meeting of shareholders shall be given in the manner required by law not less than ten (10) nor more than fifty (50) days before the date of the meeting to each shareholder of record entitled to vote at the meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or if he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at such other address. The notice shall state the place, date and hour of the meeting and, unless it is the annual meeting, shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called. If at any meeting, action is proposed to be taken which would, if taken, entitle shareholders fulfilling statutory procedural requirements to receive payment for their shares, the notice of meeting shall include a statement of that purpose and to that effect, specifically designating the applicable statutory provisions.

Section 2. Board Meetings. Written notice of each special meeting of the Board of Directors, stating the place, date and hour thereof, shall be given by the President, the Secretary or an Assistant Secretary, or by any member to each other member, not less than three (3) days before the meeting by mailing the same to each member at his residence or usual place of business, or not less than two (2) days before the meeting by delivering the same to each member personally or by telegraphing or delivering the same to his residence or usual place of business. Like notice of each regular meeting of the Board of Directors shall be given unless the Board by resolution has fixed the place, date and hour thereof and declared that notice thereof shall not be required. Notwithstanding the foregoing, the first meeting of a newly elected Board of Directors may be held without notice immediately after the annual meeting of shareholders, if a quorum of the Board is present.

Section 3. Committee Meetings. Unless the Board otherwise directs, notice requirements for meetings of committees of the Board shall be the same as notice requirements for meetings of the Board itself.

Section 4. Waiver of Notice. Notice of a shareholders’ meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. Notice of a meeting of the Board of Directors or a committee thereof need not be given to any director who submits a signed waiver of notice, whether before or after the meeting. The attendance of any shareholder at a shareholders’ meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, and the attendance of any director at a meeting of the Board or a committee thereof without protesting prior thereto or at its commencement the lack of notice to him, shall constitute a waiver of notice by him.

ARTICLE III

Directors

Section 1. Number, Qualification and Election. Subject to the rights of the holders of any class or series of capital stock having a preference over the Common Stock as to dividends or upon liquidation, the number of directors of the Corporation shall be fixed from time to time by the vote of a majority of the entire Board. The directors, other than those who may be elected by the holders of shares of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into two classes as nearly equal in number as possible (but with not less than three directors in each class or such lesser number as may be permitted by law), as determined by the Board, one class of directors to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1987 and another class of directors to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1988, with each class to hold office until its successors are elected and qualified. At each annual meeting of the shareholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the second year following the year of their election.

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Notwithstanding the immediately preceding paragraph, in the event that the number of directors of the Corporation (i) shall be fixed at nine or a greater number or (ii) shall be fixed at a number that would, under law, permit the directors to be divided into three classes, then, at the next succeeding annual meeting of the shareholders of the Corporation (the “Three-Class Annual Meeting”), the directors, other than those who may be elected by the holders of any class or series of capital stock having a preference over the Common Stock as to dividends or upon liquidation, shall be divided into three classes, as nearly equal in number as possible (but with no less than three directors in each class or such lesser number as may be permitted by law) as shall be provided in or pursuant to the By-laws of the Corporation. At the Three-Class Annual Meeting, one class shall be originally elected for a term expiring at the second succeeding annual meeting and another class shall be originally elected for a term expiring at the third succeeding annual meeting. The class of directors whose term, pursuant to the immediately preceding paragraph, would not have expired until the annual meeting next succeeding the Three-Class Annual Meeting shall complete the term for which such class was originally elected. At each annual meeting of the shareholders subsequent to the Three-Class Annual Meeting, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring in the third year following the year of their election.

In any election of directors, the persons receiving a plurality of the votes cast, up to the number of directors to be elected in such election, shall be deemed elected.

No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director or cause, directly or indirectly, a decrease in the number of classes of directors, except as required by law. All the directors shall be at least 21 years of age.

Section 2. Notification of Nominations. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by or at the direction of the Board of Directors or by any shareholder entitled to vote for the election of directors who complies with the procedures set forth in this Section 2. Any shareholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such shareholder’s intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to and received by the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 60 days in advance of the Originally Scheduled Date of such meeting (provided that if such annual meeting of shareholders is held on a date earlier than the last Wednesday in April, such written notice must be given and received not later than the close of business on the tenth day following the date of the first public disclosure (which may be by a public filing by the Corporation with the Securities and Exchange Commission) of the Originally Scheduled Date of the date of the annual meeting), and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

Section 3. Resignation. Any director of the Corporation may resign at any time by giving his resignation to any officer of the Corporation. Unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective.

Section 4. Removal. Subject to the rights of the holders of any class or series of capital stock having a preference over the Common Stock as to dividends or upon liquidation, any director may be removed from office (i) without cause by the affirmative vote of the holders of at least 66% of the combined voting power of the then outstanding shares of stock of all classes and series of the Corporation entitled to vote generally in the election of

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directors (“Voting Stock”), voting together as a single class, (ii) for cause by the affirmative vote of the holders of at least a majority of the then outstanding Voting Stock or (iii) for cause by the affirmative vote of a majority of the entire Board of Directors. For purposes of this Section 4, “cause” shall mean the willful and continuous failure of a director substantially to perform such director’s duties to the Corporation (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Corporation.

Section 5. Newly Created Directorships and Vacancies. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the vote of the Board of Directors; provided, that, if the number of directors then in office is less than a quorum, such newly-created directorships and vacancies shall be filled by the vote of a majority of the remaining directors then in office. Any director elected in accordance with the preceding sentence of this paragraph shall hold office until the next annual meeting of shareholders and until such director’s successor shall have been elected and qualified.

Section 6. Compensation. No director as such shall receive any compensation, either by way of salary, fees for attendance at meetings, or otherwise, or shall be reimbursed for his expenses, except pursuant to authorization of the Board of Directors. This section shall not preclude any director from serving the Corporation in any other capacity or from receiving compensation for such services and reimbursement for his related expenses.

Section 7. Meetings. Meetings of the Board of Directors shall be held at such times and at such places as may be determined by action of the Board of Directors or, in the absence of such action, by a majority of the entire Board then in office or by the President, or in his absence any Vice President, pursuant to such notice as is required by Article II of these By-laws.

Section 8. Quorum. At all meetings of the Board of Directors, except as otherwise provided by law, the Certificate of Incorporation or these By-laws, a quorum shall be required for the transaction of business and shall consist of not less than one-half of the entire Board, and the vote of a majority of the directors present shall decide any question that may come before the meeting. A majority of the directors present at any meeting, although less than a quorum, may adjourn the same from time to time, without notice other than announcement at the meeting.

Section 9. Procedure. The order of business and all other matters of procedure at every meeting of directors may be determined by the presiding officer.

Section 10. Committees of the Board. The Board of Directors, by resolution or resolutions adopted by a majority of the entire Board, may designate from among its members one or more committees, including an executive committee, each consisting of two or more directors, and each of which, to the extent provided in the applicable resolution, shall have all the authority of the Board, except insofar as its exercise of such authority may be inconsistent with any provision of law, the Certificate of Incorporation or these By-laws. The Board may designate one or more directors as alternate members of a committee, who may replace any absent member or members at any meeting of such committee. The committees shall keep regular minutes of their proceedings and make the same available to the Board upon request.

Section 11. Action Without a Meeting. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting if all members of the Board or the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board or committee shall be filed with the minutes of the proceedings of the Board or committee.

Section 12. Presence at Meeting by Telephone. Members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation in a meeting by such means shall constitute presence in person at such meeting.

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ARTICLE IV

Officers

Section 1. Offices; Term of Office. The Board of Directors shall annually, at the first meeting of the Board after the annual meeting of shareholders, appoint or elect a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, and a Treasurer. The Board of Directors may from time to time elect or appoint such additional officers as it may determine. Such additional officers shall have such authority and perform such duties as the Board of Directors may from time to time prescribe.

The Chairman of the Board, the President, each Vice President, the Secretary, and the Treasurer shall, unless otherwise determined by the Board of Directors, hold office until the first meeting of the Board following the next annual meeting of shareholders and until their successors have been elected or appointed and qualified. Each additional officer appointed or elected by the Board of Directors shall hold office for such term as shall be determined from time to time by the Board of Directors and until his successor has been elected or appointed and qualified. Any officer, however, may be removed or have his authority suspended by the Board of Directors at any time, with or without cause. If the office of any officer becomes vacant for any reason, the Board of Directors shall have the power to fill such vacancy.

Section 2. Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation. He shall have the general powers and duties of supervision and management of the Corporation. He shall preside at all meetings of shareholders and of the Board of Directors and shall be entitled to vote upon all questions.

Section 3. The President. In the absence of the Chairman of the Board, the President shall preside at all meetings of the shareholders and of the Board of Directors. Subject only to the direction of the Board of Directors and Chairman of the Board, he shall have the general powers and duties of supervision and management of the Corporation, and shall perform all such other duties as are properly required of him by the Board of Directors.

Section 4. The Vice Presidents. The Vice Presidents may be designated by such title or titles as the Board of Directors may determine, and each Vice President in such order of seniority as may be determined by the Board shall, in the absence or at the request of the President, perform the duties and exercise the powers of the President. The Vice Presidents also shall have such powers and perform such duties as usually pertain to their office or as are properly delegated or assigned to them by the Board of Directors.

Section 5. The Secretary. The Secretary shall issue notices of meetings of shareholders and of directors when such notices are required by law or these By-laws. He shall attend all meetings of the shareholders and of the Board of Directors and keep the minutes thereof. He shall affix the corporate seal to such instruments as require the seal, and shall perform such other duties as usually pertain to his office or as are properly assigned to him by the Board of Directors.

Section 6. The Treasurer. The Treasurer shall have the care and custody of all monies and securities of the Corporation. He shall cause to be entered in records of the Corporation to be kept for that purpose full and accurate accounts of all monies received by him and paid by him on account of the Corporation. He shall make and sign such reports, statements and documents as may be required of him by the Board of Directors or by the laws of the United States, the State of New York or any other state or country, and shall perform such other duties as usually pertain to his office or as are properly assigned to him by the Board of Directors.

Section 7. Temporary Transfer of Powers and Duties. In case of the absence or illness of any officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate and assign, for the time being, the powers and duties of any officer to any other officer or to any director.

Section 8. Compensation. The compensation of all officers shall be fixed by the Board of Directors or a committee thereof. The compensation of other employees shall be fixed by the President or other officers or employees, subject to any limitations prescribed by the Board of Directors or a committee thereof.

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ARTICLE V

Indemnification of Directors and Officers

Section 1. Right of Indemnification. Each director and officer of the corporation, whether or not then in office, and any person whose testator or intestate was such a director or officer, shall be indemnified by the corporation for the defense of, or in connection with, civil or criminal actions or proceedings, or appeals therein, in accordance with and to the fullest extent permitted by law.

Section 2. Other Rights of Indemnification. The right of indemnification herein provided shall not be deemed exclusive of any other rights to which any such director, officer or other person may now or hereafter be otherwise entitled and specifically, without limiting the generality of the foregoing, shall not be deemed exclusive of any rights, pursuant to statute or otherwise, of any such director, officer or other person in any such action or proceeding to have assessed or allowed in his favor, against the corporation or otherwise, his costs and expenses incurred therein or in connection therewith or any part thereof.

ARTICLE VI

Shares

Section 1. Stock Certificates. The stock certificates of the Corporation shall be numbered and their issuance noted in the records of the Corporation as they are issued. They shall when issued contain the name of the person to whom issued, the number and class of shares issued and all other statements required by law, shall be signed by the President, a Vice President or the Chairman of the Board and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, and may bear the corporate seal or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of issue. No certificate shall be valid unless countersigned by a transfer agent if the Corporation has a transfer agent, or until registered by a registrar if the Corporation has a registrar.

Section 2. Transfer of Shares. Shares of the Corporation shall be transferable on the records of the Corporation by the holder thereof, in person or by duly authorized attorney, upon the surrender of the certificate representing the shares to be transferred, properly endorsed. The Corporation shall be entitled to treat the holder of record of any share as the owner thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as otherwise provided by the laws of the State of New York. The Board of Directors, to the extent permitted by law, shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates and may appoint one or more transfer agents and registrars of the shares of the Corporation.

Section 3. Fixing Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action the Board may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty (50) nor less than ten (10) days before the date of such meeting, nor more than fifty (50) days prior to any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or if no notice is given, the day on which the meeting is held.

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ARTICLE VII

Miscellaneous

Section 1. Corporate Seal. The seal of the Corporation shall be circular in form with the name of the Corporation and the year of its Incorporation thereon, and such seal as impressed on the margin hereof is hereby adopted as the corporate seal of the Corporation.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be the calendar year unless otherwise provided by the Board of Directors.

Section 3. Amendments. Any By-laws may be adopted, repealed, altered or amended by the Board of Directors at any meeting thereof, provided that such proposed action in respect thereof shall be stated in the notice of such meeting, and provided further that any amendment to the By-laws increasing or decreasing the number of directors of the Corporation shall require the affirmative vote of a majority of the entire Board of Directors. The shareholders of the Corporation shall have the power to adopt, amend, alter or repeal any provision of these By-laws only to the extent and in the manner provided in the Certificate of Incorporation of the Corporation.

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EX-4.(C)

EXHIBIT 4 (c)

COMPUTER TASK GROUP, INCORPORATED

FORM OF RIGHT CERTIFICATE

CERTIFICATE NO. R

RIGHTS

Not exercisable after January 16, 1999, or earlier if redeemed by the Company. The Rights are subject to redemption, at the option of the Company, at $.01 per right, on the terms set forth in the Rights Agreement. Under certain circumstances, rights beneficially owned by an acquiring person or an affiliate or associate of an acquiring person (as such terms are defined in the Rights Agreement) and by any subsequent holder of such Rights may become null and void. [The rights represented by this Right Certificate were issued to a person who was an acquiring person or an affiliate or associate of an acquiring person. This Right Certificate and the Rights represented hereby may become void in the circumstances specified in Section 7(e) of the rights agreement.]

RIGHT CERTIFICATE

This certifies that, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of January 16, 1989 (the “Rights Agreement”), between Computer Task Group, Incorporated, a New York corporation (the Company”), and The First National Bank of Boston, a national banking association, as Rights Agent (the “Rights Agent”), unless the Rights evidenced hereby shall have been previously redeemed by the Company, to purchase from the Company at any time after the Distribution Date (as defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on January 16, 1999 (the “Expiration Date”), at the office of the Rights Agent or its successors as Rights Agent designated for such purpose, in one one-thousandth (1/1000th) of a fully paid, nonassessable share of Series A Participating Cumulative Preferred Stock, par value $.01 per share, of the Company (the “Preferred Shares”), at a purchase price of $50 per one one-thousandth (1/1000th) of a share (the “Purchase Price”) payable in cash, upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed.

The portion of the legend in brackets shall be inserted only if applicable.

The Purchase Price and the number and kind of shares which may be purchased upon exercise of each Right evidenced by this Right Certificate, as set forth above, are the Purchase Price and the number and kind of shares which may be so purchased as of January 16, 1989. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares which may be purchased upon the exercise of each Right evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.

If the Rights evidenced by this Right Certificate are or were at any time on or after the earlier of the Distribution Date or the Share Acquisition Date (as such terns are defined in the Rights Agreement) beneficially owned by an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement), such Rights shall, under certain circumstances, become null and void and the holder of any such Right (including any subsequent holder) shall not have any right to exercise any such Right.

This Right Certificate is subject to all the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which reference to the Rights Agreement is hereby made for full description of the rights, limitations of rights, obligations, duties, and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are available from the Company upon written request.

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This Right Certificate, with or without other Right Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number and kind of shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Right Certificate may be redeemed by the Company at its option at a redemption price (in cash or shares of Common Stock or other securities of the Company deemed by the Board of Directors to be at least equivalent in value) of $.01 per Right (which amount shall be subject to adjustment as provided in the Rights Agreement) at any time prior to the earliest of

(i) the Distribution Date and

(ii) the Expiration Date; PROVIDED, HOWEVER, that, after there shall be an Acquiring Person the Rights may not be redeemed (all terms as defined in the Rights Agreement).

The Company may, but shall not be required to, issue fractions of Preferred Shares or distribute certificates which evidence fractions of Preferred Shares upon the exercise of any Right or Rights evidenced hereby. In lieu of issuing fractional shares, the Company may elect to make a cash payment as provided in the Rights Agreement for fractions of a share other than one one-thousandth (1/1000th) of a share or any integral multiple thereof or to issue certificates or utilize a depository arrangement as provided in the terms of the Rights Agreement and the Preferred Shares.

No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company, including, without limitation, any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or other distributions or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in accordance with the provisions of the Rights Agreement.

This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.

Dated as of:	COMPUTER TASK GROUP, INCORPORATED
	By
	[Name]
	[Title]
	Attest:
	(Name]
	(Title]
Countersigned: as Rights Agent,	THE FIRST NATIONAL BANK OF BOSTON,
	By
	Authorized Signature

(on Reverse Side of Right Certificate]

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FORM OF ELECTION TO PURCHASE

(To be executed by the registered holder if such holder desires to exercise-the Rights represented by this Right Certificate.)

To the Rights Agent:

The undersigned hereby irrevocably elects to exercise Rights represented by this Right Certificate to purchase the Preferred Shares (or other securities) issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares (or other securities) be issued in the name of:

(Please print name and address)

Please insert social security or other identifying number:

If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

(Please print name and address).

Please insert social security or other identifying number:

Dated:

Signature

Signature Guaranteed:

CERTIFICATE

The undersigned hereby certifies by checking the appropriate boxes that:

(1)	the Rights evidenced by this Right Certificate are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement);
(2)	after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated:

Signature

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Signature Guaranteed

NOTICE

The signature on the foregoing Form of Election to Purchase and Certificate must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.

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EX-10.(A)

EXHIBIT 10 (a)

COMPUTER TASK GROUP, INCORPORATED

NON-COMPETITION AGREEMENT

THIS AGREEMENT is made as of March 1, 1984, by and between Computer Task Group, Incorporated, a New York corporation with its principal office and place of business at 800 Delaware Avenue, Buffalo, New York (“CTG”), and Randolph A. Marks, an individual residing at 90 Soldiers Place, Buffalo, New York (“Marks”).

INTRODUCTORY STATEMENT

Marks is a co-founder of CTG. Since June 1979, Marks has been Chairman of the Board and Chief Executive Officer and, prior to that time, he was Chairman of the Board and President of CTG, from the time of its organization in 1966. Marks has been largely responsible for CTG’s growth and financial achievements and its current status as one of the leading suppliers of professional computer and related services in the United States.

Marks is currently the beneficial owner of approximately 8% of CTG’s outstanding common shares. He is a Director of CTG and is expected to continue in that capacity.

Marks possesses in-depth knowledge of CTG’s business, trade secrets, operations and financial condition, forecasts of its operations, its marketing and business strategies and plans and other confidential/proprietary information, including but not limited to, client lists, confidential customer information as furnished to CTG by its clients, management/technical staff lists and related managerial and operational specifications and controls, operating policies and procedures, financial information and annual and long-range plans (collectively the “Confidential Information”).

Marks has demonstrated the ability to start and operate a computer services business successfully. Marks has considerable personal financial resources and is fully familiar with sources and means of financing of start-up companies.

Marks has advised CTG that he plans to resign from his position as Chairman of the Board and Chief Executive officer. Taking into consideration the above factors, CTG desires to restrict Marks from certain competitive activities, and Marks is agreeable to such restrictions.

NOW THEREFORE, it is agreed:

1. NON-COMPETITION. Marks will not, at any time subsequent to his resignation from full-time employment from CTG and until the time he reaches 60 years of age, unless directed or approved writing by the Board of Directors of CTG, directly or indirectly, as principal, agent, employee or otherwise, either alone or in association with any other person, firm or corporation, in any place within the United States of America:

(a) Engage in activities or businesses which are substantially in competition with CTG (“Competitive Activities”), including but not limited to:

(i) Selling goods or services of the type sold by CTG; except that if any goods or services were not sold by CTG during the term of Marks’ employment with CTG or the term of the contemporaneous Consulting Agreement between CTG and Marks (the “Consulting Agreement”) and are not sold by CTG at the time first sold by Marks (collectively “Permitted Goods or Services”), he may sell any Permitted Goods or Services notwithstanding anything contained in this Agreement.

(ii) Soliciting any customer or prospective customer of CTG to purchase any goods or services sold by CTG, other than Permitted Goods or Services, from anyone other than CTG.

(iii) Assisting any person, firm or organization in any way to do, or attempt to do ANYTHING prohibited by (a)(i) or (a)(ii) above.

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(b) Perform any action, activity or course of conduct which is substantially detrimental to CTG’s business (other than the sale of Permitted Goods or Services) or business reputation (“Detrimental Activities”), including but not limited to:

(i) Soliciting, recruiting or hiring any of CTG’s employees or persons who have worked for CTG.

(ii) Soliciting or encouraging any employee of CTG to leave the employment of CTG.

(iii) Disclosing or furnishing to any one any of CTG’s Confidential Information.

(iv) Using any Confidential Information for his own benefit or for the benefit of any other person, firm or corporation.

(v) Engaging in fraud, embezzlement or dishonest activities related to CTG.

(c) Become an employee, agent, officer, director, consultant, or shareholder of greater than 5% ownership, of any firm, company or organization engaged in Competitive Activities or Detrimental Activities.

2. TERM. The term of this Agreement shall commence upon termination by Marks of his full-time employment with CTG and shall continue until the earliest to occur of Marks’ death or October 27, 1995, Marks’ 60th birthday.

3. CTG REMEDIES.

(a) Marks acknowledges that a remedy at law for any breach by him of any provision of Section I hereof shall be inadequate and that CTG, in addition to any other relief to which it may be entitled, shall have the remedies of a restraining order, injunction, or other equitable relief to enforce the provision of Section 1. Moreover, in the event of Marks’ breach or attempted breach of the provisions of this Agreement, and not to the exclusion of other remedies available to CTG and without CTG being deemed to have made an election of remedies, the payments or other benefits due Marks hereunder shall cease and terminate immediately.

(b) In view of the nature of the business in which CTG is engaged, Marks’ knowledge of CTG’s business and the related matters set forth under the Introductory Statement, CTG and Marks are of the belief that Section 1 of this Agreement imposes reasonable restrictions on competition by Marks. If any provision of Section 1 shall for any reason be finally adjudged in any judicial proceeding to be unreasonable or excessively broad as to time, duration, geographical scope, activity or subject, such provision shall be enforced by limiting and reducing it to the extent adjudged in such proceeding. If any provision of Section 1 shall, notwithstanding the preceding sentence, be held illegal or unenforceable, such illegality or unenforceability shall not affect any other provision of Section 1, but Section 1 shall be construed and enforced as if such illegal or unenforceable provision had never been contained therein.

4. CONSIDERATION. As consideration for Marks entering into and complying with this Agreement, CTG shall provide the following:

(a) An annual sum of ninety-thousand dollars ($90,000.00), payable in bi-weekly installments commencing the CTG pay period immediately following the one after which this Agreement comes into effect.

(b) Medical benefits comparable to those provided corporate officers of CTG.

(c) A life insurance policy with a face value of $300,000.00, to remain in force until Marks’ death, with the beneficiary to be named by Marks.

5. PAYMENTS UPON DEATH. If Marks shall die during the term of this Agreement, CTG shall pay to Marks’ legal representatives, by the end of the month in which he dies, an amount equal to Marks’ then annual consideration hereunder which has accrued but not been paid as of the date of death, and no further payment shall be made under this Agreement.

6. NOTICES. All notices, deliveries and other communications given pursuant to this Agreement shall be deemed to have been properly given, if mailed by certified mail, addressed to the appropriate party, at the following address:

To: Computer Task Group, Incorporated

800 Delaware Avenue

Buffalo, New York 14209

Attn: Corporate Secretary

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To: Randolph A. Marks

90 Soldiers Place

Buffalo, New York 14222

Either party may from time to time designate by written notice a change of address.

7. ASSIGNMENT. This Agreement cannot be assigned by either party, except that CTG may assign this Agreement in connection with a merger, acquisition, or sale of substantially all of its assets, whereby greater than 50% of the ownership passes to another party, provided such party first makes a written agreement with Marks either

(a) assuming CTG’s obligations to Marks under this Agreement or

(b) making other provision for Marks as are satisfactory to Marks and approved by him, in writing, in lieu of assuming CTG’s obligations to him under this Agreement.

In the event such party does not make either of such written agreements, then CTG shall be obligated to pay to marks prior to the completion of such merger, acquisition or sale, an amount equal to the then present value of all remaining payments due under this Agreement. In computing such value, the discount factor shall he equal Co the yield of U.S. Treasury obligations (Treasury Bills, Notes or Bonds) having a maturity as nearly equal as possible to the then remaining term of this Agreement.

8. MISCELLANEOUS. Marks and CTG agree that this Agreement and all understandings contained herein supercede any other non-soliciation and non-disclosure agreement or any other non-competition agreement between Marks and CTG, whether in writing or orally made. This Agreement may not be amended or modified orally, and no provision hereof may be waived, except in writing signed by the parties hereto. CTG and Marks agree that this Agreement in no way constitutes an agreement by CTG to employ Marks nor an agreement by Marks to remain in the employment of CTG. This Agreement, subject to the provisions of Section 7, shall be binding upon and inure to the benefit of the personal representatives and successors in interest of Marks and any successors in interest of CTG. This Agreement shall be governed by the laws of the State of New York (excluding the law of the State of New York with regard to conflicts of law) as to all matters, including but not limited to matters of validity, construction, effect and performance. In any action relating to this Agreement, Marks hereby consents to the personal jurisdiction of any court of record of the State of New York or the United States located in Buffalo, New York, and Marks hereby waives all objections to the laying of venue of such action in any such court.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

COMPUTER TASK GROUP, INCORPORATED

By

William P. Adamucci,

Vice President

Randolph A. Marks

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EX-10.(B)

EXHIBIT 10 (b)

COMPUTER TASK GROUP, INCORPORATED

STOCK EMPLOYEE COMPENSATION TRUST

[Effective May 3, 1994]

TABLE OF CONTENTS

ARTICLE 1

TRUST, TRUSTEE, TRUST FUND

1.1 TRUST

1.2 TRUSTEE

1.3 TRUST FUND

1.4 TRUST FUND SUBJECT TO CLAIMS

1.5 DEFINITIONS

ARTICLE 2

CONTRIBUTIONS AND DIVIDENDS

2.1 CONTRIBUTIONS

2.2 DIVIDENDS

ARTICLE 3

RELEASE AND ALLOCATION OF COMPANY STOCK

3.1 AVAILABLE SHARES

3.2 ALLOCATIONS

3.3 EXCESS SHARES

ARTICLE 4

COMPENSATION, EXPENSES AND WITHHOLDING

4.1 COMPENSATION AND EXPENSES

4.2 WITHHOLDING OF TAXES

ARTICLE 5

ADMINISTRATION OF TRUST FUND

5.1 MANAGEMENT AND CONTROL OF TRUST FUND

5.2 INVESTMENT OF FUNDS

5.3 TRUSTEE’S ADMINISTRATIVE POWERS

5.4 VOTING AND TENDERING OF COMPANY STOCK

5.5 INDEMNIFICATION

5.6 GENERAL DUTY TO COMMUNICATE TO COMMITTEE

ARTICLE 6

ACCOUNTS AND REPORTS OF TRUSTEE

6.1 RECORDS AND ACCOUNTS OF TRUSTEE

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6.2 REPORTS OF TRUSTEE

6.3 FINAL REPORT

ARTICLE 7

SUCCESSION OF TRUSTEE

7.1 RESIGNATION OF TRUSTEE

7.2 REMOVAL OF TRUSTEE

7.3 APPOINTMENT OF SUCCESSOR TRUSTEE

7.4 SUCCESSION TO TRUST FUND ASSETS

7.5 CONTINUATION OF TRUST

7.6 CHANGES IN ORGANIZATION OF TRUSTEE

7.7 CONTINUANCE OF TRUSTEE’S POWERS IN EVENT OF TERMINATION OF THE TRUST

ARTICLE 8

AMENDMENT OR TERMINATION

8.1 AMENDMENTS

8.2 TERMINATION

8.3 FORM OF AMENDMENT OR TERMINATION

ARTICLE 9

MISCELLANEOUS

9.1 CONTROLLING LAW

9.2 COMMITTEE ACTION

9.3 NOTICES

9.4 SEVERABILITY

9.5 PROTECTION OF PERSONS DEALING WITH THE TRUST

9.6 TAX STATUS OF TRUST

9.7 PARTICIPANTS TO HAVE NO INTEREST IN THE COMPANY BY REASON OF

THE TRUST

9.8 NONASSIGNABILITY

9.9 PLURALS

9.10 COUNTERPARTS

COMPUTER TASK GROUP, INCORPORATED

STOCK EMPLOYEE COMPENSATION TRUST AGREEMENT

THIS TRUST AGREEMENT (the “Agreement”) made effective as of May 3, 1994, between Computer Task Group, Incorporated, a New York corporation (the “Company”), and Thomas R. Beecher, Jr., (the “Trustee”) as trustee.

WITNESSETH:

WHEREAS, the Company desires to establish a trust (the “Trust”) for the purposes stated in this Agreement:

WHEREAS, the Trustee desires to act as trustee of the Trust, and to hold legal title to the assets of the Trust, in trust, for the purposes hereafter stated and in accordance with the terms hereof;

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WHEREAS, the Company and/or its Affiliates (as defined below) have previously adopted the Plans (as defined below);

WHEREAS, the Company desires to provide assurance of the availability of the shares of its common stock to satisfy certain of its obligations or those of its subsidiaries under the Plans;

WHEREAS, the Company desires that the assets to be held in the Trust Fund (as defined below) should be principally or exclusively securities of the Company and, therefore, expressly waives any diversification of investments requirement that might otherwise be necessary, appropriate, or required pursuant to applicable-provisions of law; and

WHEREAS, the Trustee has been appointed as trustee and has accepted such appointment as of the date set forth first above;

NOW, THEREFORE, the parties hereto hereby establish the Trust and agree that the Trust will be comprised, held and disposed of as follows:

ARTICLE I

TRUST, TRUSTEE AND TRUST FUND

1.1 TRUST. This Agreement and the Trust shall be known as the Computer Task Group, Incorporated Stock Employee Compensation Trust. The parties intend that the Trust will be an independent legal entity with title to and power to convey all of its assets. The parties hereto further intend that the Trust not be subject to the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”). The assets of the Trust will be held, invested and disposed of by the Trustee, in accordance with the terms of the Trust. No employee benefit plan of the Company or any Affiliate (including the Plan), or any Participant, is intended to have any claim on, or any beneficial interest in, any assets of the Trust Fund prior to the time such assets are actually distributed to any such Plan as provided in Article 3.

1.2 TRUSTEE. The trustee named above, and his successor or successors, is hereby designated as the Trustee hereunder, to receive, hold, invest, administer and distribute the Trust Fund in accordance with the Trust, the provisions of which shall govern the powers, duties and responsibilities of the Trustee.

1.3 TRUST FUND. The assets held at any time and from time to time under the Trust collectively are herein referred to as the “Trust Fund” and shall consist of contributions received by the Trustee, proceeds of any loans, investments and reinvestment thereof, the earnings and income thereon, less disbursements thereof. Except as herein otherwise provided, title to the assets of the Trust Fund shall at all times be vested in the Trustee and securities that are part of the Trust Fund shall be held in such manner that the Trustee’s name and the fiduciary capacity in which the securities are held are fully disclosed, subject to the right of the Trustee to hold title or in the name of a nominee, and the interests of others in the Trust Fund shall be only the right to have such assets received, held, invested, administered and distributed in accordance with the provisions of the Trust.

1.4 TRUST FUND SUBJECT TO CLAIMS. Notwithstanding any provision of this Agreement to the contrary, the Trust Fund shall at all times remain subject to the claims of the Company’s general creditors.

1.5 DEFINITIONS. In addition to the terms defined in the preceding portions of the Trust, the following terms shall have the meanings set forth below unless the context clearly indicates otherwise:

(a) ADMINISTRATOR. “Administrator” means the plan administrator of each Plan.

(b) AFFILIATE. “Affiliate” means any corporation, more than 50 percent of the voting stock of which is held by the Company, directly or through one or more intermediaries, and any comparable ownership interest in an entity which is not a corporation.

(c) BOARD OF DIRECTORS. “Board of Directors” means the board of directors of the Company.

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(d) CHANGE OF CONTROL. “Change of Control” shall be deemed to have occurred if:

(i) any Person, which shall mean a “person” as such term is used in Sections 13(d) and 24(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company, the Trustee, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of

the Company), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30 percent or more of the combined voting power of the Company’s

then outstanding voting securities;

(ii) during any period of 24 consecutive months, individuals who at the beginning of such period constitute the Board, and any new director whose election by the Board, or whose nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds (2/3) of the directors (other than in connection with a contested election) before the beginning of the period cease, for any reason, to constitute at least a majority thereof;

(iii) the stockholders of the Company approve (1) a plan of complete liquidation of the Company or (2) the sale or disposition by the Company of all or substantially all of the Company’s assets unless the acquirer of the assets or its directors shall meet the conditions for a merger or consolidation in subparagraphs (iv) (a) or (iv) (b); or

(iv) the stockholders of the Company approve a merger or consolidation of the Company with any other company other than:

(a)such a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70-06 of the combined voting power of the Company’s or such surviving entity’s outstanding voting securities immediately after such merger of consolidation; or

(b) such a merger or consolidation which would result in the directors of the Company who were Directors immediately prior thereto continuing to constitute more than 50 percent of the directors of the surviving entity immediately after such merger or consolidation.

In this paragraph (iv), “surviving entity” shall mean only an entity in which all of the Company’s stockholders immediately before such merger or consolidation become stockholders by the terms of such merger or consolidation, and the phrase “directors of the Company who were directors immediately prior thereto” shall include only individuals who were directors of the Company at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation, or who were new directors (other than any director nominated in connection with a contested election or designated by a Person who has entered into an agreement with the Company to effect a transaction described in paragraph (i), (iii)(2), (iv)(a) or (iv)(b) of this Subsection) whose election by the Board, or whose nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds (2/3) of the directors before the beginning of such period.

(e) CODE. “Code” means the Internal Revenue Code of 1986, as amended.

(f) COMMITTEE. “Committee” means the Compensation Committee of the Board of Directors, which is charged with administration of the Trust. With respect to its administration of the Trust, the Committee shall consider recommendations received by it from an administrative committee of the Company comprised of the Chairman of the Board and Chief Executive Officer, the President and Chief Operating Officer, the Executive Vice President of Human

Resources, and the Vice President and Chief Financial Officer.

(g) COMPANY. “Company” means Computer Task Group, Incorporated, a New York corporation, or any successor thereto.

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(h) COMPANY STOCK. “Company Stock” means shares of common stock, $.01 par value, issued by the Company, or any successor securities thereto.

(i) EXTRAORDINARY DIVIDEND. “Extraordinary Dividend” means any dividend or other distribution of cash or other property (other than Company Stock) made with respect to Company Stock, which the Committee declares to be other than an ordinary dividend with respect to Company Stock held by the Trust.

(j) FAIR MARKET VALUE. “Fair Market Value” means as of any date the average of the highest and lowest reported sales prices on such date (or if such date is not a trading day, then the most recent prior date which is a trading day) of a share of Company Stock as reported on the composite tape, or similar reporting system, for issues listed on the New York Stock Exchange (or, if the Company Stock is no longer traded on the New York Stock Exchange, on such other national securities exchange on which the Company Stock is listed or national securities or central market system upon which transactions in Company Stock are reported, as either shall be designated by the Committee for the purposes hereof) or if sales of Company Stock are not reported in any manner specified above, the average of the high bid and low asked quotations on such date (or if such date is not a trading day, then on the most recent prior date which is a trading day) in the over-the-counter market as reported by the National Association of Securities Dealers’ Automated System or, if not so reported, by National Quotation Bureau, Incorporated or similar organization selected by the Committee.

(k) LOAN. “Loan” means any loan or extension of credit to the Trust from the Company evidenced by the promissory note made by the Trustee with which the Trustee purchases Company Stock in an open-market transaction, private transaction or, with the consent of the Board of Directors, from the treasury of the Company.

(l) PARTICIPANT. “Participant” means as of any date any individual who is employed by the Company or any affiliate of the Company as of such date and is a participant in any of the Plans.

(m) PERSON. “Person” means any individual, corporation, or other party that may properly be granted trust powers under the laws of the State of New York.

(n) PLAN OR PLANS. “Plan” or “Plans” means any plan, contract, program, agreement, or arrangement listed on Exhibit A hereto. The Committee, in its sole discretion, may add to or delete from Exhibit A any plan, contract, program, agreement, or arrangement for the benefit of employees or directors of the Company or its Affiliates.

(o) SUSPENSE ACCOUNT. “Suspense Account” means a separate account to be maintained by the Trustee to hold Excess Shares pursuant to the terms of Article 3 hereof.

(p) TARGET VALUE. “Target Value” means with respect to each calendar quarter in each Trust Year the total of the amounts the Committee, in its discretion, designate to the Trustee that shall be transferred to each of the Plans.

(q) TRUST YEAR. “Trust Year” means each calendar year. Notwithstanding the foregoing, the first Trust Year shall be the period commencing on the effective date of the Trust and ending on December 31, 1994.

ARTICLE 2

CONTRIBUTIONS AND DIVIDENDS

2.1 CONTRIBUTIONS. The Company hereby contributes to the Trust Fund and the Trustee agrees to hold in Trust the property listed in Exhibit B hereto, which shall become the initial principal of the Trust Fund. The Trustee, within one year of the effective date of the Trust, shall, as directed by the Committee, use the initial principal of the Trust to purchase shares of Company Stock through open-market purchases, private transactions, or, with the Board of Directors consent, purchases from the treasury of the Company. The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to become part of the principal to be held, administered and disposed of by the Trustee as provided in the Trust. Additionally, for each calendar quarter in each Trust Year,

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(i) the Company and its Affiliates may contribute to the Trust in cash such amount, which together with dividends, as provided in Section 2.2, and any other earnings of the Trust, which shall enable the Trustee to make all payments of principal and interest due under a Loan on a timely basis, in which case, unless otherwise expressly provided herein, the Trustee shall apply all such contributions, dividends and earnings to the payment of principal and interest due under a Loan, or

(ii) if, at the end of any calendar quarter in each Trust Year, any such contribution has not been made in cash, such contribution shall be deemed to have been made in the form of forgiveness of principal and interest on a Loan from the Company to the Trustee to the extent of the Company’s failure to make contributions made under clause (i) above.

All contributions made under the Trust shall be delivered to the Trustee. The Trustee shall be accountable for all contributions received by him, but shall have no duty to require any contributions to be made to him.

2.2 DIVIDENDS. Except as otherwise provided herein, dividends paid in cash on Company Stock held by the Trust, including Company Stock held in the Suspense Account, shall be applied, immediately upon receipt thereof by the

Trustee, to pay interest and to repay or pre-pay scheduled principal due under a Loan, which application shall be in the order such principal payments are due. Extraordinary Dividends shall not be used to pay interest on or principal of a Loan, but shall be invested in additional Company Stock as soon as practicable, except as provided below. Dividends which are not in cash or in Company Stock (including Extraordinary Dividends, or portions thereof) shall be reduced to cash by the Trustee and reinvested in Company Stock as soon as practicable, except as provided below. In the Committee’s discretion, investments in Company Stock may be made through open-market purchases, private transactions, or, with the Board of Directors consent, purchases from the treasury of the Company.

ARTICLE 3

RELEASE AND ALLOCATION OF COMPANY STOCK

3.1 AVAILABLE SHARES. Subject to the other provisions of this Article, upon the payment or forgiveness in any calendar quarter in any Trust Year of any principal on a Loan (a “Principal Payment”), the following number of shares of Company Stock acquired with the proceeds of the Loan shall become available for allocation (“Available Shares”): the number of shares so acquired with the proceeds of the Loan and held in the Trust immediately before such payment or forgiveness (excluding Company Stock held in the Suspense Account), multiplied by a fraction the numerator of which is the amount of the Principal Payment and the denominator of which is the sum of such Principal Payment and the remaining principal of such Loan outstanding after such Principal Payment. No fractional shares of Company Stock shall become Available Shares. If the preceding computation results in fractional shares, the number of Available Shares shall be computed by rounding down to the next whole number. Further, the following shall become Available Shares for a calendar quarter:

(i) shares of Company Stock held as part of the Trust Fund not acquired with the proceeds of a Loan and not held in the Suspense Account,

(ii) shares of Company Stock not encumbered as collateral with respect to a Loan, as the Committee may designate from time to time to be released from the Suspense Account, and

(iii) shares of Company Stock as the Committee may designate from time to time to be released from encumbrance as collateral with respect to a Loan.

The Committee shall inform the Trustee of the number of shares of Company Stock that shall become Available Shares from time to time, and the Trustee shall be permitted to rely on the directions provided by the Committee.

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3.2 ALLOCATIONS. Subject to the provisions of Section 3.3, Available Shares shall be distributed by the Trustee to the Plans listed in Exhibit A as the Trustee shall be directed by the Committee in its discretion.

Such transfers shall be made at such time as the Committee, in its sole discretion, shall determine. Further, the Committee, in its discretion, may determine that distributions to Plans shall be made in cash, or property other than Company Stock. In such case, the Committee shall direct the Trustee to sell Available Shares, in an open market or private transaction, in the amount required to be distributed to a Plan and to distribute the proceeds to such Plan. The Committee shall inform the Trustee of the number of shares of Company Stock or the amount of cash that shall be transferred to a plan from time to time, and the Trustee shall be permitted to rely on the directions provided by the Committee.

3.3 EXCESS SHARES.

(a) To the extent that the Fair Market Value of the shares of the Company Stock that become Available Shares in a calendar quarter of a Trust Year exceeds the Target Value for that calendar quarter, Available Shares with a Fair Market Value equal to such excess shall be “Excess Shares”. For purposes of this Section, the Fair Market Value of shares of Company Stock that become Available Shares shall be determined as of the respective dates shares became Available Shares pursuant to Section 3.1.

(b) As used herein, the term “Shortfall Amount” shall mean the amount by which the Fair Market Value of shares of Company Stock that became Available Shares in any calendar quarter of a Trust Year (determined as of the respective dates that such shares become Available Shares) is less than the Target Value for such calendar quarter. If there is a Shortfall Amount in any prior calendar quarter of any Trust Year, Excess Shares shall be allocated pursuant to Section 3.2 until the aggregate Fair Market Value of Excess Shares (determined as of the respective dates of allocation) which has been allocated under this Subsection for all prior calendar quarters of all Trust Years equals the total of the Shortfall Amounts for all prior calendar quarters of all Trust Years.

(c) If any Excess Shares remain after the application of Section 3.3(b), such Excess Shares shall be held in a Suspense Account. If there is a Shortfall Amount in any later calendar quarter of any Trust Year, Excess Shares shall be removed from such Suspense Account and allocated pursuant to Section 3.2 until the Fair Market Value of Excess Shares so allocated (determined as of the respective dates of allocation) equals such Shortfall Amount.

(d) If any Excess Shares remain in the Suspense Account at the termination of the Trust, such Excess Shares shall be transferred to the Company to be held in its treasury.

(e) The Committee shall inform the Trustee of the number of shares of Company Stock that are Excess Shares from time to time, and direct the Trustee as to the proper application of such Excess Shares to the reduction of Shortfall Amounts and to placement of such Excess Shares in a Suspense Account. The Trustee shall be permitted to rely on the directions provided to him by the Committee.

ARTICLE 4

COMPENSATION, EXPENSES AND WITHHOLDING

4.1 COMPENSATION AND EXPENSES. The Trustee shall be entitled to such reasonable compensation for his services as may be agreed upon from time to time by the Company and the Trustee and to be reimbursed for his reasonable legal, accounting, broker, custodial and appraisal fees, expenses and other charges reasonably incurred in connection with the administration, management, investment and distribution of the Trust Fund. Such amounts shall be paid, and such reimbursement shall be made by the Company. If not paid within 60 days from the date the Company is notified of such fees and expenses, such amounts may be charged against the Trust Fund.

4.2 WITHHOLDING OF TAXES. While it is anticipated that the Company will make provision for complying with all applicable Federal, state or local withholding requirements, the Trustee may withhold, require withholding, or otherwise satisfy his withholding obligation, on any distribution which it is directed to make, such amount as it may reasonably estimate to be necessary to comply with applicable federal, state and local withholding requirements. Upon settlement of such tax withholding liability, the Trustee shall distribute the balance of such amount, if any. Prior to making any distribution hereunder, the Trustee may require such release or documents from

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any taxing authority, or may require such indemnity, as the Trustee shall reasonably deem necessary for his protection.

ARTICLE 5

ADMINISTRATION OF TRUST FUND

5.1 MANAGEMENT AND CONTROL OF TRUST FUND. Subject to the terms of this Agreement, the Trustee shall have exclusive authority, discretion and responsibility to manage and control the assets of the Trust Fund.

5.2 INVESTMENT OF FUNDS. Except as otherwise provided in Section 2.2., in this Section or as otherwise directed by the Committee, the Trustee shall invest and reinvest the Trust Fund exclusively in Company Stock, including any accretions thereto resulting from the proceeds of a tender offer, recapitalization or similar transaction which, if not in Company Stock, shall be reduced to cash as soon as practicable. The Trustee may invest the Trust Fund in Company Stock without regard to any law or rule of court concerning diversification, risk or nonproductivity, the applicability of which are hereby fully waived by the Company. The Trustee may, as directed by the Committee, invest any portion of the Trust Fund temporarily pending investment in Company Stock, distribution or payment of expenses in

(i) investments in United States government obligations with maturities of less than one year,

(ii) interest-bearing accounts including but not limited to certificates of deposit, time deposits, saving accounts and money market accounts with maturities of less than one year in any bank, including the Trustee’s, which accounts are insured by the Federal Deposit Insurance Corporation or other similar federal agency,

(iii) obligations issued or guaranteed by any agency or instrumentality of the United States with maturities of less than one year,

(iv) short-term discount obligations of the Federal National Mortgage Association, or

(v) short-term investments of a type then in use by the Company with respect to its own funds. Absent direction from the Committee, the Trustee shall invest any portion of the Trust Fund temporarily pending investment in Company Stock, in a short-term government securities mutual fund.

5.3 TRUSTEE’S ADMINISTRATIVE POWERS. Except as otherwise provided herein, and subject to the Trustee’s duties hereunder, the Trustee shall have the following powers and rights, in addition to those provided elsewhere in this Agreement and by law:

(a) to retain any asset of the Trust Fund for the purposes set forth herein;

(b) subject to Section 2.2, Section 5.2, Section 5.4 and Article 3, to sell any Trust Fund assets at public or private sale;

(c) upon direction from the Committee, to borrow from the Company to acquire Company Stock as authorized by this Agreement, to enter into loan agreements upon such terms (including reasonable interest and security

for the loan and rights to renegotiate and prepay such loan) as may be determined by the Committee; provided, however, that any collateral given by the Trustee for a Loan shall be limited to cash contributed by the Company to the Trust and

dividends paid on Company Stock held in the Trust Fund and Company Stock acquired with the proceeds of a Loan;

(d) with the consent of the Committee, to settle, submit to arbitration, compromise, contest, prosecute or abandon claims and demands in favor of or against the Trust Fund;

(e) subject to Section 5.4, to vote or to give any consent with respect to any securities, including any Company Stock, held by the Trust either in person or by proxy for any purpose;

(f) to exercise any of the powers and rights of an individual owner with respect to any asset of the Trust Fund and to perform any and all other acts that ‘ in his judgment are necessary or appropriate for the proper

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administration of the Trust Fund, even though such powers, rights and acts are not specifically enumerated in the Trust;

(g) to employ such accountants, actuaries, investment bankers, appraisers, other advisors and agents as may be reasonably necessary in collecting, managing, administering, investing, valuing and distributing the Trust’s assets and borrowings of the Trustee made in accordance with Section 5.3(c); and to pay their reasonable fees and expenses, which shall be deemed to be expenses of the Trust and for which the Trustee shall be reimbursed in accordance with Section 4.1;

(h) to cause any asset of the Trust Fund to be issued, held or registered in the Trustee’s individual name or in the name of his nominee, or in such form that title will pass by delivery, provided that the records of the Trustee shall indicate the true ownership of such asset;

(i) to utilize another entity as custodian to hold, but not invest or otherwise manage or control, some or all of the assets of the Trust Fund; and

(j) to consult with legal counsel (who may, or may not, also be counsel for the Trustee or the Company generally) with respect to any of his duties or obligations hereunder; and to pay the reasonable fees and expenses of such counsel, which shall be deemed to be expenses of the Trust and for which the Trustee shall be reimbursed in accordance with Section 4.1.

Notwithstanding the foregoing, neither the Trust nor the Trustee shall have any power to, and shall not engage in any activity that could give the trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative

Regulations promulgated pursuant to the Code.

5.4 VOTING AND TENDERING OF COMPANY STOCK.

(a) The Trustee, in his sole discretion, shall vote or abstain from voting, all shares of Company Stock held by the Trust on each matter brought before an annual or special stockholders meeting or on each matter with respect to which any written consent of stockholders is to be executed and shall tender or exchange, or shall refrain from tendering or exchanging, shares of Company Stock held by the Trust in any tender offer or exchange offer relating to shares of Company Stock. In exercising such rights, the Trustee agrees to consider in connection with such decisions not only the direct financial impact upon the Trust Fund, but also the potential effects, direct or indirect, upon Participants and the Company’s current and former employees. In connection with such deliberations, the Trustee shall undertake, to the extent possible, to obtain information as to how shares of Company Stock previously held in the Trust and currently held by the Plans will be voted, tendered or exchanged. Further, the Trustee agrees to consult with the Board of Directors and the Operating Committee of the Company to obtain their assessment of the effects exercising such rights will have on the Company. The Trustee shall not be held to be in breach of any fiduciary duty for any consideration given to the preceding factors, or such other factors as the Trustee in his reasonable judgment determines should be considered.

(b) Without limiting the generality of the foregoing, the Company shall maintain appropriate procedures to ensure that all information relating to voting or tendering of shares of Company Stock held by the Plans and provided to the Trustee are transmitted without being divulged or released to any person affiliated with the Company or its Affiliates not otherwise privy to such information. Except as may be required by law or court order, all such information with respect to voting or tendering, referred to in Section 5.4(a), shall be held confidential by the Trustee and

shall not be divulged or released to any person, other than agents of the Trustee who are not affiliated with the Company or its Affiliates.

(c) The Trustee may rely upon a certificate of the trustee of each of the Plans as to

(i) the manner and proportions in which voting rights with respect to shares of Company Stock are to be exercised or not exercised by the trustee of such Plan and

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(ii) the proportions of shares of Company Stock that are to be tendered or exchanged, or not tendered or exchanged, by the trustee of such Plan, and such certificate shall constitute full protection to the Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon.

5.5 INDEMNIFICATION.

(a) To the extent lawfully allowable, the Company shall and hereby does indemnify and hold harmless the Trustee from and against any claims, demands, actions, administrative or other proceedings, causes of action, liability, loss, costs, damage or expense (including reasonable attorneys, fees and disbursements) including any liability alleged to have resulted from a violation of the Securities Act of 1933, which may be asserted against it, in any way arising out of or incurred as a result of his action or failure to act in connection with the operation and administration of the Trust; provided that such indemnification shall not apply to the extent that the Trustee has acted in willful or grossly negligent violation of applicable law or his duties under this Trust or in bad faith. The Trustee shall be under no liability to any person for any loss of any kind which may result by reason of any action taken by it in accordance with any direction of the Committee or pursuant to Section 5.4. The Trustee shall be fully protected in acting upon any instrument, certificate, or paper delivered by the Committee, Board of Directors or any trustee of a Plan and believed in good faith by the Trustee to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing, but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained.

(b) The Company may, but shall not be required to, maintain liability insurance to insure its obligations hereunder. If any payments made by the Company of the Trust pursuant to this indemnity are covered by insurance, the Company or the Trust (as applicable) shall be subrogated to the rights of the indemnified party against the insurance company.

(c) Prior to the time the Company determines whether the trustee shall or shall not be indemnified pursuant to this Section, the Company shall advance to the Trustee any cost or expenses incurred by the Trustee in connection with the defense of any such claims, demands, actions, administrative or other proceedings or other causes of action.

5.6 GENERAL DUTY TO COMMUNICATE TO COMMITTEE. The Trustee shall promptly notify the Committee of all communications with or from any government agency or with respect to any legal proceeding with regard to the Trust and with or from any participant concerning his entitlement under the Trust.

ARTICLE 6

ACCOUNTS AND REPORTS OF TRUSTEE

6.1 RECORDS AND ACCOUNTS OF TRUSTEE. The Trustee shall maintain accurate and detailed records and accounts of all transactions of the Trust, which shall be available at all reasonable times for inspection or audit by any person designated by the Company and which shall be retained as required by applicable law.

6.2 REPORTS OF TRUSTEE. The Trustee shall deliver to the Committee a report for the period ending on the last day of each Trust Year, and for each month, a duplicate copy of the custodian’s report listing all securities and other property acquired or disposed of and all receipts, disbursements and other transactions effected by the Trust after the date of the custodian’s last account, and further listing all cash, securities, and other property held by the Trust, together with the Fair Market Value thereof, as of the end of such period. In addition to the foregoing, the report shall contain such information regarding the Trust Fund’s assets and transactions as the Committee in its discretion may reasonably request.

6.3 FINAL REPORT. In the event of the resignation or removal of a Trustee hereunder, the Committee may request and the Trustee shall with reasonable promptness submit, for the period ending on the effective date os such resignation or removal, a report similar in form and purpose to that described in Section 6.2.

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ARTICLE 7

SUCCESSION OF TRUSTEE

7.1 RESIGNATION OF TRUSTEE. The Trustee or any successor thereto may resign as Trustee hereunder at any time upon delivering a written notice of such resignation, to take effect 30 days after the delivery thereof to the Committee, unless the Committee accepts shorter notice; provided, however, that such resignation shall not be effective until a successor Trustee has assumed the office of Trustee hereunder. In individual serving as a Trustee shall be deemed to upon his or her death or if there is filed with the Committee a certification in writing from any attending physician of such individual Trustee that he or she is no longer able to make decisions with respect to financial matters. In such case, the Board of Directors may immediately appoint a successor Trustee pursuant to Section 7.3.

7.2 REMOVAL OF TRUSTEE. The Trustee or any successor thereof may be removed by the Company by delivering to the Trustee so removed an instrument executed by the Committee. Such removal shall take effect at the date specified in such instrument, which shall not be less than 30 days after delivery of the instrument, unless the Trustee accepts shorter notice; provided, however, that no such removal shall be effective until a successor Trustee has assumed the office of Trustee hereunder.

7.3 APPOINTMENT OF SUCCESSOR TRUSTEE. Whenever the Trustee or any successor thereto shall resign or be removed or a vacancy in the position shall otherwise occur, the Board of Directors shall use its best efforts to appoint one or more Persons as successor Trustee as soon as practicable after receipt by the Committee of a notice described in Section 7.1, or the delivery to the Trustee of a notice described in Section 7.2, as the case may be, but in no event more than 30 days after receipt or delivery, as the case may be, of such notice. A successor Trustee’s appointment shall not become effective until such successor shall accept such appointment by delivering its acceptance in writing to the company. If a successor is not appointed within such 30 day period, the Trustee, at the Company’s expense, may petition a court of competent jurisdiction for appointment of a successor. In any event, the Company or any of its Affiliates may not be appointed as a successor Trustee.

7.4 SUCCESSION TO TRUST FUND ASSETS. The title to all property held hereunder shall vest in any successor Trustee acting pursuant to the provisions hereof without the execution or filing of any further instrument, but a resigning or removed Trustee shall execute all instruments and do all acts necessary to vest title in the successor Trustee. Each successor Trustee shall have, exercise and enjoy all of the powers, both discretionary and ministerial, herein conferred upon its predecessors. A successor Trustee shall not be obliged to examine or review the accounts, records, or acts of, or property delivered by, any previous Trustee and shall not be responsible for any action or any failure to act on the part of any previous Trustee.

7.5 CONTINUATION OF TRUST. In no event shall the legal disability, resignation or removal of a Trustee terminate the Trust, but the Board of Directors shall forthwith appoint a successor Trustee in accordance with Section 7.3 to carry out the terms of the Trust.

7.6 CHANGES IN ORGANIZATION OF TRUSTEE. In the event that any corporate Trustee serving hereunder shall be converted into, shall merge or consolidate with, or shall sell or transfer substantially all of its assets and business to, another corporation, state or federal, the corporation resulting from such conversion, merger or consolidation, or the corporation to which such sale or transfer shall be made, shall thereafter become and be the Trustee under the Trust with the same effect as though originally so named but only if such corporation is qualified to be a successor Trustee hereunder.

7.7 CONTINUANCE OF TRUSTEE’S POWERS IN EVENT OF TERMINATION OF THE TRUST. In the event of the termination of the Trust, as provided herein, the Trustee shall dispose of the Trust Fund in accordance with the provisions hereof. Until the final distribution of the Trust Fund, the Trustee shall continue to have all powers provided hereunder as necessary or expedient for the orderly liquidation and distribution of the Trust Fund.

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ARTICLE 8

AMENDMENT OR TERMINATION

8.1 AMENDMENTS. Except as otherwise provided herein, the Board of Directors may amend the Trust at any time and from time to time in any manner which it deems desirable, provided however, no amendment may change the duties of the Trustee without the Trustee’s consent, which consent shall not be unreasonably withheld.

Notwithstanding the foregoing, the Board of Directors shall retain the power under all circumstances to amend the Trust to add employee benefit plans to, or delete plans from, Exhibit A and to clarify any ambiguities or similar issues of interpretation in this Agreement.

Notwithstanding any other provision of this Agreement, upon a Change of Control, the Company and the Board of Directors shall have no power to amend the Agreement and the Trust shall become irrevocable.

8.2 TERMINATION. Subject to this Section, the Trust shall terminate on the earlier of

(a) the date the Trust no longer holds any assets,

(b) May 3, 2004 or

(c) the date specified in a written notice of termination given by the Board of Directors to the Trustee.

Upon termination of the Trust other than upon a Change of Control, the Trustee shall sell all or a portion of the assets of the Trust Fund as directed by the Committee. The proceeds of such sale or the assets then remaining in the Trust Fund shall then be distributed by the Committee to the Plans, used towards repayment of any Loan, or returned to the Company as directed by the Committee in its discretion. After distribution of all assets held in the Trust Fund as directed by the Committee, the Company shall be deemed to have forgiven all amounts then outstanding under any Loan, including accrued and unpaid interest.

The Trust shall become irrevocable and nonamendable and shall terminate automatically upon a Change of Control. The Company shall notify the Trustee of the occurrence of a Change of Control as soon as possible after its occurrence. Immediately upon a termination of the Trust after a Change of Control, the Company shall be deemed to have forgiven all amounts then outstanding under any Loan, including accrued and unpaid interest. As soon as practicable after receiving notice from the Company of a Change of Control, the Trustee shall sell all of the Company Stock and other non-cash assets (if any) then held in the Trust Fund as directed by the Committee. The proceeds of such sale shall first be returned to the Company up to an amount equal to the principal amount of any Loan and any accrued but unpaid interest thereon that was forgiven upon such termination. Any funds remaining in the Trust after such payment to the Company shall be distributed with reasonable promptness to the Plans as directed by the Committee.

8.3 FORM OF AMENDMENT OR TERMINATION. Any amendment or termination of the Trust (other than after a Change of Control) shall be evidenced by an instrument in writing signed by an authorized officer of the Company, certifying that said amendment or termination has been authorized and directed by the Company or the Board of Directors, as applicable, and, in the case of any amendment, shall be consented to by signature of the Trustee or its authorized officer, as the case may be, if required by Section 8.1.

ARTICLE 9

MISCELLANEOUS

9.1 CONTROLLING LAW. The laws of the State of New York shall be the controlling law in all matters relating to the Trust, without regard to conflicts of law.

9.2 COMMITTEE ACTION. Any action required or permitted to be taken by the Committee may be taken on behalf of the Committee by any individual so authorized. The Company shall furnish to the Trustee the name and specimen signature of each member of the Committee upon whose statement of a decision or direction the Trustee is authorized to rely. Until notified of a change in the identity of such person or persons, the Trustee shall act upon the assumption that there has been no change.

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9.3 NOTICES. All notices, requests, or other communications required or permitted to be delivered hereunder shall be in writing, delivered by registered or certified mail, return receipt requested, telecopier or hand delivery as follows:

To the Company:	Computer Task Group, Incorporated
	800 Delaware Ave.
	Buffalo, New York 14209
	Attention: Vice President and General Counsel
With a copy to:	Dianne Bennett, Esq.
	Hodgson, Russ, Andrews, Wood & Goodyear
	1800 One M&T Plaza
	Buffalo, NY 14203
To the Trustee:	Thomas R. Beecher,
	200 Theater Place
	Buffalo, NY 14202
With a copy to:	Philip J. Szabla, Esq.
	Albrecht, Maguire, Heffren &
	Gregg, P.C.
	2100 Main Place Tower
	Buffalo, NY 14202

Any party hereto may from time to time, by written notice given as aforesaid, designate any other address to which notices, requests or other communications addressed to it shall be sent.

9.4 SEVERABILITY. If any provision of the Trust shall be held illegal, invalid or unenforceable for any reason, such provision shall not affect the remaining parts hereof, but the Trust shall be construed and enforced as if said provision and never been inserted herein.

9.5 PROTECTION OF PERSONS DEALING WITH THE TRUST. No person dealing with the Trustee shall be required or entitled to monitor the application of any money paid or property delivered to the Trustee, or determine whether or not the Trustee is acting pursuant to authorities granted to it hereunder or to authorizations or directions herein required.

9.6 TAX STATUS OF TRUST. It is intended that the Company, as grantor hereunder, be treated as the owner of the entire Trust and the Trust Fund within the meaning of-subpart E part 1, subchapter K, chapter 1, subtitle A of the Code. Until advised otherwise, the Trustee in preparing any tax reports or returns may presume that this is the proper tax status of the Trust.

9.7 PARTICIPANTS TO HAVE NO INTEREST IN THE COMPANY BY REASON OF THE TRUST. Neither the creation of the Trust nor anything contained in the Trust shall be construed as giving any person, including any individual employed by the Company or any Affiliate of the Company, any equity or interest in the assets, business or affairs of the Company.

9.8 NONASSIGNABILITY. No right or interest of any person to receive distributions from the Trust shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, or bankruptcy, but excluding death or mental incompetency, and no right or interest of any person to receive distributions from the trust shall be subject to any obligation or liability of such person, including claims for alimony or the support of any spouse or child.

9.9 PLURALS. Whenever the context requires or permits, the singular form shall include the plural form and shall be interchangeable.

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9.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be considered an original.

IN WITNESS WHEREOF, the Company and the Trustee have caused this Agreement to be signed, and their seals affixed hereto, by their authorized officers all as of the day, month and year first above written.

Computer Task Group, Incorporated

By:

Trustee

Thomas R. Beecher, Jr.

EXHIBIT A

COMPUTER TASK GROUP, INCORPORATED

PLANS

1. Employee welfare benefit plans (as defined in Section 3(1) of ERISA sponsored or maintained by the Company or its Affiliates

2. Computer Task Group, Incorporated Employee Stock Purchase Plan

3. Computer Task Group, Incorporated Management Stock Purchase Plan

4. Computer Task Group, Incorporated Executive Supplemental Benefit Plan

5. Computer Task Group, Incorporated Restricted Stock Plan

6. Computer Task Group, Incorporated 401(k) Retirement Plan

7. 1991 Computer Task Group, Incorporated Stock Option Plan

8. Other stock based compensation plans for employees or directors of Computer Task Group, Incorporated currently existing or established the future

EXHIBIT B

COMPUTER TASK GROUP, INCORPORATED

INITIAL CONTRIBUTION TO TRUST FUND

$13,400,000.00

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EX-10.(C)

EXHIBIT 10 (c)

COMPUTER TASK GROUP, INCORPORATED

DEMAND GRID NOTE

$65,000,000.00

October 29, 1997

Buffalo, New York

FOR VALUE RECEIVED, the undersigned, Computer Task Group, Incorporated Stock Employee Compensation Trust, with its principal business address at 200 Theatre Place, Buffalo, New York 14202 (“Borrower”), promises to pay to the order of Computer Task Group, Incorporated (“Lender”) in lawful money of the United States, on demand (1) the principal amount of SIXTY FIVE MILLION ($65,000,000.00) DOLLARS, (the “Limiting Principal Amount”) or the outstanding principal amount of this Note (the “Outstanding Principal Amount”), if less, (2) interest, calculated on the basis of a 365 day year on the Outstanding Principal Amount from and including the date of this Note to but not including the date the Outstanding Principal Amount is paid in full at a rate per year that shall equal the prime rate of interest charged by Manufacturers and Traders Trust Company; provided, however, that (i) in no event shall such interest be payable at a rate in excess of the maximum rate permitted by applicable law and (ii) solely to the extent necessary to result in such interest not being payable at a rate in excess of such maximum rate, any amount that would be treated as part of such interest under a final judicial interpretation of applicable law shall be deemed to have been a mistake and automatically canceled, and, if received by the Lender, shall be refunded to the Borrower, it being the intention of the Lender and the Borrower that such interest not be payable at a rate in excess of such maximum rate and (3) each cost and expense (including, but not limited to, the reasonable fees and disbursements of counsel, whether retained for advice, litigation or any other purpose) incurred by the Lender in endeavoring to (a) collect any of the Outstanding Principal Amount, any interest payable pursuant to this Note and remaining unpaid or any other amount payable by the Borrower to the Lender pursuant to this Note and remaining unpaid, (b) preserve or exercise any right or remedy of the Lender relating to, enforce or realize upon any collateral, subordination, guaranty, endorsement or other security or assurance of payment, whether now existing or hereafter arising, that now or hereafter directly or indirectly secures the payment of or is otherwise now or hereafter directly or indirectly applicable to any of the Outstanding Principal Amount, any such interest or any such other amount or (c) preserve or exercise any right or remedy of the Lender pursuant to this Note.

This Note is issued by the Borrower to the Lender in connection with a line of credit made available by the Lender to the Borrower (the “Credit”). The Lender may make any loan pursuant to the Credit (individually a “Loan” and collectively “Loans”) in reliance upon any oral (including, but not limited to, telephonic), written (including, but not limited to, facsimile) or other request (a “Request”) therefor that the Lender in good faith believes to be valid and to have been made on behalf of the Borrower by its trustee. The Credit is available subject to the Lender’s continuing review and right of modification, restriction, suspension or termination at any time for any reason. No modification, restriction, suspension or termination of the Credit shall affect the Borrower’s obligation to repay the original principal amount of each Loan, the Borrower’s obligation to pay interest on the outstanding principal amount of each Loan or any other obligation of the Borrower to the Holder pursuant to this Note or otherwise.

There shall be payable as principal pursuant to this Note only so much of the Limiting Principal Amount as shall have been advanced by the Lender as a Loan and is outstanding. The Holder shall set forth on the schedule attached to and made a part of this Note or any similar schedule or loan (including, but not limited to, any similar schedule or loan account maintained in computerized records) annotations evidencing (1) the date and original principal amount of each Loan and (2) the date and amount of each payment applied to the Outstanding Principal Amount. Each such annotation shall, in the absence of manifest error, be conclusive and binding upon the Borrower. No failure by the Holder to make and no error by the Holder in making any annotation on such attached schedule or any such similar schedule or loan account shall affect the obligation of the Borrower to repay the principal amount of each Loan, the obligation of the Borrower to pay interest on the outstanding principal amount of each Loan or any other obligation of the Borrower pursuant to this Note.

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All amounts payable pursuant to this Note and remaining unpaid shall, without any notice, demand, presentment or protest of any kind (each of which is knowingly, voluntarily, intentionally and irrevocably waived by the Borrower), automatically become immediately due if the Borrower commences or has commenced against it any bankruptcy or insolvency proceeding.

This Note shall be governed by and construed, interpreted and enforced in accordance with the internal law of the State of New York, without regard to principles of conflict of laws.

All payments of principal and interest under this Note are to be made to the Lender at 800 Delaware Avenue, Buffalo, New York 14209, or at such other address as the Lender may from time to time designate in writing.

Computer Task Group, Incorporated Stock Employee Compensation Trust
By:	/s/ Thomas R. Beecher, Jr.
Thomas R. Beecher, Jr., as
Trustee of the Computer Task Group,
Incorporated Stock Employees Compensation Trust

SCHEDULE OF ADVANCE AND PAYMENTS

	Principal		Principal	Outstanding
Date	Amount		Amount	Principal	Approving
Advanced	Advanced	Date Paid	Paid	Amount	Employee

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EX-10.(D)

EXHIBIT 10 (d)

COMPUTER TASK GROUP, INCORPORATED

PLEDGE AGREEMENT

In consideration of Computer Task Group, Incorporated with a principal business address at 800 Delaware Avenue, Buffalo, New York, 14209 (the “Secured Party”) extending credit to Thomas R. Beecher, Jr., as Trustee of the Computer Task Group, Incorporated Stock Employee Compensation Trust (the “Pledgor”) in the amount of $1,481,200.00 by a Note dated December 7, 1994 (the “Note”), the receipt of which is acknowledged by Pledgor, the Secured Party and the Pledgor agree as follows:

1. To secure the payment of all indebtedness, liabilities and obligations for the payment of money, regardless of kind, now existing or hereafter arising, directly or indirectly, and the performance of all other obligations, that are now or hereafter owing by the Pledgor in any capacity to the Secured Party pursuant to the Note, the Pledgor grants to the Secured Party a security interest in (a) all 200,000 shares of common stock of Computer Task Group, Incorporated acquired by Pledgor with the proceeds of the Note (“Company Stock”), (b) all additions to, all replacements of, all increases in, all profits, dividends, distributions and other income and payments on account of, and all proceeds of any replacement, release, surrender, discharge, assignment, sale, exchange, conversion or other transfer or disposition of, of any collection of, or of any exercise of any option or right of subscription relating to, any of the securities described in clause (a) of this sentence, whether arising from any exchange, conversion, stock split, spinoff, reclassification, merger, consolidation or other absorption, sale of assets or combination of shares or otherwise, (c) all instruments evidencing, or otherwise relating to, any of the things described in clauses (a) and (b) of this sentence, and (d) all proceeds of any of the things described in clauses (a), (b), (c) and (d) of this sentence (collectively the “Collateral”).

2. Solely to the extent required by applicable law to make the Collateral available for payment of the Note, the Pledgor unconditionally guarantees the payment, without any setoff or other deduction, of each amount due under the Note. The Secured Party’s recourse pursuant to this Agreement shall be expressly limited to the Collateral and the Pledgor shall have no other liability whatsoever pursuant to this Agreement. The Secured Party shall have no recourse whatsoever to any assets of the Pledgor in his individual capacity for payment of the Note. The Pledgor is entering into this Agreement not in his individual capacity but solely as Trustee of the Computer Task Group, Incorporated Stock Employee Compensation Trust, and no personal liability or personal responsibility is assumed by, or shall at any time be asserted or enforceable against, the Pledgor in his individual capacity under, or with respect to, this Agreement.

3. The Pledgor shall upon the demand of the Secured Party (a) deliver to the Secured Party each instrument included in the Collateral with each endorsement, instrument of assignment and other writing that the Secured Party shall reasonably deem necessary to accomplish the assignment or other transfer of such instrument to the Secured Party and until such delivery hold such instrument in trust for the Secured Party, (b) defend the Collateral against each demand and claim asserted by any corporation, governmental authority, individual, partnership or other entity (a “Person”) other than the Secured Party,(c) within five days after the occurrence of any event listed in clauses (i), (ii) or (iii) of this sentence, send or deliver to the Secured Party notice of W any loss, destruction or theft of any of the Collateral from any cause of any kind, (ii) the threat or commencement by any Person other than the Secured Party of any action or other legal proceeding relating to any of the Collateral or (iii) the assertion by any Person other than the Secured Party of any demand or claim relating to any of the Collateral, and (d) immediately send or deliver to the Secured Party notice of any maturity, call, exchange, conversion, redemption, offer, tender or similar matter relating to any of the Collateral.

4. Promptly upon the request of the Secured Party, the Pledgor shall (a) execute and deliver each financing statement relating to any of the Collateral, and each amendment of any such financing statement, that is so requested and (b) execute and deliver each other writing, and take each other action, that the Secured Party shall reasonably deem necessary (i) to perfect or accomplish the security interest granted pursuant to this Agreement or (ii) otherwise to accomplish any purpose of this Agreement.

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5. The Pledgor shall not without the written consent of the Secured Party (a) execute or permit to be filed or remain on file in any public office any financing statement relating to any of the Collateral and naming as a secured party any Person other than the Secured Party, (b) create or permit to exist any security interest in, or any other lien or encumbrance upon, any of the Collateral, except for any security interest or other lien or encumbrance in favor of the Secured Party, (c) assign, sell or otherwise transfer or dispose of any of the Collateral or any interest in any of the Collateral or (d) request, demand, accept, collect, enforce, extend, renew, modify, compromise, replace, cancel, release, surrender, discharge, commence, prosecute or settle any action or other legal proceeding relating to, waive any right or remedy relating to or otherwise terminate, impair or affect any obligation of any Person relating to, or give any receipt, release or discharge relating to, any of the Collateral.

6. Upon the failure of the Pledgor (a) to pay when due (or after demand, where applicable) any amount, whether principal, interest or other, constituting part of the Note and the continuation of such failure for more than thirty (30) days after the Pledgor has received written notice of such failure from the Secured Party (individually an “Event of Default”), the Secured Party shall have the right, without any notice or demand of any kind, but shall not be obligated, to perform any obligation of the Pledgor pursuant to this Agreement and exercise each applicable right and remedy of a secured party pursuant to the Uniform Commercial Code of the State of New York and each applicable right and remedy pursuant to any other statute, regulation or other law. The Secured Party shall apply all proceeds received by the Secured Party from any sale or other disposition of, or from any collection of, any of the Collateral or otherwise on account of any of the Collateral to such of the obligations, whether or not due, as the Secured Party shall determine in the sole discretion of the Secured Party.

7. Upon the request of the Secured Party, the Pledgor shall (a) permit each officer, employee, accountant, attorney and other agent of the Secured Party upon two days’ notice during normal business hours to inspect the Collateral and to examine, audit, copy and extract each record of the Pledgor evidencing, or otherwise relating to, any of the Collateral, (b) execute and deliver each financing statement relating to any of the Collateral and each amendment of any such financing statement that is so requested and (c) execute and deliver each other writing, and take each other action, that the Secured Party shall reasonably deem necessary or desirable W to perfect or accomplish the security interest granted pursuant to this Agreement or (ii) otherwise to accomplish any purpose of this Agreement.

8. Upon the occurrence of an Event of Default, the Pledgor irrevocably and unconditionally appoints the Secured Party as the attorney-in-fact of the Pledgor with full power of substitution and of revocation, acting at any time and from time to time and without any notice or demand of any kind, in the name of the Pledgor or otherwise and otherwise as shall be determined by the Secured Party in the sole discretion of the Secured Party to, but the Secured Party shall not be obligated to, take each action relating to any of the Collateral that, subject to this Agreement, the Pledgor could take in the same manner, to the same extent and with the same effect as if the Pledgor were to take such action (including, but not limited to, the right to vote or give any consent, ratification or waiver with respect to any of the Collateral to the extent permitted by law and consistent with any rules and regulations of the Securities and Exchange Commission). Without limiting the generality of the preceding sentence, at all times prior to the occurrence of an Event of Default, the Pledgor shall retain the right to vote or give any consent, ratification or waiver with respect to the Collateral. Such power of attorney is coupled with an interest in favor of the Secured Party.

9. Upon the payment or forgiveness in any calendar quarter in any year of any principal on the Note (a “Principal Payment”), the following number of shares of Company Stock acquired with the proceeds of the Note shall become released from the provisions of this Agreement and-shall no longer be Collateral: the number of shares so acquired with the proceeds of the Note and held by the Pledgor immediately before such payment or forgiveness, multiplied by a fraction the numerator of which is the amount of the Principal Payment and the denominator of which is the sum of such Principal Payment and the remaining principal of the Note outstanding after such Principal Payment. No fractional shares of Company Stock shall become released from the terms of this agreement. If the preceding computation results in fractional shares, the number of released shares shall be computed by rounding down to the next whole number. Furthermore, the Secured Party from time to time may release shares of Company Stock from the terms of this agreement as it shall designate in writing to the Pledgor. Additionally, a number of shares of Company Stock as the Compensation Committee of the Board of Directors of Computer Task Group, Incorporated shall from time to time may declare shall be released from the provisions of this Agreement and shall no longer be Collateral.

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10. This Agreement contains the entire agreement between the Secured Party and the Pledgor with respect to the subject matter of this Agreement, and supersedes each course of conduct heretofore pursued, accepted or acquiesced in, and each oral agreement and representation heretofore made, by the Secured Party with respect thereto, whether or not relied or acted upon. No course of performance or other conduct hereafter pursued, accepted or acquiesced in, and no oral agreement or representation hereafter made, by the Secured Party, whether or not relied or acted upon, and no usage of trade, whether or not relied or acted upon, shall modify or terminate this Agreement, impair or

otherwise affect any obligation of the Pledgor pursuant to this Agreement or any right or remedy of the Secured Party pursuant to this Agreement or otherwise or operate as a waiver of any such right or remedy. No modification of this Agreement or waiver of any such right or remedy shall be effective unless made in a writing duly executed by the Secured Party and the Pledgor.

11. No obligation of the Pledgor or right or remedy of the Secured Party pursuant to this Agreement shall be impaired or otherwise affected by, and the Pledgor consents without notice to, (a) any extension, renewal, refinancing, modification, acceleration, invalidity or unenforceability of the Note, (b) any replacement, release or discharge of any party liable for payment of the Note, (c) any impairment, replacement, release or discharge of, or failure to call for, take, hold, protect, perfect, keep perfected or enforce any security interest in or other lien or encumbrance upon, any collateral or other security securing the Note and (d) any exercise, delay in the exercise or waiver of, failure to exercise or forbearance or other indulgence by the Secured Party relating to any such right or remedy. No such obligation, right or remedy shall be conditioned upon, and the Pledgor waives, without notice, any demand, presentment or protest, any notice of nonpayment, of protest or of any other matter and any exercise of any right or remedy.

12. All rights and remedies of the Secured Party pursuant to this Agreement or otherwise shall be cumulative, and no such right or remedy shall be exclusive of any other such right or remedy. No single or partial exercise by the Secured Party or any such right or remedy shall preclude any other of further exercise thereof, or any exercise of any other such right or remedy, by the Secured Party. The Secured Party hereby delegates to the Compensation Committee of the Board of Directors of the Secured Party the authority to exercise in its discretion all rights and remedies under this Agreement.

13. Each notice to and each other communication to the Pledgor or the Secured Party shall be hand-delivered or sent by certified mail, return receipt requested, to the address set forth for such party at the beginning of this Agreement or to any other address as may at any time be specified by such party in a written notice delivered pursuant to this Section.

14. This Agreement shall be governed by and interpreted and enforced in accordance with the internal law of the State of New York, without regard to principles of conflict of laws. For purposes of any claims made pursuant to this Agreement, exclusive jurisdiction shall be in New York and exclusive venue shall be in Erie County.

15. This Agreement shall be binding upon the Pledgor and upon each successor and assignee of the Pledgor, and shall inure to the benefit of, and be enforceable by, the Secured Party and each successor and assignee of the Secured Party.

16. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. If, however, any such provision shall be prohibited by or invalid under such law, it shall be deemed modified to conform to the minimum requirements of such law, or if for any reason it is not deemed so modified, it shall deemed modified to conform to the minimum requirements of such law, or if for any reason it is not deemed so modified, it shall be prohibited or invalid only to the extent of such prohibition or invalidity without the remainder thereof or any other such provision being prohibited or invalid.

IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of this Seventh day December, 1994.

Thomas R. Beecher, Jr.,

as Trustee of the Computer Task Group,Incorporated Stock Employee Compensation Trust

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EX-10.(H)

EXHIBIT 10 (h)

COMPUTER TASK GROUP, INCORPORATED

NONQUALIFIED KEY EMPLOYEE DEFERRED COMPENSATION PLAN

2007 RESTATEMENT

DEFINITIONS, BACKGROUND, PURPOSE AND EFFECTIVE DATE

Definitions. For purposes of the Plan, the following terms have the definitions stated below unless the context clearly indicates otherwise:

“Beneficiary” means the person, persons, trust or trusts designated by a Participant or, in the absence of a designation, entitled by will or the laws of descent and distribution, to receive the death benefits specified under this Plan if the Participant dies, and means the Participant’s executor or administrator if the Committee determines no other Beneficiary is designated and able to act under the circumstances.

“Board” means the Board of Directors of Computer Task Group, Incorporated.

“Change in Control Event” means any of the following:Approval by the stockholders of the Corporation of the dissolution or liquidation of the Corporation;

Approval by the stockholders of the Corporation of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities that are not Subsidiaries or other affiliates, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity immediately after the reorganization are, or will be, owned, directly or indirectly, by stockholders of the Corporation immediately before such reorganization (assuming for purposes of such determination that there is no change in the record ownership of the Corporation’s securities from the record date for such approval until such reorganization and that such record owners hold no securities of the other parties to such reorganization), but including in such determination any securities of the other parties to such reorganization held by affiliates of the Corporation);

Approval by the stockholders of the Corporation of the sale of substantially all of the Corporation’s business and/or assets to a person or entity that is not a Subsidiary or other affiliate; or

Any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act but excluding any person described in and satisfying the conditions of Rule 13d-1(b)(1) thereunder), other than the Corporation, any subsidiary of the Corporation, any employee benefit plan of the Corporation or of any of its subsidiaries or any Person holding common shares of the Corporation for or pursuant to the terms of any such employee benefit plan, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing more than 20% of the combined voting power of the Corporation’s then outstanding securities entitled to then vote generally in the election of directors of the Corporation; or

During any period not longer than two consecutive years, individuals who at the beginning of such period constituted the Board cease to constitute at least a majority thereof, unless the election, or the nomination for election by the Corporation’s stockholders, of each new Board member was approved by a vote of at least three-fourths of the Board members then still in office who were Board members at the beginning of such period (including for these purposes, new members whose election or nomination was so approved).

“CEO” means the Chief Executive Officer of the Corporation.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Committee” means the Compensation Committee of the Board.

“Compensation” means base salary and bonus compensation actually earned by a Participant in a calendar year, including any compensation made pursuant to a salary reduction agreement (e.g., cafeteria plans, 401(k) Plan elective deferrals) that are not includible in a Participant’s gross income under Code §§ 125, 402(e)(3), and 132(f) (qualified transportation fringes) and this Plan, and excluding, without limitation, (i) any amounts paid to a Participant under any other qualified or nonqualified compensation plan, including without limitation any amounts paid pursuant to a stock

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option or other stock plan and (ii) any noncash compensation such as relocation expenses, advances on salary and travel advances.

“Corporation” means Computer Task Group, Incorporated, a New York corporation, and its successors.

“Corporation Stock” means shares of common stock, $.01 par value, issued by the Corporation, or any successor securities thereto.

“Corporation Contribution Account” means a sub-account of the Deferred Compensation Account, comprised of Corporation Contributions credited to that sub-account, and adjusted for earnings and losses on that sub-account.

“Deferred Compensation Account” means the account maintained for each Participant to which are credited all amounts allocated to that account in accordance with this Plan, and adjusted for earnings and losses on that account.

“Employee Contribution Account” means a sub-account of the Deferred Compensation Account, comprised of the Employee Contributions allocated to that sub-account and earnings and losses on that sub-account.

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

“Fair Market Value” means, for any particular date, (i) for any period during which the Corporation Stock is listed for trading on a national securities exchange or the National Association of Securities Dealers Automated Quotation System (“NASDQ”), the closing price per share of Corporation Stock on such exchange or the NASDQ official close price as of such trading day, or (ii) the market price per share of Corporation Stock as determined in good faith by the Committee in the event (i) above is not applicable. If the Fair Market Value is to be determined as of a day when the securities markets are not open, the Fair Market Value on that day will be the Fair Market Value on the next preceding day when the markets were open.

“401(k) Plan” means the Computer Task Group, Incorporated 401(k) Retirement Plan.

“Participant” means an employee selected to participate in the Plan pursuant to Section 2.1.

“Plan” means the Computer Task Group, Incorporated Nonqualified Key Executive Deferred Compensation Plan as initially approved by the Committee on February 2, 1995, and as amended from time to time.

“Plan Administrator” means the Committee.

“Plan Year” means the calendar year, unless otherwise determined by the Committee. The first Plan Year commenced on January 1, 1995.

“Rabbi Trust” means a trust agreement, if established, entered into by and between the Corporation and any trustee, to provide certain benefits under this Plan.

“SEC” means the Securities and Exchange Commission.

“Separation from Service” with respect to any Participant means: a termination of his or her employment with the Corporation on account of his or her retirement, death, Total Disability, or other voluntary or involuntary separation from service. An event will be deemed to constitute a Separation from Service only if it represents a “separation from service” within the meaning of guidance issued by the Secretary of the Treasury under Section 409A of the Code.

“Separation from Service for Cause” means termination of employment due to embezzlement from the Corporation; theft from the Corporation; defrauding the Corporation; use or disclosure of Corporation or client confidential or proprietary information; engaging in activities or businesses that are substantially in competition with the Corporation; any other action, activity or course of conduct substantially detrimental to the Corporation’s business or business reputation; or violation of the provision of the terms of any nondisclosure and nonsolicitation, noncompetition, or other contractual agreement between the Participant and the Corporation.

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“Specified Employee” means an Employee who qualifies as a “specified employee” within the meaning of guidance issued by the Secretary of the Treasury under Section 409A of the Code. An employee who is a Specified Employee at any time during the 12 month period ending on December 31 will be deemed to be a Specified Employee for the 12 month period commencing the following April 1.

“Stock Unit” means the right to receive a share of Corporation Stock that is granted pursuant to the terms of Sections 3.2 and 4.3.

“Total Disability” means a disability where Participant is unable to effectively engage in the material activities required for Participant’s position with the Corporation by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a period of 90 consecutive days or for shorter periods aggregating 180 days in any consecutive 12 month period.

“Unforeseeable Emergency” is a severe financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant. The need to send the Participant’s child to college or the desire to purchase a residence will not be considered Unforeseeable Emergencies. Withdrawals or acceleration will not be permitted to the extent the emergency is or may be relieved (1) through reimbursement or compensation by insurance or otherwise, or (2) by liquidation of the Participant’s assets, to the extent the liquidation of those assets would not itself cause severe financial hardship. An event will be deemed to constitute an “Unforeseeable Emergency” only if it represents the “occurrence of an unforeseeable emergency” within the meaning of guidance issued by the Secretary of the Treasury under Section 409A of the Code.

Background and Purpose of the Plan. The purpose of the Plan is to establish an unfunded plan to provide Corporation-provided deferred compensation commensurate with the performance of the Corporation for a select group of highly compensated employees, to retain the services of certain of those employees, and to provide an additional elective opportunity for certain of those employees to defer a portion of their compensation on terms established by the Committee.

Effective Date. The original effective date of the Plan is January 1, 1995. The Plan was previously restated on January 1, 2003, and May 3, 2006. The effective date of this restatement is January 1, 2007.

PARTICIPATION

Eligibility for Participation. An employee of the Corporation will be eligible to participate in the Plan if, with respect to the ability to make Elective Contributions pursuant to Section 3.1 and to be awarded Corporation Contributions pursuant to Section 3.2, the employee is recommended by the CEO to participate in the Plan and that recommendation is approved by the Committee, in its sole discretion. Any employee selected as a Participant becomes a Participant immediately following the employee’s selection.

Cessation of Eligibility. With respect to any Plan Year, a Participant will continue to be eligible to elect to defer Compensation pursuant to Section 3.1 and to receive an award of Corporation Contributions pursuant to Section 3.2, so long as the Participant’s eligibility has not been terminated. A Participant’s eligibility to participate in the Plan may be terminated on the recommendation of the CEO and the approval of the Committee, effective as of December 31 of the year in which the termination is approved.

CONTRIBUTIONS

Employee Contributions.

Initial Employee Elective Deferral. During the initial 30-day period following a Participant’s selection for participation in the Plan under Article 2, the Participant may irrevocably elect to defer all or a part of his or her Compensation, not yet earned during that Plan Year, in a certain dollar amount or percentage not to exceed that permitted by the Committee.

Subsequent Employee Contributions. With respect to any subsequent Plan Year, a Participant may irrevocably elect prior to January 1 of that Plan Year to defer all or a part of his or her Compensation in a certain dollar amount or percentage not to exceed that permitted by the Committee. All amounts deferred under subsections 3.1(a) and 3.1(b)

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constitute “Employee Contributions” under the Plan. The Committee will credit the Participant’s Employee Contribution Account with an amount equal to those Employee Contributions at the times and in amounts as would otherwise have been paid or made available to that Participant. The elections described in subsections 3.1(a) and 3.1(b) will be made by the time and using the forms the Plan Administrator provides.

Corporation Contributions. With respect to each Plan Year, a Participant eligible to receive an award of Corporation Contributions will be awarded an amount equal to a specified percentage of the Participant’s Compensation for the Plan Year. The percentage will be determined for each Plan Year based on the degree of achievement by the Corporation of certain performance targets recommended by the CEO and approved by the Committee. Both the award percentages and the degree of the achievement of the performance targets will be determined by the Committee, in its sole discretion, at a meeting of the Committee following the close of the audit of the Corporation by its outside accountants for the Plan Year. The award will be credited to the Participant’s Corporation Contribution Account as soon as practicable following the determination of the Committee as to the amount of the award, if any, for the Plan Year and an election by the Participant as to the percentage, if any, of the award to be invested in Stock Units pursuant to Section 4.3.

ACCOUNTS AND INVESTMENTS

The Deferred Compensation Account. The Committee will maintain for each Participant a Deferred Compensation Account to which it will credit all amounts allocated to the Participant’s Employee Contribution Account and Corporation Contribution Account in accordance with Sections 3.1 and 3.2. The Committee will credit the Participant’s Deferred Compensation Account with contributions at the time the contributions are received in accordance with Sections 3.1 and 3.2. Each Participant’s Deferred Compensation Account will be adjusted no less often than annually to reflect the credits made to the Deferred Compensation Account and any interest, earnings, gains and losses thereon pursuant to Section 4.2. These adjustments will be made as long as any amount remains credited to the Deferred Compensation Account. The amounts allocated and the adjustments made comprise the Deferred Compensation Account at any time.

Interest, Earnings, Gains and Losses. Amounts represented by each Participant’s Deferred Compensation Account will be separately credited with interest or invested in one or more investment vehicles in the sole discretion of the Committee. The amounts contributed to a Participant’s Deferred Compensation Account may be invested in the manner directed by the Participant, subject to final approval and authorization by the Committee in accordance with Sections 6.2 and 6.3, as applicable. In making investment decisions, Participants will select from among the investment options made available by the Plan Administrator. All or a portion of a Participant’s Company Contribution Account may be invested in Stock Units in accordance with Section 4.3. Subject to Section 4.3, the Plan Administrator will prescribe rules regarding the manner and frequency of changes of investment selections by Participants. Each Deferred Compensation Account will be separately credited with the interest or the earnings, gains and losses of those individual investment vehicles for the period for which the account is so invested no less often than annually.

Investment of Company Contribution in Stock Units. On the award of a Corporation Contribution under Section 3.2, a Participant may elect, subject to final approval and authorization of the Committee in accordance with Section 6.3, to invest all or a portion of the Corporation Contribution for the Plan Year in Stock Units. Such an election to invest an amount in Stock Units will be irrevocable as of the date the Corporation Contribution is credited to the Participant’s Corporation Contribution Account. The number of Stock Units credited to a Participant’s Corporation Contribution Account will be equal to the amount of the Corporation Contribution allocated to Stock Units, divided by the Fair Market Value of one share of Corporation Stock as of the date the Corporation Contribution is credited to the Participant’s account. Subject to Section 4.9, at the time of payment of the Participant’s Deferred Compensation Account, each Stock Unit will be redeemed for one share of Corporation Stock.

The Rabbi Trust. The Committee may, but is not required to, determine that the Corporation establish a Rabbi Trust to which the Corporation must contribute all amounts credited to the Employee and Corporation Contribution Accounts in accordance with Articles 3 and 4.

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Rights as General Creditor. Unless the Corporation establishes the Rabbi Trust, a Deferred Compensation Account does not constitute a trust fund or escrow. A Participant’s interest in the Deferred Compensation Account and in the Rabbi Trust, if established, is limited to the right to receive payments as provided under the Plan and the Rabbi Trust, if any, and the Participant’s position is that of a general unsecured creditor of the Corporation with respect to the entire Deferred Compensation Account, i.e., the Corporation Contributions, Employee Contributions, and interest, earnings, gains and losses on them.

Vesting in Employee Contribution Account. Except as otherwise provided in this Article, a Participant at all times has a 100% nonforfeitable right to the value of his or her Employee Contribution Account.

Vesting in Corporation Contribution Account.

Except as otherwise described in subsections (b) through (c), on the fifth anniversary of the Participant’s date of hire, as defined in the 401(k) Plan, a Participant will be fully vested in and have a 100% nonforfeitable right to his or her Corporation Contribution Account and no Participant has any right to any amount in that account prior to that date.

If a Participant (i) incurs a Separation from Service involuntarily and without Cause, or due to death, Total Disability, or retirement at age 65 or later, or (ii) if there is a Change in Control Event, that Participant will be fully vested in and have a 100% nonforfeitable right to his or her Corporation Contribution Account at the date of that Separation from Service or Change in Control Event, as the case may be.

If a Participant incurs a Separation from Service for Cause, the Participant must forfeit all amounts in the Participant’s Corporation Contribution Account.

Payment of Benefits.

Normal Form. Except as otherwise provided in this Section and subject to the vesting provisions of Section 4.7, if a Participant does not make an election in the time and manner specified in subsection (b), payment of the vested value of that Participant’s Deferred Compensation Account will be paid in a lump sum as soon as practicable after the Participant is Separated from Service. Except for those amounts, if any, in the Corporation Contribution Account that are invested in Stock Units, vested amounts from the Employee Contribution Account and the Corporation Contribution Account will be paid in the form of cash. Stock Units will be paid in shares of Corporation Stock in accordance with Section 4.3. If on the date of the Participant’s Separation from Service he or she is a Specified Employee, no benefits will be paid prior to the date that is six months after the date of Separation from Service.

Alternative Form.

Initial Election. During the initial 30-day period following a Participant’s selection for participation in the Plan under Article 2, a Participant may elect: (i) to have the payment of the value of the Participant’s Deferred Compensation Account commence upon the earlier of a specified date or a Separation from Service; and/or (ii) to have payments distributed on an installment basis, the duration of which cannot last longer than 15 years. If the Participant elects to receive his or her benefits under this Plan on an installment basis and the Participant is a Specified Employee on the date the Participant is Separated from Service, no benefits will be paid prior to the date that is six months after the date of the Participant’s Separation from Service. Payments to which a Participant would otherwise be entitled during the first six months following the date of Separation from Service will be accumulated and paid on the day that is six months after the date of Separation from Service. If a Participant who holds Stock Units elects installment payments under this Section 4.8, the number of shares of Corporation Stock issuable each year will be rounded down to the nearest whole share of stock. The value of any remaining fractional shares will be paid in cash at the same time shares are issued.

Subsequent Election. After the initial 30-day period following a Participant’s selection for participation in the Plan under Article 2, a Participant may make a subsequent election to change the date on which and the form in which all Plan benefits, if any, will be paid. This subsequent election (i) must be in writing, (ii) must be made 12 months before payments would otherwise commence, (iii) will not be effective until 12 months after the date on which the election is made, and (iv) in the case of an election related to a payment other than a payment on account of death, the first payment with respect to which such election is made must be deferred for a period of not less than five years from the date the payment would otherwise have been made. Elections made under this section must be filed in compliance with the rules and procedures prescribed by the Committee.

Unforeseeable Emergency. In the case of an Unforeseeable Emergency, a Participant may submit a written request to the Committee for (1) a distribution of all or a part of his or her Employee Contribution Account and, if fully vested, all or a part of his or her Corporation Contribution Account, prior to the date benefits otherwise would be payable, or (2) an

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acceleration of the payment of installment payments that already have begun. Withdrawals or acceleration because of an Unforeseeable Emergency are permitted only to the extent reasonably necessary to satisfy the emergency and to the extent they are permitted under Section 409A of the Code.

Forfeiture. Notwithstanding any other provision of the Plan, a Participant will forfeit all future benefits payable from his or her Corporation Contribution Account under the Plan if the Committee determines the Participant to be engaged in any of the following activities:

Use or disclosure of Corporation or client confidential or proprietary information;

Activities or businesses substantially in competition with the Corporation;

Any other action, activity or course of conduct substantially detrimental to the Corporation’s business or business reputation; or

Violation of the provision of the terms of any nondisclosure and nonsolicitation, noncompetition, or other contractual agreement between the Participant and the Corporation.

Death Benefits. If a Participant dies before payments to the Participant have been completed under Section 4.8, the balance of the Participant’s benefit, including any outstanding Stock Units, will be paid to his or her Beneficiary in the form of a single lump sum cash payment as soon as practicable after the death of the Participant. Cash payment for Stock Units, if any, will be based on the Fair Market Value of Corporation Stock as of the date of death. Each Participant may designate the Beneficiary for the benefits provided on his or her death under the Plan. That designation may be changed from time to time. All designations must be made on forms provided by and filed with the Plan Administrator.

Set-off. Notwithstanding any other provision of this Plan, any amounts payable to the Participant or any Beneficiary under this Plan may be used by the Corporation to set off any indebtedness owed to the Corporation by that Participant or Beneficiary for any reason.

AMENDMENT, SUSPENSION, OR TERMINATION

Amendment, Suspension, or Termination. The Committee may amend, suspend or terminate the Plan, in whole or in part, at any time and from time to time by resolution adopted at a regular or special meeting of the Committee.

No Reduction. No amendment, suspension or termination may operate to adversely affect the benefit otherwise available to a Participant under the Plan determined as if the Participant had ceased being a Participant on or before the effective date of that amendment, suspension, or termination. The value of a Participant’s Deferred Compensation Account, if any, determined as of the effective date of that amendment, suspension or termination will continue to be adjusted for investment results as provided in Sections 4.1 through 4.3 until paid. Any benefit determined as of that date will continue to be payable as provided in Sections 4.6 through 4.8.

ADMINISTRATION OF THE PLAN

Named Fiduciary. The named fiduciary of the Plan is the Committee.

Administration by Committee. The general administration of this Plan, as well as its construction and interpretation, is the responsibility of the Committee, the number and members of which are designated and appointed from time to time by, and serve at the pleasure of the Board. Any member of the Committee may resign by notice in writing filed with the Secretary of the Committee. Vacancies will be filled promptly by the Board. The Corporation will pay any and all expenses incurred in the administration of the Plan.

Delegation. The Board may designate one of the members of the Committee as chairman and may appoint a Secretary who need not be a member of the Committee and may be a Participant in the Plan. The Secretary will keep minutes of the Committee’s proceedings and all data, records and documents relating to the Committee’s administration of the Plan. The Committee may appoint from its number subcommittees with such powers as the Committee determines and may authorize one or more members of the Committee or any agent to execute or deliver any instrument or make any payment on behalf of the Committee. The Committee may delegate to one or more members of the Committee or officers of the Corporation the authority to approve and authorize investment decisions made by Participants. To the extent necessary for the exemption from Section 16(b) of the Securities

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Exchange Act of 1934 provided by SEC Rule 16b-3 to be available, any investment decision made by a Participant who is an officer of the Corporation that relates to the Participant’s Corporation Contribution Account shall be approved by the Board or a committee of the Board consisting solely of “Non-Employee Directors” (as that term is defined under SEC Rule 16b-3).

Majority Vote. All resolutions or other actions taken by the Committee must be by vote of a majority of those present at a meeting at which a majority of the members are present, or in writing by all the members at the time in office if they act without a meeting.

Exclusive Right to Interpret Plan. The Committee, from time to time, will establish rules, forms and procedures for the administration of the Plan. The Committee has the exclusive right to interpret the Plan and to decide any and all matters arising under it or in connection with the administration of the it. The decisions, actions and records of the Committee are conclusive and binding on the Corporation and all persons having or claiming to have any right or interest in or under the Plan.

Reliance. The members of the Committee and the officers and directors of the Corporation are entitled to rely on all certificates and reports made by any duly appointed accountants, and on all opinions given by any duly appointed legal counsel, which legal counsel may be counsel for the Corporation.

Indemnification. No member of the Committee is liable for any act or omission of any other member of the Committee, nor for any act or omission on his or her own part. The Corporation must indemnify and save harmless each member of the Committee against any and all expenses and liabilities arising out of his or her membership on the Committee. Expenses against which a member of the Committee will be indemnified hereunder include, without limitation, the amount of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted, or a proceeding brought or settlement of one of those. This right of indemnification is in addition to any other rights to which any member on the Committee may be entitled as a matter of law.

Additional Powers. The Committee has the power to compute and certify under the Plan the amount and kind of benefits from time to time payable to Participants and their beneficiaries and to authorize all disbursements for those purposes.

Information. The Corporation will supply full and timely information to the Committee on all matters relating to the compensation of all Participants, their retirements, deaths or other terminations of employment, and other pertinent facts as the Committee may require.

STOCK SUBJECT TO THE PLAN

Shares Available for Stock Units. The total number of shares of Corporation Stock with respect to which Stock Units may be redeemed under the Plan will not exceed             shares. Such shares may be authorized but unissued Corporation Stock or authorized and issued Corporation Stock held in the Corporation’s treasury or acquired by the Corporation for the purposes of the Plan.

Adjustment for Change in Capitalization. If there is any change in the outstanding shares of Corporation Stock by reason of a stock dividend or distribution, stock split-up, recapitalization, combination or exchange of shares, or by reason of any merger, consolidation, spinoff or other corporate reorganization in which the Corporation is the surviving corporation, the number of shares available for issuance both in the aggregate and with respect to each outstanding Stock Unit will be proportionately adjusted by the Committee, whose determination will be final and binding. After any adjustment made pursuant to this Section 7.2, the number of shares subject to each outstanding Stock Unit will be rounded to the nearest whole number.

Other Adjustments. In the event of any transaction or event described in Section 7.2 or any unusual or nonrecurring transactions or events affecting the Corporation, any affiliate of the Corporation, or the financial statements of the Corporation or any affiliate (including without limitation any Change in Control), or of changes in applicable laws,

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regulations or accounting principles, and whenever the Committee determines that action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Corporation Contribution under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles, the Committee, in its sole discretion and on such terms and conditions as it deems appropriate, except to the extent necessary to ensure that the action does not violate Section 409A of the Code, either by amendment of the terms of any outstanding Stock Units or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions:

To provide for either (1) termination of any Stock Unit in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the realization of the Participant’s rights as of the date of the occurrence of the transaction or event described in this Section 7.3, or (2) the replacement of the Stock Unit with other rights or property selected by the Committee in its sole discretion;

To provide that the Stock Unit be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or will be substituted for by similar awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

To make adjustments in the number and type of shares of Corporation Stock subject to outstanding Stock Units and/or in the terms and conditions of rights and awards that may be granted in the future;

To provide that the Stock Unit will be payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan; and

To provide that the Stock Unit cannot vest or become payable after such event.

Re-use of Shares. To the extent a Corporation Contribution invested in Stock Units is forfeited for any reason, or is settled by payment of cash, any shares of Corporation Stock subject to the Stock Units will again be available for investment in Stock Units under the Plan. Shares withheld to satisfy tax withholding obligations will not be available for further investment in Stock Units under the Plan.

Rights as a Stockholder. A Participant will have none of the rights of a shareholder with respect to shares of Corporation Stock covered by any Stock Unit until the date of issuance of a stock certificate with respect to the shares. A Participant will not be entitled to receive dividends or dividend equivalents with respect to Stock Units that have not yet been redeemed for shares of Corporation Stock.

Securities Matters.

The Corporation is under no obligation to effect the registration pursuant to the Securities Act of 1933 of any interests in the Plan or any shares of Corporation Stock to be issued under the Plan or to effect similar compliance under any state laws. Notwithstanding anything in the Plan to the contrary, the Corporation is not obligated to cause to be issued or delivered any certificates evidencing shares of Corporation Stock pursuant to the Plan unless and until the Corporation is advised by its counsel that the issuance and delivery of the certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of the securities exchange or automated quotation system on which shares of Corporation Stock are listed. Certificates evidencing shares of Corporation Stock issued pursuant to the terms of this Plan may bear such legends as the Committee or the Corporation, in its sole discretion, deems necessary or desirable to insure compliance with applicable securities laws.

It is intended that the Plan be interpreted and administered to the maximum extent possible so as to make the exemption under SEC Rule 16b-3 available for the transactions under the Plan. If any provision of the Plan would cause the exemption under SEC Rule 16b-3 to be unavailable if applied as written, such provision will not have effect as written and will be given effect so as to make the exemption under SEC Rule 16b-3 available, as determined by the Committee. The Committee is authorized to amend the Plan and to make any such modifications to Stock Units to make available the exemption under SEC Rule 16b-3, as it may be amended from time to time, and to make any other such amendments or modifications deemed necessary or appropriate to better accomplish the purposes of the Plan in light of any amendments made to SEC Rule 16b-3.

GENERAL PROVISIONS

Funding. The Plan and the Rabbi Trust, if established, constitute an unfunded arrangement and have the status as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or

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highly compensated employees for purposes of Title I of ERISA. The plan is not intended to be the principal source of retirement income for the Participants or Beneficiaries.

Nonassignability. The interests of any person under the Plan (other than the Corporation) must not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, attachment or encumbrance, or to the claims of creditors of that person, and any attempt to effectuate any such actions shall be void.

Interest of Participant. Except as provided in the Rabbi Trust, if any, a Participant and the Participant’s Beneficiaries, in respect of the Participant’s Deferred Compensation Account, and any benefit to be paid under the Plan, are and remain simply creditors of the Corporation in the same manner as any other creditor having a general claim, if and when the Participant’s or Beneficiaries’ rights to receive payments mature and become payable. Except as provided in the Rabbi Trust, if any, at no time may the Participant be deemed to have any right, title or interest, legal or equitable, in any asset of the Corporation, including, but not limited to any investments held.

Leaves of Absence. The Committee may permit the Participant to take a leave of absence for a period not to exceed one year. During that leave, the Participant still will be considered to be in the continuous employment of the Corporation for all purposes of this Plan.

Withholding. The Corporation has the right to deduct or withhold from the benefits paid under the Plan (or from other amounts payable to the Participant, if necessary) all taxes that may be required to be deducted or withheld under any provision of law (including, but not limited to, Social Security payments, income tax withholding and any other deduction or withholding required by law) now in effect or that may become effective any time during the term of the Plan. Whenever shares of Corporation Stock are to be delivered as payment for Stock Units, the Corporation will have the right to require the Participant to remit to the Corporation in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related to the payment. The Committee in its sole discretion may permit a Participant to satisfy the foregoing requirement by electing to have the Corporation withhold from delivery shares of Corporation Stock having a value equal to the minimum amount of tax required to be withheld. Such shares will be valued at their Fair Market Value on the date as of which the amount of tax to be withheld is determined. Fractional share amounts will be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares to be delivered pursuant to the Stock Unit award. Any tax withholding above the minimum amount of tax required to be withheld must be deducted from other amounts payable to the Participant or must be paid in cash by the Participant.

Exclusivity of Plan. The Plan is intended solely for the purpose of providing deferred compensation to the Participants to the mutual advantage of the parties. Nothing contained in the Plan may affect or interfere in any way with the right of a Participant to participate in any other benefit plan in which he or she may be entitled to participate.

No Right to Continued Service. Neither the Plan nor any agreements signed in relationship to the Plan, either singly or collectively, may obligate the Corporation in any way to continue the employment of a Participant with the Corporation or prohibit the Corporation from terminating a Participant’s employment. Nor does this Plan or the Plan Participation Agreement prohibit or restrict the right of a Participant to terminate employment with the Corporation. Termination of a Participant’s employment with the Corporation, whether by action of the Corporation or by the Participant, immediately terminates the Participant’s future participation in the Plan. All further obligations of either party will be determined under the provisions of this Plan according to the nature of the termination. The Corporation is an at will employer.

Notice. Each notice and other communication must be in writing and deemed given only when (a) delivered by hand, (b) transmitted by telex or telecopier (provided a copy is sent at approximately the same time by registered or certified mail, return receipt requested), (c) received by the addressee, if sent by registered or certified mail, return receipt requested, or by Express Mail, Federal Express or other overnight delivery service, to the Corporation at its principal office and to a Participant at the last known address of the Participant (or to such other address or telecopier number as a party may specify by notice given to the other party pursuant to this Section).

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Claims Procedures. If a Participant or the Participant’s designated Beneficiary does not receive benefits to which he or she believes he or she is entitled, such person may file a claim in writing with the Committee. The Committee establishes a claims procedure with the following provisions:

Notification of Decision. If the claim is wholly or partially denied, the Committee will notify the claimant in writing within 90 days after the claim has been received (unless special circumstances require an extension of up to 90 additional days). The written notification must state the specific reasons for the denial of the claim and the specific references to the Plan provisions upon which the denial is based. It must describe any additional material the claimant may need to submit to the Committee to have the claim approved and must give the reasons why the material is necessary. In addition, the notice must explain the claim review procedure and be written in a manner calculated to be understood by the Participant or the Beneficiary.

Claim Review Procedure. If a Participant or Beneficiary receives a notice that the claim has been denied, the claimant, or his or her authorized representative, may appeal to the Committee for a review of the claim. The claimant must submit a request for a review in writing to the Committee no later than 60 days after the date the written notice of the claim denial is received. The claimant, or his or her representative, may then review Plan documents that pertain to the claim and may submit issues and comments in writing to the Committee. The Committee must give the claim for review a full and fair review and must deliver to the claimant a written determination of the claim, including specific reasons for the decision, not later than 60 days after the date the Committee received the request for review (unless special circumstances require an extension of up to 60 additional days). The decision of the Committee will be final and conclusive.

New York Law Controlling. The Plan must be construed in accordance with the laws of the State of New York. All controversies arising must be adjudicated in a court of competent jurisdiction located in the State of New York, and the Participant hereby consents to jurisdiction in the State of New York for purposes of that legal action.

Severability. Every provision of the Plan is intended to be severable. If any provision of the Plan is illegal or invalid for any reason, the illegality or invalidity of that provision will not affect the validity or legality of the remainder of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had never been made part of the Plan.

Binding on Successors. The Plan is binding on the Participants and the Corporation, their heirs, successors, legal representatives and assigns.

Discretionary Nature of Plan. Participation in and determination of amounts of benefits under the Plan will be determined in the sole discretion of the Committee. No employee has any right to receive benefits under the Plan for any reason (including but not limited to, length of service, performance, receipt of benefits in prior periods, and awards to other individuals) other than as determined by the Committee acting in its sole discretion.

Titles. Titles to the Articles and Sections of this Plan are included for convenience only and do not control the meaning or interpretation of any provision of this Plan.

Code Section 409A Savings Clause. Notwithstanding any other provision in this Plan, to the extent that any amounts payable under this Plan (1) are subject to Section 409A of the Code, and (2) the time or form of payment of those amounts would not be in compliance with Section 409A of the Code, then payment of those amounts will be made at such time and in such a manner that the payment will be in compliance with Section 409A of the Code. If the time or form of payment cannot be modified in such a way as to be in compliance with Section 409A of the Code, then the payment will be made as otherwise provided in this Plan, disregarding this Section.

Special 409A Transitional Rules. Consistent with the provisions found in Internal Revenue Service Notice 2005-1 and regulations proposed under Section 409A of the Code, Participants may, prior to December 31, 2007, make a new payment election regarding the distribution date and the form under which benefits under the Plan are to be paid for benefits under the Plan, which election will override any prior election or any contrary provision of the Plan. However, a Participant cannot in calendar year 2007 change payment elections with respect to payments that the Participant would otherwise receive in 2007, or to cause payments to be made in 2007.

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409A Liability Limitation. Benefits under the Plan are intended to comply with the rules of Section 409A of the Code and will be construed accordingly. However, the Corporation will not be liable to any Participant or Beneficiary with respect to any benefit related adverse tax consequences arising under Section 409A or other provision of the Code.

COMPUTER TASK GROUP, INC.

Date:	By:
	Title:

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SCHEDULE A

COMPUTER TASK GROUP, INC.

NON-QUALIFIED KEY EMPLOYEE DEFERRED COMPENSATION PLAN

2007 RESTATEMENT

Designation of Beneficiary

Primary Beneficiary:

Name	Relationship	Percent of Benefit
1.
2.
3.
4.
Secondary Beneficiary:
In place of Benefit to be paid to Number:
	Name	Relationship
1.
2.
3.
4.

Date                                                                          Participant

110

EX-10.(M)

EXHIBIT 10 (m)

COMPUTER TASK GROUP, INCORPORATED

COMPENSATION ARRANGEMENTS FOR THE NAMED EXECUTIVE OFFICERS

Set forth below is a summary of the annual and incentive compensation paid by Computer Task Group, Incorporated (the Company) to its named executives (defined in Regulation S-K Item 402(a)(3)) in their current positions as of the date of the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. All of the Company’s executive officers are at-will employees whose compensation and employment status may be changed at any time at the discretion of the Company’s Board of Directors, subject only to the terms of employment agreements, as applicable, between the Company and these executive officers.

Effective January 1, 2007, the named executive officers are scheduled to receive the following annual base salaries in their current positions:

	Current Annual Salary
James R. Boldt	$	425,000
Chairman, President and Chief Executive Officer
Brendan M. Harrington	$	200,000
Senior Vice President, Chief Financial Officer
Filip J.L. Gyde	$	264,500	(1)
Senior Vice President, General Manager, CTG Europe
Thomas J. Niehaus	$	229,000
Senior Vice President, General Manager, CTG HealthCare Solutions
Arthur W. Crumlish	$	225,000
Senior Vice President, Strategic Staffing Solutions

Executive officers are also eligible to receive incentive compensation each year primarily based upon the achievement of certain targets. These targets may include specific levels of revenue growth, gross profit, operating income or earnings per share. Bonuses were awarded to the named executives for 2006 as follows:

	2006 Bonus
James R. Boldt	$	455,163
Brendan M. Harrington	$	51,400
Filip J.L. Gyde	$	113,491
Thomas J. Niehaus	$	188,211
Arthur W. Crumlish	$	110,265

(1) Mr. Gyde is paid in Euros. This amount represents his base pay of 200,328 Euros translated into U.S. dollars at the January 1, 2007 exchange rate.

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EX-18

EXHIBIT 18

COMPUTER TASK GROUP, INCORPORATED

CHANGE IN ACCOUNTING PRINCIPLES

March 7, 2007

Computer Task Group, Incorporated

Buffalo, New York

Ladies and Gentlemen:

We have audited the consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2006, and have reported thereon under date of March 7, 2007. The aforementioned consolidated financial statements and our audit report thereon are included in the Company’s annual report on Form 10-K for the year ended December 31, 2006. As stated in Note 1 to those financial statements, the Company changed its method of applying Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, by changing the date of its annual testing for goodwill impairment from January 1, (effective valuation date of December 31), to the end of the Company’s October fiscal month-end, and states that the newly adopted accounting principle is preferable in the circumstances because it provides the Company with additional time prior to year-end of December 31 to complete the impairment testing and report the results of those tests in the Company’s annual filing on Form 10-K. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based.

With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of the Company’s compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter.

Based on our review and discussion, with reliance on management’s business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company’s circumstances.

Very truly yours,

/s/ KPMG LLP

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EX-21

EXHIBIT 21

COMPUTER TASK GROUP, INCORPORATED

SUBSIDIARIES OF COMPUTER TASK GROUP, INCORPORATED

The following is a list of all of the subsidiaries of the Registrant as of December 31, 2006. All financial statements of such subsidiaries are included in the consolidated financial statements of the Registrant, and all of the voting securities of each subsidiary are wholly-owned by the Registrant:

	State/Country or Jurisdiction of Incorporation
– Computer Task Group of Delaware, Inc.	Delaware
– CTG of Buffalo, Inc.	New York
– Computer Task Group (Holdings) Ltd.	United Kingdom
– Computer Task Group of Kansas, Inc. (a subsidiary of Computer Task Group (Holdings) Ltd.)	Missouri
– Computer Task Group of Canada, Inc.	Canada
– Computer Task Group International, Inc.	Delaware
– Computer Task Group Europe B.V. (a subsidiary of Computer Task Group International, Inc.)	The Netherlands
– Computer Task Group (U.K.) Ltd. (a subsidiary of Computer Task Group Europe B.V.)	United Kingdom
– Computer Task Group Belgium N.V. (a subsidiary of Computer Task Group Europe B.V.)	Belgium
– Rendeck Macro-4 Software B.V. (a subsidiary of Computer Task Group Europe B.V.)	The Netherlands
– Computer Task Group of Luxembourg PSF (a subsidiary of Computer Task Group, Incorporated)	Luxembourg
– Computer Task Group IT Solutions, S.A. (a subsidiary of Computer Task Group Europe B.V.)	Luxembourg
– CTG Deutschland GmbH	Germany

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EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Computer Task Group, Incorporated:

We consent to the incorporation by reference in the Registration Statements No. 33-41995, 33-50160, 33-61493, 333-12237, 333-39936, 333-51162, 333-66766, 333-91148 and 333-118314 on Form S-8 and Registration Statement No. 333-43263 on Form S-3 of Computer Task Group, Incorporated of our reports dated March 7, 2007 with respect to the consolidated balance sheets of Computer Task Group, Incorporated and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006, the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of Computer Task Group, Incorporated.

Our report refers to the Company’s adoption during 2006 of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans.

/s/ KPMG LLP

Buffalo, New York

March 7, 2007

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EX-31.(A)

EXHIBIT 31 (a)

CERTIFICATION

I, James R. Boldt, certify that:

1. I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 7, 2007	/s/ James R. Boldt
	James R. Boldt
	Chairman and Chief Executive Officer

115

EX-31.(B)

EXHIBIT 31 (b)

CERTIFICATION

I, Brendan M. Harrington, certify that:

1. I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 7, 2007	/s/ Brendan M. Harrington
	Brendan M. Harrington
	Chief Financial Officer

116

EX-32

EXHIBIT 32

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Computer Task Group, Incorporated, a New York corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission (the “Form 10-K”) that:

(1) the Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to Computer Task Group, Incorporated and will be retained by Computer Task Group, Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.

Date: March 7, 2007	/s/ James R. Boldt
	James R. Boldt Chairman and Chief Executive Officer
Date: March 7, 2007	/s/ Brendan M. Harrington
	Brendan M. Harrington Chief Financial Officer

117