<PAGE>
As filed with the Securities and Exchange Commission on November 19, 1996
Registration No. 333-14169
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2 To
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
MASTECH CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 7371
(State or other (Primary Standard 25-1802235
jurisdiction of Industrial Classification (I.R.S. Employer
incorporation or Code Number) Identification Number)
organization)
1004 MCKEE ROAD
OAKDALE, PA 15071
(412) 787-2100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
SUNIL WADHWANI, CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MASTECH CORPORATION
1004 MCKEE ROAD
OAKDALE, PA 15071
(412) 787-2100
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
---------------
COPIES TO:
CARL A. COHEN DOUGLAS R. NEWKIRK
BUCHANAN INGERSOLL PROFESSIONAL SACHNOFF & WEAVER, LTD.
CORPORATION 30 S. WACKER, 29TH FLOOR
ONE OXFORD CENTRE CHICAGO, IL 60606
301 GRANT STREET, 20TH FLOOR (312) 207-1000
PITTSBURGH, PA 15219
(412) 562-8854
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1996
PROSPECTUS
, 1996
4,800,000 SHARES
[LOGO OF MASTECH COMPANY]
COMMON STOCK
Of the 4,800,000 shares of Common Stock offered hereby, 3,400,000 shares are
being sold by Mastech Corporation ("Mastech" or the "Company") and 1,400,000
shares are being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any part of the proceeds from the
sale of shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market upon issuance under the symbol "MAST."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
- ------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses, estimated at $1,000,000, which will be paid by
the Company.
(3) The Selling Shareholders have granted to the Underwriters a 30-day option
to purchase up to 720,000 additional shares of Common Stock at the Price to
the Public, less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, Proceeds to
the Company and Proceeds to the Selling Shareholders will be $ ,
$ , $ and $ , respectively. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Shareholders pursuant to the Underwriters' over-allotment, if exercised.
See "Underwriting" and "Principal and Selling Shareholders."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in
New York, New York, on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
COWEN & COMPANY
MONTGOMERY SECURITIES
PARKER/HUNTER
INCORPORATED
<PAGE>
[DIAGRAMS]
Diagram on inside front cover depicts Company's SMART-APPS Methodologies.
Diagram on inside back cover is a graphic depiction of the chart on page 24.
This chart consists of two columns which summarize industry trends and
Mastech's strategies for addressing these trends.
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such forward-
looking statements. The Company's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors."
-------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
-------------------------
Mastech(R) and SmartAPPS(SM) are service marks of the Company. Windows(R) is a
registered trademark of Microsoft Corporation. All other trademarks, service
marks and trade names referred to in this Prospectus are the property of their
respective owners.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, all information contained in
this Prospectus: (i) assumes that the Underwriters' over-allotment option is
not exercised; and (ii) has been adjusted to give retroactive effect to a 72.8-
for-1 split of the shares of the Company's common stock, par value $.01 per
share ("Common Stock"), which will occur prior to completion of this offering.
Unless otherwise indicated, references to the "Company" or "Mastech" include
Mastech Corporation and its consolidated subsidiaries.
THE COMPANY
Mastech Corporation ("Mastech" or the "Company") is a worldwide provider of
information technology ("IT") services to large organizations. Mastech provides
its clients with a single source for a broad range of applications solutions
and services, including client/server design and development,
conversion/migration services, Year 2000 services, Enterprise Resource Planning
("ERP") package implementation services and maintenance outsourcing. These
services are provided in a variety of computing environments and use leading
technologies, including client/server architectures, object-oriented
programming, distributed databases and the latest networking and communications
technologies. To enhance its services, Mastech has formed business alliances
with leading software companies such as Baan, Oracle and Viasoft. In addition,
the Company has developed its own proprietary methodologies and tools, known as
SmartAPPS, that provide a complete solution set for each of its services.
During 1996, Mastech has provided IT services to over 300 clients worldwide
in a diverse range of industries. These clients include AT&T, Citibank, EDS,
IBM, Intel, Oracle and Wal-Mart. The Company sets high standards for client
responsiveness and project quality. A significant number of the Company's
clients have selected Mastech to provide additional services. Historically, the
Company has primarily provided IT professional services on a time-and-materials
basis to support client-managed projects. The Company plans to generate an
increasing portion of its revenues from Mastech-managed projects, international
markets, offshore software development projects and fixed-price engagements.
One of the key elements of Mastech's growth has been its ability to recruit
and deploy, on short notice, experienced IT professionals on a worldwide basis.
As of September 30, 1996, the Company employed 1,149 IT professionals, over 900
of whom were in the United States, with the remainder in the Far East, Canada
and India. To support the Company's growth and to meet the increased demand for
IT professionals, the Company has embarked on an aggressive recruiting and
training strategy, designed to more than double the number of IT professionals
hired.
Mastech has demonstrated the scalability of its business model in the United
States by growing its revenues from $13.5 million in 1991 to $103.7 million in
1995. The Company is now replicating this model in key international markets to
meet the large and growing demand for IT services overseas and to serve its
client base of large multinational corporations that need support on a global
basis. In addition to offices in Pittsburgh, Washington D.C. and San Francisco,
the Company maintains international offices in Toronto and Singapore and has
recently opened offices in London and Tokyo. The Company also plans to open
offices in Australia, South Africa and Continental Europe.
In light of the large and growing backlog of applications development
projects, the shortage of qualified IT professionals in developed countries and
the rising costs of applications development and support, an increasing number
of organizations are turning to offshore software development. Mastech is
investing, through an affiliated company, in an extensive offshore software
development infrastructure in India, including four state-of-the-art software
development centers. The center in Bangalore, India has been operational for
over a year and is conducting over 20 engagements for Mastech clients in the
U.S. and Canada. Three additional centers are under development. The Company
believes that this offshore infrastructure, with the ability to accommodate
1,500 IT professionals when complete, will represent one of the largest
offshore presences in the industry.
3
<PAGE>
THE OFFERING
Common Stock offered by the Company... 3,400,000 shares
Common Stock offered by the Selling
Shareholders.......................... 1,400,000 shares
Common Stock to be outstanding after
the offering.......................... 21,600,000 shares (1)
Use of proceeds....................... Expansion of existing operations,
including the Company's international
and offshore software development
operations, development of new service
lines and possible acquisitions of
related businesses; payment of
undistributed S Corporation earnings;
and general corporate purposes,
including working capital.
Proposed Nasdaq National Market
symbol................................ MAST
- --------------------
(1) Excludes: (i) 2,160,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan; and (ii) up to 109,200 shares of
Common Stock issuable after this offering as part of a compensation
arrangement with an executive officer. See "Management--Employee Benefit
Plans" and "--Employment Agreements."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $13,531 $20,161 $38,709 $70,050 $103,676 $76,156 $90,336
Gross profit........... 4,999 7,314 12,573 20,032 31,160 22,448 24,564
Income from operations
(1).................... 1,877 2,707 2,744 11,328 18,317 13,580 10,389
Net income (2)......... 1,895 2,732 2,724 11,425 18,453 13,670 10,382
Pro forma net income
(3).................... 1,137 1,639 1,634 6,855 11,072 8,202 6,229
Pro forma net income
per share (3).......... $ 0.06 $ 0.09 $ 0.09 $ 0.38 $ 0.61 $ 0.45 $ 0.34
Weighted average number
of common shares
outstanding (4)....... 18,255 18,255 18,255 18,255 18,255 18,255 18,255
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------------
ACTUAL AS ADJUSTED (5)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash............................................ $ 668 $43,098
Working capital................................. 12,436 50,166
Total assets.................................... 26,835 69,265
Total shareholders' equity...................... 13,373 51,103
</TABLE>
- --------------------
(1) Includes a charge of approximately $2.9 million in 1993 related to federal
taxes on employee earnings for 1991, 1992 and 1993. See Note 6 of Notes to
Consolidated Financial Statements for information concerning this charge.
(2) For all periods shown, the Company elected to be treated as an S
Corporation and, as a result, the income of the Company has been taxed for
federal and state purposes directly to the Company's shareholders rather
than to the Company.
(3) Pro forma net income and pro forma net income per share reflect federal and
state income taxes (assuming a 40% effective tax rate) as if the Company
had been taxed as a C Corporation for all periods presented. See Note 10 of
Notes to Consolidated Financial Statements for information concerning the
computation of pro forma net income per share.
(4) Weighted average number of common shares outstanding used to calculate pro
forma net income per share includes 54,600 shares, which the Company
estimates will be issued as part of a compensation arrangement with an
executive officer after this offering. In connection with this arrangement,
the Company will incur an expense of $819,000 in the period in which the
closing of this offering occurs. See "Management--Employment Agreements."
(5) Adjusted to give effect to: (i) the payment of $4.0 million to the
Company's current shareholders of previously undistributed earnings taxed
or taxable to its shareholders; (ii) the recognition of a deferred tax
liability of approximately $4.7 million upon termination of the Company's S
Corporation status; and (iii) the offering of 3,400,000 shares of Common
Stock by the Company at an assumed initial public offering price of $15.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds," "S Corporation Dividend" and "Capitalization."
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, investors
should consider carefully the following factors in connection with an
investment in the shares of the Common Stock offered hereby.
RECRUITMENT AND RETENTION OF IT PROFESSIONALS
The Company's business involves the delivery of professional services and is
labor-intensive. The Company's success depends upon its ability to attract,
develop, motivate and retain highly-skilled IT professionals and project
managers, who possess the technical skills and experience necessary to deliver
the Company's services. Qualified IT professionals are in great demand
worldwide and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that qualified IT professionals will
continue to be available to the Company in sufficient numbers, or that the
Company will be successful in retaining current or future employees. Failure
to attract or retain qualified IT professionals in sufficient numbers could
have a material adverse effect on the Company's business, operating results
and financial condition. Historically, the Company has done most of its
recruiting outside of the countries where the client work is performed.
Accordingly, any perception among the Company's IT professionals, whether or
not well founded, that the Company's ability to assist them in obtaining H-1B
temporary work permits and permanent residency status has been diminished,
could lead to significant employee attrition. In the first eight months of
1996, the Company experienced a higher than normal rate of employee attrition
because the Company was experiencing delays in securing the first stage
approval for permanent residency status for its foreign employees working in
the U.S. This attrition resulted in the Company incurring increased costs for
IT professionals and a reduction in its revenue growth. See "Business--Human
Resources," "Business--Competition" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."
GOVERNMENT REGULATION OF IMMIGRATION
The Company recruits its IT professionals on a global basis to create a
mobile workforce that it can deploy wherever required and, therefore, must
comply with the immigration laws in the countries in which it operates,
particularly the U.S. Over 90% of Mastech's IT professionals are citizens of
other countries, with most of those in the U.S. working under H-1B temporary
work permits. There is a limit on the number of new H-1B permits that may be
approved in any government fiscal year. In years in which this limit is
reached, the Company may be unable to obtain enough H-1B permits to bring
foreign employees to the U.S. If the Company were unable to obtain H1-B
permits for its employees in sufficient quantities or at a sufficient rate,
the Company's business, operating results and financial condition could be
materially adversely affected. Furthermore, Congress and administrative
agencies with jurisdiction over immigration matters have periodically
expressed concerns over the levels of legal and illegal immigration into the
U.S. These concerns have often resulted in proposed legislation, rules and
regulations aimed at reducing the number of work permits that may be issued.
Any changes in such laws making it more difficult to hire foreign nationals or
limiting the ability of the Company to retain foreign employees, could require
the Company to incur additional unexpected labor costs and expenses. Any such
restrictions or limitations on the Company's hiring practices could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Human Resources."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the timing and number of client projects commenced and completed during the
quarter, the number of working days in a quarter, employee hiring, attrition
and utilization rates and the mix of time-and-materials projects versus fixed-
price projects during the quarter. The Company recognizes revenues on time-
and-materials projects as the services are performed, while revenues on fixed-
price projects are recognized using the percentage of completion method.
Although fixed-price projects have not contributed significantly to revenues
and profitability to date, operating results may be adversely affected in the
future by cost overruns on fixed-price projects. Because a high percentage of
the Company's expenses are relatively fixed, variations in revenues may cause
significant variations in operating results. Additionally, the Company
6
<PAGE>
periodically incurs cost increases due to both the hiring of new employees and
strategic investments in its infrastructure in anticipation of future
opportunities for revenue growth. No assurances can be given that quarterly
results will not fluctuate, causing a material adverse effect on the Company's
business and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results."
INCREASING SIGNIFICANCE OF NON-U.S. OPERATIONS AND RISKS OF INTERNATIONAL
OPERATIONS
The Company's international consulting and offshore software development
operations are important elements of its growth strategy. The Company opened
offices in Canada and Singapore in 1995 and in Japan and the U.K. during the
first eight months of 1996. These operations depend greatly upon business,
immigration and technology transfer laws in those countries, and upon the
continued development of technology infrastructure. There can be no assurance
that the Company's international operations will be profitable or support the
Company's growth strategy. The risks inherent in the Company's international
business activities include unexpected changes in regulatory environments,
foreign currency fluctuations, tariffs and other trade barriers, difficulties
in managing international operations and potential foreign tax consequences,
including repatriation of earnings and the burden of complying with a wide
variety of foreign laws and regulations. The failure of Mastech to manage
growth, attract and retain personnel, manage major development efforts,
profitably deliver services, or a significant interruption of the Company's
ability to transmit data via satellite, could have a material adverse impact
on the Company's ability to successfully maintain and develop its
international operations and could have a material adverse effect on the
Company's business, operating results and financial condition.
Although the Company's ownership of a U.S. trademark registration covering
the service mark "Mastech" gives the Company the presumption of ownership in
the U.S. of the "Mastech" mark for the services identified in the
registration, there can be no assurance that the Company is entitled to use
the designation "Mastech" in all international operations and there is the
possibility that third parties have superior rights to the "Mastech" mark (or
similar marks) outside the U.S. See "Business--Business Strategies" and "--
Intellectual Property Rights."
EXPOSURE TO REGULATORY AND GENERAL ECONOMIC CONDITIONS IN INDIA
A significant element of the Company's business strategy is to continue to
develop offshore software development centers in India. Mastech has utilized
an offshore software development center in Bangalore for approximately one
year and plans to open, through an affiliated company, three more centers in
Bangalore, Madras and Pune, India. The Indian government exerts significant
influence over its economy. In the recent past, the Indian government has
provided significant tax incentives and relaxed certain regulatory
restrictions in order to encourage foreign investment in certain sectors of
the economy, including the technology industry. Certain of these benefits that
directly affect the Company include, among others, tax holidays, liberalized
import and export duties and preferential rules on foreign investment and
repatriation. Changes in the business or regulatory climate of India could
have a material adverse effect on the Company's business, operating results
and financial condition.
Although wage costs in India are significantly lower than in the U.S. and
elsewhere for comparably skilled IT professionals, wages in India are
increasing at a faster rate than in the U.S. In the past, India has
experienced significant inflation and shortages of foreign exchange, and has
been subject to civil unrest and acts of terrorism. Changes in inflation,
interest rates, taxation or other social, political, economic or diplomatic
developments affecting India in the future could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Business Strategies."
INTENSE COMPETITION
The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include participants
from a variety of market segments, including "Big Six" accounting firms,
systems consulting and implementation firms, applications software firms,
service groups of computer equipment companies, general management consulting
firms, programming companies and temporary staffing firms. Many of these
competitors have substantially greater financial, technical and marketing
resources and greater name recognition than the Company. In addition, there is
a risk that clients may elect to increase their internal IT resources to
satisfy their
7
<PAGE>
applications solutions needs. Further, the IT services industry is undergoing
consolidation which may result in increasing pressure on margins. These
factors may limit the Company's ability to increase prices commensurate with
increases in compensation. There can be no assurance that the Company will
compete successfully with existing or new competitors. See "Business--
Competition."
CONCENTRATION OF REVENUES; RISK OF TERMINATION
The Company has in the past derived, and may in the future derive, a
significant portion of its revenues from a relatively limited number of
clients. The Company's five largest clients represented approximately 29% of
revenues for the nine months ended September 30, 1996 and calendar year 1995.
EDS accounted for almost 9% of the Company's revenues for the nine months
ended September 30, 1996 and almost 10% of the Company's revenues in calendar
year 1995. Most of the Company's projects are terminable by the client without
penalty. An unanticipated termination of a major project could result in the
loss of substantial anticipated revenues and could require the Company to
maintain or terminate a significant number of unassigned IT professionals,
resulting in a higher number of unassigned IT professionals and/or significant
termination expenses. The loss of any significant client or project could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Clients."
MANAGEMENT OF GROWTH
The Company's business has experienced rapid growth over the years that
could strain the Company's managerial and other resources. Revenues have grown
from $13.5 million in 1991 to $103.7 million in 1995, and the number of
employees has grown from 250 in 1991 to 1,296 as of September 30, 1996. The
Company's continued growth depends on adding key managers, increasing its
international operations, adding service lines and growing its offshore
infrastructure. The Company has broadened its range of services to include
Year 2000 compliance and offshore software development. The Company opened
offices in Canada and Singapore in 1995 and in Japan and the U.K. during the
first eight months of 1996. In addition, the Company plans to open, through an
affiliated company, offshore software development centers in Bangalore, Madras
and Pune, India. Effective management of these growth initiatives will require
the Company to continue to improve its operational, financial and other
management processes and systems. The failure to manage growth effectively
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Business Strategies."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS
The IT services industry is characterized by rapid technological change,
evolving industry standards, changing client preferences and new product
introductions. The Company's success will depend in part on its ability to
develop IT solutions that keep pace with changes in the IT services industry.
There can be no assurance that the Company will be successful in addressing
these developments on a timely basis or that, if these developments are
addressed, the Company will be successful in the marketplace. In addition,
there can be no assurance that products or technologies developed by others
will not render the Company's services uncompetitive or obsolete. The
Company's failure to address these developments could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--The IT Services Industry."
DEPENDENCE ON PRINCIPALS
The success of the Company is highly dependent on the efforts and abilities
of Sunil Wadhwani and Ashok Trivedi, the Company's Co-Chairman and Chief
Executive Officer and the Company's Co-Chairman and President, respectively.
Although Messrs. Wadhwani and Trivedi will enter into employment agreements
containing noncompetition, nondisclosure and nonsolicitation covenants, these
contracts do not guarantee that they will continue their employment with the
Company. The loss of the services of either of these key executives for any
reason could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management--Executive Officers
and Directors."
8
<PAGE>
RISK OF PREFERRED VENDOR CONTRACTS
The Company is aggressively pursuing "preferred vendor" contracts in order
to obtain new or additional business from large clients. Clients enter into
these contracts to reduce the number of vendors and obtain better pricing in
return for a potential increase in the volume of business to the preferred
vendor. While these contracts are expected to generate higher volumes, they
generally result in lower margins. Although the Company attempts to lower
costs to maintain margins, there can be no assurance that the Company will be
able to sustain margins on such contracts. In addition, the failure to be
designated a preferred vendor may preclude the Company from providing services
to existing or potential clients, except as a subcontractor. See "Business--
Clients."
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may expand its operations through the acquisition of additional
businesses. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional businesses or successfully
integrate any acquired businesses into the Company without substantial
expenses, delays or other operational or financial problems. Further,
acquisitions may involve a number of special risks, including diversion of
management's attention, failure to retain key acquired personnel,
unanticipated events or circumstances and legal liabilities and amortization
of acquired intangible assets, some or all of which could have a material
adverse effect on the Company's business, operating results and financial
condition. Client satisfaction or performance problems at a single acquired
firm could have a material adverse impact on the reputation of the Company as
a whole. In addition, there can be no assurance that acquired businesses, if
any, will achieve anticipated revenues and earnings. While the Company from
time to time considers acquisition opportunities, it has never acquired a
business and as of the date of this Prospectus has no existing agreements,
understandings or commitments to effect any acquisition, except for the
acquisitions of affiliated companies described in this Prospectus. The failure
of the Company to manage its acquisition strategy successfully could have a
material adverse effect on the Company's business, operating results and
financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part upon certain methodologies it utilizes
in designing, developing and implementing applications systems and other
proprietary intellectual property rights. The Company is also developing
proprietary conversion tools, specifically tools tailored to address the Year
2000 problem. The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties
from whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of
proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual
property rights.
Although the Company obtained U.S. trademark registration covering the
service mark "Mastech," a Company named Mastek Limited of India, which
purports to have operations in the U.K., has asked the Company to withdraw its
service mark application for the mark "Mastech" in the U.K., claiming that the
names are confusingly similar. The Company is currently investigating the
merits of this claim. There can be no assurance that such claim will not
result in legal action being brought against the Company asserting superior
rights to the designation "Mastech" or "Mastek" in the U.K. or elsewhere.
Furthermore, there can be no assurance that such an action, if brought, will
be successfully defended by the Company. Although the Company believes that
its services do not infringe on the intellectual property rights of others and
that it has all rights necessary to utilize the intellectual property employed
in its business, the Company is subject to the risk of litigation alleging
infringement of third-party intellectual property rights. Any such claims
could require the Company to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to
the intellectual property which is the subject of asserted infringement. See
"Business--Intellectual Property Rights."
9
<PAGE>
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
of the Company. The initial public offering price per share of the Common
Stock will be determined by negotiations among management of the Company, the
Selling Shareholders and the representatives of the Underwriters (the
"Representatives"), There can be no assurance that an active public market in
the Company's Common Stock will develop or be sustained. The stock market has
from time to time experienced extreme price and volume fluctuations that have
often been unrelated to the operating performance of particular companies. In
addition, factors such as announcements of technological innovations, new
products or services or new client engagements by the Company or its
competitors or third parties, as well as market conditions in the IT services
industry, may have a significant impact on the market price of the Company's
Common Stock. See "Underwriting."
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of this offering, Messrs. Wadhwani and Trivedi will
beneficially own approximately 77.8% of the Company's Common Stock. As a
result, Messrs. Wadhwani and Trivedi will be able to elect the entire Board of
Directors, and will retain the voting power to control all matters requiring
shareholder approval, provided that they vote together on such matters. Prior
to the completion of this offering, Messrs. Wadhwani and Trivedi will enter
into a shareholders agreement requiring each of them to vote their shares of
Common Stock in favor of the other in the election of directors. After the
acquisition of Mascot Systems Private Limited ("Mascot Systems") and Scott
Systems Private Limited ("Scott Systems") by the Company, the approval of the
Government of India/Reserve Bank of India will be required for the Company to
continue to own Mascot Systems and Scott Systems if the ownership of the
Company by persons of Indian origin in the aggregate falls below 60% of the
voting power of the Company. The Company's ability to raise additional capital
by the issuance of Common Stock or voting Preferred Stock or to sell control
of the Company to a third party may be restricted if the Company is unable to
obtain the required approval. See "The Company," "Management--Executive
Officers and Directors" and "Principal and Selling Shareholders."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation, as amended
("Articles") and the Pennsylvania Business Corporation Law (the "PBCL") will
effectively make it more difficult for a third party to acquire control of the
Company by means of a tender offer or a proxy contest for the election of
directors or otherwise. The Company's Articles contain provisions which: (i)
classify the Board of Directors into three classes, with one class being
elected each year; (ii) require the approval of holders of 66 2/3% of the
votes cast on a proposal to amend the Articles, effect a merger or
consolidation of the Company, sell, lease or exchange all or substantially all
of the Company's assets or dissolve and wind-up the affairs of the Company,
unless any such proposal is unanimously approved by all of the Company's
directors; and (iii) require the approval of four of the Company's five
directors for action by the Board of Directors. These provisions may have the
effect of lengthening the time required for a person to acquire control of the
Company through a proxy contest for the election of a majority of the Board of
Directors, may discourage bids for the Common Stock at a premium over the
market price and may deter efforts to obtain control of the Company. See
"Description of Capital Stock--Certain Provisions Affecting Control of the
Company."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this offering, the Company will have
21,600,000 shares of Common Stock outstanding, of which the 4,800,000 shares
sold pursuant to this offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except those shares acquired by affiliates of the Company.
The remaining 16,800,000 shares will be "restricted securities" within the
meaning of Rule 144 under the Securities Act. The Company and its shareholders
have agreed not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, any Common Stock, or any securities convertible into
or exchangeable or exercisable for Common Stock, until 180 days after the date
of this Prospectus, without the prior consent of Donaldson, Lufkin & Jenrette
Securities Corporation. Following the 180 day lock-up period, all of the
restricted securities will become eligible for sale, subject to the manner of
10
<PAGE>
sale, volume, notice and information requirements of Rule 144. The Company has
granted Messrs. Wadhwani and Trivedi certain demand and piggyback registration
rights covering an aggregate of 16,800,000 shares of Common Stock (16,080,000
shares if the Underwriter's over-allotment option is exercised in full). Sales
of substantial amounts of such shares in the public market or the availability
of such shares for future sale could adversely affect the market price of the
shares of Common Stock and the Company's ability to raise additional capital
at a price favorable to the Company. Approximately 90 days after the date of
this Prospectus, the Company expects to file a registration statement on Form
S-8 registering 2,160,000 shares of Common Stock reserved for issuance under
the Company's Stock Incentive Plan and up to 109,200 shares of Common Stock to
be issued to Steven Shangold, Vice President--U.S. Sales and Marketing, as
compensation pursuant to his agreement with the Company. See "Shares Eligible
for Future Sale," "Management--Employment Agreements" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is substantially
higher than the net tangible book value per share of the Common Stock. At an
assumed initial public offering price at $15.00 per share, purchasers of
shares of Common Stock in this offering will experience immediate and
substantial dilution of $12.64 in the pro forma net tangible book value per
share of Common Stock. See "Dilution."
FIXED-PRICE PROJECTS
The Company undertakes certain projects billed on a fixed-price basis, which
is distinguishable from the Company's principal method of billing on a time-
and-materials basis. The failure of the Company to complete such projects
within budget would expose the Company to risks associated with cost overruns,
which could have a material adverse effect on the Company's business,
operating results and financial condition. Revenues derived from fixed-price
projects represented 1.3%, 2.2%, 2.1% and 2.6% of consolidated revenues for
1993, 1994, 1995 and the nine months ended September 30, 1996, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of Preferred Stock may be issued by the Company in the future without
shareholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of the Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding stock of the Company. The Company has no present
plans to issue any shares of Preferred Stock. See "Description of Capital
Stock--Preferred Stock."
POTENTIAL LIABILITY TO CLIENTS
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be
difficult to quantify. The Company's failure or inability to meet a client's
expectations in the performance of its services could result in a material
adverse change to the client's operations and therefore could give rise to
claims against the Company or damage the Company's reputation, adversely
affecting its business, operating results and financial condition. The Company
does not maintain insurance coverage for errors and omissions to cover such
claims.
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, the Board of Directors will
have broad discretion with respect to the use of the net proceeds of this
offering. The principal purposes of this offering are to obtain additional
working capital, create a public market for the Common Stock, provide
liquidity to the Company's shareholders and facilitate future access by the
Company to public equity markets. See "Use of Proceeds."
11
<PAGE>
BENEFITS OF OFFERING TO SELLING SHAREHOLDERS
The Selling Shareholders will receive substantial proceeds from this
offering and certain other benefits in connection with this offering. This
offering will establish a public market for the Common Stock and provide
significantly increased liquidity to the Selling Shareholders for the shares
of Common Stock they will own after this offering. At an assumed initial
public offering price of $15.00 per share, after deduction of underwriting
discounts and commissions, the aggregate realized gain as a result of this
offering by the Selling Shareholders will be approximately $19.5 million
(exclusive of the S Corporation Dividend from the Company to the Selling
Shareholders, currently estimated to be $4.0 million). Upon completion of this
offering, the Selling Shareholders will own an aggregate of 77.8% of the
outstanding Common Stock.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. The Company's ability to pay dividends is subject to
the requirement of its revolving credit facility with PNC Bank that the
Company maintain a consolidated net worth of at least $13.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." See "Dividend Policy."
THE COMPANY
Since its inception in July 1986, the business of the Company has been
conducted through Mastech Systems Corporation, a Pennsylvania corporation (the
"Operating Company"). Prior to the closing of this offering, the Operating
Company will become an indirect, wholly-owned subsidiary of the Company, which
is a newly-formed Pennsylvania corporation.
Messrs. Wadhwani and Trivedi are the direct or indirect controlling
shareholders of Mascot Systems and Scott Systems, both of which are
corporations organized under the laws of India. Mascot Systems provides
offshore software development services to the Company from India and Scott
Systems provides recruiting and training services to the Company in India. The
Company has entered into an agreement with Messrs. Wadhwani and Trivedi
pursuant to which Messrs. Wadhwani and Trivedi will, shortly after completion
of this offering, transfer their controlling interest in Mascot Systems to the
Company for a purchase price of $170,000, which price was based upon an
independent valuation of that interest. Similarly, the Company has entered
into a merger agreement providing for the merger, shortly prior to the
completion of this offering, of the majority shareholder of Scott Systems,
which is wholly-owned by Messrs. Wadhwani and Trivedi, with and into the
Company for nominal consideration. Mastech also expects to acquire the
minority shares of Mascot Systems and Scott Systems for an amount expected to
be less than $50,000, shortly after the consummation of this offering. After
completion of these transactions, Mascot Systems and Scott Systems will be
wholly-owned subsidiaries of the Company. See "Certain Transactions."
References in this Prospectus to "Mastech" or the "Company" assume that the
reorganization transaction described above and the acquisition of Scott
Systems have occurred for all periods presented.
The offshore software development services provided by the Company to its
clients are provided through Mascot Systems. Mascot Systems leases or will
lease from Messrs. Wadhwani and Trivedi the real estate in Bangalore, Pune and
Madras, India at which offshore software development activities are conducted.
See "Business--Services" and "Certain Transactions."
The Company maintains its principal executive offices at 1004 McKee Road,
Oakdale, PA 15071. The Company's World Wide Web address is
http://www.mastech.com. The Company's Web site is not part of this Prospectus.
The Company's telephone number is (412) 787-2100.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,400,000 shares of
Common Stock offered by the Company (after deduction of estimated underwriting
discounts and commissions and offering expenses payable by the Company) are
estimated to be approximately $46,430,000, assuming an initial public offering
price of $15.00 per share. The Company expects to use the net proceeds from
this offering for: (i) expansion of existing operations, including the
Company's international and offshore software development operations,
development of new service lines and possible acquisitions of related
businesses; (ii) payment of undistributed S Corporation earnings estimated to
be $4.0 million as of the date of this Prospectus; and (iii) general corporate
purposes, including working capital. Except for the acquisition of affiliated
companies described in this Prospectus, the Company has no present
commitments, agreements or understandings and is not presently conducting
negotiations with respect to any acquisitions. Pending such uses, the net
proceeds of this offering will be invested in short-term, investment grade,
interest-bearing securities. The principal purposes of this offering are to
obtain additional working capital, create a public market for the Common
Stock, provide liquidity to the Company's shareholders and facilitate future
access by the Company to public equity markets. See "S Corporation Dividend"
and "Business--Business Strategies."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."
S CORPORATION DIVIDEND
Since it was founded in 1986, the Company has been a corporation subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
("S Corporation"). As a result, substantially all of the Company's net income
has been attributed, for income tax purposes, directly to the Company's
shareholders rather than to the Company. The Company's S Corporation status
will terminate in connection with this offering and the Company will make a
final distribution to its existing shareholders of undistributed S Corporation
earnings, as explained below.
Prior to consummating this offering, the Company will declare an S
Corporation dividend to its existing shareholders in an aggregate amount
representing all undistributed earnings of the Company taxed or taxable to its
shareholders through the closing of this offering (the "S Corporation
Dividend"). The S Corporation Dividend is estimated to be approximately $4.0
million. Purchasers of Common Stock in this offering will not receive any
portion of the S Corporation Dividend.
Following termination of its S Corporation status, the Company will be
subject to income taxation on an accrual basis as a C Corporation. In
connection with the termination of its S Corporation status, the Company
estimates that it will record, in the period in which this offering occurs, a
liability, for deferred income taxes on its balance sheet and a one-time tax
expense of the same amount. As of September 30, 1996, this liability would
have been $4.7 million. The majority of this deferred tax liability will be
paid over four taxable years. The deferred tax liability will be recorded in
accordance with Statement of Financial Accounting Standards No. 109. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 of Notes to Consolidated Financial Statements.
DIVIDEND POLICY
The Company intends to retain all of its future earnings to fund growth and
the operation of its business and therefore does not anticipate paying any
cash dividends in the foreseeable future. Future cash dividends, if any, will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's future operations and earnings, capital
requirements and surplus, general financial condition, contractual
restrictions and such other factors as the Board of Directors may deem
relevant. The Company's ability to pay dividends is subject to the requirement
of its revolving credit facility with PNC Bank that the Company maintain a
consolidated net worth of at least $13.0 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
September 30, 1996, and as adjusted to give effect to: (i) the S Corporation
Dividend, estimated to be approximately $4.0 million and the recognition of a
$4.7 million deferred tax liability upon termination of the Company's S
Corporation status (see "S Corporation Dividend"); and (ii) the sale of
3,400,000 shares of Common Stock by the Company (at an assumed initial public
offering price of $15.00 per share) and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds." The following table
should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility........................ $ 1,000 $ 1,000
============ ============
Shareholders' equity:
Preferred stock, without par value; 20,000,000
shares authorized;
no shares outstanding......................... -- --
Common stock, $.01 par value; 100,000,000
shares authorized;
18,200,000 shares issued and outstanding;
21,600,000 shares issued
and outstanding, as adjusted (1).............. 182 216
Additional paid-in capital..................... 11 46,407
Retained earnings.............................. 13,212 4,512
Currency translation adjustment................ (32) (32)
------------ ------------
Total shareholders' equity................... 13,373 51,103
------------ ------------
Total capitalization....................... $13,373 $ 51,103
============ ============
</TABLE>
- ---------------------
(1) Excludes: (i) 2,160,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan; and (ii) up to 109,200 shares of
Common Stock issuable after this offering as part of a compensation
arrangement with an executive officer. See "Management--Employee Benefit
Plans" and "--Employment Agreements."
14
<PAGE>
DILUTION
As of September 30, 1996, the Company's net tangible book value was
approximately $13.4 million or $0.73 per share. Net tangible book value per
share represents the Company's total tangible assets less the Company's total
liabilities, divided by the aggregate number of shares of Common Stock
outstanding. After giving effect to: (i) the declaration of the S Corporation
Dividend; (ii) the recording of deferred income taxes upon termination of the
Company's S Corporation status; (iii) the issuance of 54,600 shares of Common
Stock which the Company estimates will be issued immediately after this
offering as part of a compensation arrangement with an executive officer (see
"Management--Employment Agreements"); and (iv) the sale by the Company of
3,400,000 shares of Common Stock (at an assumed initial public offering price
of $15.00 per share) and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company at September
30, 1996 would have been $51.1 million or $2.36 per share. This amount
represents an immediate increase in net tangible book value of $1.63 per share
to existing shareholders and an immediate dilution of $12.64 per share to
purchasers of Common Stock in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $15.00
Net tangible book value per share at September 30, 1996......... $0.73
Increase in net tangible book value per share attributable to
new investors................................................... 1.63
Pro forma net tangible book value per share after this offering... 2.36
------
Dilution in net tangible book value per share to new investors.... $12.64
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the differences in the number of shares of capital stock purchased from
the Company, the total consideration paid and the average price paid per share
by existing shareholders and new investors at the assumed initial public
offering price of $15.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders
(1).................... 18,200,000 84.3% $ 2,500 * $0.0001
New investors (1)....... 3,400,000 15.7 51,000,000 100.0% $ 15.00
---------- ----- ----------- -----
Total................. 21,600,000 100.0% $51,002,500 100.0%
========== ===== =========== =====
</TABLE>
- ---------------------
*Less than one-tenth of one percent.
(1) Sales by the Selling Shareholders in this offering will reduce the number
of shares held by existing shareholders of the Company to 16,800,000
shares or 77.8% of the total number of shares outstanding after this
offering (16,080,000 shares or 74.4% if the Underwriters' over-allotment
option is exercised in full) and will increase the number of shares held
by new investors to 4,800,000 shares or 22.2% of the total number of
shares of Common Stock outstanding after this offering (5,520,000 shares
or 25.6% if the Underwriters' over-allotment option is exercised in full).
See "Principal and Selling Shareholders."
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the five years ended
December 31, 1995 and the nine months ended September 30, 1996, are derived
from the Company's Consolidated Financial Statements and related Notes thereto
which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data as of and for the interim period
ended September 30, 1995 are unaudited but, in the opinion of management,
include all adjustments that are necessary for a fair presentation of the
results for the interim period, and all such adjustments are of a normal
recurring nature. The results of operations for the interim period ended
September 30, 1996, are not necessarily indicative of the results to be
expected for any other interim period or for the full year. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
INCOME STATEMENT DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $13,531 $20,161 $38,709 $70,050 $103,676 $ 76,156 $ 90,336
Cost of revenues....... 8,532 12,847 26,136 50,018 72,516 53,708 65,772
------- ------- ------- ------- -------- --------- ---------
Gross profit........... 4,999 7,314 12,573 20,032 31,160 22,448 24,564
Selling, general and
administrative (1).... 3,122 4,607 9,829 8,704 12,843 8,868 14,175
------- ------- ------- ------- -------- --------- ---------
Income from operations. 1,877 2,707 2,744 11,328 18,317 13,580 10,389
Interest income
(expense), net........ 30 26 9 71 163 128 2
Minority interest in
net loss (income) of
subsidiaries.......... (12) (1) (29) 26 (27) (38) (9)
------- ------- ------- ------- -------- --------- ---------
Net income (2)......... 1,895 2,732 2,724 11,425 18,453 13,670 10,382
Pro forma income taxes
(3)................... 758 1,093 1,090 4,570 7,381 5,468 4,153
------- ------- ------- ------- -------- --------- ---------
Pro forma net income
(3)................... $ 1,137 $ 1,639 $ 1,634 $ 6,855 $ 11,072 $ 8,202 $ 6,229
======= ======= ======= ======= ======== ========= =========
Pro forma net income
per share (3)......... $ 0.06 $ 0.09 $ 0.09 $ 0.38 $ 0.61 $ 0.45 $ 0.34
======= ======= ======= ======= ======== ========= =========
Weighted average number
of common shares
outstanding (4)....... 18,255 18,255 18,255 18,255 18,255 18,255 18,255
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash................... $ 72 $ 499 $ 2,897 $ 4,100 $ 2,947 $ 1,930 $ 668
Working capital........ 3,084 4,238 5,531 13,701 14,996 13,024 12,436
Total assets........... 3,861 5,695 12,461 22,665 25,606 24,393 26,835
Total shareholders'
equity................ 3,513 4,626 5,830 14,101 15,567 13,478 13,373
</TABLE>
- ---------------------
(1) Includes a charge of approximately $2.9 million in 1993 related to federal
taxes on employee earnings for 1991, 1992 and 1993. See Note 6 of Notes to
Consolidated Financial Statements for information concerning this charge.
(2) For all periods shown, the Company elected to be treated as an S
Corporation and, as a result, the income of the Company has been taxed for
federal and state purposes directly to the Company's shareholders rather
than to the Company.
(3) Pro forma net income and pro forma net income per share reflect federal
and state income taxes (assuming a 40% effective tax rate) as if the
Company had been taxed as a C Corporation for all periods presented. See
Note 10 of Notes to Consolidated Financial Statements for information
concerning the computation of pro forma net income per share.
(4) Weighted average number of common shares outstanding used to calculate pro
forma net income per share includes 54,600 shares, which the Company
estimates will be issued as part of a compensation arrangement with an
executive officer after this offering. In connection with this
arrangement, the Company will incur an expense of $819,000 in the period
in which the closing of this offering occurs. See "Management--Employment
Agreements."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this section, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such forward-
looking statements. The Company's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors."
OVERVIEW
Mastech was founded in 1986, has experienced revenue growth every year since
inception and has been profitable every year since 1987. The Company's revenues
are derived from fees paid by clients for professional services. Historically,
a substantial majority of the Company's projects have been client-managed. On
client-managed projects, Mastech provides professional services as a member of
the project team on a time-and-materials basis. The Company recognizes revenues
on time-and-materials projects as the services are performed. On Mastech-
managed projects, Mastech takes complete responsibility for project management,
and bills the client on a time-and-materials or fixed-price basis. The Company
is seeking to shift a larger portion of its business to Mastech-managed
projects, which are often performed on a fixed-price basis and generally carry
higher profit margins, by leveraging its reputation, existing capabilities,
proprietary SmartAPPS methodologies and tools and offshore software development
capabilities. As a result, fixed-price contracts, which are recognized on the
percentage of completion method, represent an increasing portion of the
Company's revenues. Revenues derived from fixed-price projects represented
1.3%, 2.2%, 2.1% and 2.6% of consolidated revenues for 1993, 1994, 1995 and the
nine months ended September 30, 1996, respectively.
Mastech's most significant cost is its personnel expense, which consists
primarily of salaries and benefits of the Company's billable personnel. The
number of IT professionals assigned to projects may vary depending on the size
and duration of each engagement. Moreover, project terminations, completion and
scheduling delays may result in periods when personnel are not assigned to
active projects. Mastech manages its personnel costs by closely monitoring
client needs and basing personnel increases on specific project engagements.
While the number of IT professionals may be adjusted to reflect active
projects, the Company must maintain a sufficient number of professionals to
respond to demand for the Company's services on both existing projects and new
engagements. In the first eight months of 1996, the Company experienced a
higher than normal rate of employee attrition because the Company was
experiencing delays in securing the first stage approval for permanent
residency status for some of its professionals. This attrition resulted in
increased costs for IT professionals and reduced revenue growth. In response to
this attrition problem, the Company increased its U.S. recruiting efforts,
enhanced its training programs and worked with the Department of Labor to
revise its filing procedures to resolve the delays. As a result of these
initiatives, the Company's employee attrition rate returned to normal
historical levels in September 1996. Additionally, the Company believes that
its ability to recruit and retain IT professionals should be further enhanced
by its ability to offer employees stock-based incentive awards, such as stock
options, after this offering.
Since July 1995, the Company has incurred significant incremental expenses to
help ensure that the Company has both an adequate number of skilled IT
professionals and the infrastructure necessary to sustain the Company's growth.
These expenditures were incurred in connection with: (i) the development of
additional service offerings, including Year 2000 conversion services and ERP
package software services; (ii) the establishment of a recruiting division to
recruit IT professionals in the U.S. and worldwide; (iii) the opening of
foreign sales offices to provide better access to the global market; (iv) the
development of four offshore software development centers in India; (v) the
hiring of additional managers to support a larger organization; (vi) the
relocation of the Company's headquarters to larger, more efficient office
space; and (vii) the establishment of a training center to improve the skill
levels of new and current employees. While these expenses have increased the
Company's selling, general and administrative expenses, the Company believes
that the revenues expected to be derived as a result of these expenditures have
not yet been fully realized.
17
<PAGE>
Following termination of its S Corporation status, the Company will be
subject to income taxation on an accrual basis. In connection with such
termination, the Company estimates that it will record a liability for
deferred income taxes on its balance sheet and a one-time tax expense of the
same amount in the period in which this offering occurs. As of September 30,
1996, this liability would have been $4.7 million. The majority of this
deferred liability will be paid over four taxable years and the liability will
be recorded in accordance with Statement of Financial Accounting Standards No.
109. See "S Corporation Dividend" and Note 2 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected
statements of operations data as a percentage of revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............. 67.5 71.4 69.9 70.5 72.8
-------- -------- -------- -------- --------
Gross profit................. 32.5 28.6 30.1 29.5 27.2
Selling, general and
administrative.............. 25.4 12.4 12.4 11.7 15.7
-------- -------- -------- -------- --------
Income from operations....... 7.1% 16.2% 17.7% 17.8% 11.5%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Revenues. The Company's revenues increased 18.6% from $76.2 million in the
first nine months of 1995 to $90.3 million in the first nine months of 1996.
This growth in revenues was primarily attributable to additional services
provided to existing clients, engagements with new clients and the Company's
continued expansion into international markets. The Company broadened its
client base from 296 clients in the first nine months of 1995 to 345 clients
in the first nine months of 1996. Revenues from the Company's international
operations increased from $0.6 million in the first nine months of 1995 to
$7.6 million in the first nine months of 1996. The Company's revenue growth
was limited by higher than normal employee attrition in the first nine months
of 1996.
Gross Profit. Gross profit consists of revenues less cost of revenues. Cost
of revenues consists primarily of salaries and employee benefits for billable
IT professionals and the associated travel and relocation costs of these
professionals, as well as the cost of the independent contractors used by the
Company. The number of IT professionals utilized by the Company (including
independent contractors) increased from 1,173 as of September 30, 1995 to
1,394 as of September 30, 1996. Gross profit increased 9.4% from $22.4 million
in the first nine months of 1995 to $24.6 million in the first nine months of
1996. Gross profit as a percentage of revenues declined from 29.5% in the
first nine months of 1995 to 27.2% in the first nine months of 1996. This
decrease is attributable to an increase in costs for IT professionals,
including higher salaries and employee bonuses and an increase in the use of
independent contractors, incurred during the period as a result of the higher
than normal rate of employee attrition discussed above. While the Company does
not separately track revenues from the use of independent contractors, the
Company believes that the percentage of cost of revenues attributable to
independent contractors approximates the percentage of revenues generated by
such contractors. Costs associated with the use of independent contractors as
a percentage of cost of revenues increased from 10.4% in the first nine months
of 1995 to 18.0% in the first nine months of 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of costs associated with the Company's sales
and marketing efforts, executive, finance and human resource functions,
facilities and telecommunication costs and other general overhead expenses.
Selling, general and administrative expenses increased 59.8% from $8.9 million
in the first nine months of 1995 to $14.2 million in
18
<PAGE>
the first nine months of 1996. As a percentage of revenues, selling, general
and administrative expenses increased from 11.7% in the first nine months of
1995 to 15.7% in the first nine months of 1996. This increase was primarily
attributable to the expenses incurred to build the infrastructure necessary to
support the Company's anticipated revenue growth.
1995 COMPARED TO 1994
Revenues. The Company's revenues increased 48.0% from $70.1 million in 1994
to $103.7 million in 1995. The growth in revenues was attributable to
increased revenue from systems integrators, additional services delivered to
existing clients, engagements with new clients and, for the first time,
revenue from international operations. The Company broadened its client base
from 285 clients in 1994 to 308 clients in 1995. The increase in revenues was
partially offset by a planned decrease in government projects.
Gross Profit. Gross profit increased 55.6% from $20.0 million in 1994 to
$31.2 million in 1995. Gross profit also increased as a percentage of revenues
from 28.6% to 30.1%. This increase in margins was attributable to billing
rates increasing at a slightly higher level than professional salaries. Also,
the shift of available resources away from government contracts to more
profitable projects enabled the Company to attain a higher gross profit margin
in 1995. The increase in gross profit was partially offset by higher personnel
expenses resulting from the hiring of additional professionals to support the
increase in client engagements. The number of IT professionals increased from
1,005 as of December 31, 1994 to 1,248 as of December 31, 1995. Costs
associated with the use of independent contractors as a percentage of cost of
revenues increased from approximately 1.0% in 1994 to 10.3% in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 47.6% from $8.7 million in 1994 to $12.8
million in 1995, representing 12.4% of revenues in both 1994 and 1995.
Expenses incurred in 1995 include costs related to the start-up of two foreign
offices, the relocation of the Company's headquarters and a general expansion
of the sales, marketing and administrative functions to support the Company's
continued revenue growth.
1994 COMPARED TO 1993
Revenues. The Company's revenues increased 81.0% from $38.7 million in 1993
to $70.1 million in 1994. The overall growth in revenues was attributable to
additional services delivered to existing clients, engagements with new
clients and increases in hourly billing rates. Historically, the Company had
sold exclusively to client end-users. In 1994, the Company initiated a
strategy to sell to systems integrators. Revenues from this new business
segment were $5.3 million in 1994. Revenues from a large federal government
contract increased from $0.4 million in 1993 to $5.2 million in 1994. The
Company broadened its client base from 227 clients in 1993 to 285 clients in
1994.
Gross Profit. Gross profit increased 59.3% from $12.6 million in 1993 to
$20.0 million in 1994 but declined as a percentage of revenues from 32.5% to
28.6%. This reduction was attributable to higher salary and fringe benefit
costs for IT professionals and increased travel and relocation costs. Also,
the large federal government contract referred to above generated lower profit
margins. The increase in gross profit was partially offset by higher personnel
costs resulting from hiring additional professionals to support the
significant increase in client engagements. The number of IT professionals
increased from 641 as of December 31, 1993 to 1,005 as of December 31, 1994.
Costs associated with the use of independent contractors as a percentage of
cost of revenues decreased from 3.8% in 1993 to approximately 1.0% in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 11.4% from $9.8 million in 1993 to $8.7
million in 1994 and declined as a percentage of revenues from 25.4% to 12.4%.
Selling, general and administrative expenses in 1993 include a charge of $2.9
million related to federal taxes on employee earnings for 1991, 1992 and 1993.
Excluding this charge, selling, general and administrative expenses increased
26.4% in 1994, but declined as a percentage of revenues from 17.8% in 1993
19
<PAGE>
to 12.4% in 1994. This improvement, as a percentage of revenues, occurred
because the Company was able to support the revenue growth in 1994 without a
proportionate increase in management, marketing personnel and associated
costs.
QUARTERLY RESULTS
Set forth below are selected income statement data for the seven fiscal
quarters ended September 30, 1996. This information is derived from unaudited
financial statements which include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the information for such periods. This information should be
read in conjunction with the Consolidated Financial Statements and related
Notes thereto contained elsewhere in this Prospectus. Results of operations
for any fiscal quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $24,107 $25,153 $26,896 $27,520 $28,595 $30,804 $30,937
Cost of revenues........ 16,898 17,492 19,318 18,808 20,667 21,871 23,234
------- ------- ------- ------- ------- ------- -------
Gross profit............ 7,209 7,661 7,578 8,712 7,928 8,933 7,703
Selling, general and
administrative......... 2,681 2,970 3,217 3,975 4,602 4,621 4,952
------- ------- ------- ------- ------- ------- -------
Income from operations.. 4,528 4,691 4,361 4,737 3,326 4,312 2,751
Interest income
(expense).............. 47 45 36 35 23 33 (54)
Minority interest in net
(income) loss of
subsidiaries........... (12) (13) (13) 11 (3) (3) (3)
------- ------- ------- ------- ------- ------- -------
Net income.............. 4,563 4,723 4,384 4,783 3,346 4,342 2,694
Pro forma income taxes.. 1,825 1,889 1,754 1,913 1,338 1,737 1,078
------- ------- ------- ------- ------- ------- -------
Pro forma net income.... $ 2,738 $ 2,834 $ 2,630 $2,870 $ 2,008 $ 2,605 $ 1,616
======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including
the timing and number of client projects commenced and completed during the
quarter, the number of working days in a quarter, employee hiring, attrition
and utilization rates and the mix of time-and-materials versus fixed-price
projects during the quarter. Although fixed-price projects have not
contributed significantly to revenues and profitability to date, operating
results may be adversely affected in the future by cost overruns on fixed-
price projects. Because a high percentage of the Company's expenses are
relatively fixed, variations in revenues may cause significant variations in
operating results. Additionally, the Company periodically incurs cost
increases due to both the hiring of new employees and strategic investments in
its infrastructure in anticipation of future opportunities for revenue growth.
No assurances can be given that quarterly results will not fluctuate, causing
a material adverse effect on the Company's business, operating results and
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 1996, the Company generally financed
its working capital and distributions to shareholders through internally
generated funds. The Company's cash provided by operations was $4.0, $4.6,
$16.2 and $9.8 million for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1996, respectively. The Company's
cash provided by operations prior to this offering does not reflect any income
tax expense due to the Company's status as an S Corporation. Capital
expenditures for the year end December 31, 1995 and the nine-month period
ended September 30, 1996 were $363,000 and $569,000, respectively. The Company
does not currently have any material commitments for capital expenditures.
20
<PAGE>
The Company has a $15.0 million revolving credit facility (the "Facility")
with PNC Bank, Pittsburgh, Pennsylvania. The Facility bears interest at a rate
equal to LIBOR (approximately 5.4% at September 30, 1996) plus 1.5% or prime
(8.25% at September 30, 1996) at the Company's option and borrowings are
unsecured. The Facility contains certain restrictive covenants and financial
ratio requirements which would limit distributions to shareholders and
additional borrowings. Historically, the Company has not used the Facility to
finance its working capital needs. In the first nine months of 1996, the
Company borrowed funds for the purpose of making distributions to
shareholders, which the shareholders used to help finance construction of
three offshore software development centers in India. As of September 30,
1996, $14.0 million remained available for borrowing under the Facility. The
Company expects to increase the amount available under the Facility to $25.0
million effective upon the completion of this offering.
The Company currently anticipates that the proceeds from this offering
together with existing sources of liquidity and cash generated from operations
will be sufficient to satisfy its cash needs at least through the next twelve
months.
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing
basis, the Company attempts to minimize any effects of inflation on its
operating results by controlling operating costs and, whenever possible,
seeking to insure that billing rates reflect increases in costs due to
inflation.
The Company invoices its clients in the local currency of the country in
which the client is located. Gains and losses as a result of fluctuations in
foreign currency exchange rates have not had a significant impact on results
of operations.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, was issued in October 1995. The Company will be required
to adopt the new standard no later than fiscal 1996, although early adoption
is permitted. This standard establishes the fair value based method (the "FAS
123 Method") rather than the intrinsic value based method as the preferred
accounting methodology for stock-based compensation arrangements. Entities are
allowed to: (i) continue to use the intrinsic value based methodology in their
basic financial statements and provide in the footnotes pro forma net income
and earnings per share information as if the FAS 123 Method had been adopted;
or (ii) adopt the FAS 123 Method. The Company anticipates providing the
required disclosures in the Notes to the Consolidated Financial Statements.
21
<PAGE>
BUSINESS
SUMMARY
Mastech is a worldwide provider of IT services to large organizations.
Mastech provides its clients with a single source for a broad range of
applications solutions and services, including client/server design and
development, conversion/migration services, Year 2000 services, ERP package
implementation services and maintenance outsourcing. These services are
provided in a variety of computing environments and use leading technologies,
including client/server architectures, object-oriented programming,
distributed databases and the latest networking and communications
technologies. To enhance its services, Mastech has formed business alliances
with leading software companies such as Baan, Oracle and Viasoft. In addition,
the Company has developed its own proprietary methodologies and tools, known
as SmartAPPS, that provide a complete solution set for each of its services.
During 1996, Mastech has provided IT services to over 300 clients worldwide
in a diverse range of industries. These clients include AT&T, Citibank, EDS,
IBM, Intel, Oracle and Wal-Mart. The Company sets high standards for client
responsiveness and project quality. A significant number of the Company's
clients have selected Mastech to provide additional services. Historically,
the Company has primarily provided IT professional services on a time-and-
materials basis to support client-managed projects. The Company plans to
generate an increasing portion of its revenues from Mastech-managed projects,
international markets, offshore software development projects and fixed-price
engagements.
One of the key elements of Mastech's growth has been its ability to recruit
and deploy, on short notice, experienced IT professionals on a worldwide
basis. As of September 30, 1996, the Company employed 1,149 IT professionals,
over 900 of whom were in the United States, with the remainder in the Far
East, Canada and India. To support the Company's growth and to meet the
increased demand for IT professionals, the Company has embarked on an
aggressive recruiting and training strategy, designed to more than double the
number of IT professionals hired.
Mastech has demonstrated the scalability of its business model in the United
States by growing its revenues from $13.5 million in 1991 to $103.7 million in
1995. The Company is now replicating this model in key international markets
to meet the large and growing demand for IT services overseas and to serve its
client base of large multinational corporations that need support on a global
basis. In addition to offices in Pittsburgh, Washington D.C. and San
Francisco, the Company maintains international offices in Toronto and
Singapore, and has recently opened offices in London and Tokyo. The Company
also plans to open offices in Australia, South Africa and Continental Europe.
In light of the large and growing backlog of applications development
projects, the shortage of qualified IT professionals in developed countries
and the rising costs of applications development and support, an increasing
number of organizations are turning to offshore software development. Mastech
is investing, through an affiliated company, in an extensive offshore software
development infrastructure in India, including four state-of-the-art software
development centers. The center in Bangalore, India has been operational for
over a year and is conducting over 20 engagements for Mastech clients in the
U.S. and Canada. Three additional centers are under development. The Company
believes that this offshore infrastructure, with the ability to accommodate
1,500 IT professionals when complete, will represent one of the largest
offshore presences in the industry.
22
<PAGE>
THE IT SERVICES INDUSTRY
OVERVIEW
The growing worldwide demand for IT services has been driven by the
increasing reliance on IT as a strategic tool for addressing critical business
issues. Intense competition, deregulation, globalization and technological
innovation are accelerating the rate of change in business. Organizations face
constant pressures to improve the quality of products and services, reduce
cost and time to market, improve operating efficiencies and strengthen
customer relationships. In order to achieve these objectives, organizations
are re-engineering their business processes and improving the information
systems which enable and support the re-engineered processes. Simultaneously,
rapid advances in technology have accelerated demand for the transition from
mainframe to client/server architectures, from separate systems to enterprise-
wide integrated applications and from internal to inter-enterprise computing.
As a result of the variety and complexity of new technologies, IT
departments must integrate and manage distributed computing environments
consisting of multiple operating systems, databases, programming languages and
networking protocols, and must implement custom and packaged software
applications to support business objectives. As organizations deal with this
complexity, IT departments have also been overwhelmed by the large number of
software applications that need to be rewritten, re-engineered or converted in
order to effect the transition to newer technologies and address the Year 2000
problem. In addition, external economic factors are forcing companies to focus
on core competencies and trim their IT workforce.
Accordingly, to support their growing IT needs, many organizations utilize
experienced third-party IT service providers to assist in the development and
implementation of IT solutions and services. According to industry sources,
the worldwide market for IT services was estimated at $185 billion in 1995,
with a projected market of $292 billion in the year 2000. The U.S. IT services
market is projected to grow from $75 billion in 1995 to $130 billion in the
year 2000.
INDUSTRY TRENDS
The Company believes that the following key industry trends will have a
major influence on the worldwide IT services market:
Growth in ERP Packaged Software. Organizations are increasingly turning to
ERP packaged software applications such as SAP R/3, Oracle Applications, Baan
Triton and PeopleSoft. By customizing and deploying these large, integrated
applications packages, organizations seek to replace, on a global, enterprise-
wide basis, their aging legacy applications, which have limited functionality
and integration. However, the implementation of these packages is a major
undertaking and requires highly specialized skill sets and functional
expertise, which are in short supply.
The Year 2000 Problem. As the millennium approaches, many existing computer
applications will malfunction because they are unable to process dates
properly beyond December 31, 1999. A typical organization may have thousands
of programs which need to be analyzed, altered and tested, making the task
enormously time and labor intensive. Industry sources estimate that on average
a company will spend $7-8 million on Year 2000 conversion, while a Fortune 100
company may spend $50-100 million, and that the cost worldwide (including in-
house costs) will be between $300 billion and $600 billion.
Shortage of IT Professionals. There is a growing shortage of IT
professionals in developed countries, particularly the United States, Western
Europe and Japan. As companies continue to migrate from centralized mainframe
architectures to distributed client/server technologies, the demand for IT
professionals will rise. As an example, Gartner Group predicts a 60% increase
in the number of organizations utilizing client/server platforms through the
year 2000. In addition, the Year 2000 problem will exacerbate the shortage of
IT professionals in the next three years.
23
<PAGE>
International Demand for IT Services. Organizations in countries other than
the U.S. are making the transition from mainframes to client/server
architectures, implementing integrated applications packages and addressing the
Year 2000 problem. The Company believes that many of these organizations have
lagged behind U.S. companies in these areas and are now aggressively adopting
new technologies. As a result, several of these markets are experiencing faster
growth than the U.S. market. For example, according to an industry source,
growth in the IT services industry through the year 2000 will be 19.6% in the
Asia/Pacific region, compared to 11.5% in the U.S.
Growth in Offshore Software Development. In light of the large and growing
backlog of applications development projects, the shortage of qualified IT
professionals in developed countries and the rising costs of applications
development and support, an increasing number of organizations are turning to
offshore software development. This approach offers a number of benefits,
including lower costs, faster delivery, more flexible scheduling and access to
a larger pool of skilled IT professionals. India is widely acknowledged as the
leader in offshore software development due to its large English-speaking
software talent pool, low labor costs and investments in technical education
and telecommunications. Many large organizations, including AT&T, Citicorp,
Digital Equipment, General Electric, Hewlett-Packard, IBM, Motorola and Oracle
are using offshore software development in India. The Gartner Group predicts
that over the next three years many organizations will spend up to 40% of their
legacy budgets for offshore projects. The Company believes that the demand for
offshore software development is further increased by the Year 2000 problem,
solutions for which are expected to be highly labor-intensive while providing
little incremental benefit and, therefore, require a low-cost solution.
BUSINESS STRATEGIES
Mastech's objective is to become a leading worldwide provider of IT services
using the best available technologies to deliver strategic business solutions
to its clients. The Company's business strategies address key industry trends,
leverage the Company's strengths and distinguish Mastech from its competitors.
The key elements of these strategies are set forth below:
<TABLE>
<CAPTION>
INDUSTRY TRENDS MASTECH STRATEGIES
- --------------------------------------------------------------------------------
<S> <C>
. Rapid growth in demand for >Provide a broad range of applications solutions
IT applications services . Leverage proprietary methodologies and tools
. Focus on key technologies
. Cross-sell solutions to client base
- ---------------------------------------------------------------------------------------------
. Growth in ERP packaged software >Provide ERP package implementation services
. Focus on Oracle, Baan, SAP and PeopleSoft
. Leverage alliances with leading vendors
. Create global network of ERP training centers
- ---------------------------------------------------------------------------------------------
. The Year 2000 problem >Offer a complete range of Year 2000 services
. Use offshore capabilities for competitive advantage
. Convert into maintenance and client/server migration
engagements
- ---------------------------------------------------------------------------------------------
. Shortage of IT professionals >Develop a global, mobile pool of high-quality IT
professionals
. Recruit and deploy on a worldwide basis
. Expand its global network of recruiting and training
centers
- ---------------------------------------------------------------------------------------------
. Rapid growth in international >Replicate U.S. success in key global markets
demand for IT services . Expand operations in Canada, Singapore, the U.K. and
Japan
. Establish operations in additional countries
>Leverage centralized "low-overhead" model
- ---------------------------------------------------------------------------------------------
. Growth in offshore software >Develop an extensive offshore software development
development infrastructure
. Expand to four state-of-the-art centers in India
</TABLE>
24
<PAGE>
The Company believes that these strategies, combined with the breadth of its
technical and business experience and knowledge of global markets, position it
to capitalize on market opportunities for growth. Each of the foregoing
strategies is discussed in more detail below:
Provide a Broad Range of Application Solutions. Mastech provides its clients
with a single source for a broad range of IT applications solutions and
services, including client/server design and development, conversion/migration
services, Year 2000 services, specialty package implementation services and
applications maintenance outsourcing. These services are provided in a wide
variety of computing environments, and use leading technologies, including
client/server architectures, object-oriented programming languages and tools,
distributed database management systems and the latest networking and
communications technologies. In addition, the Company has developed
proprietary SmartAPPS methodologies and tools to enhance productivity. The
Company's broad range of services allows it to offer clients a single source
for IT applications solutions and enables it to cross-sell services throughout
clients' organizations.
Provide ERP Package Implementation Services. The Company leverages its
client/server expertise by providing ERP package implementation services for
Oracle Applications, Baan Triton, PeopleSoft and SAP R/3.
The Company's status as an Oracle and Baan business partner results in direct
industry referrals and enhanced industry recognition and enables the Company
to broaden its client base, maintain technological leadership and increase its
competitiveness. In order to meet the growing demand for ERP professionals,
the Company recently established, through its Scott Systems affiliate an ERP
Applications Training Center in Bombay, which currently graduates over 20
trained professionals each month, and intends to set up similar training
centers in other cities in the U.S., Canada and India.
Offer a Complete Range of Year 2000 Services. The Company's Year 2000
service line offers impact assessment, project planning, conversion, testing
and implementation services. The Company's strategy is to convert Year 2000
projects into applications maintenance outsourcing and client/server migration
engagements. The Company has an alliance with Viasoft, Inc., a leading
provider of productivity tools and Year 2000 methodologies for legacy
platforms. The Company has also developed proprietary impact assessment tools
for client/server environments, which enable it to serve a segment of the
market that the Company believes has been largely ignored by competition.
Mastech's in-house Tools Development Group is also developing automated
conversion and testing tools, which will enhance the productivity of the
Company's conversion teams.
Develop a Global, Mobile Pool of High-Quality IT Professionals. Mastech's
growth has been driven by its ability to recruit and deploy, on short notice,
experienced IT professionals on a worldwide basis. In anticipation of future
growth and heightened competition for IT professionals, the Company has
embarked on an aggressive recruiting strategy, designed to more than double
the number of IT professionals hired. The Company advertises in leading
newspapers and trade magazines and has dedicated recruiters in its offices
worldwide. The Company also plans to set up a global network to recruit recent
college graduates, provide them with training in software engineering
techniques and key technologies and deploy them on client engagements.
Replicate U.S. Success in Key Global Markets. Mastech has demonstrated the
scalability of its business model in the United States by increasing its
revenues from $13.5 million in 1991 to $103.7 million in 1995. The Company
believes that this model can be replicated internationally due to the large
and growing demand for IT services overseas and the Company's client base of
large multinational corporations that need support on a global basis. In 1995,
the Company opened offices in Toronto and Singapore and in 1996, the Company
opened offices in London and Tokyo. The Company has successfully grown these
international operations to over 200 employees. The Company also plans to open
offices in Australia, South Africa and Continental Europe.
Leverage Centralized "Low-Overhead" Model. Mastech has adopted a centralized
approach to selling and servicing its worldwide client base, instead of using
a large network of branch offices to serve clients in local markets. For
example, the Company currently serves approximately 270 clients in over 40
states from its headquarters in Pittsburgh and offices in Washington D.C. and
San Francisco. Similarly, in Canada, the
25
<PAGE>
Company's office in Toronto serves clients throughout the country. This
strategy has provided the Company with the benefits of a national presence
without the costs associated with a large network of branch offices.
Develop an Extensive Offshore Software Development Infrastructure. To meet
the growing worldwide demand for offshore software development services,
Mastech is investing, through its Mascot Systems affiliate, in an extensive
offshore infrastructure in India, including four state-of-the-art software
development centers. When completed, these centers will have over 130,000 sq.
ft. of total space and the capacity to accommodate 1,500 IT professionals. The
first center, located in Bangalore (known as India's "Silicon Valley"), has
been operational for over a year, is conducting over 20 engagements for
clients in the U.S. and Canada and can accommodate 500 IT professionals. This
center is connected via secure, high-speed satellite links to the Company's
headquarters and client sites. The Company believes this offshore
infrastructure, when complete, will be one of the largest in the industry and
will differentiate it from those competitors who either have no offshore
capability or depend on subcontractor relationships to offer such services.
SERVICES
Mastech provides its clients with a single source for a broad range of IT
applications solutions and services including: (i) client/server design and
development; (ii) conversion/migration services; (iii) Year 2000 services;
(iv) ERP package implementation services; and (v) applications maintenance
outsourcing. These services are provided in a wide variety of computing
environments utilizing leading technologies including client/server
architectures, object-oriented programming languages and tools, distributed
database management systems, Computer-Aided Software Engineering ("CASE")
Tools, ERP packages, groupware and the latest networking and communications
technologies. In addition, the Company has developed proprietary SmartAPPS
methodologies and tools to enhance productivity.
Historically, the substantial majority of the Company's projects have been
client-managed. On client-managed projects, Mastech provides professional
services as a member of the project team on a time-and-materials basis. On
Mastech-managed projects, Mastech takes complete responsibility for project
management and bills the client on a time-and-materials or fixed-price basis.
The Company is seeking to shift a larger portion of its business to Mastech-
managed projects, which generally carry higher profit margins.
The Project Control Office ("PCO"), located in the Company's headquarters,
provides project management oversight for all North American client
engagements. For offshore projects, the PCO is the point of contact during
client business hours, establishing a clear line of communication with the
project teams in India and the U.S. Mastech uses a proprietary Lotus Notes-
based Global Project Tracking System to facilitate project management and
control. The Company also utilizes PC conferencing tools to conduct "virtual"
meetings.
The Company offers many of its services through an existing offshore
software development center in Bangalore, India which is connected via secure,
high-speed satellite links to the Company's headquarters and client sites.
Mastech is increasing its offshore capacity by developing, through its Mascot
Systems affiliate, additional offshore software development centers in
Bangalore, Madras and Pune, India. These centers offer clients certain
advantages as compared to onshore development, including: (i) cost savings of
as much as 50%; (ii) faster delivery, as larger teams can be employed; (iii)
virtual 24-hour project schedules, due to the time difference between North
America and India; and (iv) improved access to a large pool of IT
professionals.
26
<PAGE>
The Company's services are described below:
METHODS/TOOLS SERVICES
- --------------------------------------------------------------------------------
CLIENT/SERVER DESIGN AND DEVELOPMENT
- --------------------------------------------------------------------------------
>Project management
. SmartAPPS Client/Server >Requirements analysis and
. Languages: C/C++, VisualBasic, definition
Delphi SmallTalk, Java >Evaluation and selection of
applications packages
>Prototyping and re-use
. Tools: Powerbuilder, Gupta,
Developer/2000, Lotus Notes >Data modeling, data warehousing
>Applications systems design and
. DBMS/4GLs: Oracle, Informix, development
Sybase, Unify, SQLServer >Database design and administration
>Systems development and
implementation
. GUI: Windows, Motif, X-Windows,
OpenLook
>Technology education and training
. CASE Tools: Oracle*CASE, IEF,
Bachman
- --------------------------------------------------------------------------------
MIGRATION/CONVERSION
- --------------------------------------------------------------------------------
>Project management
.SmartAPPS Migrate >Automated tools development
Methodology and Automated
Conversion Tools >User interface conversion
>Code conversion and testing
>Control language conversion
>Data migration
>Cutover and implementation
- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------
>Impact analysis
.SmartAPPS 2000
Impact Assessment and >Project planning
Automated Conversion Tools >Year 2000 conversion
>Compliance testing and validation
>Cutover and implementation
.Viasoft
.Microfocus Revolve
- --------------------------------------------------------------------------------
SPECIALTY PACKAGE IMPLEMENTATION
- --------------------------------------------------------------------------------
.Oracle Applications >Project management
.Baan Triton >Customization
.PeopleSoft >Integration
.SAP R/3 >Migration
>Database design and administration
>Systems support
>Training
- --------------------------------------------------------------------------------
APPLICATIONS MAINTENANCE OUTSOURCING
- --------------------------------------------------------------------------------
>Baseline assessment and service
. SmartAPPS Maintain level definition
>Process enhancements
Methodology and Tools
>Modifications/enhancements to
functionality
>Interfaces and integration with new
systems
>Configuration management
>Documentation and standardization
>Applications productivity
improvement
>Trouble-shooting and problem
resolution
>24-hours, 7-days per week emergency
support
27
<PAGE>
ADDITIONAL SERVICES
Mastech is in the process of developing additional services for clients,
including:
Education and Training. Mastech's Education and Training Department provides
employees with basic and advanced courses in key technologies such as Oracle,
PowerBuilder, VisualBasic, Java and ERP packages including Oracle Applications
and Baan. Mastech is planning to expand its training programs and courseware
to offer them to its clients as a distinct value-added service. The Company
has piloted this service with selected clients and has received positive
feedback.
Internet/Intranet Solutions. Mastech manages its worldwide operations using
Lotus Notes, Web-based technologies and an extensive communications
infrastructure. Mastech plans to create a service line focused on helping its
clients use Internet and World Wide Web technology to develop Intranets and
utilize the World Wide Web for electronic commerce.
SMARTAPPS METHODOLOGIES AND TOOLS
Mastech's proprietary SmartAPPS methodologies and tools provide a complete
solution set for each of its services. These methodologies and tools are
premised on a rapid delivery paradigm and provide a consistent framework to
address each service line, with the flexibility to address alternative
delivery mechanisms. These delivery mechanisms include a variety of on-site
solutions and offshore delivery techniques. The methodologies include project
management practices that extend across all service lines and a work breakdown
structure to address each component of the solution.
Proprietary Tools. The Company's proprietary tools provide productivity
gains by automating certain software delivery processes while reducing the
chance of human error. The SmartAPPS set of tools incorporates natural
language-based analysis and transformations using compiler technology. These
tools are built around object-oriented technology that enables them to be
easily extended as greater automation opportunities are uncovered. SmartAPPS
tools are particularly useful in automated conversions for the Year 2000 and
Conversion/Migration service lines.
Proprietary Frameworks. The Company has developed automated frameworks for
each service line. "SmartAPPS Client/Server" incorporates the Rapid
Architected Application Development technique to deliver this service to
clients. "SmartAPPS Migrate" provides for database mapping and re-engineering,
followed by source conversion using automated tools. "SmartAPPS 2000" provides
impact analysis, project planning and conversion solutions to the Year 2000
problem. "SmartAPPS Maintain" uses the waterfall development model and
reusable templates and provides detailed steps for guaranteed service level
maintenance of applications at the offshore center.
SALES AND MARKETING
Mastech sells its services to large organizations through a direct sales
force of over 40 professionals. The Company's U.S. sales force is organized to
meet the needs of the marketplace through three primary divisions: (i) the
General Business Division; (ii) the System Integrator Division; and (iii) the
Enterprise Package Division.
The General Business Division includes three geographic regions, each of
which is directed by a Regional Director. Each region includes multiple new
business development managers. These individuals use a proprietary database of
several thousand prospects to telemarket Mastech's services nationally. The
Company subsequently sends interested prospective clients a written proposal
providing information about the Company, its approach and methodology,
schedules, team members, pricing and terms. Mastech leverages the mobility of
its software professionals and its cost effective telephone selling model to
service all areas of the U.S. Each geographic region also includes Corporate
Account Managers who are responsible for selling Mastech's services to
existing clients. These managers, with the support of a specialized
applications solutions sales team, Regional Directors and senior management,
meet frequently on a direct, face-to-face basis with clients. Through an
organized consultative sales approach, Mastech cross-sells its different
services in order to develop stronger and expanded client relationships.
28
<PAGE>
The System Integrator Division focuses on developing national and global
relationships with major systems integrators such as EDS, IBM, KPMG Peat
Marwick, Ernst & Young and Oracle. Mastech assists these integrators to meet
their customers' needs by providing specialized technical expertise and
complementary capabilities such as offshore development.
The Enterprise Package Division includes personnel trained and dedicated to
addressing the needs of clients and prospects that are involved in ERP package
implementations. This division works directly with companies providing
complete implementation services, as well as partnering with both the ERP
software vendors and systems integrators on teamed implementation efforts.
Mastech's international sales organization has offices located in four
different countries. Each office is supervised by a Country Manager and
supported by dedicated sales personnel that sell directly to new clients using
an approach similar to the Company's domestic sales approach. Additionally,
these offices focus on leveraging Mastech's existing relationships with its
U.S. based multinational clients. These relationships are particularly strong
with global systems integrators and often provide a foundation on which each
of Mastech's international offices can build.
Mastech's marketing organization works closely with the sales organization
to constantly improve results. The marketing organization's responsibilities
include development of company marketing literature, market research to assist
in strategic planning and tactical decision making, trade show selection and
exhibit planning, advertising and public relations support. The marketing
organization develops messages and positioning for such activities by
analyzing market trends and competitors' activities.
CLIENTS
Substantially all of the Company's clients are large companies, major
systems integrators or governmental agencies. During 1996, the Company has
provided services to over 300 clients in the U.S., Canada, Europe and the Far
East. The Company's strategy is to maximize its client retention rate and
secure follow-on engagements by providing high quality services and client
responsiveness. A significant number of the Company's clients have selected
Mastech to provide additional services.
The Company is a preferred vendor for several large organizations, including
Associates Bancorp, Bank of America, EDS, KPMG Peat Marwick and Oracle. As a
preferred vendor, the Company is one of a limited number of service providers
to these organizations, enabling it to sell its services more effectively. The
Company is aggressively pursuing additional preferred vendor arrangements in
order to obtain new or additional business from large organizations. These
contracts generally result in lower margins due to negotiated discounts, but
are expected to generate higher revenues.
Organizations to which the Company has provided, or is providing, services
include:
<TABLE>
<CAPTION>
CONSUMER PRODUCTS MANUFACTURING TELECOMMUNICATIONS TRANSPORTATION
----------------- ------------- ------------------ --------------
<S> <C> <C> <C>
J.C. Penney Ford Motor AirTouch Carnival Cruise Lines
Nike General Electric AT&T Royal Caribbean
Philip Morris General Motors Ameritech Ryder Systems
Sears Hitachi MCI Union Pacific
Wal-Mart Intel U.S. Cellular USAir
</TABLE>
<TABLE>
<CAPTION>
INTEGRATORS &
HEALTH CARE FINANCIAL SERVICES VENDORS
----------- ------------------ -----------------
<S> <C> <C>
Blue Cross/Blue Shield Bank of America Deloitte & Touche
Foxmeyer Citibank EDS
Health America Deutsche Bank IBM/ISSC
Kaiser Foundation Health Hartford Insurance/ITT KPMG Peat Marwick
Merck NationsBank Oracle
</TABLE>
29
<PAGE>
In 1995 and in the first nine months of 1996, approximately 29% of the
Company's revenues were derived from its top five clients (EDS, IBM, the U.S.
Department of Defense, Oracle and Unisys). EDS accounted for almost 10% of the
Company's revenues in 1995 and almost 9% for the nine months ended September
30, 1996.
REPRESENTATIVE ENGAGEMENTS
Examples of the Company's engagements, which are representative of the
nature of its services, are set forth below:
CLIENT/SERVER DESIGN AND DEVELOPMENT: RE-ENGINEERING SOLUTION FOR A
CONSUMER PRODUCTS COMPANY.
Problem. A consumer products company needed to re-engineer its business
processes in order to implement an integrated, enterprise-wide system that
would incorporate high-tech tools such as hand-held computers to allow its
employees to check a customer's account history and produce point-of-sale
invoices.
Solution. Mastech designed and developed an integrated, enterprise-wide
system comprised of 12 different applications using Oracle Designer 2000.
Mastech's engagement team recommended the hardware, software and development
methodology. Mastech's responsibilities included project management, vendor
management, application and database architecture design, analysis and re-
engineering of the enterprise-wide processes implementation, training and
maintenance support.
CONVERSION/MIGRATION: LARGE-SCALE CONVERSION FOR A STATE GOVERNMENT AGENCY.
Problem. A large state government agency in the U.S. needed to convert all
of its applications from a UNISYS mainframe to an IBM environment.
Solution. Mastech used a combination of on-site and offshore project teams
to complete the project. Mastech's offshore software development center in
India developed conversion tools to increase productivity by automating the
source language conversion. The offshore team developed eight conversion tools
to manage the conversion of two million lines of code involving three
different source languages, two on-line transaction processing environments
and the conversion from a network database to a relational database.
SPECIALTY PACKAGE IMPLEMENTATION: MIGRATION OF A UTILITY COMPANY'S SYSTEMS
TO ORACLE APPLICATIONS.
Problem. A major utility company needed to reduce costs to remain
competitive in the marketplace. Over the years, it had developed multiple
independent systems on a variety of platforms, resulting in isolated
information that could not be consolidated for an in-depth and accurate
analysis of costs.
Solution. Upon Mastech's recommendation, the utility decided to implement
Oracle Financials and Manufacturing ERP packages to obtain faster access to
critical information, better decision-making capability, improved
understanding of costs using activity-based costing and the ability to compile
information across organization and functional lines. Mastech specialists are
providing Oracle Financials and Manufacturing expertise to customize and
implement the General Ledger, Inventory and Accounts Payable modules of Oracle
Financials, the Inventory and Purchasing modules of Oracle Manufacturing, and
to develop interfaces between the materials planning system and the Oracle
Applications, data conversion routines and additional functionality.
APPLICATIONS MAINTENANCE OUTSOURCING: OFFSHORE APPLICATION ENHANCEMENT AND
SUPPORT FOR A LARGE CANADIAN INVESTMENT FIRM.
Problem. One of Canada's largest investment firms needed to maintain its
application systems in a cost-effective manner.
Solution. Mastech used its offshore software development capabilities to
maintain the client's applications. The client was able to obtain the benefits
of on-site development support and coordination, while taking advantage of
Mastech's management and offshore software development and support capability.
Mastech's scope of work included requirements analysis, design of
enhancements, modification and testing of existing programs to incorporate
enhancements, and implementation of changes.
30
<PAGE>
INTERNET/INTRANET SOLUTIONS: A BIG SIX CONSULTING FIRM NEEDED JAVA
SPECIALISTS TO HELP IT DEVELOP AN INTERNET PRESENCE.
Problem. A Big Six consulting firm wanted to broaden its range of services
through the Internet by developing applications to support the delivery of
content and transactions capability to its entrepreneurial clients.
Solution. Mastech's Java specialists helped analyze, design, prototype and
develop the system by writing VisualBasic modules, JavaScript routines and CGI
scripts. They also evaluated various technologies for transaction processing
monitors and remote automation objects to address issues related to running a
client-server application over the Internet.
HUMAN RESOURCES
The Company's success depends in large part on its ability to attract,
develop, motivate and retain highly skilled IT professionals. The Company has
over 70 full-time employees dedicated to recruiting IT professionals and
managing its human resources. The Company recruits in a number of countries,
including India, the U.S., Canada, the U.K., Singapore, Australia and the
Philippines. The Company advertises in leading newspapers and trade magazines.
In addition, the Company's employees are a valuable recruiting tool and are
actively involved in referring new employees and screening candidates for new
positions. Mastech uses a standardized global selection process which includes
interviews, tests and reference checks.
The Company's Resource Managers use a proprietary system to manage, on a
real-time basis, the employees and candidates in the Company's talent pool.
This system enables the Company to quickly identify appropriate IT
professionals for various client engagements. This database, which currently
holds profiles on several thousand IT professionals, catalogs individual
technical profiles and stores information pertaining to each individual's
location, availability, mobility and other factors.
The Company has a focused retention strategy that includes career planning,
training, benefits and an incentive plan. The Company's comprehensive benefits
package includes Company-paid health insurance, group life insurance, a long-
term disability plan, Company-subsidized health club memberships and tuition
reimbursement. Following this offering, the Company intends to use stock
options as part of its recruitment and retention strategy. The Company also
has an extensive training infrastructure. The Company's Education and Training
Department trains employees on a variety of platforms and helps them
transition from legacy to client/server skills by providing cross-platform
training in new technologies. The Company is implementing an Intranet to allow
its employees to access its courseware and computer-based training modules via
the Internet so that the training is available to all employees worldwide at
their individual convenience and pace.
Mastech's IT professionals typically have Master's or Bachelor's degrees in
Computer Science or another technical discipline and three to ten years of IT
experience. As of September 30, 1996, the Company had 1,329 employees
comprised of 1,149 IT professionals, 46 sales and marketing personnel and 134
general and administrative personnel. Over 90% of Mastech's IT professionals
are citizens of other countries, with most of those in the U.S. working under
H-1B temporary work permits. See"Risk Factors--Government Regulation of
Immigration." In addition, the Company uses independent contractors to staff
client engagements. As of September 30, 1996, the Company had 245 independent
contractors working on client engagements.
COMPETITION
The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include participants
from a variety of market segments, including "Big Six" accounting firms,
systems consulting and implementation firms, applications software firms,
service groups of computer equipment companies, general management consulting
firms, programming companies and temporary staffing firms. Many of these
competitors have substantially greater financial, technical and marketing
resources and greater name recognition than the Company. In addition, there is
a risk that clients may elect to increase their internal IT resources to
satisfy their
31
<PAGE>
applications solutions needs. The Company believes that the principal
competitive factors in the IT services industry include the range of services
offered, technical expertise, responsiveness to client needs, speed in
delivering IT solutions, quality of service and perceived value. The Company
believes that it competes favorably with respect to these factors.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of
proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual
property rights.
Although the Company obtained U.S. trademark registration covering the
service mark "Mastech," a company named Mastek Limited of India, which
purports to have operations in the U.K., has asked the Company to withdraw its
servicemark application for the mark "Mastech" in the U.K. claiming that the
names are confusingly similar. The Company is currently investigating the
merits of this claim. There can be no assurance that such claim will not
result in legal action being brought against the Company asserting superior
rights to the designation "Mastech" or "Mastek" in the U.K. or elsewhere and,
if such an action is bought, there can be no assurance that it will be
successfully defended by the Company. See "Risk Factors--Intellectual Property
Rights."
Software developed by the Company in connection with a client engagement is
typically assigned to the client. In limited situations, the Company may
retain ownership, or obtain a license from its client, which permits Mastech
or a third party to market the software for the joint benefit of the client
and Mastech or for the sole benefit of Mastech.
FACILITIES
The Company leases 35,900 square feet of office space in the Pittsburgh
suburb of Oakdale, Pennsylvania which serves as its headquarters. The
Company's senior management, administrative personnel, human resources and
sales and marketing functions are housed in this facility. This lease expires
on May 31, 2000 and contains two additional options to extend the lease for
five years. The Company believes that this location has sufficient space for
its current and anticipated near-term needs. The Company also has offices in
Washington D.C. and San Francisco.
The Company has also recently opened offices in several countries in order
to develop business internationally. The Company currently leases office space
in London, Singapore, Toronto and Tokyo. These locations allow the Company to
respond quickly to the needs of its international clients and to recruit
qualified IT professionals in these markets.
Mascot Systems, an affiliate of the Company controlled by Messrs. Wadhwani
and Trivedi, leases two offshore software development facilities totaling
34,200 square feet in Bangalore, India. These facilities were established by
Messrs. Wadhwani and Trivedi to deliver the Company's offshore software
development services to the Company's clients worldwide. Mascot Systems
intends to lease from Messrs. Wadhwani and Trivedi two additional offshore
software development centers. These facilities, totaling 100,000 square feet,
are located in Pune and Madras, India, and are currently under construction.
LITIGATION
The Company is not a party to any litigation that is expected to have a
material adverse effect on the Company or its business.
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's directors and executive officers and their respective ages and
positions as of September 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Sunil Wadhwani............ 43 Co-Chairman, Chief Executive Officer and Director
Ashok Trivedi............. 47 Co-Chairman, President and Director
Michael Zugay............. 44 Vice President--Finance
Steven Shangold........... 35 Vice President--U.S. Sales and Marketing
Ajmal Noorani............. 34 Vice President--International Operations
Sushma Rajagopalan........ 33 Vice President--Resourcing
Murali Balasubamanyam..... 41 Vice President--Human Resources
Shekar Sivasubramanian.... 32 Vice President--Applications Solutions
</TABLE>
SUNIL WADHWANI has served as Co-Chairman and Chief Executive Officer of the
Company since October 1996, and a Director since 1986. From 1986 through
September 1996, he served as Chairman of the Company and held several other
offices, including Vice President, Secretary and Treasurer. From 1981 to 1986,
Mr. Wadhwani served as President of Uro-Valve, Inc., a start-up manufacturer
of specialized medical devices that he founded in 1981. Prior to 1981 Mr.
Wadhwani worked as a management consultant assisting companies in strategic
planning, operations, marketing and sales. Mr. Wadhwani has a Master's degree
in Industrial Administration from Carnegie-Mellon University and a Bachelor's
degree in Mechanical Engineering from the Indian Institute of Technology.
ASHOK TRIVEDI has served as Co-Chairman and President of the Company since
October 1996, and as a Director since 1988. From 1988 through September 1996,
Mr. Trivedi served as President of the Company and held other offices,
including Secretary and Treasurer. From 1976 to 1988, he held various
marketing and management positions with Unisys Corporation. Mr. Trivedi has a
Master's in Business Administration degree from Ohio University and a Master
of Science degree in Physics from Delhi University.
MICHAEL ZUGAY has served as Vice President--Finance of the Company since
March 1995. From March 1994 to March 1995, he served as an independent
consultant to the steel industry. From 1990 through February 1994, he served
as President and CEO of Bliss-Salem, Inc., a provider of products to the steel
industry. He was also Bliss-Salem's Vice President of Finance and
Administration from 1986 to 1990. Prior to this, he served in various
positions at Bekaert Steel Wire Corporation and KPMG Peat Marwick LLP. Mr.
Zugay is a certified public accountant with over 23 years of financial and
operational experience. Mr. Zugay has a Bachelor's degree in Business
Management from Indiana University of Pennsylvania.
STEVEN SHANGOLD has served as Vice President--U.S. Sales and Marketing of
the Company since October 1995. From February 1992 through September 1995, he
served as the Company's Sales Director--Commercial Division. From 1982 through
January 1992, he was employed by Redshaw Corporation (a subsidiary of
ITT/Hartford that markets integrated software packages to the insurance
industry), most recently as Vice President--Sales and Marketing. Mr. Shangold
holds a Bachelor's degree in Management from Syracuse University, and a
Bachelor's degree in Advertising from the S.I. Newhouse School.
AJMAL NOORANI has served as Vice President--International Operations of the
Company since May 1996. From June 1994 to May 1996, he was employed by Mellon
Bank as an Assistant Vice President--Corporate Finance. From 1990 to May 1994,
Mr. Noorani held a number of positions with the Company, including Director--
Government Division. Between 1988 and 1990 he was a Senior Management
Consultant at Arthur Andersen & Co. Mr. Noorani has a Master's degree in
Industrial Administration from Carnegie-Mellon University and a Bachelor's
degree in Engineering from Maharaja Sayajrao University.
SUSHMA RAJAGOPALAN has served as a Vice President--Resourcing of the Company
since October 1995. From June 1993 to October 1995, she served as the
Company's Director--Federal Division, and between
33
<PAGE>
November 1992 and June 1993, she held various managerial positions with the
Company. From June 1988 to October 1991, Ms. Rajagopalan was an Assistant Vice
President--Human Resources with Citibank in India. She has a Master's degree
in Personnel Management from the Tata Institute of Social Sciences.
MURALI BALASUBAMANYAM has served as a Vice President--Human Resources of the
Company since October 1995. From September 1994 to October 1995, he served as
the Company's Director--Human Resources. Prior to joining the Company, he
served as Deputy General Manager (Human Resources) with HCL Group of Companies
from November 1992 to September 1994. From March 1990 to October 1992, he
served as General Manager (Human Resources) for Fedders Lloyd Corp. He also
served as Head of Personnel with PCL-Dell, from 1986 to 1989. He has a
Bachelor's degree in Business Administration from Madurai University.
SHEKAR SIVASUBRAMANIAN has served as Vice President--Applications Solutions
since August 1996. From July 1995 to August 1996, he served as the Company's
Director of Projects. Between May 1991 and July 1995, he served as Program
Manager in charge of the Company's largest contract with IBM. Prior to joining
the Company, he held various management and technical positions with Tata
Consultancy Services. He has an MBA in Finance from the University of Missouri
and a Bachelor's degree in Mechanical Engineering from the Indian Institute of
Technology.
The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. The Board of Directors currently consists of two
members. The Company expects to fill the three current vacancies on the Board
with independent directors within 90 days following the consummation of this
offering. The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. The Board is comprised of two
Class I Directors (to be appointed within 90 days after the closing of this
offering), two Class II Directors (Mr. Wadhwani and one to be appointed within
90 days after the closing of this offering) and one Class III Director (Mr.
Trivedi). At each annual meeting of shareholders, the appropriate number of
directors will be elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. The terms of the Class I
Directors, Class II Directors and Class III Directors will expire upon the
election and qualification of successor directors at the annual meetings of
shareholders held in calendar years 1997, 1998 and 1999, respectively. There
are no family relationships between any director or executive officer of the
Company.
BOARD COMMITTEES
The Audit Committee will be responsible for reviewing with management the
financial controls, accounting, audit and reporting activities of the Company.
The Audit Committee will review the qualifications of the Company's
independent auditors, make recommendations to the Board of Directors regarding
the selection of independent auditors, review the scope, fees and results of
any audit and review non-audit services and related fees provided by the
independent auditors. The members of the Audit Committee have not yet been
appointed. A majority of the members of the Audit Committee will be
independent directors.
The Compensation Committee will be responsible for the administration of all
salary and incentive compensation plans for the officers and key employees of
the Company, including bonuses. The Compensation Committee will also
administer the Company's Stock Incentive Plan. The members of the Compensation
Committee have not yet been appointed. A majority of the members of the
Compensation Committee will be independent directors.
No director has been appointed to the Company's Audit Committee or
Compensation Committee as of the date of this Prospectus. The Board of
Directors does not have a nominating committee. The selection of nominees for
the Board of Directors will be made by the entire Board of Directors.
DIRECTOR COMPENSATION
Directors who are not executive officers of the Company will be paid an
annual retainer of $20,000, and all directors will be reimbursed for travel
expenses incurred in connection with attending board and committee
34
<PAGE>
meetings. Directors are not entitled to additional fees for serving on
committees of the Board of Directors. Pursuant to the terms of the formula
program of the Company's Stock Incentive Plan, each director of the Company
appointed after the completion of this offering who is not otherwise employed
by the Company automatically will be granted options to purchase shares of
Common Stock. See "Management--Employee Benefit Plans; Independent Director
Options."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee prior to this offering.
Accordingly, Messrs. Wadhwani and Trivedi, the Company's Co-Chairman and Chief
Executive Officer and the Company's Co-Chairman and President, respectively,
had responsibility for all decisions with respect to executive officer
compensation.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and each of the other most
highly compensated executive officers whose salary and bonus compensation for
the fiscal year ended December 31, 1995 exceeded $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
--------------------------
NAME AND PRINCIPAL POSITION SALARY BONUS (2)
<S> <C> <C>
Sunil Wadhwani...................................... $108,000(3) $ --
Co-Chairman and Chief Executive Officer
Ashok Trivedi....................................... 108,000(3) --
Co-Chairman and President
Steven Shangold..................................... 68,333 170,003
Vice President--U.S. Sales and Marketing
Sushma Rajagopalan.................................. 79,543 26,000
Vice President--Resourcing
</TABLE>
- ---------------------
(1) In accordance with the rules of the Securities and Exchange Commission
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constitute less than 10% of the total annual salary and bonus for the
named executive officer for such year.
(2) Bonuses were paid in 1995 for 1994 performance. The bonus amount shown for
Steven Shangold includes sales commissions of $24,944.
(3) In addition to these salary amounts, Messrs. Wadhwani and Trivedi received
Subchapter S distributions as shareholders of the Company. Following this
offering, Messrs. Wadhwani and Trivedi will have a revised compensation
structure. See "Management--Employment Agreements" and "S Corporation
Dividend."
EMPLOYEE BENEFIT PLANS
Stock Incentive Plan. The Company has reserved an aggregate of 2,160,000
shares of Common Stock for issuance under the 1996 Stock Incentive Plan (the
"Stock Incentive Plan"), which may be granted to directors, officers and other
employees and consultants of the Company and its subsidiaries. The Stock
Incentive Plan permits: (i) the grant of incentive stock options; (ii) the
grant of non-qualified stock options; (iii) the issuance or sale of Common
Stock with or without vesting or other restrictions ("Stock Grants"); (iv) the
grant of Common Stock upon the attainment of specified performance goals
("Performance Share Awards"); and (v) the grant of stock appreciation rights.
In addition, directors who are not employees or officers of the Company
("Independent Directors") will automatically be eligible for certain grants
under the Stock Incentive Plan, as described below. On and after the date the
Stock Incentive Plan becomes subject to Section 162(m) of the Internal Revenue
Code
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<PAGE>
of 1986, as amended, the maximum number of shares of Common Stock that may be
awarded to any one individual in any calendar year is 200,000 shares. Although
no options or other grants have been granted under the Stock Incentive Plan,
the Board of Directors intends to do so upon completion of this offering.
The Stock Incentive Plan will be administered by the Board of Directors or
by a committee designated by the Board ("Administrator"). Subject to the
provisions of the Stock Incentive Plan, the Administrator has full power to
determine, from among the persons eligible for grants under the Stock
Incentive Plan: (i) the individuals to whom grants will be granted; (ii) the
combination of grants to participants; and (iii) the specific terms of each
grant. Incentive stock options may be granted only to officers or other
employees of the Company or its subsidiaries, including members of the Board
of Directors who are also employees of the Company or its subsidiaries.
The option exercise price of each option granted under the Stock Incentive
Plan is determined by the Administrator but, in the case of incentive stock
options may not be less than 100% of the fair market value of the underlying
shares on the date of grant. Incentive stock options may not be exercisable
more than ten years from the date the option is granted. If any employee of
the Company or any subsidiary owns or is deemed to own at the date of grant
shares of stock representing in excess of 10% of the combined voting power of
all classes of stock of the Company, the exercise price for incentive stock
options granted to such employee may not be less than 110% of the fair market
value of the underlying shares on that date and the option may not be
exercisable more than five years from the date the option is granted. Upon the
exercise of options, the option exercise price must be paid: (i) in cash; (ii)
by delivery to the Company of a notice of exercise with an irrevocable
direction to a registered broker-dealer to sell a sufficient number of shares
and to deliver the sales proceeds directly to the Company; or (iii) in the
sole discretion of the Administrator, by delivery of shares of Common Stock
that have been previously owned by the optionee for at least six months.
The Board of Directors can terminate or amend the Stock Incentive Plan at
any time, except that no such action may adversely affect any right or
obligation regarding any awards previously made under the Stock Incentive Plan
without the consent of the recipient. In the event of any changes in the
capital structure of the Company, such as a stock dividend or split-up, the
Board of Directors must make equitable adjustments to outstanding unexercised
awards so that the net value of the award is not changed.
INDEPENDENT DIRECTOR OPTIONS. The Stock Incentive Plan provides for the
automatic grant of non-qualified stock options to Independent Directors. Under
such provisions, options to purchase 15,000 shares of Common Stock will be
granted to each individual who first becomes a member of the Board of
Directors after the closing date of this offering and who is not then an
employee of the Company or any subsidiary of the Company. The option exercise
price for options granted to Independent Directors under the Stock Incentive
Plan will equal the then fair market value of the underlying Common Stock.
Options granted to Independent Directors under the foregoing provisions will
vest in annual installments over three years commencing on the first
anniversary of the date of grant and will expire ten years after grant,
subject to earlier termination if the optionee ceases to serve as a director.
401(K) PLAN. The Company maintains a 401(k) defined contribution plan (the
"401(k) Plan"). All employees of the Company who have completed six months of
employment are eligible to participate in the 401(k) Plan, pursuant to which
each participant may contribute up to 15% of eligible compensation (up to a
statutorily prescribed annual limit of $9,500 in 1996). The Company does not
currently match contributions made by employees to the 401(k) Plan. All
amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect
to invest their contributions in various established funds.
EMPLOYMENT AGREEMENTS
The Company intends to enter into substantially identical employment
contracts with Messrs. Wadhwani and Trivedi, pursuant to which, effective
prior to the date of this offering, each of them will serve as an executive
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<PAGE>
officer of the Company at an annual base salary of not less than $300,000, plus
an annual bonus of up to $200,000 if performance goals to be established by the
Compensation Committee of the Board of Directors are met. The agreements have a
term of 24 months and automatically extend for one month at the end of each
month unless either party gives notice of their intention to terminate the
agreement at the end of the term. The agreements provide that upon termination
of employment by the Company other than for cause (as defined in the
agreements) or death, disability or retirement, the Company shall pay the
officer a lump sum amount equal to the amount the executive would have been
paid, based upon his base salary at the time of termination, if such executive
had remained an employee for the full term of his contract, plus shares of
Common Stock having a value equal to the value of the executive's vested stock
options and stock appreciation rights. In such event, the Company will also
provide health insurance for the executive for the remainder of his life at the
level in effect for other executives prior to his termination for the remainder
of the term. In the event the executive is terminated due to a disability, the
Company will continue to pay for three years the executive's salary and an
amount equal to his bonus in the year prior to his termination, reduced by any
amounts paid to the executive under the Company's disability plan. Under the
agreements, the Company agrees to indemnify the executive to the full extent
not prohibited by law for liabilities he incurs in his capacity as a director,
officer or controlling person of the Company. Under the agreements, the
executives agree to a noncompetition covenant during the term of the agreement
and for two years after the termination of their employment for cause and to
nonsolicitation and nondisclosure covenants during the term of the agreement
and for one year after the termination of their employment for any reason.
The other Named Executive Officers are parties to employment contracts which
outline their responsibilities and provide generally for base compensation,
plus annual incentive bonuses, varying by position and length of service to the
Company. These executives are "at will" employees of the Company and can be
terminated with or without cause or they may resign, in any case, upon giving
the Company the contractually specified notice. These employment contracts
contain confidentiality provisions and noncompetition and nonsolicitation
covenants.
In October 1996, the Company entered into an agreement with Steven Shangold,
the Company's Vice President of U.S. Sales and Marketing, pursuant to which the
Company agreed to pay Mr. Shangold, as compensation for past services, an
amount equal to the value of 109,200 shares of Common Stock. One half of the
foregoing payment will be made promptly following the closing of this offering
and will be paid in cash or in Common Stock at the election of Mr. Shangold.
The remaining half will be paid in the form of 54,600 shares of restricted
Common Stock which will vest on June 30, 1998. If Mr. Shangold voluntarily
leaves the employment of the Company or is terminated by the Company for cause
before that date, the shares of restricted stock will be forfeited. If Mr.
Shangold is terminated without cause, upon the sale of the Company or upon
death, the shares of restricted stock will vest on a pro rata basis.
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<PAGE>
CERTAIN TRANSACTIONS
Mascot Systems is an Indian corporation controlled by Messrs. Wadhwani and
Trivedi. The Company has engaged Mascot Systems as a subcontractor to perform
offshore software development projects. For the nine months ended September
30, 1996, and the year ended December 31, 1995, the Company paid Mascot
Systems approximately $735,000 and $205,000, respectively, for these services.
The Company has entered into an agreement to purchase the shares of Mascot
Systems held by Messrs. Wadhwani and Trivedi for $170,000, which price was
based upon an independent valuation of that interest. The purchase price will
be paid from the Company's working capital. The Company has entered into an
agreement to purchase the minority shares of Mascot Systems, which are held by
relatives of Messrs. Wadhwani and Trivedi, for $20,000, based upon an
independent valuation. These transactions are expected to be completed shortly
after completion of this offering. Upon completion of these transactions,
Mascot Systems will become a wholly-owned subsidiary of the Company.
Mascot Systems is currently operating one and developing three other
offshore software development facilities in the cities of Bangalore, Pune and
Madras, India. For the nine months ended September 30, 1996, and the year
ended December 31, 1995 the Company advanced Mascot Systems $1,163,000 and
$865,000, respectively, towards the cost of setting up and operating these
facilities. Upon completion of the acquisition of Mascot Systems by the
Company, the aggregate amount of these advances will be eliminated in
consolidation.
Prior to this offering, Scott Systems was an Indian corporation indirectly
controlled by Messrs. Wadhwani and Trivedi through a Pennsylvania corporation
known as SWAT Systems Corporation ("SWAT"). The Company has engaged Scott
Systems to recruit and train IT professionals in India. For the nine months
ended September 30, 1996, and the year ended December 31, 1995, the Company
paid Scott Systems approximately $343,000 and $289,000, respectively, for
these services.
The Company has entered into a merger agreement with SWAT pursuant to which
SWAT will be merged with and into Mastech shortly before the completion of
this offering. Messrs. Wadhwani and Trivedi will receive nominal consideration
in this transaction. The Company has entered into an agreement to purchase the
minority shares of Scott Systems, some of which are held by relatives of
Messrs. Wadhwani and Trivedi, for $26,000. The transfer of shares held by SWAT
to the Company as a result of the merger and the acquisition of minority
shares by the Company require the approval of the Reserve Bank of India. Upon
completion of these transactions, Scott Systems will become a wholly-owned
subsidiary of the Company.
Mascot Systems leases or intends to lease from Messrs. Wadhwani and Trivedi
the office space for the offshore software development facilities in
Bangalore, Pune and Madras, India. The acquisition of the real estate and the
construction of these office buildings (but not the buildout of the office
space) was financed entirely by Messrs. Wadhwani and Trivedi out of personal
funds. Specifically, Mascot Systems leases approximately 4,200 square feet of
office space on one floor of an office building located in Bangalore, India,
which floor is owned by Messrs. Wadhwani and Trivedi. The lease has a one year
term expiring in March, 1997 and the rent is approximately $7,000 per year.
Mascot Systems also leases a 30,000 square foot office building located in
Bangalore, India from Messrs. Wadhwani and Trivedi. This lease has a one year
term expiring in October, 1997 and the annual rent is approximately $110,000
per year. The offshore software development facilities located in Pune and
Madras, India are presently under construction with occupancy expected in
December 1996 and February 1997, respectively. Mascot Systems expects to enter
into two additional leases with Messrs. Wadhwani and Trivedi for these
facilities. The facility in Pune, India is a 35,000 square foot office
building and the facility in Madras, India is a 65,000 square foot office
building.
Scott Systems leases, for its training facilities, approximately 2,100
square feet of office space on one floor of an office building located in
Mumbai (Bombay), India. The leased space is divided into five separately owned
suites owned individually by Messrs. Wadhwani and Trivedi. The leases have a
one-year term expiring in April
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<PAGE>
1997 and the aggregate rent is $20,000 per year. Scott Systems intends to
lease further office space of approximately 900 square feet on another floor
in the same office building which is owned by Messrs. Wadhwani and Trivedi.
The lease will have a one year term expiring in October 1997 and the rent will
be $6,000 per year.
The Company believes that the terms of the leases described above are or
will, when executed, be no less favorable to the Company than could be
obtained from unrelated third parties.
During 1995 and the first six months of 1996, the Company was a party to
three real property leases with Messrs. Wadhwani and Trivedi for residential
space near its Pittsburgh headquarters. The leased premises included two
condominium units and one single family residence. These leased premises were
used to accommodate out-of-town IT professionals temporarily working at the
Company's Pittsburgh facility or in transit to another working location. The
aggregate monthly rental for these leased premises was $3,000 per month plus
the operating costs of the premises. The Company terminated these leases in
the second quarter of 1996. Various residential properties are owned by
Messrs. Wadhwani and Trivedi in India and will be leased by the Company for
similar purposes.
As an S Corporation, the net income of the Company has been attributed, for
federal (and some state) income tax purposes, directly to the Company's
shareholders rather than to the Company. During 1995 and the first nine months
of 1996, the Company has from time to time paid the corresponding income taxes
due on these amounts on behalf of Messrs. Wadhwani and Trivedi in the form of
interest-free advances which they later repaid. The highest aggregate amounts
of advances outstanding to Mr. Wadhwani and the Wadhwani Family Qualified
Subchapter S Trust during 1995 and the first nine months of 1996 were $116,586
and $1,682,048, respectively. The highest aggregate amounts of advances
outstanding to Mr. Trivedi during 1995 and the first nine months of 1996 were
$116,583 and $1,681,941, respectively. This practice will be discontinued
prior to the effective date of this offering.
Prior to the closing of this offering, the Company and the Selling
Shareholders will enter into an agreement whereby the Selling Shareholders
will agree to cause the Company to terminate its S Corporation election
immediately upon consummation of this offering. The Company will agree to
indemnify the Selling Shareholders for the amount of any increase in taxable
income allocable to them in the event of any audit of the Company's tax
returns.
Prior to the closing of this offering, the Board of Directors of the Company
will adopt a resolution requiring all future transactions, including any loans
from the Company to its officers, directors, principal shareholders or
affiliates, to be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested members of the Board of
Directors or, if required by law, a majority of the disinterested
shareholders, and requiring such transactions to be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 18, 1996, as adjusted
to reflect the sale of the shares offered hereby, by: (i) each person known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock; (ii) each director of the Company; (iii) each of the Named
Executive Officers; and (iv) all Directors and executive officers of the
Company as a group. Except as noted, all persons listed below have sole voting
and investment power with respect to their shares of Common Stock, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- NUMBER OF -----------------------
NUMBER OF SHARES BEING NUMBER OF
NAME SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Sunil Wadhwani (1)(2)... 9,100,000 50.0% 700,000 8,400,000 38.9%
Ashok Trivedi (2)(3).... 9,100,000 50.0 700,000 8,400,000 38.9
Steven Shangold (4)..... 109,200 * -- 109,200 *
Sushma Rajagopalan...... -- -- -- -- --
All directors and
executive officers as a
group
(8 persons)(4)......... 18,309,200 100.0 1,400,000 16,909,200 77.9
</TABLE>
- ---------------------
*Less than 1%
(1) Includes 910,000 shares held of record by Mr. Wadhwani as co-trustee of
the Wadhwani Family Qualified Subchapter "S" Trust.
(2) The address of Messrs. Wadhwani and Trivedi is c/o Mastech Corporation,
1004 McKee Road, Oakdale, Pennsylvania 15071.
(3) Includes 910,000 shares held of record by Mr. Trivedi as co-trustee of the
Trivedi Family Qualified Subchapter "S" Trust.
(4) Includes 109,200 shares of Common Stock, of which 54,600 shares are
subject to restriction, that Mr. Shangold will have the right to receive
upon completion of this offering.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, the authorized capital stock of the
Company will consist of 100,000,000 shares of Common Stock, par value $.01 per
share, and 20,000,000 shares of Preferred Stock, without par value. The
following description of the capital stock of the Company is a summary, and as
such, it does not purport to be complete and is subject, and qualified in its
entirety by reference to, the more complete descriptions contained in: (i) the
Articles of Incorporation of the Company, as amended (the "Articles"), and the
Bylaws of the Company, as amended (the "Bylaws"), copies of each of which are
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part; and (ii) the certificate of designation relating to
any series of Preferred Stock that may be established by the Board of
Directors. Upon completion of this offering, the Company will have outstanding
21,600,000 shares of Common Stock and no shares of Preferred Stock. As of
November 18, 1996, there were four record holders of record of Common Stock.
COMMON STOCK
The Company is authorized to issue up to 100,000,000 shares of Common Stock.
Subject to the rights and preferences that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to
receive dividends, when, if and as declared by the Board of Directors of the
Company.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Shareholders do not have cumulative
voting rights in the election of directors, meaning that the holders of a
majority of the shares entitled to vote in any election of directors may elect
all of the directors standing for election. The Bylaws require shareholders
desiring to either nominate persons for election as a director or present
matters for business at a shareholders meeting to give advance notice of such
nominations and/or matters to the Company.
Generally, whenever any corporate action is to be taken by vote of the
shareholders of the Company, or by a class of such shareholders of the
Company, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by such shareholders, or by such class of
shareholders, entitled to vote thereon. The Articles, however, in addition
require the approval of at least 66 2/3% of the votes cast by shareholders of
the Company, voting together as a single class, for the following: (i) the
approval of a fundamental change under the Pennsylvania Business Corporation
Law of 1988, as amended ("PBCL"), including amendments of the Articles, a
merger or consolidation of the Company for which shareholder approval is
required by law, share exchanges, the sale or other disposition of all or
substantially all of the assets of the Company, a division of the Company, and
the voluntary dissolution and winding up of the Company ("Fundamental
Transactions"), unless any such Fundamental Transaction is unanimously
approved by all the directors of the Company; and (ii) the amendment of the
Bylaws unless any such amendment is unanimously approved by all the directors
of the Company. The Articles provide that the shareholders may remove any
director, any class of directors or the entire Board of Directors without
cause by the vote of 66 2/3% of the votes cast by shareholders entitled to
vote thereon. The Articles permit shareholder action to be taken by the
written consent of the shareholders entitled to cast the minimum number of
votes that would be necessary to authorize the action at a meeting at which
all shareholders entitled to vote thereon are present and voting.
The Articles provide that the Board of Directors shall consist of five
persons and that the Board shall be divided into three classes of directors,
each class as nearly equal in number as possible, with one class being elected
each year for a three-year term. The classification of the Board helps to
ensure continuity of corporate leadership and policy; however, it also has the
effect of making it more difficult for a person to acquire control of the
Company's Board of Directors because at least two annual meetings are
necessary to effect a change in a majority of the Company's directors.
Further, the Articles provide that the approval of at least four of the
directors is required for Board action.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after the payment of all liabilities of the Company and subject to
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<PAGE>
the liquidation preferences of any outstanding Preferred Stock. The Common
Stock does not carry preemptive rights, is not redeemable, does not have any
conversion rights, is not subject to further calls and is not subject to any
sinking fund provisions. The outstanding shares of Common Stock are and the
shares offered by the Company in this offering will be, when issued and paid
for, fully paid and nonassessable. Except in certain circumstances as
discussed below under "Certain Provisions Affecting Control of the Company,"
the Common Stock is not subject to discriminatory provisions based on
ownership thresholds.
The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future. See "Description of Capital Stock--Preferred Stock."
PREFERRED STOCK
The Company is authorized to issue up to 20,000,000 shares of Preferred
Stock. The Board of Directors is authorized, subject to any limitations
prescribed by law, without further shareholder approval, to issue such shares
of Preferred Stock in one or more series, with such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be established by the Board of Directors at the time of issuance.
The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of Common Stock. For example, the issuance of
shares of Preferred Stock could result in securities outstanding that would
have preference over the Common Stock with respect to dividends and in
liquidation and that could (upon conversion or otherwise) enjoy all of the
rights of the Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by third persons to obtain
control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise, by making such attempts more difficult to achieve
or more costly. The Board of Directors may issue Preferred Stock without
shareholder approval and with voting rights that could adversely affect the
voting power of holders of Common Stock. There are no agreements or
understandings for the issuance of Preferred Stock, and the Company has no
plans to issue any shares of Preferred Stock. See "Risk Factors-- Possible
Issuances of Preferred Stock."
CERTAIN PROVISIONS AFFECTING CONTROL OF THE COMPANY
General. Certain provisions of the Company's Articles and the PBCL operate
with respect to extraordinary corporate transactions, such as mergers,
reorganizations, tender offers, sales or transfers of substantially all of the
Company's assets or the liquidation of the Company, and could have the effect
of delaying or making more difficult a change in control of the Company in
certain circumstances.
Certain Provisions of the Articles. The Articles provide, among other
things, that Fundamental Transactions and Bylaw amendments must be approved by
at least 66 2/3% of the votes cast by shareholders of the Company, unless the
transaction or amendment is unanimously approved by all of the directors of
the Company. This provision is intended to require that Fundamental
Transactions and Bylaw amendments have either the unanimous mandate of the
Company's Board of Directors, who are statutorily charged in the first
instance with managing the business and affairs of the corporation, or the
support of a substantial percentage of the corporation's shareholders. This
provision, however, makes it more difficult to obtain approval of a
Fundamental Transaction that is approved by a majority but not all of the
directors. Further, the holders of 33 1/3% or more of the shares cast on a
Fundamental Transaction can effectively block the transaction by voting
against it. Upon completion of this offering, each of Messrs. Wadhwani and
Trivedi will beneficially own in excess of 33 1/3% of the Company's Common
Stock. As a result of this provision, a Fundamental Transaction or Bylaw
amendment that is supported by the holders of a majority of the Company's
directors and by a majority of the outstanding voting shares of the Company
may not be approved.
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Certain Provisions of the PBCL. The Company is governed by a set of
interrelated provisions of the PBCL which are designed to support the validity
of actions taken by the Board of Directors in response to takeover bids,
including specifically the Board's authority to "accept, reject or take no
action" with respect to a takeover bid, and permitting the unfavorable
disparate treatment of a takeover bidder. Another provision of the PBCL gives
the directors broad discretion in considering the best interests of the
corporation, including a provision which permits the Board, in taking any
action, to consider various corporate interests, including employees,
suppliers, clients and communities in which the corporation is located, the
short and long-term interests of the corporation, and the resources, intent
and conduct of any person seeking to acquire control of the corporation. These
provisions may have the effect of making more difficult and thereby
discouraging attempts to acquire control of the Company in a transaction that
the Board determines not to be in the best interests of the Company.
The Company has elected to opt-out of certain antitakeover provisions of the
PBCL, including: (i) provisions which prohibit certain business combinations
(as defined in the PBCL) involving a corporation that has voting shares
registered under the Exchange Act and an "interested shareholder" (generally
defined to include a person who beneficially owns shares representing at least
20% of the votes that all shareholders would be entitled to cast in an
election of directors of the corporation) unless certain conditions are
satisfied or an exemption is applicable; (ii) provisions concerning a
"control-share acquisition" in which the voting rights of certain shareholders
of the corporation (specifically, a shareholder who acquires 20%, 33 1/3% or
50% or more of the voting power of the corporation) are conditioned upon the
consent of a majority vote at a meeting of the independent shareholders of the
corporation after disclosure by such shareholder of certain information, and
with respect to which such shareholder is effectively deprived of voting
rights if consent is not obtained; (iii) provisions pursuant to which any
profit realized by a "controlling person or group," generally defined as a 20%
beneficial owner, from the disposition of any equity securities within twenty-
four months prior to, and eighteen months succeeding, the acquisition of such
control is recoverable by the corporation; (iv) provisions pursuant to which
severance payments are to be made by the corporation to any eligible employee
of a covered corporation whose employment is terminated, other than for
willful misconduct, within ninety days before, or twenty-four months after, a
control-share acquisition; and (v) provisions pursuant to which any holder of
voting shares of a registered corporation who objects to a "control
transaction" (generally defined as the acquisition by a person or group (the
"controlling person or group") that would entitle the holders thereof to cast
at least 20% of the votes that all shareholders would be entitled to cast in
an election of the directors of the corporation) is entitled to make a written
demand on the controlling person or group for payment of the fair value of the
voting shares of the corporation held by the shareholder. Given the ownership
structure of the Company after this offering, the Company's Board of Directors
believed that there was a risk that one or more of these provisions could be
inadvertently triggered by the normal activities of the Company and its
principal shareholders and that, therefore, it was in the best interests of
the Company to opt-out of these provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 21,600,000 shares of
Common Stock outstanding. See "Capitalization." Of these shares, the 4,800,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares
purchased by "affiliates" of the Company, as that term is defined under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below. The remaining 16,800,000 shares
of Common Stock are restricted securities (the "Restricted Shares") within the
meaning of Rule 144 under the Securities Act, and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption offered by Rule 144.
The Company's current shareholders have agreed not to sell or otherwise
dispose of any of their shares of Common Stock for a period of 180 days after
the effective date of this offering (the "Lock-Up Period") without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"). Because of these restrictions, on the date of this Prospectus, none
of the shares, other than the 4,800,000 shares offered hereby, will be
eligible for sale. Beginning after the expiration of the Lock-Up Period (or
earlier upon the prior written consent of DLJ), all of the Restricted Shares
may be sold in the public market subject to Rule 144 under the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two
years, including a person who may be deemed an Affiliate of the Company, may
sell within any three-month period a number of shares of Common Stock that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock of the Company (216,000 shares after giving effect to this offering) or
the average weekly trading volume of the Common Stock as reported through the
Nasdaq National Market during the four calendar weeks preceding such sale.
Sales under Rule 144 of the Securities Act are subject to certain restrictions
relating to manner of sale, notice and the availability of current public
information about the Company. In addition, under Rule 144(k) of the
Securities Act, a person who is not an Affiliate of the Company at any time 90
days preceding a sale, and who has beneficially owned shares for at least
three years, would be entitled to sell such shares immediately following this
offering without regard to the volume limitations, manner of sale provisions
or notice or other requirements of Rule 144. The Commission has proposed to
amend the holding period required by Rule 144 to permit sales of "restricted"
securities after one year rather than two years (and two years rather than
three years for "non-affiliates" under Rule 144(k)).
REGISTRATION RIGHTS
Prior to the completion of this offering, the Company will enter into a
Shareholders Agreement with Sunil Wadhwani and Ashok Trivedi, pursuant to
which the Company will grant them certain registration rights. Pursuant to the
Shareholders Agreement, at any time beginning two years after the completion
of this offering, Messrs. Wadhwani and Trivedi (and certain transferees
including members of their families and trusts and other entities controlled
by them) each have the right, subject to certain restrictions set forth in the
Shareholders Agreement, to require the Company to register under the
Securities Act the Common Stock owned by such holders on the date of this
offering at the Company's expense on no more than two occasions. The Company
will be obligated to use its best efforts to qualify for registration of
securities on Form S-3 under the Securities Act. After the Company has
qualified for the use of Form S-3, Messrs. Wadhwani and Trivedi have the right
to an unlimited number of registrations on such form; the Company is not,
however, required to effect a registration on a Form S-3 more than once in any
six-month period. Also pursuant to the Shareholders Agreement, if, at any time
following this offering, subject to the lock-up agreements entered into by
Messrs. Wadhwani and Trivedi, the Company proposes to register any of its
Common Stock under the Securities Act for sale to the public, Messrs. Wadhwani
and Trivedi will have unlimited piggyback registration rights at the Company's
expense, subject to certain restrictions set forth in the Shareholders
Agreement. In addition, the Company agrees to indemnify Wadhwani and Trivedi
against certain liabilities, including liabilities under the Securities Act,
that they may incur in connection with this offering and in connection with
any offering governed by the Shareholders
44
<PAGE>
Agreement. The registration rights to be granted to Messrs. Wadhwani and
Trivedi under the Shareholders Agreement are not exclusive and the Company
could determine to register shares owned by Messrs. Wadhwani and Trivedi other
than pursuant to the Shareholders Agreement.
The Company intends to register on a registration statement on Form S-8,
approximately 90 days after the date of this Prospectus, a total of 2,160,000
shares of Common Stock reserved for issuance under the Company's Stock
Incentive Plan and up to 109,200 shares of Common Stock which may be issued to
Steven Shangold as compensation pursuant to the terms of the Company's
agreement with Mr. Shangold. See "Management--Employment Agreements."
Prior to this offering there has been no market for the Common Stock of the
Company. The Company can make no prediction as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares for sale
will have on the market price prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public
market, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
its equity securities. See "Risk Factors--Shares Eligible for Future Sale."
45
<PAGE>
UNDERWRITING
Subject to certain terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation, Cowen & Company, Montgomery Securities and
Parker/Hunter Incorporated are acting as Representatives, have severally
agreed to purchase from the Company and the Selling Shareholders, and the
Company and the Selling Shareholders have agreed severally to sell to each of
the Underwriters, the number of shares of Common Stock (the "Shares") set
forth opposite their respective names at the initial public offering price per
share less the underwriting discounts and commissions set forth on the cover
of this Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Cowen & Company.......................................................
Montgomery Securities.................................................
Parker/Hunter Incorporated............................................
---------
Total............................................................... 4,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Shares are subject to approval of certain legal
matters by their counsel and to certain other conditions. If any of the Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, the
Underwriters are obligated to purchase all Shares (other than those covered by
the over-allotment option described below).
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the Shares to the public initially at
the price to the public set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession not in excess of $ per
Share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per Share to certain other dealers. After this
offering, the offering price and other selling terms may be changed by the
Underwriters.
Pursuant to the Underwriting Agreement, the Selling Shareholders have
granted to the Underwriters an option, exercisable not later than 30 calendar
days from the date of the Underwriting Agreement, to purchase up to an
aggregate of 720,000 additional shares at the initial offering price set forth
on the cover page of this Prospectus, less the underwriting discounts and
commissions, solely to cover over-allotments.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of the option shares as the number of Shares to be purchased by it
shown in the above table bears to the total number of Shares shown in the
above table, and the Selling Shareholders will be obligated, pursuant to the
option, to sell such Shares to the Underwriters. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the Shares. If purchased, the Underwriters will sell such additional 720,000
shares on the same terms as those on which the Shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company, the Selling Shareholders and the executive officers and
directors of the Company have each agreed that during the Lock-Up Period they
will not, without the prior written consent of DLJ, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, other than the Shares, except that the Company
may grant options under its 1996 Stock Incentive Plan, provided that, without
the prior written consent of DLJ, such options shall not be exercisable during
such period.
46
<PAGE>
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any discretionary
accounts without prior specific written approval of the customer.
Prior to this offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of
companies in related businesses.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby and certain
other legal matters in connection with this offering will be passed upon for
the Company by Buchanan Ingersoll Professional Corporation, Pittsburgh,
Pennsylvania. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.
EXPERTS
The Financial Statements included in this Prospectus and the Financial
Statement Schedule included in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, to the extent and for the
periods as indicated in their reports with respect thereto, and are included
therein in reliance upon the authority of said firm as experts in giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement, of which this
Prospectus constitutes a part, on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules to the Registration Statement. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed as a part of
the Registration Statement. Statements contained in this Prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., public reference facilities maintained by the Commission in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Seven World Trade Center, Room 1400, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549, Room 1024, at prescribed rates. The Registration
Statement, including the exhibits and schedules thereto, is also available at
the Commission's site on the World Wide Web at http://www.sec.gov. Copies of
reports, proxy and information statements and other information regarding the
Company are also available at the Commission's Web site.
47
<PAGE>
GLOSSARY
Set forth below are the definitions of certain terms used in this Prospectus:
"Applications" are the computer software programs that perform a desired task,
such as inventory control analysis, cost analysis, accounts receivable and
payable, payroll, shipping and scheduling.
"Client/server" describes the linking, or networking, of two or more computers
to allow multiple users to access and share information. Client/server design
is contrasted with "mainframe" design.
"Conversion" is the process of converting data and applications from one format
to another in connection with an organization's adoption of different, usually
more technologically advanced, hardware or software.
"Distributed computing environments" describes the use of multiple types of
hardware and software applications within an organization, often in multiple
locations.
"Enterprise Resource Planning" packages, such as SAP R/3, Oracle Applications,
Baan Triton and PeopleSoft, are large, integrated applications packages used to
manage information on an enterprise-wide basis.
"Hardware" is the physical computer system on which software applications
operate.
"Information technology" describes the use of computers and software
applications to manage information within an organization.
"Legacy" hardware and applications are information technology systems based on
older technologies.
"Mainframe" describes a large, centralized computer on which an organization
maintains information.
"Migration" is the process of moving applications and data from one computing
environment, such as a mainframe environment, to another, such as a
client/server environment.
"Object-oriented programming" is a type of software design in which various
independently developed software applications are linked together as needed to
achieve the desired programming result.
"Operating system" is the software that controls the allocation of computer
resources to various software applications in order to maximize the efficiency
of those resources.
"Software" is the code that directs computer hardware to manipulate other
software or data in a desired way.
"Year 2000" refers to the software problems resulting from the date change on
December 31, 1999 to the year 2000. Many software applications must be modified
in order to operate properly after this date.
48
<PAGE>
MASTECH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
</TABLE>
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996.................................................................. F-3
Consolidated Income Statements for the years ended December 31, 1993, 1994
and 1995 and for the nine-month periods ended September 30, 1995
(unaudited) and 1996...................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the nine-month period ended
September 30, 1996........................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and the nine-month periods ended September 30, 1995
(unaudited) and 1996...................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the merger discussed in Note 1 and the proposed transactions discussed
in Note 9 to Mastech Corporation's Consolidated Financial Statements are
effected, we expect to be in a position to render the following audit report.
Arthur Andersen LLP
October 31, 1996
To Mastech Corporation:
We have audited the accompanying consolidated balance sheets of Mastech
Corporation (a Pennsylvania corporation, formerly Mastech Systems Corporation)
and subsidiaries as of December 31, 1994 and 1995 and September 30, 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995 and
the nine-month period ended September 30, 1996. These Financial Statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Financial Statements referred to above present fairly,
in all material respects, the financial position of Mastech Corporation and
subsidiaries as of December 31, 1994 and 1995 and September 30, 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 and the nine-month period ended
September 30, 1996, in conformity with generally accepted accounting
principles.
Pittsburgh, Pennsylvania,
October 31, 1996
(except for the matters discussed in
Note 9 for which the date is
, 1996)
F-2
<PAGE>
MASTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SEPTEMBER 30,
---------------- SEPTEMBER 30, 1996 (NOTE 10)
1994 1995 1996 (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.......................... $ 4,100 $ 2,947 $ 668 $ 668
Accounts receivable, net of
allowance for uncollectible
accounts (Note 7)............ 16,300 19,146 22,809 22,809
Unbilled receivables.......... 807 1,504 517 517
Advances--
Affiliates................... -- 593 1,124 1,124
Other........................ 969 370 536 536
Prepaid and other expenses.... 63 421 181 181
------- ------- ------- -------
Total current assets...... 22,239 24,981 25,835 25,835
------- ------- ------- -------
Equipment and leasehold
improvements, at cost:
Equipment..................... 660 995 1,450 1,450
Leasehold improvements........ 118 146 168 168
------- ------- ------- -------
778 1,141 1,618 1,618
Less--Accumulated
depreciation................. (352) (516) (618) (618)
------- ------- ------- -------
Net equipment and leasehold
improvements............... 426 625 1,000 1,000
------- ------- ------- -------
Total assets.............. $22,665 $25,606 $26,835 $26,835
======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Revolving credit facility
(Note 3)..................... $ -- $ -- $ 1,000 $ 5,000
Accounts payable.............. 2,082 1,432 3,312 3,312
Accounts payable to
affiliates................... 36 16 16 16
Accrued payroll and related
costs........................ 6,153 7,820 8,255 8,255
Other accrued liabilities..... 267 717 816 816
Deferred income taxes......... -- -- -- 4,700
------- ------- ------- -------
Total current liabilities. 8,538 9,985 13,399 22,099
------- ------- ------- -------
Minority interest............... 26 54 63 63
Commitments and contingencies
(Note 5)
Shareholders' equity:
Preferred stock, without par
value: 20,000,000 shares
authorized, no shares
outstanding ................. -- -- -- --
Common stock, par value $0.01
per share:
100,000,000 shares
authorized, 18,200,000
shares issued and
outstanding................. 182 182 182 182
Additional paid-in capital.... 11 11 11 11
Retained earnings............. 13,909 15,375 13,212 4,512
Currency translation
adjustment................... (1) (1) (32) (32)
------- ------- ------- -------
Total shareholders'
equity................... 14,101 15,567 13,373 4,673
------- ------- ------- -------
Total liabilities and
shareholders' equity..... $22,665 $25,606 $26,835 $26,835
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MASTECH CORPORATION
CONSOLIDATED INCOME STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................... $38,709 $70,050 $103,676 $76,156 $90,336
Cost of revenues............... 26,136 50,018 72,516 53,708 65,772
------- ------- -------- ------- -------
Gross profit................... 12,573 20,032 31,160 22,448 24,564
Selling, general and
administrative (Note 6)....... 9,829 8,704 12,843 8,868 14,175
------- ------- -------- ------- -------
Income from operations......... 2,744 11,328 18,317 13,580 10,389
Interest income (expense), net. 9 71 163 128 2
Minority interest in net loss
(income) of subsidiaries...... (29) 26 (27) (38) (9)
------- ------- -------- ------- -------
Net income..................... $ 2,724 $11,425 $ 18,453 $13,670 $10,382
======= ======= ======== ======= =======
<CAPTION>
PRO FORMA INFORMATION--(UNAUDITED)
----------------------------------------------
(NOTE 10)
<S> <C> <C> <C> <C> <C>
Net income..................... $ 2,724 $11,425 $ 18,453 $13,670 $10,382
Pro forma income taxes......... 1,090 4,570 7,381 5,468 4,153
------- ------- -------- ------- -------
Pro forma net income........... $ 1,634 $ 6,855 $ 11,072 $ 8,202 $ 6,229
======= ======= ======== ======= =======
Pro forma net income per common
share......................... $ 0.09 $ 0.38 $ 0.61 $ 0.45 $ 0.34
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MASTECH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CURRENCY TOTAL
-------------------- PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992.................... 18,200,000 $182 $11 $ 4,452 $(19) $ 4,626
Net income............ -- -- -- 2,724 -- 2,724
Dividends paid........ -- -- -- (1,500) -- (1,500)
Currency translation
adjustment............ -- -- -- -- (20) (20)
---------- ---- --- -------- ---- --------
Balance, December 31,
1993.................... 18,200,000 182 11 5,676 (39) 5,830
Net income............ -- -- -- 11,425 -- 11,425
Dividends paid........ -- -- -- (3,192) -- (3,192)
Currency translation
adjustment............ -- -- -- -- 38 38
---------- ---- --- -------- ---- --------
Balance, December 31,
1994.................... 18,200,000 182 11 13,909 (1) 14,101
Net income............ -- -- -- 18,453 -- 18,453
Dividends paid........ -- -- -- (16,987) -- (16,987)
Currency translation
adjustment............ -- -- -- -- -- --
---------- ---- --- -------- ---- --------
Balance, December 31,
1995.................... 18,200,000 182 11 15,375 (1) 15,567
Net income............ -- -- -- 10,382 -- 10,382
Dividends paid........ -- -- -- (12,545) -- (12,545)
Currency translation
adjustment............ -- -- -- -- (31) (31)
---------- ---- --- -------- ---- --------
Balance, September 30,
1996.................... 18,200,000 $182 $11 $ 13,212 $(32) $ 13,373
========== ==== === ======== ==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MASTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash was provided by (used
for)
Operations:
Net income................. $ 2,724 $11,425 $ 18,453 $13,670 $ 10,382
Adjustments to reconcile
net income to cash
provided by operations:
Depreciation............. 93 131 164 109 167
Provision for
uncollectible accounts.. -- 150 302 276 474
Minority interest........ 29 (26) 27 38 9
Working capital items:
Accounts receivable...... (4,250) (8,402) (3,845) (3,884) (3,150)
Advances................. (155) (679) 6 60 (697)
Prepaid and other
expenses................ (24) 4 (358) (256) 240
Accounts payable......... 840 685 (670) 75 1,880
Accrued and other current
liabilities............. 4,694 1,274 2,118 2,237 534
------- ------- -------- ------- --------
Total provided by
operations............ 3,951 4,562 16,197 12,325 9,839
------- ------- -------- ------- --------
Investing activities:
Additions to equipment and
leasehold improvements.... (98) (163) (363) (237) (569)
Change in other assets..... 46 (4) -- -- --
------- ------- -------- ------- --------
Total used for
investing activities.. (52) (167) (363) (237) (569)
------- ------- -------- ------- --------
Financing activities:
Net change in revolving
credit facility........... -- -- -- -- 1,000
Dividends paid............. (1,500) (3,192) (16,987) (14,256) (12,545)
------- ------- -------- ------- --------
Total used for
financing activities.. (1,500) (3,192) (16,987) (14,256) (11,545)
------- ------- -------- ------- --------
Effect of currency
translation on cash.......... (1) -- -- (2) (4)
Net increase (decrease) in
cash......................... 2,398 1,203 (1,153) (2,170) (2,279)
Cash, beginning of period.... 499 2,897 4,100 4,100 2,947
------- ------- -------- ------- --------
Cash, end of period.......... $ 2,897 $ 4,100 $ 2,947 $ 1,930 $ 668
======= ======= ======== ======= ========
Supplemental data:
Cash payments for interest. $12 $10 $3 $3 $58
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MASTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
1.OPERATIONS:
Mastech Corporation ("Mastech" or the "Company") is a worldwide provider of
IT services to large organizations. Mastech provides its clients with a single
source for a broad range of applications solutions and services, including
client/server design and development, conversion/migration services, Year 2000
services, ERP package implementation services and maintenance outsourcing.
These services are provided in a variety of computing environments and use
leading technologies, including client/server architectures, object-oriented
programming, distributed databases and the latest networking and
communications technologies.
All of the Company's outstanding common stock is owned directly or
indirectly by the Company's Chairman and its President. Effective with or
immediately prior to the initial public offering of the Company's common
stock, SWAT Systems Corporation, a company 100% owned by Mastech's
shareholders, will be merged into Mastech. SWAT Systems Corporation holds a
79% interest in Scott Systems Private Ltd., an Indian Corporation. The Company
remits fees for consulting and recruiting services provided by Scott. The
accompanying Consolidated Financial Statements present the financial position,
results of operations and cash flows of the Company and the aforementioned
entities as if they had been combined from inception in a manner similar to a
pooling of interests.
The Risk Factors on pages 6 to 12 of this registration statement are
incorporated herein by reference.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying Consolidated Financial Statements reflect the application
of the following significant accounting policies:
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its majority-owned subsidiaries. All material intercompany transactions
and balances have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue on time-and-materials contracts as the
services are performed for clients. Revenues on fixed-price contracts are
recognized using the percentage of completion method. Percentage of completion
is determined by relating the actual cost of work performed to date to the
estimated total cost for each contract. If the estimate indicates a loss on a
particular contract, a provision is made for the entire estimated loss without
reference to the percentage of completion.
Depreciation
The Company provides for depreciation using the straight-line method in
amounts which allocate the costs of equipment over their estimated useful
lives of five to seven years, and leasehold improvements over the shorter of
the life of the improvement or of the underlying lease term.
Currency Translation Adjustment
The financial statements of foreign subsidiaries are translated using the
exchange rate in effect at year-end for balance sheet accounts and the average
exchange rate in effect during the year for income and expense accounts.
Translation gains and losses are excluded from the consolidated income
statements and are instead reported as the currency translation adjustment
component of shareholders' equity.
F-7
<PAGE>
MASTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The functional currency of international offices and foreign subsidiaries is
the currency of the country in which the office or subsidiary is located.
Revenues of the Company are billed in the currency of the country in which the
customer is located. Translation gains and losses arising from differences
between the functional and billing currencies are recognized in the
consolidated income statements.
Income Taxes
The Company has elected Subchapter S Corporation status for income tax
purposes. Accordingly, the income of the Company is reported on the individual
income tax returns of its shareholders. Certain events, including the public
offering of the Company's Common Stock, will automatically terminate its S
Corporation status, thereby subjecting future income to federal and state
income taxes at the corporate level. Due to temporary differences in
recognition of revenue and expenses, income for financial reporting purposes
has exceeded income for income tax purposes. Accordingly, the application of
the provisions of SFAS No. 109, "Accounting for Income Taxes" will result in
the recognition of deferred tax liabilities (and a corresponding one-time
charge to expense) in the period in which the initial public offering occurs.
If the S Corporation status had been terminated as of September 30, 1996, this
liability would have been approximately $4.7 million.
In the recent past, the government of India has provided incentives, in the
form of tax holidays, to encourage foreign investment. No tax holidays have
been granted to the Company as of September 30, 1996.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Through April 30, 1996, the Company provided for group medical costs through
self-insurance programs. The amounts charged to expense for group medical
claims were approximately $498,000, $1,195,000, $2,005,000, $1,307,000 and
$699,000 for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively. Estimated claims
incurred but not reported were $195,000, $500,000 and $400,000 as of December
1994 and 1995 and September 30, 1996, respectively, and are included in other
accrued liabilities in the accompanying consolidated balance sheets. As of
April 30, 1996, the Company had stop/loss insurance coverage related to these
programs. Effective May 1, 1996, the Company maintains coverage through a
fully insured premium based plan.
Financial Instruments
The fair values and carrying amounts of the Company's financial instruments,
primarily accounts receivable and payable, are approximately equivalent. The
financial instruments are classified as current and will be liquidated within
the next operating cycle.
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, was issued in October 1995. The Company will be required
to adopt the new standard no later than fiscal 1996, although early adoption
is permitted. This standard establishes the fair value based method (the "FAS
123 Method") rather than the intrinsic value based method as the preferred
accounting methodology for stock-based compensation arrangements. Entities are
allowed to: (i) continue to use the intrinsic value based methodology in their
basic financial statements and provide in the footnotes pro forma net income
and earnings per share information as if the FAS 123 Method had been adopted;
or (ii) adopt the FAS 123 Method. The Company plans to adopt this statement by
providing the required pro forma disclosures in the footnotes, if applicable.
F-8
<PAGE>
MASTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain prior-year balances have been reclassified to conform to the current
period presentation.
3.REVOLVING CREDIT FACILITY:
The Company has available borrowings under a revolving credit facility with
a bank. Borrowings under this arrangement are unsecured, are limited to
$15,000,000, bear interest at LIBOR as defined, plus 1 1/2% (7.50%, 7.22% and
6.90% at December 31, 1994 and 1995 and September 30, 1996, respectively) or
the prime rate (8.50%, 8.50% and 8.25% at December 31, 1994 and 1995 and
September 30, 1996, respectively) and are payable upon demand. There were no
borrowings under this arrangement during the year ended December 31, 1995.
Borrowings of $1,000,000, with interest at 8.25%, were outstanding as of
September 30, 1996. Average outstanding borrowings under this arrangement were
$141,781, $185,385 and $1,254,745 for the years ended December 31, 1993 and
1994 and the nine months ended September 30, 1996, respectively.
4.RELATED PARTY TRANSACTIONS:
The shareholders lease residential properties to the Company under lease
agreements which extend through 1996. Payments in accordance with these
arrangements were approximately $36,000, $36,000, $36,000, $27,000 and $9,000
for the years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996, respectively. The Company terminated these leases
in the second quarter of 1996.
The Company remits fees for software consulting services provided by
affiliated entities in which the Company's shareholders own a majority
interest. Fees for these services were approximately $-0-, $153,000, $205,000,
$-0- and $735,000 for the years ended December 31, 1993, 1994 and 1995 and the
nine months ended September 30, 1995 and 1996, respectively.
The terms of related party transactions are determined by periodic
negotiations. The above transactions were at prices and terms believed to be
equivalent to those available from unrelated parties.
The Company has loans outstanding from the Company's shareholders of $16,000
as of December 31, 1994 and 1995 and September 30, 1996. These loans are
included in accounts payable to affiliates in the consolidated balance sheets.
5.COMMITMENTS AND CONTINGENCIES:
The Company rents certain office facilities and equipment under
noncancelable operating leases which provide for the following future minimum
rental payments as of September 30, 1996:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31 AMOUNT
<S> <C>
1996 $ 171,000
1997 500,000
1998 447,000
1999 408,000
2000 165,000
Thereafter --
----------
Total $1,691,000
==========
</TABLE>
Rental expense was approximately $151,000, $179,000, $301,000, $209,000 and
$558,000 for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1995 and 1996, respectively.
The Company has employment agreements with ten of its officers which provide
for specified minimum salaries and bonuses based upon the Company's
performance.
F-9
<PAGE>
MASTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6.REVENUE AGENT ASSESSMENT:
During 1993, the Internal Revenue Service completed an employment tax review
resulting in the assessment of withholding taxes on certain employee expenses
paid by Mastech which were determined by the Internal Revenue Service to
represent compensation.
The Revenue Agent Review assessment (the "Assessment") was approximately
$2.9 million, representing federal income tax, federal unemployment tax and
FICA due on employee earnings for fiscal years 1991 and 1992 and taxes that
would have been withheld on 1993 compensation. This Assessment is included in
selling, general and administrative expenses in the accompanying 1993
consolidated income statement. The Assessment was paid in full in 1994. No
interest or penalties were assessed.
7.MAJOR CLIENTS AND CONCENTRATION OF CREDIT:
One client accounted for 10% of revenues in 1993. No single client accounted
for more than 10% of revenues in 1994, 1995 and the nine months ended
September 30, 1996.
The Company grants credit to clients based upon management's assessment of
their creditworthiness. Substantially all of the Company's revenues (and the
resulting accounts receivable) are from large companies, major systems
integrators and governmental agencies.
The allowance for uncollectible accounts was approximately $300,000,
$500,000 and $850,000 as of December 31, 1994 and 1995 and September 30, 1996,
respectively.
8.EMPLOYEE BENEFIT PLANS:
The Company adopted a 401(k) benefit plan effective January 1, 1995.
Eligible employees, as defined in the plan, may contribute up to 15% of
eligible compensation, as defined.
9.SUBSEQUENT EVENTS:
In connection with the proposed initial public offering by the Company,
subsequent to September 30, 1996, the following transactions are anticipated
to occur:
(i) merger of SWAT Systems Corporation into the Company as described in
Note 1;
(ii) termination of the Company's S Corporation status as described in Note
2. In connection with the termination of S Corporation status the
Company will be required to record a deferred tax liability with a
corresponding one-time tax provision in accordance with SFAS No. 109;
(iii) Mastech Systems Corporation, which is the entity through which the
business of the Company has been conducted since its inception in
July 1986, will become an indirect, wholly-owned subsidiary of the
Company, which is a newly-formed Pennsylvania corporation;
(iv) a 72.8-for-1 stock split effected as a stock dividend;
(v) an increase in the authorized capital stock to 100,000,000 shares of
Common Stock and 20,000,000 shares of Preferred Stock; and
(vi) issuance of 54,600 shares of restricted Common Stock under an
employment agreement.
Accordingly, the Company's shareholders' equity accounts and the number of
shares in the accompanying Consolidated Financial Statements have been
retroactively restated to give effect to the stock split and increase in
authorized capital stock.
F-10
<PAGE>
MASTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10.PRO FORMA INFORMATION (UNAUDITED):
The pro forma consolidated balance sheet as of September 30, 1996 reflects
an anticipated S Corporation dividend, estimated to be approximately $4.0
million, and the recording of a deferred tax liability as discussed in Note 2.
The pro forma adjustments for income taxes included in the accompanying
consolidated income statements are based upon the statutory rates in effect
for C Corporations during the periods presented. Pro forma earnings per share
were calculated by dividing pro forma net income by the weighted average
shares outstanding for each period. The weighted average outstanding shares
used to calculate the pro forma earnings per share reflect 54,600 shares of
Common Stock to be issued upon completion of the Company's initial public
offering as discussed in Note 9.
11.QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net sales............................ $24,107 $25,153 $26,896 $27,520
Gross profit......................... 7,209 7,661 7,578 8,712
Income from operations............... 4,528 4,691 4,361 4,737
Net income........................... $ 4,563 $ 4,723 $ 4,384 $ 4,783
======= ======= ======= =======
Pro forma net income................. $ 2,738 $ 2,834 $ 2,630 $ 2,870
======= ======= ======= =======
Pro forma net income per share....... $ 0.15 $ 0.16 $ 0.14 $ 0.16
======= ======= ======= =======
1996
Net sales............................ $28,595 $30,804 $30,937
Gross profit......................... 7,928 8,933 7,703
Income from operations............... 3,326 4,312 2,751
Net income........................... $ 3,346 $ 4,342 $ 2,694
======= ======= =======
Pro forma net income................. $ 2,008 $ 2,605 $ 1,616
======= ======= =======
Pro forma net income per share....... $ 0.11 $ 0.14 $ 0.09
======= ======= =======
</TABLE>
F-11
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OF-
FER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANYTIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 12
Use of Proceeds........................................................... 13
S Corporation Dividend.................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 22
Management................................................................ 33
Certain Transactions...................................................... 38
Principal and Selling Shareholders........................................ 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 47
Glossary.................................................................. 48
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,800,000 SHARES
LOGO
[LOGO OF MASTECH COMPANY]
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
COWEN & COMPANY
MONTGOMERY SECURITIES
PARKER/HUNTER
INCORPORATED
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be incurred in connection with the offering
described in this Registration Statement are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 34,569
NASD filing fee................................................. 11,908
Nasdaq listing fee.............................................. 49,000
Printing and engraving expenses................................. 350,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 200,000
Blue Sky fees and expenses (including legal fees)............... 10,000
Transfer agent and registrar fees and expenses.................. 5,000
Miscellaneous................................................... 39,523
----------
Total......................................................... $1,000,000
==========
</TABLE>
All of the above expenses will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law
("PBCL") provides in general that a corporation may indemnify any person,
including its directors, officers and employees, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or proceeding, whether civil, criminal, administrative or investigative
(including actions by or in the right of the corporation) by reason of the
fact that he or she is or was a representative of or serving at the request of
the corporation, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
or her in connection with the action or proceeding if he or she is determined
by the board or directors, or in certain circumstances by independent legal
counsel or the shareholders, to have acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reason
believe his or her conduct was unlawful. In the case of actions by or in the
right of the corporation, indemnification is not permitted in respect of any
claim, issue or matter as to which the person has been adjudged to be liable
to the corporation except to the extent a court determines that the person is
fairly and reasonably entitled to indemnification. In any case, to the extent
that the person has been successful on the merits or otherwise in defense of
any claim, issue or matter, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith. Subchapter D of Chapter 17 also provides that the
indemnification permitted or required thereby is not exclusive of any other
rights to which a person seeking indemnification may be entitled.
Article 10 of the Company's Articles of Incorporation provides that the
Company shall indemnify and hold harmless to the full extent not prohibited by
law, as the same exists or may be amended, interpreted or implemented (but, in
the case of any amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than the Company is
permitted to provide prior to such amendment), each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in (as
witness or otherwise) any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and
whether or not by or in the right of the Company or otherwise (hereinafter, a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the heir, executor or administrator, is or was a director or executive
officer of the Company or is or was serving at the request of the Company as a
director, officer or trustee of another corporation or of a partnership, joint
venture, trust or other
II-1
<PAGE>
enterprise (including without limitation service with respect to employee
benefit plans), or where the basis of such proceeding is any alleged action or
failure to take any action by such person while acting in an official capacity
as a director or executive officer of the Company, or in any other capacity on
behalf of the Company while such person is or was serving as a director or
executive officer of the Company, against all expenses, liability and loss,
including but not limited to attorney's fees, judgments, fines, excise taxes
or penalties and amounts paid or to be paid in settlement (whether with or
without court approval), actually and reasonably incurred or paid by such
person in connection therewith. The right to indemnification is a contract
right and includes the right to be paid by the Company the expenses incurred
in defending any such proceeding (or part thereof) or in enforcing his or her
rights to indemnification in advance of the final disposition thereof promptly
after receipt by the Company of a request therefor stating in reasonable
detail the expenses incurred; provided, however, that to the extent required
by law, the payment of such expenses incurred by a director or executive
officer of the Company in advance of the final disposition of a proceeding
shall be made only upon receipt of an undertaking, by or on behalf of such
person, to repay all amounts so advanced if and to the extent it shall
ultimately be determined by a court that he or she is not entitled to be
indemnified by the Company.
The Company intends to enter into employment agreements with Sunil Wadhwani
and Ashok Trivedi, Co-Chairman and Chief Executive Officer and Co-Chairman and
President, respectively, which entitle them to be indemnified in their
capacities as directors, officers and controlling shareholders of the Company
to the full extent not prohibited by law. The Company also intends to enter
into a Shareholders Agreement with Messrs. Wadhwani and Trivedi pursuant to
which the Company agrees to indemnify them against certain liabilities,
including liabilities under the securities laws, that they may incur in
connection with the offering contemplated by the Registration Statement and
any offering effected pursuant to their registration rights under the
Shareholders Agreement.
The Articles of the Company also provide pursuant to Section 1713 of the
PBCL that a director of Mastech shall not be personally liable for monetary
damages as such for any action taken, or any failure to take any action,
unless: (1) the director has breached or failed to perform the duties of
his/her office under Section 1712 of the PBCL (relating to standard of conduct
and justifiable reliance); and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. This limitation
on the personal liability of directors of Company does not apply to: (1) the
responsibility or liability of a director pursuant to any criminal statute; or
(2) the liability of a director for the payment of taxes pursuant to local,
state or Federal law.
The Company also intends to purchase insurance insuring its directors and
officers against certain liabilities which they might incur as directors or
officers of the Company or of any other organization which they serve at its
request, including certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
1. In November 1996, the Company issued 250,000 shares of Common Stock to
the shareholders of the Company referenced in the within prospectus in
connection with the initial capitalization of the Company. The total
consideration for such shares was $2,500.
2. In October 1996, Mastech Systems Corporation entered into an agreement,
as amended in November 1996 to be applicable to the Company, pursuant to which
it agreed to compensate one of its executive officers in the form of an
issuance of restricted stock of the Company which vests over a period of two
years. In addition, pursuant to this agreement the executive may elect to
receive certain compensation for past services in the form of cash or shares,
the payment of which shall be made promptly following the closing of this
offering.
3. A 72.8-for-1 stock split of the Common Stock to be effective prior to the
closing of the offering.
The sale and issuance of the shares were exempt from registration by virtue
of Sections 3(a), 3(b) and 4(2) of the Securities Act and in reliance upon
Rule 701 promulgated thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS: UNLESS OTHERWISE INDICATED, ALL EXHIBITS WERE FILED WITH THE
REGISTRATION STATEMENT ON FORM S-1 DATED OCTOBER 15, 1996.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1* -- Articles of Incorporation of the Company.
3.2* -- Bylaws of the Company.
4.1* -- Specimen stock certificate representing the Common Stock.
5.1* -- Opinion of Buchanan Ingersoll Professional Corporation.
10.1* -- Form of Employment Agreement by and between the Company and
Sunil Wadhwani and Ashok Trivedi.
10.2* -- 1996 Stock Incentive Plan.
10.3* -- Agreement dated October 14, 1996 between Mastech Systems
Corporation (f/k/a Mastech Corporation) and Steven Shangold,
as amended by Addendum dated as of November 18, 1996.
10.4* -- Employment Agreement dated May 6, 1991 between the Company and
Skekar Sivasubramanian.
10.5* -- Employment Agreement dated May 20, 1996 between the Company
and Ajmal Noorani.
10.6* -- Employment Agreement dated March 16, 1995 between the Company
and Michael J. Zugay.
10.7* -- Employment Agreement dated May 19, 1994 between the Company
and Murali Balasubamanyam.
10.8* -- Employment Agreement dated December 20, 1991 between the
Company and Sushna Rajagopalan.
10.9* -- Employment Agreement dated February 21, 1992 between the
Company and Steven Shangold, as amended June 9, 1995.
10.10* -- Lease Agreement dated January 16, 1995 by and between Mascot
Systems Private Limited and Messrs. Wadhwani and Trivedi for
real estate in Bangalore, India.
10.11* -- Lease Agreement dated November 6, 1996 by and between Mascot
Systems Private Limited and Messrs. Wadhwani and Trivedi for
real estate in Bangalore, India.
10.12* -- Lease Agreement dated April 1, 1996 by and between Scott
Systems Private Limited and Messrs. Wadhwani and Trivedi for
real estate in Bombay, India.
10.13* -- Lease Agreement dated April 1, 1996 by and between Scott
Systems Private Limited and Sunil Wadhwani for real estate in
Bombay, India.
10.14* -- Lease Agreement dated April 1, 1996 by and between Scott
Systems Private Limited and Ashok Trivedi for real estate in
Bombay, India.
10.15* -- Stock Purchase Agreement by and between the Company and
Messrs. Wadhwani and Trivedi for their shares of Mascot
Systems Private Limited.
10.16* -- Agreement and Plan of Merger by and between the Company and
SWAT Systems.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
10.17* -- Form of S Corporation Revocation, Tax Allocation and
Indemnification Agreement.
10.18* -- Loan and Security Agreement dated July 1993 between the Company
and PNC Bank, as amended, by amendments dated August 1994,
November 1994, June 1995 and June 1996.
10.19* -- Sublease Agreement dated February 10, 1995 by and between
Westinghouse Electric Corporation and the Company for the
Company's Oakdale, PA headquarters, as amended by amendment dated
March 20, 1996.
10.20* -- Form of Shareholders Agreement by and among the Company, Sunil
Wadhwani and Ashok Trivedi.
23.1* -- Consent of Arthur Andersen LLP
23.2* -- Consent of Buchanan Ingersoll Professional Corporation (included
in Exhibit 5.1)
24.1* -- Form of Power of Attorney executed by the persons named therein.
27* -- Financial Data Schedule
</TABLE>
- ---------------------
*Filed herewith.
(B) FINANCIAL STATEMENTS SCHEDULES:
The following financial statement schedule is included in Part II of this
Registration Statement and should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere herein.
II. VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (3) that for the
purpose of determining any liability under the Securities Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Pittsburgh,
Pennsylvania on November 19, 1996.
MASTECH CORPORATION
By: /s/ Sunil Wadhwani
---------------------------------
Sunil Wadhwani
Co-Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
<S> <C> <C>
* Co-Chairman, Chief Executive }
- ------------------------ Officer and Director }
Sunil Wadhwani (Principal Executive Officer) }
}
}
* Co-Chairman, President }
- ------------------------ and Director }
Ashok Trivedi }
} /s/ Sunil Wadhwani
}
} --------------------
} *Sunil Wadhwani
Vice President--Finance } For himself and as
* (Principal Accounting } attorney-in-fact.
- ------------------------ Officer and Principal }
Michael Zugay Financial Officer) } November 19, 1996
}
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
We have audited in accordance with generally accepted auditing standards,
the consolidated Financial Statements of Mastech Corporation and subsidiaries
and have issued our report thereon dated October 31, 1996. Our audits were
made for the purpose of forming an opinion on the basic Financial Statements
taken as a whole. The schedule listed in the accompanying index is presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations and is not part of the basic Financial Statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic Financial Statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic Financial Statements taken as a whole.
Arthur Andersen LLP
Pittsburgh, Pennsylvania
October 31, 1996
S-1
<PAGE>
SCHEDULE II
MASTECH CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEDUCTIONS--
AMOUNTS
BALANCE AT CHARGED TO DEEMED BALANCE AT
BEGINNING COSTS AND TO BE END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES UNCOLLECTIBLE PERIOD
<S> <C> <C> <C> <C> <C>
December 31, 1993....... Allowance for uncollectible accounts $283 $ -- $(133) $150
December 31, 1994....... Allowance for uncollectible accounts 150 150 -- 300
December 31, 1995....... Allowance for uncollectible accounts 300 302 (102) 500
September 30, 1996...... Allowance for uncollectible accounts 500 474 (124) 850
</TABLE>
S-2
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
MASTECH CORPORATION
1. Name
----
The name of the corporation shall be Mastech Corporation (herein
called the "Corporation").
2. Registered Office.
-----------------
The location and post office address of the Corporation's registered
office in the Commonwealth of Pennsylvania is 1004 McKee Road, Oakdale,
Pennsylvania 15071.
3. Incorporator
------------
The name and address of the incorporator is Kimberly Ross Lieb, 301
Grant Street, 20th Floor, Pittsburgh, PA 15219.
4. Purpose and Powers.
------------------
The Corporation was incorporated under the Business Corporation Law of
1933 and is currently subject to the Business Corporation Law of 1988, as
amended (hereinafter, the "BCL"), and shall have unlimited power to engage in
and to do any lawful act concerning any or all lawful business for which
corporations may be incorporated under the BCL.
5. Term of Existence.
-----------------
The term for which the Corporation shall exist is perpetual.
6. Capital Stock.
-------------
6.1 Authorized Shares.
-----------------
The aggregate number of shares which the Corporation shall have
authority to issue is:
(a) 20,000,000 shares of Preferred Stock without par value; and
<PAGE>
(b) 100,000,000 shares of Common Stock, $.01 par value.
6.2 Preferred Stock.
---------------
The Board of Directors is authorized to divide the Preferred Stock
into series and, as to each series, to determine the designation and number of
shares of such series and the voting rights, preferences, limitations and
special rights, if any, of the shares of such series. Such divisions and
determinations shall be set forth in one or more amendments to these Articles
adopted by the Board of Directors.
6.3 Common Stock.
------------
Except for and subject to those rights expressly granted to holders of
the Preferred Stock, or any series thereof, by one or more amendments to these
Articles adopted by the Board of Directors, and except as provided by the laws
of the Commonwealth of Pennsylvania, holders of the Common Stock shall have
exclusively all other rights of shareholders. All shares of Common Stock issued
or to be issued shall be alike in every particular.
6.4 Uncertificated Shares.
---------------------
The Corporation may utilize uncertificated shares of Common Stock and
Preferred Stock to represent stock interests of its shareholders.
Notwithstanding any provision of law or any bylaw to the contrary, the rights
and obligations of the holders of shares represented by certificates and the
rights and obligations of the holders of uncertificated shares of the same class
and series shall be identical.
6.5 Cumulative Voting.
-----------------
The holders of Common Stock shall not be entitled to cumulate their
votes in the election of directors.
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<PAGE>
7. Board of Directors.
------------------
7.1 Number, Election, etc.
---------------------
The Board of Directors shall be comprised as follows:
(a) Number.
------
The Board of Directors shall consist of five (5) persons plus
such number of additional directors as the holders of any class or series of
stock having a preference over the Common Stock as to dividends or assets,
voting separately as a class or series, shall have the right from time to time
to elect.
(b) Classes, Election and Terms.
---------------------------
The directors elected by the holders of voting stock shall be
classified in respect to the time for which they shall severally serve on the
Board of Directors by dividing them into three classes, each of whose members
shall serve for staggered three-year terms. At each annual meeting of the
shareholders, the shareholders shall elect directors of the class whose term
then expires, to serve until the third succeeding annual meeting. Except as
otherwise provided in these Articles, each director shall serve for the term for
which elected and until his or her successor shall be elected and shall qualify.
(c) Quorum and Board Action.
-----------------------
Notwithstanding any provision of law or any bylaw to the
contrary, 80% of the directors then serving shall constitute a quorum for the
transaction of business, and any actions of the Board of Directors shall
require the affirmative vote of at least 80% of directors then serving.
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<PAGE>
(d) Removal of Directors.
--------------------
Notwithstanding any provision of law or any bylaw to the
contrary, shareholders may remove a director or directors from the Board of
Directors at any time without cause by the affirmative vote of at least 66 2/3%
of the votes cast by shareholders of the Corporation, voting together as a
single class.
(e) Vacancies.
---------
Vacancies on the Board of Directors shall be filled only by a
majority vote of the remaining directors. All such directors elected to fill
vacancies shall serve on the Board for a term expiring at the annual meeting of
shareholders at which the term of the class to which they have been elected
expires. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
8. Shareholders Meetings
--------------------
8.1 Nominations of Director Candidates.
-----------------------------------
Nominations for the election of directors may be made only by the
Board of Directors or a committee appointed by the Board of Directors, or by any
record holder of stock entitled to vote in the election of the directors;
provided, however, that a nomination may be made by a shareholder only if
written notice of such nomination has been received by the Secretary of the
Corporation not later than 120 days in advance of the meeting at which the
election is to be held; provided further, however, that in the event that less
than 130 days' notice or prior public disclosure of the date of the annual
meeting is given, notice from the shareholders to be timely must be received not
later than the tenth day following the date on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first
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<PAGE>
occurs. 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 be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated by the Board of Directors; and (e)
the consent of each nominee to serve as a director of the Corporation if so
elected. If the Corporation receives notice from a shareholder pursuant to this
Article 8.1 and such notice, in the judgment of the Board of Directors, fails
to comply with the requirements set forth in this Article 8.1 in any respect,
then the Corporation shall notify the shareholder of the deficiencies with such
notice within ten days of the Corporation's receipt of such notice. Commencing
on the day of receipt of the deficiency notification from the Corporation, the
shareholder shall have ten days to cure all deficiencies and provide the
Corporation with notice which conforms to the requirements of this Article 8.1.
A shareholder shall be entitled to re-submit a notice as provided in this
Article 8.1 only once for each annual meeting of the shareholders. Only
candidates who have been nominated in accordance with this Article 8.1 shall be
eligible for election by the shareholders as directors of the Corporation.
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<PAGE>
8.2 Business to be Transacted.
-------------------------
At any annual meeting or special meeting of shareholders, only such
business as is properly brought before the meeting in accordance with this
Article 8.2 may be transacted. To be properly brought before any meeting, any
proposed business must be either (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 properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) if brought before the meeting by a shareholder,
then (x) the shareholder must have been a shareholder of record on the record
date for the determination of shareholders entitled to vote at the annual
meeting, and (y) only if written notice of such proposed business has been
received by the Secretary of the Corporation not later than 120 days in advance
of the meeting at which the business is proposed to be transacted; provided,
however, that in the event that less than 130 days' notice or prior public
disclosure of the date of the annual meeting is given, notice from the
shareholder to be timely must be received not later than the tenth day following
the date on which such notice of the date of the annual meeting was mailed or
such public disclosure was made, whichever first occurs. There will be no
opportunity to cure any deficiencies within any notice given pursuant to this
Article 8.2.
8.3 Vote Required for Fundamental Changes.
-------------------------------------
In addition to any vote required by law, the affirmative vote of
holders of at least 66 2/3% of the votes cast by shareholders eligible to vote
thereon, voting together as a single class, shall be necessary to approve any
action for which shareholder approval is required under Subchapters B, C, D, E
and F of Chapter 19 (Fundamental Changes) of the BCL (the "Fundamental Change"),
and any successor provisions thereto; provided, however, that the additional
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<PAGE>
affirmative vote required by this Article 8.3 shall not apply to any
Fundamental Change if such Fundamental Change is approved, recommended and
submitted to the shareholders for their consideration by the unanimous vote of
the directors of the Corporation then serving.
8.4 Partial Written Consents.
------------------------
Any action required or permitted to be taken at a meeting of the
shareholders, or of a class of shareholders, may be taken without a meeting upon
the written consent of shareholders who would have been entitled to cast the
minimum number of votes that would be necessary to authorize the action at a
meeting at which all shareholders entitled to vote thereon were present and
voting. The consents shall be filed with the secretary of the Corporation. The
action shall become effective immediately upon its authorization, or at such
later time as shall be specified in the said written consent, but prompt notice
of the action shall be given to those shareholders entitled to vote thereon who
have not consented thereto.
9. Inapplicability of Certain Provisions.
-------------------------------------
Notwithstanding any law or bylaw of the Corporation to the contrary,
the provisions of Subchapters E, F, G and H of Chapter 25 (Registered
Corporations) of the BCL, and any successors thereto, shall not be applicable to
the Corporation.
10. Personal Liability of Directors.
-------------------------------
10.1 Personal Liability of Directors; Indemnification
------------------------------------------------
A director of the Corporation shall not be personally liable for
monetary damages for any action taken, or any failure to take any action, unless
the director has breached or failed to perform the duties of his or her office
under Subchapter B of Chapter 17 of the BCL and such breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness;
-7-
<PAGE>
provided, however, that the foregoing provision shall not eliminate or limit (i)
the responsibility or liability of such director pursuant to any criminal
statute, or (ii) the liability of a director for the payment of taxes pursuant
to local, state or federal law. Any repeal, modification or adoption of any
provision inconsistent with Article 10.1 shall be prospective only, and neither
the repeal or modification of this provision nor the adoption of any provision
inconsistent with this provision shall adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification or the adoption of such inconsistent provision.
10.2 Mandatory Indemnification of Directors and Executive Officers.
-------------------------------------------------------------
(a) The Corporation shall indemnify and hold harmless to the full
extent not prohibited by law, as the same exists or may hereinafter be amended,
interpreted or implemented (but, in the case of any amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than the Corporation is permitted to provide prior to
such amendment), each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in (as a witness or otherwise) any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative and whether or not by or in the right
of the Corporation or otherwise (hereinafter, a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the heir, executor or
administrator, is or was a director or executive officer of the Corporation or
is or was serving at the request of the Corporation as a director, officer or
trustee of another corporation or of a partnership, joint venture, trust or
other enterprise (including without limitation service with respect to employee
benefit plans), or where the basis of such proceeding is any alleged action or
failure to take any action by such person while acting in an official capacity
as a director or executive officer of the
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<PAGE>
Corporation, or in any other capacity on behalf of the Corporation while such
person is or was serving as a director or executive officer of the Corporation,
against all expenses, liability and loss, including but not limited to
attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or
to be paid in settlement (whether with or without court approval), actually and
reasonably incurred or paid by such person in connection therewith.
(b) Notwithstanding the foregoing, except as provided in Article 10.3
below, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
(c) Subject to the limitation set forth above concerning proceedings
initiated by the person seeking indemnification, the right to indemnification
conferred in this Article 10.2 shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
proceeding (or part thereof) or in enforcing his or her rights under this
Article 10.2 in advance of the final disposition thereof promptly after receipt
by the Corporation of a request therefor stating in reasonable detail the
expenses incurred; provided, however, that to the extent required by law, the
payment of such expenses incurred by a director or executive officer of the
Corporation in advance of the final disposition of a proceeding shall be made
only upon receipt of an undertaking, by or on behalf of such person, to repay
all amounts so advanced if and to the extent it shall ultimately be determined
by a court that he or she is not entitled to be indemnified by the Corporation
under this Article 10.2 or otherwise.
(d) The right to indemnification and advancement of expenses
provided herein shall continue as to a person who has ceased to be a director or
executive officer of the Corporation or to
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<PAGE>
serve in any of the other capacities described herein, and shall inure to the
benefit of the heirs, executors and administrators of such person.
10.3 Payment of Indemnification.
--------------------------
If a claim for indemnification under Article 10.2 hereof is not paid
in full by the Corporation within thirty (30) days after a written claim
therefor has been received by the Corporation, the claimant may, at any time
thereafter, bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part on the merits or otherwise in
establishing his or her right to indemnification or to the advancement of
expenses, the claimant shall be entitled to be paid also the expense of
prosecuting such claim.
10.4 Non-Exclusivity of Rights.
-------------------------
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of a final disposition conferred in Article
10.2 and the right to payment of expenses conferred in Article 10.3 shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses hereunder may be entitled under any bylaw, agreement,
vote of shareholders, vote of directors or otherwise, both as to actions in his
or her official capacity and as to actions in any other capacity while holding
that office, the Corporation having the express authority to enter into such
agreements or arrangements as the Board of Directors deems appropriate for the
indemnification of and advancement of expenses to present or future directors
and officers as well as employees, representatives or agents of the Corporation
in connection with their status with or services to or on behalf of the
Corporation or any other corporation, partnership, joint venture, trust or other
enterprise, including any employee benefit plan, for which such person is
serving at the request of the Corporation.
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<PAGE>
10.5 Funding.
-------
The Corporation may create a fund of any nature, which may, but need
not be, under the control of a trustee, or otherwise secure or insure in any
manner its indemnification obligations, including its obligation to advance
expenses, whether arising under or pursuant to this Article 10 or otherwise.
10.6 Insurance.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer or representative of the Corporation,
or is or was serving at the request of the Corporation as a representative of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his or her status as such, whether or
not the Corporation has the power to indemnify such person against such
liability under the laws of Pennsylvania or any other state.
10.7 Modification or Repeal.
----------------------
Neither the modification, amendment, alteration or repeal of this
Article 10 or any of its provisions nor the adoption of any provision
inconsistent with this Article 10 or any of its provisions shall adversely
affect the rights of any person to indemnification and advancement of expenses
existing at the time of such modification, amendment, alteration or repeal or
the adoption of such inconsistent provision.
11. Bylaw Amendments.
----------------
The Board of Directors may adopt, amend or repeal the Bylaws with
respect to those matters which under the BCL are not reserved exclusively to the
shareholders. No Bylaw
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<PAGE>
may be adopted, amended or repealed by the shareholders unless, in addition to
any other vote required by law, these Articles or otherwise, such action is
approved by the vote of holders of at least 66 2/3% of the votes cast by
shareholders eligible to vote thereon, voting together as a single class;
provided, however, that the additional affirmative vote required by this Article
shall not apply to any shareholder adoption, amendment or repeal of any Bylaw
provision if such action is approved, recommended and submitted to the
shareholders for their consideration by the unanimous vote of the directors of
the Corporation then serving.
12. Reservation of Right to Amend Articles.
--------------------------------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles in the manner now or hereafter
prescribed by law and these Articles, and all rights conferred upon shareholders
herein are granted subject to this reservation.
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<PAGE>
Exhibit 3.2
Bylaws
Of
Mastech Corporation
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. SHAREHOLDERS...................................................... 1
1.1 Annual Meeting............................................... 1
1.2 Special Meetings............................................. 1
1.3 Place of Meeting............................................. 1
1.4 Notice....................................................... 1
1.5 Quorum....................................................... 2
1.6 Adjournments................................................. 2
1.7 Action by Shareholders....................................... 2
1.8 Voting Rights of Shareholders................................ 3
1.9 Proxies...................................................... 3
1.10 Voting List.................................................. 3
1.11 Determination of Shareholders of Record...................... 4
1.12 Certification by Nominee..................................... 4
1.13 Presiding Officer............................................ 4
1.14 Voting by Fiduciaries and Pledgees........................... 4
1.15 Voting by Joint Holders of Shares............................ 4
1.16 Voting by Corporations....................................... 5
1.17 Election of Directors........................................ 5
1.18 Judges of Election........................................... 5
2. BOARD OF DIRECTORS................................................ 6
2.1 General...................................................... 6
2.2 Regular Meetings............................................. 6
2.3 Special Meetings............................................. 6
2.4 Notice of Meetings........................................... 6
2.5 Interested Directors or Officers; Quorum..................... 7
2.6 Compensation................................................. 7
2.7 Presumption of Assent........................................ 7
2.8 Presiding Officer............................................ 8
3. COMMITTEES OF THE BOARD........................................... 8
3.1 Committees of the Board...................................... 8
3.2 Committee Rules.............................................. 8
4. OFFICERS.......................................................... 9
4.1 Officers and Qualifications.................................. 9
4.2 Election, Term, and Vacancies................................ 9
4.3 Removal; Resignation; Bond................................... 9
4.4 Co-Chairman and Chief Executive Officer...................... 9
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<PAGE>
TABLE OF CONTENTS
SECTION PAGE
4.5 Co-Chairman and President.................................... 10
4.6 Vice Presidents.............................................. 10
4.7 Secretary.................................................... 10
4.8 Assistant Secretary.......................................... 10
4.9 Treasurer.................................................... 11
4.10 Other Management Officers.................................... 11
5. SHARE CERTIFICATES AND TRANSFERS.................................. 11
5.1 Certificates................................................. 11
5.2 Transfer of Shares........................................... 11
5.3 Registrar, Transfer Agent, Authenticating Trustee............ 12
5.4 Lost, Destroyed or Stolen Certificates....................... 12
6. MANNER OF GIVING NOTICE, WAIVER OF NOTICE, ACTION WITHOUT
MEETING, MEETINGS BY CONFERENCE TELEPHONE AND MODIFICATION OF
PROPOSALS......................................................... 12
6.1 Manner of Giving Notice...................................... 12
6.2 Waiver of Notice............................................. 13
6.3 Board Action by Unanimous Written Consent.................... 13
6.4 Meetings by Means of Conference Telephone.................... 13
6.5 Modification of Proposals.................................... 13
7. CERTAIN SHAREHOLDER RIGHTS........................................ 13
7.1 Inspection of Corporate Records.............................. 13
8. GENERAL PROVISIONS................................................ 14
8.1 Registered Office............................................ 14
8.2 Other Offices................................................ 14
8.3 Corporate Seal............................................... 14
8.4 Fiscal Year.................................................. 14
-ii-
<PAGE>
BYLAWS
of
Mastech Corporation
1. SHAREHOLDERS
1.1 Annual Meeting.
An annual meeting of the shareholders shall be held in each calendar
year, on such date as may be fixed by the board of directors, for the purpose of
electing directors and for the transaction of such other business as may
properly come before the meeting. If the day fixed for the annual meeting shall
be a legal holiday in the state where the meeting is to be held, such meeting
shall be held on the next succeeding business day.
1.2 Special Meetings.
Special meetings of the shareholders may be called at any time by (i)
the board of directors or (ii) by the Co-Chairman and Chief Executive Officer or
Co-Chairman and President. Upon written request of any person who has duly
called a special meeting, the secretary shall fix the time of the meeting which
shall be held not more than sixty (60) days after the receipt of the request.
If the secretary neglects or refuses to fix the time of the meeting, the person
or persons calling the meeting may do so.
1.3 Place of Meeting.
All meetings of the shareholders shall be held at the registered
office of the Corporation or at such other place, within or without the
Commonwealth of Pennsylvania, as may be designated by the board of directors
from time to time.
1.4 Notice.
Except as provided in Section 1.6 of these bylaws, written notice of
every meeting of the shareholders shall be given by, or at the direction of, the
secretary, or, if he or she neglects or refuses to do so, may be given by the
person or persons calling the meeting, to each shareholder of record entitled to
vote at the meeting, at least ten (10) days prior to the day named for the
meeting, unless a greater period of notice is required by law in the particular
case. The notice of meeting shall specify the place, day and hour of the meeting
and, in the case of a special meeting, the general nature of the business to be
transacted, and, if applicable, the notice shall state that the purpose, or one
of the purposes, of the meeting is to consider the adoption, amendment or repeal
of the bylaws in which case the notice shall include, or be accompanied by, a
copy of the proposed amendment or a summary of the changes to be effected
thereby.
<PAGE>
1.5 Quorum.
A shareholders meeting duly called shall not be organized for the
transaction of business unless a quorum is present. The presence in person or
by proxy of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast on a particular matter to be acted upon at
the meeting shall constitute a quorum for the purposes of consideration and
action on such matter. The shareholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. If a meeting cannot be
organized because a quorum has not attended, those present may adjourn the
meeting to such time and place as they may determine. Those shareholders
entitled to vote who attend a meeting called for the election of directors that
has previously been adjourned for lack of a quorum, although less than a quorum
as fixed herein, shall nevertheless constitute a quorum for the purpose of
electing directors. In other cases, those shareholders entitled to vote who
attend a meeting of shareholders that has been previously adjourned for one or
more periods aggregating at least fifteen (15) days because of absence of a
quorum, although less than a quorum as fixed herein, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting, provided that the notice of the meeting states that those
shareholders who attend such adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter set forth in the notice.
1.6 Adjournments.
Adjournment or adjournments of any annual or special meeting of
shareholders, including one at which directors are to be elected, shall be taken
for such period or periods as the presiding officer of the meeting or the
shareholders present in person or by proxy and entitled to vote shall direct.
When a meeting of shareholders is adjourned, it shall not be necessary to give
any notice of the adjourned meeting or of the business to be transacted at the
adjourned meeting other than by announcement at the meeting at which the
adjournment is taken, unless the board of directors fixes a new record date for
the adjourned meeting or unless notice of the business to be transacted was
required by the Pennsylvania Business Corporation Law of 1988, as it may be
amended, to be set forth in the original notice of the meeting and such notice
had not been previously given. Subject to quorum requirements, at any such
adjourned meeting any business may be transacted which might have been
transacted at the meeting as originally noticed.
1.7 Action by Shareholders.
Whenever any corporate action is to be taken by vote of the
shareholders, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon, and if
any shareholders are entitled to vote thereon as a class, upon receiving the
affirmative vote of a majority of the votes cast by the shareholders entitled to
vote as a class thereon, except where a different vote is required by law or the
articles or these bylaws.
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<PAGE>
1.8 Voting Rights of Shareholders.
Unless otherwise provided in the articles, every shareholder shall be
entitled to one vote for every share outstanding in such shareholder's name on
the books of the Corporation.
1.9 Proxies.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such shareholder by proxy. The
presence of, or vote or other action at a meeting of shareholders, or the
expression of consent or dissent to corporate action in writing, by a proxy of a
shareholder shall constitute the presence of, or vote or action by, or written
consent or dissent of the shareholder. Every proxy shall be executed in writing
by the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the Corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a writing executed by a
shareholder or attorney-in-fact shall be treated as properly executed if it sets
forth a confidential and unique identification number or other mark furnished by
the Corporation to the shareholder for purposes of a particular meeting or
transaction. Notwithstanding any other agreement or any provision in the proxy
to the contrary, a proxy shall be revocable at will unless coupled with an
interest, but the revocation of a proxy shall not be effective until written
notice of the revocation has been given to the secretary of the Corporation. An
unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the secretary of the Corporation. Where two or more
proxies of a shareholder are present, the Corporation shall, unless otherwise
expressly provided in the proxy, accept as the vote of all shares represented
thereby the vote cast by a majority of them and, if a majority of the proxies
cannot agree whether the shares represented shall be voted or upon the manner of
voting the shares, the voting of the shares shall be divided equally among those
persons.
1.10 Voting List.
The officer or agent having charge of the transfer books for shares of
the Corporation shall make a complete list of the shareholders entitled to vote
at any meeting of shareholders, arranged in alphabetical order, with the address
of and the number of shares held by each. The list shall be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder during the whole time of the meeting for the purposes thereof
except that, if the Corporation has 5,000 or more shareholders, in lieu of the
making of the list the Corporation may make the information available at the
meeting by any other means. Failure to comply with the requirements of this
bylaw shall not affect the validity of any action taken at a meeting prior to a
demand at the meeting by any shareholder entitled to vote there at to examine
the list.
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<PAGE>
1.11 Determination of Shareholders of Record.
The board of directors may fix a time prior to the date of any meeting
of shareholders as a record date for the determination of the shareholders
entitled to notice of, or to vote at, the meeting, which time, except in the
case of an adjourned meeting, shall be not more than ninety (90) days prior to
the date of the meeting of shareholders. In such case, only shareholders of
record on the date so fixed shall be entitled to notice of, or to vote at, such
meeting, notwithstanding any transfer of shares on the books of the Corporation
after the record date so fixed. The board of directors may similarly fix a
record date for the determination of shareholders of record for payment of
dividends or for any other purpose. When a determination of shareholders of
record has been made as provided in this bylaw for purposes of a meeting, the
determination shall apply to any adjournment thereof unless the board fixes a
new record date for the adjourned meeting.
1.12 Certification by Nominee.
The board of directors may from time to time adopt a procedure whereby
a shareholder of the Corporation may certify in writing to the Corporation that
all or a portion of the shares registered in the name of the shareholder are
held for the account of a specified person or persons. Upon receipt by the
Corporation of a certification complying with said procedure, the persons
specified in the certification shall be deemed, for the purposes set forth in
said certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
1.13 Presiding Officer.
All meetings of the shareholders shall be called to order and presided
over by the co-chairman and chief executive officer, if any, or, in his absence,
by the co-chairman and president, or, in his absence, by an officer or director
of the Corporation appointed by the chief executive officer, or, if none of
those persons is present, by a chairperson of the meeting elected by the
shareholders.
1.14 Voting by Fiduciaries and Pledgees.
Shares of this Corporation standing in the name of a trustee or other
fiduciary and shares held by an assignee for the benefit of creditors or by a
receiver may be voted either in person or by proxy by the trustee, fiduciary,
assignee or receiver. A shareholder whose shares are pledged shall be entitled
to vote the shares, in person or by proxy, until the shares have been
transferred into the name of the pledgee or a nominee of the pledgee.
1.15 Voting by Joint Holders of Shares.
Where shares of the Corporation are held jointly or as tenants in
common by two or more persons, as fiduciaries or otherwise: (a) if only one or
more of such persons is present in person or by proxy, all of the shares
standing in the names of such persons shall be deemed to be
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<PAGE>
represented for the purpose of determining a quorum and the Corporation shall
accept as the vote of all such shares the vote cast by such person or a majority
of such persons who are present; and (b) if the persons present are equally
divided upon whether the shares held by them shall be voted or upon the manner
of voting the shares, the voting of such shares shall be divided equally among
the persons present without prejudice to the rights of the joint owners or the
beneficial owners thereof among themselves. Notwithstanding the foregoing, if
there has been filed with the secretary of the Corporation a copy, certified by
an attorney-at-law to be correct, of the relevant portions of the agreement
under which such shares are held or the instrument by which the trust or estate
was created or the order of court appointing them or of an order of court
directing the voting of such shares, the persons specified as having such voting
power in the latest document so filed, and only those persons, shall be entitled
to vote such shares but only in accordance therewith.
1.16 Voting by Corporations.
Any other domestic or foreign corporation for profit or not-for-profit
that is a shareholder of this Corporation may vote by any of its officers or
agents, or by proxy appointed by any such officer or agent, unless some other
person, by resolution of its board of directors or pursuant to a provision of
its articles or bylaws, a copy of which resolution or provision certified to be
correct by one of its officers has been filed with the secretary of this
Corporation, is appointed its general or special proxy, in which case such
person shall be entitled to vote the shares. Shares of this Corporation owned,
directly or indirectly, by this Corporation and controlled, directly or
indirectly, by the board of directors of this Corporation, as such, shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares for voting purposes at any given time.
1.17 Election of Directors.
In election of directors, voting need not be by ballot, unless
required by vote of the shareholders before the voting for election of directors
begins. The duly nominated candidates receiving the highest number of votes
from each class or group of classes, if any, entitled to elect directors
separately up to the number of directors to be elected by the class or group of
classes shall be elected. If at any meeting of shareholders, directors of more
than one class are to be elected, each class of directors shall be elected in a
separate election.
1.18 Judges of Election.
In advance of any meeting of shareholders, the board of directors may
appoint judges of election, who need not be shareholders, to act at such meeting
or any adjournment thereof. If judges of election are not so appointed, the
presiding officer of any such meeting may, and on the request of any shareholder
or of any shareholder's proxy shall, make such appointment at the meeting. The
number of judges shall be one or three. No person who is a candidate for office
to be filled at the meeting shall act as a judge. In case any person appointed
as a judge fails to appear or fails or refuses to act, the vacancy may be filled
by appointment made by the board of directors in advance of the convening of the
meeting or at the meeting by
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the presiding officer thereof. The judge or judges of election shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies, shall receive votes or ballots, shall hear and
determine all challenges and questions in any way arising in connection with the
right to vote, shall count and tabulate all votes and determine the result and
shall do such acts as may be proper to conduct the election or vote with
fairness to all shareholders. The judge or judges of election shall perform
their duties impartially, in good faith, to the best of their ability, and as
expeditiously as is practical. If there are three judges of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all. On request of the presiding officer of
the meeting, or of any shareholder or proxy of any shareholder, the judge or
judges shall make a report in writing of any challenge or question or matter
determined by them and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence of the facts
stated therein.
2. BOARD OF DIRECTORS
2.1 General.
All powers vested by law in the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the board of directors.
2.2 Regular Meetings.
The board of directors shall hold an annual meeting for the election
of officers and the transaction of other proper business either as soon as
practical after, and at the same place as, the annual meeting of shareholders or
at such other day, hour and place as may be fixed by the board. The board of
directors may designate by resolution the time and place, within or without the
Commonwealth of Pennsylvania, of other regular meetings.
2.3 Special Meetings.
Special meetings of the board may be called by the Co-Chairman and
Chief Executive Officer, Co-Chairman and President or any two (2) directors.
The person or persons calling the special meeting may fix the day, hour and
place, within or without the Commonwealth of Pennsylvania, of the meeting.
2.4 Notice of Meetings.
No further notice of any annual or regular meeting of the board of
directors need be given other than transmitting to the directors a copy of the
resolution fixing the times and places thereof. Written notice, or oral notice
with written confirmation no later than the date of the meeting, of each special
meeting of the board of directors, specifying the place, day and hour of the
meeting, shall be given to each director at least 48 hours before the time set
for the
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meeting. When a meeting of directors is adjourned, notice need not be given of
the adjourned meeting other than by announcement at the meeting at which the
adjournment is made. Notwithstanding the above notice requirements, if any
meeting of directors cannot be organized because a quorum is not present, a
majority of the directors present may adjourn the meeting to such time and place
as they may determine, subject to the bylaws of the Corporation. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the board need be specified in the notice of the meeting.
2.5 Interested Directors or Officers; Quorum.
A contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other domestic or
foreign corporation for profit or not-for-profit, partnership, joint venture,
trust or other enterprise in which one or more of this Corporation's directors
or officers are directors or officers or have a financial or other interest,
shall not be void or voidable solely for that reason, or solely because the
common or interested director or officer is present at or participates in the
meeting of the board that authorizes the contract or transaction, or solely
because the common or interested director's or officer's vote is counted for
such purpose, if: (1) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the board of
directors and the board authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors even though the
disinterested directors are less than a quorum; (2) the material facts as to the
director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of those shareholders; or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
board of directors or the shareholders.
2.6 Compensation.
By resolution of the board of directors, each director may be paid his
or her expenses, if any, of attendance at each meeting of the board of directors
or committee thereof, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the board of directors or committee thereof or
both. No such payment shall preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor and a director may be
a salaried officer or employee of the Corporation.
2.7 Presumption of Assent.
A director of the Corporation who is present at a meeting of the board
of directors, or of a committee of the board, at which action on any corporate
matter is taken on which the director is generally competent to act, shall be
presumed to have assented to the action taken unless his or her dissent is
entered in the minutes of the meeting or unless such director files his or her
written dissent to the action with the secretary of the meeting before the
adjournment thereof or transmits the dissent in writing to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of the action. Nothing
in this section shall bar a director from asserting that minutes of a
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meeting incorrectly omitted said director's dissent if, promptly upon receipt of
a copy of such minutes, said director notified the secretary, in writing, of the
asserted omission or inaccuracy.
2.8 Presiding Officer.
All meetings of the board of directors shall be called to order and
presided over by the co-chairman and chief executive officer, or, in his
absence, by the co-chairman and president or, in both their absences, by a
director appointed by both the co-chairman and chief executive officer and co-
chairman and president or, if none of those persons is present, by a chairperson
of the meeting elected at such meeting by the board of directors.
3. COMMITTEES OF THE BOARD
3.1 Committees of the Board.
The board of directors may, by resolution, establish one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee or for purposes of any written action of the committee.
A committee, to the extent provided in the resolution of the board of directors
creating it, shall have and may exercise all of the powers and authority of the
board of directors except that a committee shall not have any power or authority
as to: (i) the submission to shareholders of any action requiring the approval
of shareholders pursuant to the Pennsylvania Business Corporation Law, as it may
hereafter be amended, (ii) the creation or filling of vacancies in the board of
directors, (iii) the adoption, amendment or repeal of the bylaws, (iv) the
amendment, adoption or repeal of any resolution of the board that by its terms
is amendable or repealable only by the board, or (v) action on matters committed
by the bylaws or resolution of the board to another committee of the board. Each
committee of the board shall serve at the pleasure of the board.
3.2 Committee Rules.
In the absence of a resolution of the board to the contrary, a
majority of the entire authorized number of members of such committee shall be
necessary to constitute a quorum for the transaction of business.
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<PAGE>
4. OFFICERS
4.1 Officers and Qualifications.
The Corporation shall have a co-chairman who is also chief executive
Officer, a co-chairman who is also president, a secretary, and a treasurer, each
of whom shall be elected or appointed by the board of directors. The board may
also elect or provide for the appointment of one or more vice presidents, a
controller, and such other officers and assistant officers as the board deems
necessary or advisable. Officers of the Corporation, as between themselves and
the Corporation, shall have such authority and perform such duties in the
management of the Corporation or as is determined by or pursuant to resolutions
or orders of the board of directors.
4.2 Election, Term, and Vacancies.
The officers and assistant officers of the Corporation shall be
elected by the board of directors at the annual meeting of the board or from
time to time as the board shall determine. Each officer shall hold office for
one (1) year and until his or her successor has been duly elected and qualified
or until said officer's earlier death, resignation or removal. A vacancy in any
office occurring in any manner may be filled by the board of directors and, if
the office is one for which these bylaws prescribe a term, shall be filled for
the unexpired portion of the term.
4.3 Removal; Resignation; Bond.
(a) Removal. Any officer or agent of the Corporation may be removed
by the board of directors with or without cause, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
(b) Resignation. Any officer may resign at any time upon written
notice to the Corporation. The resignation shall be effective upon receipt
thereof by the Corporation or at such subsequent time as may be specified in the
notice of resignation.
(c) Bond. The Corporation may secure the fidelity of any or all of
its officers by bond or otherwise.
4.4 Co-Chairman and Chief Executive Officer.
The co-chairman and chief executive officer shall have such authority
and perform such duties as the board of directors may from time to time
designate. Subject to the control of the board of directors and, within the
scope of their authority, any committees thereof, the co-chairman and chief
executive officer shall (a) have general and active management authority with
respect to all the business, property and affairs of the Corporation, (b) see
that all orders and resolutions of the board of directors and the committees
thereof are carried into effect, (c) together with the co-chairman and president
pursuant to Sections 4.6 and 4.10, appoint and remove subordinate officers and
agents, other than those appointed or elected by the board of directors, as the
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business of the Corporation may require, (d) act as the duly authorized
representative of the board in all matters, except where the board has formally
designated some other person or group to act, and (e) in general perform all the
usual duties incident to the office of chief executive officer.
4.5 Co-Chairman and President.
The co-chairman and president shall (a) in the absence of the
co-chairman and chief executive officer, represent the board, except where the
board has formerly designated some other person or group to act, (b) execute,
on behalf of the Corporation, contracts, leases, deeds, mortgages, notes and
other instruments authorized by the board of directors, except in cases where
the board of directors, these bylaws or law expressly requires the execution
thereof by some other officer, (c) together with the co-chairman and chief
executive officer, pursuant to Sections 4.6 and 4.10, appoint and remove
subordinate officers and agents, other than those appointed or elected by the
board of directors, as the business of the Corporation may require, (d) work
with the co-chairman and chief executive officer in the management of the
business, property and affairs of the Corporation and (e) have such other
authority and perform such other duties as the board of directors may from time
to time designate.
4.6 Vice Presidents.
Each vice president, if any, shall perform such duties as may be
assigned to him or her by the board of directors or by the co-chairman and chief
executive officer and co-chairman and president. In the absence or disability of
both co-chairmen, the most senior in rank of the vice presidents shall perform
the duties of the president.
4.7 Secretary.
The secretary shall (a) keep or cause to be kept the minutes of all
meetings of the shareholders, the board of directors, and any committees of the
board of directors in one or more books kept for that purpose, (b) have custody
of the corporate records, stock books and stock ledgers of the Corporation, (c)
keep or cause to be kept a register of the address of each shareholder, which
address has been furnished to the secretary by such shareholder, (d) see that
all notices are duly given in accordance with law, the articles, and these
bylaws, and (e) in general perform all the usual duties incident to the office
of secretary and such other duties as may be assigned to him or her by the board
of directors or the chief executive officer. The secretary may delegate any of
his or her duties to any management officer or to any duly elected or appointed
assistant secretary and may delegate custody of the Corporation's stock books,
stock ledgers, shareholder lists and the like to a duly appointed stock transfer
agent and/or registrar or, in the case of records regarding debt instruments, to
an indenture or bond trustee, registrar or similar entity.
4.8 Assistant Secretary.
The assistant secretary, if any or assistant secretaries if more than
one, shall perform the duties of the secretary in his or her absence and shall
perform such other duties as the board of directors, the chief executive officer
or the secretary may from time to time designate.
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<PAGE>
4.9 Treasurer.
The treasurer shall have general supervision of the fiscal affairs of
the Corporation. The treasurer shall, with the assistance of the chief
executive officer and managerial staff of the Corporation: (a) see that a full
and accurate accounting of all financial transactions is made; (b) invest and
reinvest the capital funds of the Corporation in such manner as may be directed
by the board, unless such function shall have been delegated to a nominee or
agent; (c) deposit or cause to be deposited in the name and to the credit of the
Corporation, in such depositories as the board of directors shall designate, all
monies and other valuable effects of the Corporation not otherwise employed; (d)
prepare such financial reports as may be requested from time to time by the
board; (e) cooperate in the conduct of the annual audit of the Corporation's
financial records by certified public accountants duly appointed by the board;
and (f) in general perform all the usual duties incident to the office of
treasurer and such other duties as may be assigned to him or her by the board of
directors or the president.
4.10 Other Management Officers.
Subject to control of the board of directors, the co-chairman and
chief executive officer and the co-chairman and president, together, may select
and appoint such other management officers as they deem advisable, who shall
have such authority and perform such duties as may from time to time be
prescribed by the co-chairman and chief executive officer and the co-chairman
and president or by the board.
5. SHARE CERTIFICATES AND TRANSFERS
5.1 Certificates.
Share certificates shall be in such form as shall be approved by the
board of directors and shall state: (i) that the Corporation is incorporated
under the laws of the Commonwealth of Pennsylvania, (ii) the name of the person
to whom issued, and (iii) the number and class of shares and the designation of
the series, if any, which the share certificate represents.
In the event that the Corporation is authorized to issue shares of
more than one class or series, each share certificate shall also state, on the
face or back of the certificate, that the Corporation will furnish to any
shareholder upon request and without charge a full or summary statement of the
designations, voting rights, preferences, limitations and special rights of the
shares of each class or series authorized to be issued so far as they have been
fixed and determined and the authority of the board of directors to fix and
determine the designations, voting rights, preferences, limitations and special
rights of the classes and series of shares of the Corporation.
5.2 Transfer of Shares.
Transfer of shares of the Corporation shall be made only on the stock
transfer records of the Corporation (which may be kept in written or computer
form). Transfers shall be
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made by the Corporation or its duly authorized agent as required by law. Except
as otherwise set forth in Section 1.12 above (Certification by Nominee), the
Corporation shall be entitled to treat the person in whose name shares stand on
the books of the Corporation as the owner thereof for all purposes.
5.3 Registrar, Transfer Agent, Authenticating Trustee.
The Corporation may, but need not, designate another organization to
act as authenticating trustee, transfer agent, registrar or other agent for the
Corporation in the registration of transfers of its securities, the issuance of
new securities or the cancellation of surrendered securities, and to perform
such other functions as agent for the Corporation as the Corporation may deem
appropriate.
5.4 Lost, Destroyed or Stolen Certificates.
If the registered owner of a share certificate claims that the
security has been lost, destroyed or wrongfully taken, another may be issued in
lieu thereof in such manner and upon such terms as the board of directors may
authorize and shall be issued in place of the original security, in accordance
with 13 Pa. C.S. (S) 8405(2), if the owner: (a) so requests before the
Corporation has notice that the security has been acquired by a bona fide
purchaser; (b) files with the Corporation an indemnity bond in such amount as
the Corporation may determine, if any; and (c) satisfies any other reasonable
requirements imposed by the Corporation.
6. MANNER OF GIVING NOTICE,
WAIVER OF NOTICE, ACTION WITHOUT MEETING,
MEETINGS BY CONFERENCE TELEPHONE AND
MODIFICATION OF PROPOSALS
6.1 Manner of Giving Notice.
Whenever written notice is required to be given to any person under
the provisions of the Pennsylvania Business Corporation Law or by the articles
or these bylaws, it may be given to the person either personally or by sending a
copy thereof by first class or express mail, postage prepaid, or by telegram
(with messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by facsimile transmission, to the
shareholder's address (or to the shareholder's telex, TWX, or facsimile number)
appearing on the books of the Corporation or, in the case of directors, supplied
by the director to the Corporation for the purpose of notice. Notice sent by
mail, by telegraph or by courier service shall be deemed to have been given when
deposited in the United States mail or with a telegraph office or courier
service for delivery except that, in the case of directors, notice sent by
regular mail shall be deemed to have been given forty-eight (48) hours after
being deposited in the United States mail or, in the case of telex, TWX or
facsimile, when dispatched.
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6.2 Waiver of Notice.
Whenever any written notice is required to be given by statute or the
articles or these bylaws, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of the notice. Neither the business to
be transacted at, nor the purpose of, a meeting need be specified in the waiver
of notice of such meeting. Attendance of a person, either in person or by
proxy, at any meeting shall constitute a waiver of notice of the meeting, except
where the person attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
6.3 Board Action by Unanimous Written Consent.
Any action required or permitted to be taken at a meeting of the
directors or of any committee of directors may be taken without a meeting if,
prior or subsequent to the action, a consent or consents thereto in writing
setting forth the action so taken is signed by all of the directors in office,
or by all of the members of such committee in office, as the case may be, and is
filed with the secretary of the Corporation.
6.4 Meetings by Means of Conference Telephone.
One or more persons may participate in a meeting of the directors, or
of any committee of directors, but not a meeting of the shareholders, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person at the meeting.
6.5 Modification of Proposals.
Whenever the language of a proposed resolution is included in a
written notice of a meeting required to be given by statute or by the articles
or bylaws, the meeting considering the resolution may without further notice
adopt it with such clarifying or other amendments as do not enlarge its original
purpose.
7. CERTAIN SHAREHOLDER RIGHTS
7.1 Inspection of Corporate Records.
Every shareholder shall, upon written verified demand stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business for any proper purpose, the share register,
books and records of account, and records of the proceedings of the
incorporators, shareholders and directors and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to the
interest of the person as a shareholder. In every instance where an attorney or
other agent is the person who seeks the right of inspection, the demand shall be
accompanied by a verified power of attorney or other writing that authorizes the
attorney or other agent to so act on behalf of the shareholder. The
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demand shall be directed to the Corporation at its registered office in
Pennsylvania or at its principal place of business wherever situated.
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<PAGE>
Exhibit 4.1
NUMBER SHARES
- ---------------- --------------
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
MASTECH CORPORATION
The Corporation is authorized to issue 100,000,000 Common Shares
-- Par Value $.01 each
This Certifies that: is the owner of
--------------------------------------
fully paid and
- ------------------------------------------------------------
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated
--------------------------------
- -------------------------------- ----------------------------
SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM --as tenants in common UNIF GIFT MIN ACT-.....Custodian.....(Minor)
TEN ENT --as tenant by the under Uniform Gifts to Minors Act....(State)
entireties
JT TEN --as joint tenants with
right of survivorship
and not as tenants in
common
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------
represented by the within Certificate, and hereby
irrevocably constitutes and appoints
------------------------------------------
Attorney to transfer the said
- --------------------------------------------------
shares on the books of the within-named Corporation with full power of
substitution in the premises.
Dated,
-----------------
In presence of
----------------------------------------
- --------------------------------------------
[NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.]
<PAGE>
Exhibit 5.1
BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, PA 15219-1410
November 18, 1996
Mastech Corporation
1004 McKee Road
Oakdale, PA 15071
Gentlemen:
In connection with the Registration Statement on Form S-1 as amended
(Registration No. 333-14169) (the "Registration Statement"), filed by Mastech
Corporation, a Pennsylvania corporation (the "Company"), under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the public offering
of an aggregate of up to 4,715,000 shares of the Company's Common Stock, par
value of $.01 per share, of which (a) 3,400,000 shares will be purchased by the
underwriters from the Company; (b) 700,000 shares will be purchased by the
underwriters from the existing shareholders of the Company (the "Selling
Shareholders"); and (c) up to 615,000 shares may be purchased by the
underwriters from the Selling Shareholders, if the underwriters exercise the
option granted to them by the Selling Shareholders to cover over-allotments
(collectively, the "Shares"), we, as counsel for the Company, have examined such
corporate records, other documents, and questions of law as we have considered
necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that in our opinion:
(i) the Shares to be issued and sold by the Company have been duly and
validly authorized and, when sold in the manner contemplated by the underwriting
agreement (the "Underwriting Agreement") filed as an exhibit to the Registration
Statement and upon receipt by the Company of payment therefor as provided in the
Underwriting Agreement, will be legally issued, fully paid and non-assessable;
and
(ii) the Shares to be sold by the Selling Shareholders have been duly and
validly authorized, legally issued and are fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and any amendment thereto, including any and all post-effective
amendments and any registration statement relating to the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
and to the reference to this firm under the caption "Legal Matters. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
<PAGE>
Very truly yours,
Buchanan Ingersoll Professional Corporation
By: /s/ Stephen W. Johnson
<PAGE>
Exhibit 10.1
FORM OF
-------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of __________ 1996, between
Mastech Systems Corporation, a Pennsylvania corporation, with its principal
executive offices at 1004 McKee Road, Oakdale, Pennsylvania 15071 (the
"Company"), and_________________, an individual and resident of Allegheny
County, Pennsylvania (the "Executive").
WHEREAS, the Executive is and has been employed by the Company and is
currently Co-Chairman and of the Company;
----------------
WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms on which the Company will continue to employ the Executive
and the Executive agrees to be employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and intending to be legally bound hereby, the Company and the
Executive hereby agree as follows:
1. Position and Duties.
-------------------
a. The Company agrees to, and hereby does, continue to employ the
Executive for the term of this Agreement to render services to the Company as
Co-Chairman and of the Company, and in connection
----------------
therewith, to perform such duties as the Executive is now performing and such
other duties commensurate with such positions as the Executive may reasonably be
directed to perform by the Board of Directors. The Executive shall have the
right to devote a reasonable amount of time to (i) industry, community or
charitable organizations, and (ii) the management of personal investments, so
long as such activities do not
<PAGE>
interfere or conflict with the performance by the Executive of his obligations
hereunder. Subject to the provisions of Section 8, Section 9 and Section 10
hereof, the Executive may serve as a director of other companies with the
consent of the Board of Directors of the Company, which consent shall not be
unreasonably withheld.
b. The Executive hereby accepts such employment and agrees
faithfully to perform to the best of his ability the duties described in Section
l(a).
2. Term. Subject to Section 4 hereof, the term of employment of the
----
Executive under this Agreement shall commence on the closing date of the
initial public offering of the Company's Common Stock (the "Effective Date") (at
which time this Agreement shall become effective) and shall terminate on the
last day of the calendar month which is 24 calendar months after the Effective
Date. Commencing on the last day of the first full calendar month after the
Effective Date and on the last day of each succeeding calendar month, the term
of this Agreement shall be automatically extended without further action by
either party for one additional calendar month unless one party notifies the
other in writing that such party does not wish to extend the term of this
Agreement. In the event that such notice shall have been delivered, the term
hereof shall no longer be subject to automatic extension and the term hereof
shall expire on the date which is 24 calendar months after the last day of the
month in which such written notice is received. (The last day of the calendar
month in which the term hereof, as extended from time to time, shall end is
hereinafter referred to as the "Expiration Date").
2
<PAGE>
3. Compensation. In consideration for the Executive's agreements
------------
contained herein, and as compensation to the Executive for the performance of
the services required hereunder, the Company shall pay or grant to him the
following salary and other compensation and benefits:
a. a base salary, payable in equal installments not less
frequently than monthly, at an annual rate of not less than $300,000 per year,
such amount to be determined from time to time by the Board of Directors or an
appropriate committee thereof, provided, however, that the Executive's base
salary shall be periodically reviewed by the Board of Directors and shall be
increased if the Board of Directors determines that an increase is appropriate
on the basis of the types of factors it generally takes into account in
increasing the salaries of executive officers of the Company;
b. an annual incentive compensation payment (bonus) of not less
than $200,000, the precise amount to be determined by the Board of Directors and
payable to the Executive no later than April 15 of each calendar year for the
prior year; provided that payment of all or a portion of such bonus may be made
subject to the attainment of reasonable Company, business unit or individual
performance goals;
c. such other awards under the Company's 1996 Stock Incentive
Plan (the "Plan") or under any other stock option, incentive compensation or
other compensation plan, program or arrangement now existing, or hereafter
adopted and applicable to executive officers of the Company, as the Board of
Directors, or an appropriate committee thereof administering such plan, program
or arrangement, may determine appropriate in light of the duties and
responsibilities of the Executive in respect to other executive officers;
3
<PAGE>
d. participation on the same terms and conditions as all other
employees in all employee benefit plans, whether or not qualified within the
meaning of Section 401(a) of the Internal Revenue Code of 1986, as may be
amended from time to time (the "Code"), as may be now or hereafter sponsored or
maintained for all employees of the Company, and participation on the same terms
and conditions as other executive officers in such other plan, program or
arrangement as may be now or hereafter sponsored or maintained for executive
officers of the Company;
e. reimbursement for reasonable travel and other expenses incurred
by Executive in performing his obligations hereunder pursuant to the terms and
conditions of the Company's policy in respect thereto; and
f. reasonable vacations, absences on account of temporary illness
and fringe benefits customarily enjoyed by employees or officers of the Company
under the terms and conditions of the Company's policy in respect thereto.
Nothing contained in this Agreement shall prevent the Board of
Directors from amending or otherwise altering the Plan, or any other plan,
program or arrangement so long as such amendment or alteration (i) is
accomplished pursuant to the terms thereof as in effect on the Effective Date or
on the date such is adopted, if later, and (ii) equitably affects all employees,
executive or otherwise, previously covered thereunder.
4. Termination of Employment. This Agreement shall terminate upon the
-------------------------
Expiration Date or upon the death of the Executive. The Company may terminate
this Agreement prior to the Expiration Date (and the Executive's employment
hereunder shall terminate) for "Disability"
4
<PAGE>
or "Cause". Termination of this Agreement by the Company for any reason not set
forth in the two preceding sentences shall not be deemed a permitted termination
and shall be deemed a breach of this Agreement. In the event of any termination
of this Agreement prior to the Expiration Date, whether a permitted termination
or otherwise, the provisions of Section 5 of this Agreement shall determine the
amount, if any, of any compensation thereafter due the Executive in respect to
such termination.
As used in this Agreement, the following terms shall have the meanings
set forth:
a. Disability. If, as a result of the Executive's incapacity due
----------
to physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six consecutive months, and
within thirty days after written notice of termination is given by the Company,
the Executive shall not have returned to the full-time daily performance of his
duties, the Executive shall be deemed to have experienced a Disability and the
Company may terminate the Executive's employment. The Executive shall be
entitled to leaves of absence from the Company in accordance with the Company's
policy generally applicable to executives for illness or other temporary
disabilities for a period or periods not exceeding an aggregate of six months in
any calendar year, and his compensation and status as an employee hereunder
shall continue during any such period or periods.
b. Cause. Termination by the Company of employment for "Cause"
-----
shall mean termination upon:
(i) the willful and continued failure by the Executive to
substantially perform his duties with the Company (other than any such
failure resulting from his incapacity due to physical or mental illness),
after a written demand for
5
<PAGE>
substantial performance is delivered to the Executive by the Board of
Directors which specifically identifies the manner in which the Board of
Directors believes that the Executive has not substantially performed his
duties, and which failure has not been cured within thirty days after such
written demand; or
(ii) the willful and continued engaging by the Executive in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise; or
(iii) the willful breach by the Executive of the Non-Competition
clause in Section 8, the Non-Solicitation clauses in Sections 9 and 10 or
the Confidentiality clause in Section 11 hereof.
For purposes of this Subsection (b), no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that such
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of at least 80% of the directors then
serving (after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of the Board of Directors the
Executive was guilty of conduct set forth above in clauses (i), (ii) or (iii) of
the first sentence of this Subsection (b) and specifying the particulars thereof
in detail.
c. Notice of Termination. Any purported termination by the Company
---------------------
shall be communicated by written Notice of Termination to the Executive in
accordance with Section
6
<PAGE>
13 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination, resignation or
retirement provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination, resignation or retirement under the provision so indicated.
d. Date of Termination, Etc. "Date of Termination" shall mean (i)
------------------------
if the Executive's employment is terminated for Disability, thirty days after
Notice of Termination is given (provided that the Executive shall not have
returned to the performance of the Executive's duties on a full-time daily basis
during such thirty-day period), and (ii) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of Termination
(which shall not be less than thirty days nor more than sixty days, from the
date such Notice of Termination is given) and provided that if within thirty
days after any Notice of Termination is given the Executive and the Executive
has notified the Company that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally determined
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
Any party giving notice of a dispute shall pursue the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Executive will be entitled to indemnification under Section 7 hereof and the
Company will continue to pay the Executive his full compensation in effect when
the notice giving rise to the dispute was given (including, but not limited to,
base salary) and continue the Executive as a participant in all compensation,
employee benefit and insurance plans, programs
7
<PAGE>
and arrangements in which the Executive was participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection (d).
5. Compensation Upon Termination.
-----------------------------
a. Death. If the Executive's employment hereunder terminates by
-----
reason of his death, the Company shall be obligated to pay to his surviving
widow, or to his legal representatives if he leaves no surviving widow or if his
surviving widow dies prior to fulfillment of the Company's obligations, (i) the
Executive's then current base salary for a twelve (12) month period commencing
on the first day of the month following the Executive's death, or until the
Expiration Date, whichever shall be the first to occur, (ii) within 30 days
after the Executive's death, a one time payment of $100,000, and (iii) any
benefits to which the Executive is entitled under any insurance policies on the
life of the Executive, under the Company's insurance programs and other employee
benefit plans, programs and arrangements then in effect and under the Company's
pension plan for salaried employees, if any. In addition to the foregoing, the
Company shall arrange to provide the Executive's spouse and eligible dependents
with and shall pay the cost or premiums when due for health and accident
insurance benefits substantially similar to those which the Executive is
receiving immediately prior to his death.
b. Disability. If the Executive's employment hereunder terminates
----------
by reason of his Disability, the Company shall (i) continue to pay to the
Executive, in accordance with the payroll practices of the Company in effect
prior to the Date of Termination, the Executive's then current base salary for
thirty-six (36) months after the Date of Termination, reduced by any benefits to
which the Executive may be entitled under any Company sponsored disability
income or income protection plan, policy or arrangement, the premiums for which
are paid by the Company, and (ii) for each of the three years after the Date of
Termination an amount equal to the highest annual bonus that the Executive
received in the three years prior to the Date of Termination, payable each year
in a lump sum at approximately the same time as annual bonuses
8
<PAGE>
were paid by the Company in the year prior to the Date of Termination. If the
Executive dies prior to the date on which such additional amounts would have
ceased to be payable under this Subsection (b), the amount that would have been
payable by the Company had he lived shall continue to be paid by the Company to
his surviving widow, for a period of 12 months following the Executive's death,
at the same times and rates as it would have been payable to him.
c. Cause. If the Executive's employment hereunder is terminated by
-----
the Company for Cause, the Company shall pay to the Executive his full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given and the Company shall have no further obligations to the
Executive under this Agreement.
d. Voluntary Resignation or Retirement. In the event the Executive
-----------------------------------
retires or resigns other than because of a material breach of this Agreement by
the Company, the Company shall pay to the Executive his full base salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given and, except as provided in Section 6, the Company shall have no further
obligations to the Executive under this Agreement.
e. Other. If the Executive's employment hereunder is terminated
-----
(1) by the Company other than for Cause or Disability, or (2) by the Executive
because of a material breach by the Company of this Agreement, then the
Executive shall be entitled to the benefits provided below:
(i) the Company shall pay the Executive his full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay to
9
<PAGE>
the Executive, not later than the thirtieth day following the Date of
Termination, a lump sum severance payment equal to the Executive's full
base salary for the then remaining term of this Agreement (without regard
to the date of such Notice of Termination) at the rate then in effect,
discounted to present value at a discount rate of 7% per annum applied to
each future payment from the time it would have become payable;
(iii) the Executive shall receive, not later than the thirtieth day
following the Date of Termination, that number of shares of the
Corporation's common stock with a value equal to the product of (i) the
difference (to the extent that such difference is a positive number)
obtained by subtracting the per share exercise price of each (1) Option and
(2) SAR held by the Executive, whether or not then fully exercisable, from
the closing price of the Common Stock (the "Closing Price") as reported on
the National Association of Securities Dealers Automatic Quotation/National
Market System, or such similar national quotation system or stock exchange
on the Date of Termination (or if not traded on the Date of Termination,
the closing price on the preceding business day on
10
<PAGE>
which the Common Stock traded), and (ii) the total number of Options and
SARs held by the Executive provided, however, that the Executive may elect
to receive in lieu of stock an amount of cash equal to his federal and
state income tax liability with respect to amounts received pursuant to
this subsection (iii);
(iv) the Company shall also pay directly as incurred or reimburse the
Executive, upon demand, all legal fees and expenses incurred by the
Executive in contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Internal Revenue Code (the "Code")
to any payment or benefit provided hereunder;
(v) for the remainder of the Executive's life, the Company shall
arrange to provide the Executive with and shall pay the cost or premiums
when due for disability and health-and-accident insurance benefits
substantially similar to those which the Executive is receiving immediately
prior to the Notice of Termination;
(vi) the payments under this Subsection (e) are intended by the
parties to be due and payable under the circumstances of a termination for
the reasons set forth above whether or not such circumstances are preceded
by a change in control of the Company. If, notwithstanding the intentions
of the parties, it is asserted by any governmental agency, in any tax
audit, administrative proceeding or otherwise, that any payments provided
under this Section 5(e) (the "Severance Payments") are or will be subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
successor provision thereto) and/or that a federal income tax deduction for
amounts paid as Severance Payments will not be
11
<PAGE>
allowed to the Company for any year by reason of Section 28OG of the Code
(or any successor provision thereto), the Executive may contest or refute
such assertion with respect to the Excise Tax in any appropriate forum (the
"Executive's Contest") and the Company shall diligently and vigorously
contest or refute such assertion with respect to the disallowance of such
deduction in all administrative proceedings and in the federal district
court or the Tax Court, whichever shall have jurisdiction (the "Company's
Contest"). The Executive's Contest and the Company's Contest shall be
conducted and presented separately unless the Executive, in his discretion
but with the consent of the Company, joins in the Company's Contest. In any
event, the Executive shall be entitled to retain attorneys and other
experts deemed necessary or appropriate by the Executive to the proper
presentation of the Executive's Contest and shall not be compelled by the
Company to compromise, settle or otherwise terminate the Executive's
Contest without his written consent thereto. The Company and the Executive
shall cooperate one with the other and each shall provide to the other
copies of all documents relevant to or useful in connection with either the
Executive's Contest or the Company's Contest as may reasonably be requested
by the other. The Executive shall attend any hearing, deposition or other
proceeding at which his attendance in person is material to the Company's
Contest. The Company shall cause the appropriate authorized officer or
officers of the Company to attend any hearing, deposition or other matter
at which the Company's appearance is requested by any party; and
12
<PAGE>
(vii) The payments provided for in this Subsection (e), shall be
made not later than the thirtieth day following the Date of Termination,
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Company shall pay to the Executive on
such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined
but in no event later than the sixtieth day after the Date of Termination.
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a
loan by the Company to the Executive payable on the fifth day after demand
by the Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
f. The Executive shall not be required to mitigate the amount of
any payment provided for in this Section 5 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Section 5 be
reduced by any compensation earned by the Executive as the result of employment
by another employer, or otherwise. Notwithstanding the preceding sentence,
benefits otherwise receivable by the Executive pursuant to Section 5(e)(v) above
shall be reduced to the extent comparable benefits are actually received by the
Executive from the plan or plans of any subsequent employer or from any program
maintained by any governmental body not requiring contribution by the Executive,
and any such benefits actually received by the Executive shall be reported to
the Company.
13
<PAGE>
6. Retirement
----------
Nothing contained in this Agreement shall be deemed to limit the
Executive's right to receive vested benefits under the Company's retirement
policies and pension plan for salaried employees, if any, and to thereby receive
all benefits for which he is eligible under such plans and any other plan,
program or arrangement of the Company, all subject to and in accordance with the
terms of those plans.
7. Indemnification
---------------
a. The Company shall indemnify and hold harmless to the full extent
not prohibited by law, as the same exists or may hereinafter be amended,
interpreted or implemented (but, in the case of any amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than the Company is permitted to provide prior to such
amendment), the Executive or his estate if made a party to, or threatened to be
made a party to, or is otherwise involved in (as a witness or otherwise) any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative and whether or not by
14
<PAGE>
or in the right of the Company or otherwise (hereinafter, a "proceeding"), by
reason of the fact that he, or a person of whom he is the heir, executor, or
administrator, is or was a director, officer or controlling person (within the
meaning of the Securities Exchange Act of 1934, as amended) of the Company or is
or was serving at the request of the Company as a director, officer or trustee
of another Company or of a partnership, joint venture, trust or other enterprise
(including, without limitation, service with respect to employee benefit plans),
or where the basis of such proceeding is any alleged action or failure to take
any action by the Executive while acting in an official capacity as a director,
officer or controlling person of the Company or in any other capacity on behalf
of the Company, against all expenses, liability and loss, including but not
limited to attorneys' fees, judgments, fines, excise taxes or penalties and
amounts paid or to be paid in settlement whether with or without court approval,
actually incurred or paid by the Executive in connection therewith.
b. Notwithstanding the foregoing, and except as provided in Section
7(e) below, the Company shall indemnify the Executive seeking indemnification in
connection with a proceeding (or part thereof) initiated by the Executive only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Company.
c. Subject to the limitation set forth above concerning proceedings
initiated by the Executive, the right to indemnification conferred in this
Section 7 shall be a contract right and shall include the right to be paid by
the Company the expenses incurred in defending any such proceeding (or part
thereof) or in enforcing his rights under this Section 7 in advance of the
final disposition thereof promptly after receipt by the Company of a request
therefor stating in reasonable detail the expenses incurred; provided, however,
that to the extent required by law, the payment of such expenses incurred by the
Executive in advance of the final disposition of a
15
<PAGE>
proceeding shall be made only upon receipt of an undertaking, by or on behalf of
the Executive, to repay all amounts so advanced if and to the extent it shall
ultimately be determined by a court that he is not entitled to be indemnified by
the Company under this Section 7, or in the case of a criminal action, the
majority of the Board of Directors so determines that he is not entitled to be
indemnified by the Company, or otherwise.
d. The right to indemnification and advancement of expenses provided
herein shall continue as to the Executive after he has ceased to be employed by
the Company or to serve in any of the other capacities described herein, and
shall inure to the benefit of his heirs, executors and administrators.
16
<PAGE>
e. The Company shall reimburse the Executive for the expenses
(including attorneys' fees and disbursements) incurred in successfully
prosecuting or defending any dispute related to his right to indemnification
hereunder.
f. The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of a final disposition conferred in this
Section 7 shall not be deemed exclusive of any other rights to which the
Executive may be entitled under the articles of incorporation, any bylaw,
agreement, vote of shareholders, vote of directors or otherwise, both as to
actions in his official capacity and as to actions in any other capacity while
holding that office.
8. Non-Competition. During the term of this Agreement and, if and only if
---------------
the Executive's employment has been terminated by the Company for Cause, and in
no other case, for one (1) year after the Date of Termination, the Executive
shall refrain from competing with the Company or any subsidiary of the Company
except with the Company's prior written consent. The phrase "refrain from
competing with the Company or any subsidiary of the Company" shall mean that the
Executive will not engage, directly or indirectly (including, by way of example
only, as a principal, partner, venturer, employee or agent) nor have any direct
or indirect interest in any enterprise (a "Competing Enterprise") which competes
with the Company or any subsidiary thereof by
17
<PAGE>
providing information technology consultants to clients on an independent
contractor basis. It is agreed that the foregoing provisions shall not restrict
the Executive from either (i) being a director of or having any investments or
other interests in an enterprise which is not a competing enterprise, or (ii)
having any investments in any competing enterprise the stock of which is listed
on a national securities exchange or traded publicly over-the-counter so long as
such investment does not give the Executive more than five percent (5%) of the
voting stock of such enterprise.
9. Non-Solicitation of Customers and Suppliers. Executive agrees that
-------------------------------------------
during his employment with the Company he shall not, directly or indirectly,
solicit the trade of, or trade with, any customer, prospective customer,
supplier, or prospective supplier of the Company for any business purpose other
than for the benefit of the Company. Executive further agrees that for one (1)
year following termination of his employment with the Company, including
without limitation termination by the Company for cause or without cause,
Executive shall not, directly or indirectly, solicit the trade of, or trade
with, any customers or suppliers, or prospective customers or suppliers, of the
Company except in instances where the Company has not solicited the potential
client in the past or where the services proposed to be offered by the Executive
are not then offered by the Company.
10. Non-Solicitation of Employees. Executive agrees that, during his
-----------------------------
employment with the Company and for one (1) year following termination of
Executive's employment with the Company, including without limitation
termination by the Company for cause or without cause, Executive shall not,
directly or indirectly, solicit or induce, or attempt to solicit or induce,
18
<PAGE>
any employee of the Company to leave the Company for any reason whatsoever, or
hire any employee of the Company.
11. Confidentiality. The Executive agrees:
---------------
a. To keep secret all trade secret and proprietary information of
the Company and its subsidiaries and affiliates and not to disclose them to
anyone outside the Company or its subsidiaries and affiliates, either during or
for one year after his employment with the Company, except with the Company's
prior written consent or as required by law; and
b. To deliver promptly to the Company on termination of Executive's
employment with the Company all memoranda, notes, records, reports and other
documents (and all copies thereof) with respect to any such trade secret and
proprietary information (such as customers lists, suppliers lists, etc.) which
the Executive may then possess or have under his control.
12. Arbitration. Any disputes hereunder shall be settled by arbitration
-----------
in Pittsburgh, Pennsylvania under the auspices of, and in accordance with the
rules of, the American Arbitration Association, and the decision in such
arbitration shall be final and conclusive on the parties and judgment upon such
decision may be entered in any court having jurisdiction thereof.
19
<PAGE>
13. Notices. All notices and other communications which are required or
-------
may be given under this Agreement shall be in writing and shall be delivered
personally, by overnight courier, or by registered or certified mail addressed
to the party concerned at the following addresses:
If to the Company:
Mastech Corporation
1004 McKee Road
Oakdale, PA 15071
If to the Executive:
or to such other address as shall be designated by notice in writing to the
other party in accordance herewith. Notices and other communications hereunder
shall be deemed effectively given when personally delivered, or, if sent by
overnight courier or by mail, upon receipt.
14. Miscellaneous.
-------------
a. This Agreement supersedes all prior agreements, arrangements and
understandings, written or oral, relating to the subject matter hereof.
b. (i) This Agreement shall inure to the benefit of the Executive's
heirs, representatives or estate to the extent stated herein.
(ii) This Agreement shall be binding on the sucessors and assigns
of the Company, and the Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
20
<PAGE>
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "Company" shall mean the Company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Subsection 14 (b) (ii)
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
c. This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provisions hereof shall in no manner
affect the right at a later time to enforce such provisions thereafter. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach or a waiver of the breach of any other term or covenant contained in this
Agreement.
d. In the event any one or more of the covenants, terms or
provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants, terms and
provisions contained herein shall be in no way affected, prejudiced or disturbed
thereby.
e. This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except as provided in
Subsection 14(b) above. Without limiting the foregoing, the Executive's right
to receive payments hereunder shall not be assignable or
21
<PAGE>
transferable, whether by pledge, creation of a security interest or otherwise,
other than a transfer by his will or by the laws of descent or distribution, and
in the event of any attempted assignment or transfer contrary to this Subsection
14(e) the Company shall have no liability to pay any amount so attempted to be
assigned or transferred; provided, however, that the Executive may ask the
Company to consent to any assignment of any payments due after the termination
of his employment and the Company shall not unreasonably withhold such consent.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
ATTEST: MASTECH CORPORATION:
By:________________________ By:_________________________
Secretary Ashok Trivedi
Co-Chairman and President
WITNESS: EXECUTIVE:
___________________________ ____________________________
22
<PAGE>
Exhibit 10.2
Mastech Corporation
1996 STOCK INCENTIVE PLAN
Section 1. General Purpose of the Plan; Definitions. The name of the
plan is the Mastech Corporation 1996 Stock Incentive Plan (the "Plan"). The
purpose of the Plan is to encourage and enable the officers, employees,
directors and consultants of Mastech Corporation (the "Company") and its
Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Stock Awards, Performance Share Awards and
Stock Appreciation Rights.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Effective Date" means the date on which the Plan is approved by the
stockholders as set forth in Section 19.
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall be the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported,
or (ii) if the Stock is admitted to trading on a United States securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall be the closing price reported for the Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last day
preceding such date for which a sale was reported; (iii) notwithstanding the
foregoing, the Fair Market Value of the Stock on the effective date of the
Initial Public Offering shall be the offering price to the public of the Stock
on such date; and (iv) if the Fair Market Value cannot be determined on the
basis previously set forth in this definition on the date that
<PAGE>
Fair Market Value is to be determined, The Board shall in good faith determine
the Fair Market Value of the Stock on such date.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not an employee
or officer of the Company or any Subsidiary.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any Option to purchase shares of Stock
granted pursuant to Section 6.
"Performance Share Award" means any Award granted pursuant to Section 12.
"Restricted Stock Award" means any Award granted pursuant to Section 10.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 14.
"Stock Appreciation Right" or "SAR" means any Award granted pursuant to
Section 7.
"Stock Award" means any award granted pursuant to Section 11.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
Section 2. Administration. The Plan shall be administered by the full
Board of Directors of the Company or a committee of such Board of Directors
comprised of two or more "Non-Employee Directors" within the meaning of Rule
16b-3(a)(3) promulgated under the Act (the "Plan Administrator"). Subject to the
provisions of the Plan, the Plan Administrator is authorized to:
(a) construe the Plan and any Award under the Plan;
(b) select the directors, officers, employees and consultants of the
Company and its Subsidiaries to whom Awards may be granted;
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(c) determine the number of shares of Stock to be covered by any Award;
(d) determine and modify from time to time the terms and conditions,
including restrictions, of any Award and to approve the form of
written instrument evidencing Awards;
(e) accelerate at any time the exercisability or vesting of all or any
portion of any Award and/or to include provisions in awards providing
for such acceleration;
(f) impose limitations on Awards, including limitations on transfer and
repurchase provisions;
(g) extend the exercise period within which Stock Options may be
exercised; and
(h) determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or
credit amounts constituting interest (at rates determined by the Plan
Administrator) or dividends or deemed dividends on such deferrals.
The determination of the Plan Administrator on any such matters shall be
conclusive.
Section 3. Delegation of Authority to Grant Awards. The Plan
Administrator, in its discretion, may delegate to the Co-Chairmen of the Company
all or part of the Plan Administrator's authority and duties with respect to
granting Awards to individuals who are not subject to the reporting provisions
of Section 16 of the Act or "covered employees" within the meaning of Section
162(m) of the Code. The Plan Administrator may revoke or amend the terms of such
a delegation at any time, but such revocation shall not invalidate prior actions
of the Co-Chairmen that were consistent with the terms of the Plan.
Section 4. Eligibility. Directors, officers, employees and consultants of
the Company or its Subsidiaries who, in the opinion of the Plan Administrator,
are mainly responsible for the continued growth and development and future
financial success of the business shall be eligible to participate in the Plan.
In addition, Independent Directors are eligible to receive an automatic grant of
Stock Options pursuant to Section 9 hereof.
Section 5. Shares Subject to the Plan. The initial number of shares of
Stock which may be issued pursuant to the Plan shall be 2,160,000. For purposes
of the foregoing limitation, the shares of Stock underlying any Awards which are
forfeited, canceled, reacquired by the Company, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise) shall be added back to
the number of shares of Stock available for issuance under the Plan.
Notwithstanding the foregoing, on and after the date that the Plan is subject to
Section 162(m) of the Code, Stock Options with respect to no more than 200,000
shares of Stock may be
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granted to any one individual participant during any one calendar year period.
To the extent that an SAR is granted in conjunction with an Option, the shares
covered by such SAR and Option shall be counted only once. Common Stock to be
issued under the Plan may be either authorized and unissued shares or shares
held in treasury by the Company.
Section 6. Stock Options. Options granted pursuant to the Plan may be
either Options which are Incentive Stock Options or Non-Qualified Stock Options.
Incentive Stock Options and Non-Qualified Stock Options shall be granted
separately hereunder. The Plan Administrator, shall determine whether and to
what extent Options shall be granted under the Plan and whether such Options
granted shall be Incentive Stock Options or Non-Qualified Stock Options;
provide, however, that: (a) Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code; and (b) No Incentive Stock
Option may be granted following the tenth anniversary of the effective date of
the Plan. The provisions of the Plan and any stock Option agreement pursuant to
which Incentive Stock Options shall be issued shall be construed in a manner
consistent with Section 422 of the Code (or any successor provision) and rules
and regulations promulgated thereunder.
Section 7. Stock Appreciation Rights. The Plan Administrator may, from
time to time, subject to the provisions of the Plan, grant SARs to eligible
participants. Such SARs may be granted (i) alone, (ii) simultaneously with the
grant of an Option (either an Incentive Stock Option or Non-Qualified Stock
Option) and in conjunction therewith or in the alternative thereto or (iii)
subsequent to the grant of a Non-Qualified Stock Option and in conjunction
therewith or in the alternative thereto.
(a) An SAR shall entitle the holder upon exercise thereof to receive
from the Company, upon a written request filed with the Secretary
of the Company at its principal offices (the "Request"), (i) a
number of shares of Stock (with or without restrictions as to
substantial risk of forfeiture and transferability, as determined
by the Plan Administrator in its sole discretion), (ii) an amount
of cash, or (iii) any combination of shares of Stock and cash, as
specified in the Request (but subject to the approval of the Plan
Administrator in its sole discretion, at any time up to and
including the time of payment, as to the making of any cash
payment), having an aggregate Fair Market Value equal to the
product of (i) the excess of the Fair Market Value, on the day of
such Request, of one share of Stock over the exercise price per
share specified in such SAR or its related Option, multiplied by
(ii) the number of shares of Stock for which such SAR shall be
exercised.
(b) The exercise price of an SAR granted alone shall be determined
by the Plan Administrator, but may not be less than the Fair
Market Value of the underlying Stock on the date of grant. An SAR
granted simultaneously with or subsequent to the grant of an
Option and in conjunction therewith or in the alternative thereto
shall have the same exercise price as the
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related Option, shall be transferable only upon the same terms
and conditions as the related Option, and shall be exercisable
only to the same extent as the related Option; provided, however,
-------- -------
that an SAR, by its terms, shall be exercisable only when the
Fair Market Value of the Stock subject to the SAR and related
Option exceeds the exercise price thereof.
(c) Upon exercise of an SAR granted simultaneously with or
subsequent to an Option and in the alternative thereto, the
number of shares of Stock for which the related Option shall be
exercisable shall be reduced by the number of shares of Stock for
which the SAR shall have been exercised. The number of shares of
Stock for which an SAR shall be exercisable shall be reduced upon
any exercise of a related Option by the number of shares of Stock
for which such Option shall have been exercised.
(d) Any SAR shall be exercisable upon such additional terms and
conditions as may be prescribed by the Plan Administrator.
Section 8. Terms of Options and SARs. Each Option or SAR granted under
the Plan shall be evidenced by an agreement between the Company and the person
to whom such Option or SAR is granted and shall be subject to the following
terms and conditions:
(a) Subject to adjustment as provided in Section 14 of this Plan,
the price at which each share covered by an Option may be
purchased shall be determined in each case by the Plan
Administrator; provided, however, that such price shall not, in
the case of an Incentive Stock Option, be less than the Fair
Market Value of the underlying Stock at the time the Option is
granted. If an optionee owns (or is deemed to own under
applicable provisions of the Code and rules and regulations
promulgated thereunder) more than ten percent (10%) of the
combined voting power of all classes of the stock of the Company
and an Option granted to such optionee is intended to qualify as
an Incentive Stock Option, the Option price shall be no less than
110% of the Fair Market Value of the Common Stock covered by the
Option on the date the Option is granted.
(b) The aggregate Fair Market Value of shares of Stock with respect
to which Incentive Stock Options are first exercisable by the
optionee in any calendar year (under all plans of the Company)
shall not exceed the limitations, if any, imposed by Section
422(d) of the Code (or any successor provision). If any Option
designated as an Incentive Stock Option, either alone or in
conjunction with any other Option or Options, exceeds the
foregoing limitation, the portion of such Option in excess of
such limitation shall automatically be reclassified (in whole
share increments and without fractional share portions) as a Non-
Qualified Stock Option, with later granted Options being so
reclassified first.
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(c) Neither an Option nor an SAR shall be transferable by the
participant otherwise than by will or by the laws of descent and
distribution or pursuant to a domestic relations order. After the
death of the participant, the Option or SAR may be transferred to
the Company upon such terms and conditions, if any, as the Plan
Administrator and the personal representative or other person
entitled to exercise the Option or SAR may agree within the
period specified in subsection 8(d)(iii) hereof.
(d) An Option or SAR may be exercised in whole at any time, or in
part from time to time, within such period or periods (not to
exceed ten years from the granting of the Option in the case of
an Incentive Stock Option) as may be determined by the Plan
Administrator and set forth in the agreement (such period or
periods being hereinafter referred to as the "Option Period"),
provided that, unless the agreement provides otherwise:
(i) If a participant who is an employee of the Company shall
cease to be employed by the Company, all Options and SARs to
which the employee is then entitled to exercise may be
exercised only within three months after the termination of
employment and within the Option Period or, if such
termination was due to disability or retirement (as
hereinafter defined), within one year after termination of
employment and within the Option Period. Notwithstanding the
foregoing: (a) in the event that any termination of
employment shall be for Cause (as defined herein) or the
participant becomes an officer or director of, a consultant
to or employed by a Competing Business (as defined herein),
during the Option Period, then any and all Options and SARs
held by such participant shall forthwith terminate; and(b)
the Plan Administrator may, in its sole discretion, extend
the Option Period of any Option or SAR for up to three years
from the date of termination of employment regardless of the
original Option Period. For purposes of the Plan, retirement
shall mean the termination of employment with the Company,
other than for Cause, at any time after the age 65.
For purposes of this Plan, the term "Cause" shall mean (a)
with respect to an individual who is party to a written
agreement with the Company which contains a definition of
"cause" or "for cause" or words of similar import for
purposes of termination of employment thereunder by the
Company, "cause" or "for cause" as defined in such
agreement; (b) in all other cases (I) the willful commission
by an employee of a criminal or other act that causes
substantial economic damage to the Company or substantial
injury to the business reputation of the Company; (II) the
commission of an act of fraud in the performance of such
person's duties to or on
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behalf of the Company; or (III) the continuing willful
failure of a person to perform the duties of such person to
the Company (other than a failure to perform duties
resulting from such person's incapacity due to illness)
after written notice thereof (specifying the particulars
thereof in reasonable detail) and a reasonable opportunity
to cure such failure are given to the person by the Board of
Directors of the Company or the Plan Administrator. For
purposes of the Plan, no act, or failure to act, on the part
of any person shall be considered "willful" unless done or
omitted to be done by the person other than in good faith
and without reasonable belief that the person's action or
omission was in the best interest of the Company.
For purposes of this Plan, the term "Competing Business"
shall mean: any person, corporation or other entity engaged
in the business of (a) providing information technology
services or (b) selling or attempting to sell any product or
service which is the same as or similar to products or
services sold by the Company within the last year prior to
termination of such person's employment, consultant
relationship or directorship, as the case may be, hereunder.
(ii) If a participant who is a director of the Company shall
cease to serve as a director of the Company, any Options or
SARs then exercisable by such director may be exercised only
within three months after the cessation of service and
within the Option Period unless such cessation was due to
disability, in which case such optionee may exercise such
Option or SAR within one year after cessation of service and
within the Option Period. Notwithstanding the foregoing: (a)
if any cessation of service as a director was the result of
removal for Cause or the participant becomes an officer or
director of, a consultant to or employed by a Competing
Business during the Option Period, any Options and SARs held
by such participant shall forthwith terminate; and (b) the
Plan Administrator may in its sole discretion extend the
Option Period of any Option or SAR for up to three years
from the date of cessation of service regardless of the
original Option Period;
(iii) If the participant shall die during the Option Period, any
Options or SARs then exercisable may be exercised only
within one year after the participant's death and within the
Option Period and only by the participant's personal
representative or persons entitled thereto under the
participant's will or the laws of descent and distribution;
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<PAGE>
(iv) The Option or SAR may not be exercised for more shares
(subject to adjustment as provided in Section 14) after the
termination of the participant's employment, cessation of
service as a director or the participant's death, as the
case may be, than the participant was entitled to purchase
thereunder at the time of the termination of the
participant's employment or the participant's death; and
(v) If a participant owns (or is deemed to own under applicable
provisions of the Code and regulations promulgated
thereunder) more than 10% of the combined voting power of
all classes of stock of the Company (or any parent or
subsidiary corporation of the Company) and an Option granted
to such participant is intended to qualify as an Incentive
Stock Option, the Option by its terms may not be exercisable
after the expiration of five years from the date such Option
is granted.
(e) The Option exercise price of each share purchased pursuant to
an Option shall be paid in full at the time of each exercise (the
"Payment Date") of the Option (i) in cash; (ii) by delivering to
the Company a notice of exercise with an irrevocable direction to
a broker-dealer registered under the Act to sell a sufficient
portion of the shares and deliver the sale proceeds directly to
the Company to pay the exercise price; (iii) in the discretion of
the Plan Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair
Market Value equal to the Option exercise price of the shares
being purchased pursuant to the exercise of the Option; provided,
however, that shares of Common Stock delivered in payment of the
Option price must have been held by the participant for at least
six (6) months in order to be utilized to pay the Option price;
(iv) in the discretion of the Plan Administrator, through an
election to have shares of Common Stock otherwise issuable to the
optionee withheld to pay the exercise price of such Option; or
(v) in the discretion of the Plan Administrator, through any
combination of the payment procedures set forth in subsections
(i)-(iv) of this Section 8(e).
(f) The Plan Administrator, in its discretion, may authorize "stock
retention Options" which provide, upon the exercise of an Option
previously granted under this Plan (a "prior Option"), using
previously owned shares, for the automatic issuance of a new
Option under this Plan with an exercise price equal to the
current Fair Market Value and for up to the number of shares
equal to the number of previously-owned shares delivered in
payment of the exercise price of the prior Option. Such stock
retention Option shall have the same Option Period as the prior
Option.
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<PAGE>
(g) Nothing contained in the Plan nor in any Award agreement shall
confer upon any participant any right with respect to the
continuance of employment by the Company nor interfere in any way
with the right of the Company to terminate his employment or
change his compensation at any time.
(h) The Plan Administrator may include such other terms and
conditions not inconsistent with the foregoing as the Plan
Administrator shall approve. Without limiting the generality of
the foregoing sentence, the Plan Administrator shall be
authorized to determine that Options or SARs shall be exercisable
in one or more installments during the term of the Option,
subject to the attainment of performance goals and objectives and
the right to exercise may be cumulative as determined by the Plan
Administrator.
Section 9. Independent Director Options. Anything to the contrary
notwithstanding, each Independent Director who is first elected or appointed to
serve as a director commencing after the effective time of the Initial Public
Offering shall automatically be granted Non-Qualified Stock Options to purchase
15,000 shares of Stock. The Option exercise price for Options granted to
Independent Directors under the Plan will be equal the Fair Market Value of the
Stock on the date of grant. Options granted to Independent Directors under the
foregoing provisions will be granted on the date that such Independent Director
is first elected or appointed to serve as a director and will vest in equal
annual installments over three years commencing on the anniversary of the date
of grant and will expire ten years after grant, subject to earlier termination
if the optionee ceases to serve as a director.
Section 10. Restricted Stock Awards.
(a) The Plan Administrator may grant Restricted Stock Awards to any
officer, employee or consultant of the Company and its
Subsidiaries. A Restricted Stock Award entitles the recipient to
acquire shares of Stock subject to such restrictions and
conditions as the Plan Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing
employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.
(b) Upon execution of a written instrument setting forth the
Restricted Stock Award and paying any applicable purchase price,
a participant shall have the rights of a shareholder with respect
to the Stock subject to the Restricted Stock Award, including,
but not limited to the right to vote and receive dividends with
respect thereto; provided, however, that shares of Stock subject
to Restricted Stock Awards that have not vested shall be subject
to the restrictions on transferability described in Section 10(d)
below. Unless the Plan Administrator shall otherwise determine,
certificates evidencing the Restricted Stock shall remain in the
possession
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of the Company until such Restricted Stock is vested
as provided in Section 10(c) below.
(c) The Plan Administrator at the time of grant shall specify the
date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which
Restricted Stock shall become vested, subject to such further
rights of the Company or its assigns as may be specified in the
instrument evidencing the Restricted Stock Award. If the grantee
or the Company, as the case may be, fails to achieve the
designated goals or the grantee's relationship with the Company
is terminated prior to the expiration of the vesting period, the
grantee shall forfeit all shares of Stock subject to the
Restricted Stock Award which have not then vested.
(d) Unvested Restricted Stock may not be sold, assigned transferred,
pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument
evidencing the Restricted Stock Award.
Section 11. Stock Awards. The Plan Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Plan
Administrator) a Stock Award to any officer, employee or consultant of the
Company or its Subsidiaries, pursuant to which such individual may receive
shares of Stock free of any vesting restrictions (a "Stock Award") under the
Plan. Stock Awards may be granted or sold as described in the preceding
sentence in respect of past services or other valid consideration, or in lieu of
any cash compensation due to such individual.
Section 12. Performance Share Awards. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Plan Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan. Performance Share Awards may be granted under the Plan to any
officer, employee or consultant of the Company or its Subsidiaries, including
those who qualify for awards under other performance plans of the Company. The
Plan Administrator in its sole discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured, and all
other limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Plan Administrator may rely on the performance goals
and other standards applicable to other performance plans of the Company in
setting the standards for Performance Share Awards under the Plan.
Section 13. Tax Withholding.
(a) Whenever shares are to be issued or cash is to be paid under the
Plan, the Company shall have the right to require the participant
to remit to the Company an amount sufficient to satisfy federal,
state and local tax withholding requirements prior to the
delivery of any certificate for shares or any proceeds; provided,
however, that in the case of a participant who receives an Award
of shares under the Plan which is not fully vested, the
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participant shall remit such amount on the first business day
following the Tax Date. The "Tax Date" for purposes of this
Section 13 shall be the date on which the amount of tax to be
withheld is determined. If a participant makes a disposition of
shares acquired upon the exercise of an Incentive Stock Option
within either two years after the Option was granted or one year
after its exercise by the participant, the participant shall
promptly notify the Company and the Company shall have the right
to require the participant to pay to the Company an amount
sufficient to satisfy federal, state and local tax withholding
requirements.
(b) A participant who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding
requirements may pay such amount (i) in cash; (ii) in the
discretion of the Plan Administrator, through the delivery to the
Company of previously-owned shares of Common Stock having an
aggregate Fair Market Value on the Tax Date equal to the tax
obligation provided that the previously owned shares delivered in
satisfaction of the withholding obligations must have been held
by the participant for at least six (6) months; or (iii) in the
discretion of the Plan Administrator, through a combination of
the procedures set forth in subsections (i) and (ii) of this
Section 13(b).
(c) A participant who is obligated to pay to the Company an amount
required to be withheld under applicable tax withholding
requirements in connection with either the exercise of a Non-
Qualified Stock Option, or the receipt of a Restricted Stock
Award, Stock Award or Performance Share Award under the Plan may,
in the discretion of the Plan Administrator, elect to satisfy
this withholding obligation, in whole or in part, by requesting
that the Company withhold shares of stock otherwise issuable to
the participant having a Fair Market Value on the Tax Date equal
to the amount of the tax required to be withheld; provided,
however, that shares may be withheld by the Company only if such
withheld shares have vested. Any fractional amount shall be paid
to the Company by the participant in cash or shall be withheld
from the participant's next regular paycheck.
(d) An election by a participant to have shares of stock withheld to
satisfy federal, state and local tax withholding requirements
pursuant to Section 13(c) must be in writing and delivered to the
Company prior to the Tax Date.
Section 14. Adjustment of Number and Price of Shares.
Any other provision of the Plan notwithstanding:
(a) If, through or as a result of any merger, consolidation, sale of
all or substantially all of the assets of the Company,
reorganization,
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recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding
shares of Stock are increased or decreased or are exchanged for a
different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other
securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other
securities, the Plan Administrator shall make an appropriate or
proportionate adjustment in (i) the number of Stock Options that
can be granted to any one individual participant, (ii) the number
and kind of shares or other securities subject to any then
outstanding Awards under the Plan, and (iii) the price for each
share subject to any then outstanding Stock Options under the
Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of shares) as to which
such Stock Options remain exercisable. The adjustment by the Plan
Administrator shall be final, binding and conclusive.
(b) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board of Directors shall
authorize the issuance or assumption of a stock Option or stock
Options in a transaction to which Section 424(a) of the Code
applies, then, notwithstanding any other provision of the Plan,
the Plan Administrator may grant an Option or Options upon such
terms and conditions as it may deem appropriate for the purpose
of assumption of the old Option, or substitution of a new Option
for the old Option, in conformity with the provisions of Code
Section 424(a) and the rules and regulations thereunder, as they
may be amended from time to time.
(c) No adjustment or substitution provided for in this Section 14
shall require the Company to issue or to sell a fractional share
under any stock Option agreement or share award agreement and the
total adjustment or substitution with respect to each stock
Option and share award agreement shall be limited accordingly.
(d) In the case of (i) the dissolution or liquidation of the
Company, (ii) a merger, reorganization or consolidation in which
the Company is acquired by another person or entity (other than a
holding company formed by the Company), (iii) the sale of all or
substantially all of the assets of the Company to an unrelated
person or entity, or (iv) the sale of all of the stock of the
Company to a unrelated person or entity (in each case, a
"Fundamental Transaction"), the Plan and all Awards granted
hereunder shall terminate, unless provision is made in connection
with the Fundamental Transaction for the assumption of the Awards
heretofore granted, or the substitution of such Awards with new
awards of the successor entity, with appropriate adjustment as to
the number and kind of shares and, if appropriate, the per share
exercise price as provided in
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Subsections (a) and (b) of this Section 14. In the event of such
termination each participant shall be notified of such proposed
termination and permitted to exercise for a period of at least 15
days prior to the date of such termination all Options and SARs
held by such participant which are then exercisable.
Section 15. Amendment and Discontinuance. The Board of Directors may
alter, amend, suspend or discontinue the Plan, provided that no such action
shall deprive any person without such person's consent of any rights theretofore
granted pursuant hereto.
Section 16. Compliance with Governmental Regulations. Notwithstanding any
provision of the Plan or the terms of any agreement entered into pursuant to the
Plan, the Company shall not be required to issue any shares hereunder prior to
registration of the shares subject to the Plan under the Securities Act of 1933
or the Act, if such registration shall be necessary, or before compliance by the
Company or any participant with any other provisions of either of those acts or
of regulations or rulings of the Securities and Exchange Commission thereunder,
or before compliance with other federal and state laws and regulations and
rulings thereunder, including the rules any applicable exchange or of the Nasdaq
Stock Market. The Company shall use its best efforts to effect such
registrations and to comply with such laws, regulations and rulings forthwith
upon advice by its counsel that any such registration or compliance is
necessary.
Section 17. Compliance with Section 16. With respect to persons subject
to Section 16 of the Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 (or its successor rule and shall be
construed to the fullest extent possible in a manner consistent with this intent
). To the extent that any Award fails to so comply, it shall be deemed to be
modified to the extent permitted by law and to the extent deemed advisable by
the Plan Administrator in order to comply with Rule 16b-3. .
Section 18. Participation by Foreign Nationals. The Plan Administrator
may, in order to fulfill the purposes of the Plan and without amending the Plan,
modify grants to foreign nationals or United States citizens employed abroad in
order to recognize differences in local law, tax policy or custom.
Section 19. Effective Date of Plan. The Plan became effective on November
__, 1996, the date of approval and adoption of the Plan by requisite vote of the
holders of the outstanding shares of Stock.
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Exhibit 10.3
AGREEMENT
By and Between
MASTECH CORPORATION
and
STEVEN SHANGOLD
THIS AGREEMENT, made by and between MASTECH CORPORATION, a Pennsylvania
corporation ("Mastech"), and STEVEN SHANGOLD, an individual currently residing
at 5220 Karrington Drive, Gibsonia, Pennsylvania 15044 (hereinafter "Shangold")
(collectively, Mastech and Shangold shall sometimes be referred to herein as the
"Parties"), is dated as of October 14, 1996.
BACKGROUND
Mastech is contemplating an initial public offering of its shares of common
stock, par value $.01 per share ("Common Stock") on or before January 31, 1997
(the "IPO").
Mastech desires to reward Shangold for his past performance and to provide
an incentive to Shangold to continue to contribute to the long-term growth and
financial prosperity of Mastech.
If the IPO does not close by January 31, 1997, this Agreement shall be null
and void and the Parties shall make alternative arrangements as contemplated by
the last draft of Phantom Stock Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth in this Agreement, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Compensation and Incentive.
--------------------------
1.1 Compensation. Shangold shall receive from Mastech promptly
------------
following the closing date of the IPO (the "IPO Date"), and Mastech shall pay or
issue to Shangold in cash and/or shares of Common Stock, an amount equal to the
value of 750 shares of Mastech Common Stock (subject to adjustment for the
contemplated stock split prior to the IPO and based on the per share price to
the public of the Common Stock as reflected on the final Prospectus on the IPO
Date). The choice as between cash, shares or a combination thereof shall be made
by Shangold. Any shares received by Shangold pursuant to this Paragraph 1.1
shall be free of any restrictions on transfer except for any restrictions
imposed by applicable Federal and state securities laws and any lock-up
arrangements requested by the underwriters (which Shangold will agree to in
writing).
1.2 Incentive. So long as Shangold is still employed by Mastech on the
---------
IPO Date, Mastech shall also issue to Shangold promptly following the IPO Date,
in addition to any shares issued pursuant to Paragraph 1.1 above, 750 shares of
"Restricted" Common Stock (as adjusted for the contemplated stock split prior to
the IPO) (the "Restricted Shares"). Stock certificate(s) representing the
Restricted Shares shall be issued to Shangold and his beneficial
<PAGE>
ownership thereof shall be recorded in the appropriate books and records of the
Company. Such certificate(s) shall bear the following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) contained in an Agreement entered into
between the registered owner and Mastech Corporation. Copies of
such Agreement are on file in the offices of Mastech Corporation,
1004 McKee Road, Oakdale, Pennsylvania, 15219.
Upon expiration of the Restricted Period (as defined in Paragraph 1.3 below) or
the earlier lapse of the restrictions on Restricted Shares as otherwise provided
in this Agreement, Mastech shall deliver or cause to be delivered to Shangold
substitute certificate(s) without the foregoing legend for those Restricted
Shares which have not been forfeited.
Shangold shall have all rights and privileges of a shareholder as to the
Restricted Shares, including the right to vote and receive dividends or other
distributions with respect to the Restricted Shares, except that the following
restrictions shall apply:
(i) none of the Restricted Shares may be sold,
transferred, assigned, pledged or otherwise encumbered or
disposed of during the Restricted Period unless otherwise
provided in this Agreement; and
(ii) all of the Restricted Shares shall remain subject to
forfeiture during the Restricted Period in accordance with
other provisions in this Agreement.
1.3 Total Forfeiture. During the period beginning on the IPO Date and
----------------
ending June 30, 1998 (the "Restricted Period"), the Restricted Shares will be
subject to forfeiture. If Shangold's employment with Mastech shall terminate
during the Restricted Period for any reason other than as set forth in
Paragraphs 2.1 or 2.3, all of Shangold's rights to the Restricted Shares shall
terminate, all the Restricted Shares shall be forfeited and Shangold shall
endorse the Restricted Share certificates over, and return them, to Mastech.
1.4 Transferability of Shares After the Restricted Period. On July 1,
-----------------------------------------------------
1998, so long as Shangold shall still be employed by Mastech, all of the
Restricted Shares shall automatically become transferable subject only to any
restrictions imposed by applicable Federal and State securities laws, and shall
no longer be subject to risk of forfeiture.
-2-
<PAGE>
2. Partial Forfeiture.
------------------
2.1 Termination Without Cause. If Shangold is actually or
constructively terminated by Mastech during the Restricted Period without cause
(as defined below), a pro rata portion of the Restricted Shares shall become
freely transferable by Shangold and no longer subject to forfeiture, determined
by dividing the number of days employed during the Restricted Period by the
total number of days in the Restricted Period, multiplied by the total number of
Restricted Shares. Any remaining Restricted Shares shall be forfeited and
Shangold shall endorse the certificates therefor over, and return them, to
Mastech.
2.2 Sale of Mastech. In the event of the sale of the Mastech business
---------------
to an independent third party buyer ("Buyer") during the Restricted Period
(whether such sale is effected by a sale of all or substantially all of the
assets of Mastech, or by the merger of Mastech with or into a third party, or by
the sale of shares of Mastech), a pro rata portion of the Restricted Shares
shall become freely transferable by Shangold and no longer subject to
forfeiture, determined by dividing the number of days during the Restricted
Period prior to the closing of the sale transaction by the total number of days
in the Restricted Period, multiplied by the total number of Restricted Shares.
The remaining Restricted Shares shall be forfeited and Shangold shall endorse
the certificates therefor over, and return them, to Mastech, unless Shangold
reaches an agreement with the Buyer that allows him to retain such remaining
Restricted Shares.
2.3 Death of Shangold. In the event Shangold dies during the
-----------------
Restricted Period, a pro rata portion of the Restricted Shares shall no longer
be subject to forfeiture and shall be freely transferable by Shangold, by will
or otherwise, determined by dividing the number of days employed during the
Restricted Period by the total number of days in the Restricted Period,
multiplied by the total number of Restricted Shares. The remaining Restricted
Shares shall be forfeited and Shangold's legal representatives shall endorse the
certificates therefor over, and return them, to Mastech.
3. Miscellaneous.
-------------
3.1 Registration. The Parties hereby agree that all of the Common
------------
Stock granted to Shangold under this Agreement shall not be part of the
Registration Statement on Form S-1 filed as part of the IPO. Mastech will use
its best efforts to effect a filing of a Registration Statement on Form S-8
which pursuant to General Instruction C of Form S-8, will register for resale by
Shangold the shares of Common Stock granted under this Agreement.
3.2 Taxes. The Parties agree to be responsible for their own tax
-----
liabilities (if any) which result from this Agreement. To the extent required by
law, Mastech may deduct any applicable federal and state withholding and payroll
taxes from any payments due under this Agreement. Both parties hereby agree and
acknowledge that neither Party has made any representations or warranties
regarding the tax consequences of this Agreement and each of them have consulted
with their own tax advisors and have not entered into this Agreement relying
upon any tax representations which have been made as between them. Mastech
hereby confirms its intention not to treat Shangold as having taxable income
with respect to the Restricted Shares at the
-3-
<PAGE>
time of issuance thereof, but rather that such taxable income shall occur if and
when and to the extent the Restricted Shares are no longer subject to
forfeiture, except if Shangold files an election under Section 83 (b) of the
Internal Revenue Code.
3.3 Valuation. The Parties agree that it is not their intent that this
---------
Agreement guarantee the value of the stock grants contained herein nor is there
contemplated a guarantee of a per share value. The Parties acknowledge that the
price of the Common Stock may fluctuate once it is publicly traded and listed on
a national exchange or with NASDAQ/NMS.
3.4 Definition of Cause. Solely for purposes of this Agreement, the
-------------------
term "cause" shall mean:
(a) The deliberate and intentional engaging by Shangold in gross
misconduct that is materially and demonstrably inimical to
the best interests, monetary or otherwise, of Mastech;
(b) Conviction of a felony or conviction of any crime involving
moral turpitude, fraud or deceit; or
(c) Breach of any noncompetition, nonsolicitation or
confidentiality provisions agreed to by Shangold in writing
for the benefit of Mastech.
Shangold hereby agrees that any such noncompetition or nonsolicitation
provisions shall not be limited to the United States, but shall cover any
country in the world where Mastech now or hereafter does business.
3.5 Non-Transferability. Except as provided in Paragraph 2.3, the
-------------------
rights of Shangold under this Agreement, including the right to any amounts
payable to him hereunder, shall not be transferable or assignable to any other
party, under any circumstances, without the express written consent of Mastech,
and any attempted transfer or assignment shall void and of no effect.
3.6 Governing Law. This Agreement shall be interpreted and its
-------------
provisions enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
3.7 Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing and shall be deemed given or delivered when
delivered personally, by registered or certified mail, by legible facsimile
transmission or by overnight courier addressed as follows:
If to Mastech, to:
------------------
Sunil Wadhwani, Chairman
Mastech Systems Corporation
1004 McKee Road
Oakdale, PA 15071
Fax No: (412) 787-9561
-4-
<PAGE>
If to Shangold, to:
-------------------
Mr. Steven Shangold
5220 Karrington Drive
Gibsonia, PA 15044
3.8 No Right of Employment. This Agreement does not create any right
----------------------
to continued employment of Shangold by Mastech or any of its affiliates.
3.9 Unconditional Obligations. This Agreement establishes and vests in
-------------------------
Shangold a contractual right to the benefits to which he is entitled hereunder.
Except as otherwise provided in the Agreement, Mastech's obligations under this
Agreement shall be absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset, counterclaim,
recoupment, defense, or other right which Mastech or its affiliates may have
against Shangold or any other party. Each and every payment made hereunder by
Mastech shall be final, except for forfeiture of Restricted Shares as provided
herein, and Mastech shall not seek to recover all or any part of a final and
non-forfeitable payment from Shangold, or from whomsoever may be entitled
thereto, for any reasons whatsoever.
3.10 Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or the breach thereof (including the arbitrability of any
controversy or claim), shall be settled by arbitration in the City of Pittsburgh
in accordance with the laws of the Commonwealth of Pennsylvania by three (3)
arbitrators, one of whom shall be appointed by Mastech, one by Shangold, and the
third of whom shall be appointed by the first two arbitrators. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this paragraph. The cost of any arbitration
proceeding hereunder shall be borne equally by Mastech and Shangold, although
the arbitrators shall have authority to decide that one party shall reimburse
the other for its costs. The award of the arbitrators shall be binding upon the
parties. Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
3.11 Entire Agreement. This Agreement represents the entire agreement
----------------
by and between the parties with respect to the matters contained herein. In the
event the IPO closes on or prior to January 31, 1997, this Agreement shall
supersede any and all prior discussions or writings regarding the equity
participation by Shangold in Mastech including, but not limited to, the original
offer of employment letter dated February 2, 1992, the revised stock incentive
agreement dated September 23, 1993, the 1996 Compensation Plan dated April 30,
1996 and the letter dated August 2, 1996 from Sunil Wadhwani. No change,
modification, extension, termination, discharge, abandonment or waiver of this
Agreement or any of its provisions, nor any representation, promise or condition
relating to this Agreement, will be binding upon any party unless made in
writing and signed by such party.
3.12 Null and Void. In the event the IPO fails to close by January 31,
-------------
1997, for any reason whatsoever, this Agreement shall be considered null and
void and the terms and
-5-
<PAGE>
conditions contained herein shall have no effect on either Party, and the
Parties shall make alternative arrangements as contemplated by the last draft of
Phantom Stock Agreement.
3.13 New Employment Agreement. If requested by Mastech, Shangold shall
------------------------
enter into a new employment agreement with Mastech in a form substantially the
same as the form of employment agreement entered into by other executive
officers of Mastech in connection with the IPO, provided that such agreement
shall not reduce or limit Shangold's rights under this Agreement.
The undersigned have executed this Agreement as of the date first above
written.
EXECUTED IN DUPLICATE
MASTECH CORPORATION
/s/ Sunil Wadhwani
--------------------
Co-Chairman
STEVEN SHANGOLD
/s/ Steven Shangold
---------------------
-6-
<PAGE>
ADDENDUM TO AGREEMENT
BY AND BETWEEN
MASTECH SYSTEMS CORPORATION AND STEVEN SHANGOLD
THIS ADDENDUM is made this ____ day of November, 1996 by and between
MASTECH SYSTEMS CORPORATION (f/k/a Mastech Corporation) ("Mastech Systems") and
STEVEN SHANGOLD, an individual currently residing at 5220 Karrington Drive,
Gibsonia, Pennsylvania 15044 (hereinafter "Shangold") (collectively, Mastech and
Shangold shall sometimes be referred to herein as the "Parties").
WHEREAS, the Parties entered into an Agreement dated October 14, 1996,
providing for the payment by Mastech Systems of certain compensation in
connection with an Initial Public Offering of Common Stock being contemplated by
Mastech Systems; and
WHEREAS, subsequent to the execution of the Agreement, the Board of
Directors of Mastech Systems decided to reorganize so that, in connection with
and immediately prior to the contemplated IPO, Mastech Systems will become a
wholly-owned subsidiary of MSC Holding Company, a Delaware corporation, which
itself will be a wholly-owned subsidiary of a new entity known as Mastech
Corporation, a Pennsylvania corporation("Mastech"), which will be the issuer in
the contemplated IPO.
THEREFORE, the Parties hereby agree as follows:
1. Compensation and Incentive. Shangold's right to receive
--------------------------
compensation and incentive under Section 1 of the Agreement in the form of
Common Stock of Mastech Systems shall instead entitle him to now receive
compensation and incentive in the form of Common Stock of Mastech.
2. Substitution. All rights, duties and obligations of Mastech
------------
Systems shall hereafter be the rights, duties and obligations of Mastech. All
rights, duties and obligations that Shangold currently has under the Agreement
to Mastech Systems, other than those related to his employment with Mastech
Systems, including but not limited to those set forth in the Agreement as a term
or condition to receiving any compensation and incentive, shall hereafter be
rights, duties and obligations to Mastech.
3. Surviving Terms and Conditions. All other terms and conditions
------------------------------
of the Agreement shall survive and remain unaffected by this Addendum.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Addendum as of
the date first written above.
MASTECH CORPORATION
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
MASTECH SYSTEMS CORPORATION
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
---------------------------------------------
STEVEN SHANGOLD
Date:
----------------------------------------
<PAGE>
ADDENDUM TO AGREEMENT
BY AND BETWEEN
MASTECH SYSTEMS CORPORATION AND STEVEN SHANGOLD
THIS ADDENDUM is made this ____ day of November, 1996 by and between
MASTECH SYSTEMS CORPORATION (f/k/a Mastech Corporation) ("Mastech Systems") and
STEVEN SHANGOLD, an individual currently residing at 5220 Karrington Drive,
Gibsonia, Pennsylvania 15044 (hereinafter "Shangold") (collectively, Mastech and
Shangold shall sometimes be referred to herein as the "Parties").
WHEREAS, the Parties entered into an Agreement dated October 14, 1996,
providing for the payment by Mastech Systems of certain compensation in
connection with an Initial Public Offering of Common Stock being contemplated by
Mastech Systems; and
WHEREAS, subsequent to the execution of the Agreement, the Board of
Directors of Mastech Systems decided to reorganize so that, in connection with
and immediately prior to the contemplated IPO, Mastech Systems will become a
wholly-owned subsidiary of MSC Holding Company, a Delaware corporation, which
itself will be a wholly-owned subsidiary of a new entity known as Mastech
Corporation, a Pennsylvania corporation("Mastech"), which will be the issuer in
the contemplated IPO.
THEREFORE, the Parties hereby agree as follows:
1. Compensation and Incentive. Shangold's right to receive
--------------------------
compensation and incentive under Section 1 of the Agreement in the form of
Common Stock of Mastech Systems shall instead entitle him to now receive
compensation and incentive in the form of Common Stock of Mastech.
2. Substitution. All rights, duties and obligations that Shangold
------------
currently has under the Agreement to Mastech Systems, other than those related
to his employment with Mastech Systems, including but not limited to those set
forth in the Agreement as a term or condition to receiving any compensation or
incentive payments, shall hereafter be rights, duties and obligations to
Mastech. Notwithstanding the preceding sentence, and in the event Mastech does
not meet its payment obligations (if any) under the Agreement, Mastech Systems
shall be liable for the payment obligations thereunder (if any) except that
Mastech Systems shall not be obligated to issue stock to meet said obligations
but instead shall have a right to pay to Shangold the cash value of any stock
due under the Agreement.
3. Surviving Terms and Conditions. All other terms and conditions
------------------------------
of the Agreement shall survive and remain unaffected by this Addendum.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Addendum as of
the date first written above.
MASTECH CORPORATION
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
MASTECH SYSTEMS CORPORATION
By:
------------------------------------------
Title:
---------------------------------------
Date:
----------------------------------------
---------------------------------------------
STEVEN SHANGOLD
Date:
----------------------------------------
<PAGE>
Exhibit 10.4
[LETTERHEAD OF MASTECH CORPORATION]
-----------------------------------
May 6, 1991
Mr. Shekar Sivasubramanian
4700 Roanoke Parkway
Apt. #502
Kansas City, MO 64112
Dear Mr. Sivasubramanian:
Welcome on board. We are really pleased that you are joining us, and look
forward to a long-term and mutually beneficial relationship.
In accordance with our discussion, the following are the terms of your
employment with Mastech Systems Corporation. If you agree with them, please
sign in the space indicated on Page 2.
1. Duties. You will be employed with the title of Project Leader and will
------
render all reasonable duties expected of a Team Leader, Systems Analyst and
Software Developer. These services will be provided at locations
designated by Mastech and will include the offices of Mastech's clients.
During the term of this agreement, you will devote your full abilities to
the performance of your duties, and agree to comply with Mastech's
reasonable policies and standards.
2. Compensation. You will be paid at the rate of $48,00 per year (gross),
------------
payable in twelve monthly installments at the end of each month. Applicable
federal and state taxes will be deducted from your gross earnings. As your
responsibilities within Mastech increase, your compensation will be
adjusted accordingly.
3. Relocation. Expenses incurred in connection with your relocation will be
----------
reimbursed at actuals or at a fixed rate. However, for your settling
expenses at your project site, you will be reimbursed actual expenses
subject to a maximum of $750.
4. Health Insurance. You and your immediate family will receive health/dental,
----------------
life and long-term disability insurance coverage through Mastech's
insurance carriers.
5. Legal Formalities. Legal fees incurred in connection with immigration
-----------------
formalities will be shared equally between you and Mastech.
6. Vacation and Holidays. The company's vacation policy is detailed in the
---------------------
Employee Policy Manual.
<PAGE>
Mr. Shekar Sivasubramanian
May 6, 1991
Page 2 of 3
7. Performance Review. Your performance will be reviewed at the end of your
------------------
first twelve months of employment with Mastech and annually thereafter,
with subsequent adjustment in your compensation.
8. Reports. You will provide Mastech with any reports that are deemed
-------
necessary,including periodic summaries of your work-related activities and
accomplishments.
9. Confidentiality. You will hold in trust and not disclose to any party,
---------------
directly or indirectly, during your employment with Mastech and thereafter,
any confidential information relating to research, development, trade
secrets, customer/prospect lists or business affairs of Mastech or its
clients.
10. Non-Solicitation. You agree not to join any competitive software services
----------------
company, directly or indirectly, for a period of two years following the
termination of your employment with Mastech. However, you are free to join
a client (e.g., IBM) as an employee.
11. Complete Agreement. The statements in this Agreement constitute the
------------------
complete agreement between you and Mastech, and may not be amended or
modified unless signed in writing by both parties.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of Pennsylvania.
13. Severability. The invalidity of enforceability of any particular
------------
provision of the agreement will not affect the other provisions mentioned.
All of the above terms will be effective once your H-1 visa application has been
applied for and approved.
If you agree with the terms stated in this Agreement, please indicate so by
signing on the next page. If not, give me a call and we can clarify any points
that you like.
<PAGE>
Mr. Shekar Sivasubramanian
May 6, 1991
Page 3 of 3
We're very pleased that you'll be working with us, and we will do all we can to
ensure that the transition is smooth, and that our relationship is mutually
beneficial.
Sincerely,
/s/ Sunil Wadhwani
Sunil Wadhwani
Director
I agree with the terms stated in this letter.
/s/ Shekar Sivasubramanian 05/11/91
- ------------------------------------ ----------------------
Mr. Shekar Sivasubramanian Date
<PAGE>
Exhibit 10.5
[LETTERHEAD OF MASTECH CORPORATION]
-----------------------------------
May 20, 1996
Mr. Ajmal Noorani
8020 Wood Creek Drive
Bridgeville, Pennsylvania 15017
Dear Ajmal:
We are pleased to offer you employment with Mastech Systems Corporation (the
"Company") on the following terms and conditions:
1. Duties. You shall be hired for the newly created position of Vice-President
------
of Corporate Development. You shall use your best energies and abilities on
a full-time basis to perform the duties assigned to you from time to time.
You shall comply with all rules, regulations and procedures of the Company
and refrain from engaging in any conduct adverse to the best interests of
the Company. Your performance will be reviewed at the end of your first
twelve months of employment and annually thereafter. Also, you are
instructed not to divulge any confidential information of, or violate any
agreement with, your prior employers or their clients.
2. Compensation and Benefits. You shall receive a base salary of $10,000.00
-------------------------
per month and you will also be eligible for a performance-based bonus of up
to $7,500.00 per quarter. Compensation, subject to all applicable taxes and
withholdings, will be paid on the fifteenth of each month for your services
during the prior month. You will be entitled to receive benefits as are
generally available from time to time to employees of the Company.
3. Confidentiality and Corporate Opportunities. As part of your employment,
-------------------------------------------
you may acquire or develop confidential and proprietary information
(defined as information that is not generally available to the public
and/or that is not legally acquired by you through sources unrelated to
your employment) concerning the Company, its existing and prospective
customers and employees, and its dealings and method of dealings with its
existing and prospective customers and employees ("Confidential Matter").
You also will identify and agree to fully disclose to the Company potential
business opportunities or ventures of which you become aware during the
period of your employment that are or may be available to the Company in
its current or other related areas of business (hereinafter, "Corporate
Opportunities"). You agree that such Confidential Matter and Corporate
Opportunities are for the Company's exclusive benefit and that, both during
your employment and during a period until two (2) years following the
termination of your employment, you will not directly or indirectly use,
disclose to competitors or potential competitors, or pursue any
Confidential Matter or Corporate Opportunities
<PAGE>
except for the sole benefit of or with the written consent of the Company.
Upon the conclusion of your employment, you will promptly return all
documents and information (including computer-generated or stored matters)
concerning Confidential Matter, Corporate Opportunities, or the Company or
its existing or prospective customers and employees.
4. Non-Competition and Non-Solicitation. During the period until two (2) years
------------------------------------
following the termination of your employment (which time period shall be
extended by the length of time during which you are in violation of this
paragraph), you shall not directly or indirectly solicit the business or
services of, or deal in a manner adverse to the Company with, any existing
or prospective customer, supplier, investor, co-venturer, or employee of
the Company or pursue Corporate Opportunities of the Company. You further
agree that: (i) the Company shall be entitled to injunctive relief as well
as damages for any violation by you of paragraph 3 or 4 of this Agreement
(which shall survive the termination of the Agreement and your employment);
(ii) Pennsylvania substantive law shall govern this Agreement and its
enforcement; (iii) jurisdiction and venue is proper in any proceeding to
enforce rights hereunder filed in any court located in Allegheny County,
Pennsylvania; and (iv) paragraphs 3 and 4 are intended to be enforced in
accordance with their terms but that such terms shall be deemed modified as
necessary so as to render them valid and enforceable to the fullest extent
permissible by applicable law.
5. Termination. This Agreement relates to your at-will employment and may be
-----------
terminated with or without cause by either party without any liability for
such termination by giving the other party at least fifteen (15) days'
prior written notice, except that paragraphs 3 and 4 hereto shall survive
the termination of this Agreement. All payments due as of the date of
termination shall be paid in full within thirty (30) days of that date.
6. Entire Agreement. This Agreement represents the entire agreement of the
----------------
parties, and it supersedes all prior statements, discussions and
understandings and may be amended only by a writing signed by both parties.
Sincerely,
/s/ Sunil Wadhwani
Sunil Wadhwani
Chairman
Agreed to and accepted:
- ----------------------------------
[signature]
<PAGE>
Exhibit 10.6
[LETTERHEAD OF MASTECH CORPORATION]
-----------------------------------
March 16, 1995
Mr. Michael J. Zugay
221 University Drive
Aliquippa, PA 15001
Dear Michael:
We are pleased to offer you employment with Mastech Systems Corporation (the
"Company") on the following terms and conditions:
1. Duties. You shall use your best energies and abilities on a full-time
------
basis to perform the employment duties assigned to you from time to time
and also shall comply with all rules, regulations and procedures of the
Company. Your performance will be reviewed at the end of your first twelve
months of employment and annually thereafter. During your employment you
shall not directly or indirectly usurp any corporate opportunities or
otherwise engage in any conduct adverse to the best interests of the
Company. Also, you are instructed not to divulge any confidential
information of, or violate any agreement with, your prior employers or
their clients.
2. Compensation and Benefits. You shall be compensated at the rate of
-------------------------
$8,333.33 per month. Compensation, subject to all applicable taxes and
withholdings, will be paid on the fifteenth of each month for your services
during the prior month. After successful completion of a 90-day probation
period, you will be entitled to receive benefits as are generally available
from time to time to employees of the Company. You will receive two weeks
of paid vacation a year, plus an additional week of paid leave for
maintaining your CPA continuing education.
3. Confidentiality. As part of your employment, you will acquire or develop
---------------
confidential and proprietary information concerning the Company and its
dealings and method of dealings with its existing and prospective customers
and employees, and you also will develop relationships of special trust and
confidence with the Company's existing and prospective customers and
employees (collectively, "Confidential Matter"). You agree that such
Confidential Matter is for the Company's exclusive benefit and that, both
during your employment and at all times thereafter, you will not directly
or indirectly use or disclose any Confidential Matter except for the sole
benefit and with the consent of the Company. Upon the conclusion of your
employment, you will promptly return all documents and information
(including computer-generated or stored matters), concerning the Company or
its existing or prospective customers and employees.
<PAGE>
4. Non-Competition and Non-Solicitation. During the period until two (2)
------------------------------------
years following the termination of your employment for whatever reason
(which time period shall be extended by the length of time during which you
are in violation of this paragraph), you shall not directly or indirectly
solicit the business or services of, or deal in a manner adverse to the
Company with, any existing or prospective customer, supplier or employee of
the Company (regardless of whether or not you personally dealt with that
party during your employment) or otherwise interfere or compete with the
Company or its business. For these purposes, it is agreed that the
Company's business involves software services, including the management and
implementation of software design and development projects and the
provision of contract programming services, and the recruiting of software
professionals both from within and outside the United States. You further
agree that: (i) the Company shall be entitled to injunctive relief as well
as damages for any violation by you of paragraph 3 or 4 of this Agreement
(which shall survive the termination of this Agreement and your
employment); (ii) Pennsylvania substantive law shall govern this Agreement
and its enforcement; (iii) jurisdiction and venue is proper in any
proceeding to enforce rights hereunder filed in any court located in
Allegheny County, Pennsylvania, and (iv) paragraphs 3 and 4 are intended to
be enforced in accordance with their terms but that such terms shall be
deemed modified as necessary so as to render them valid and enforceable to
the fullest extent permissible by applicable law.
5. Entire Agreement. This Agreement represents the entire agreement of the
----------------
parties, and its supersedes all prior statements, discussions and
understandings and may be amended only by a writing signed by both parties.
Sincerely,
/s/ Sunil Wadhwani
Sunil Wadhwani
Chairman
Agreed to and accepted with the
express intent to be legally bound.
/s/ Michael J. Zugay
- --------------------------------------
<PAGE>
Exhibit 10.7
Sunil Wadhwani
May 19, 1994
Mr. Murali Balasubamanyam
No. 3, DDA (SFS) Flats
Niti Bagh
New Delhi - 10049.
Dear Murali:
The following are the terms of your employment with Mastech Systems Corporation
(the "Company"). Your employment with the Company to begin on your arrival date
in the United States. If you agree with these terms, please sign in the space
indicated on the last page of this Agreement.
1. Duties. You are employed as a Personnel Manager in the Personnel Department
------
of the Company and in such capacity shall use your best energies and
abilities in the performance of your duties hereunder and in the
performance of any other duties as may be assigned to you from time to time
by the Company. You agree to be a loyal employee of the Company. You agree
to devote your best efforts full time to the performance of your duties for
the Company, to give proper time and attention to furthering the Company's
business and to comply with all rules, regulations and instruments
established or issued by the Company. You further agree that during the
term of this Agreement you shall not, directly or indirectly, engage in any
business which would detract from your ability to apply your best efforts
to the performance of your duties hereunder. You also agree that you shall
not usurp any corporate opportunities of the Company.
2. Compensation. You will be paid at the rate of $4,500.00 per month. This
------------
compensation will be paid per the payroll schedule in effect at the time of
payment. Applicable federal and state taxes will be deducted from your
paycheck.
With effect from January 1, 1995, your salary will be revised to USD
5,000.00 per month, subject to satisfactory performance during the year
1994.
3. Employee Benefits. You will be entitled to all the benefits generally
-----------------
available to all employees of the Company. At the present time these
include hospitalization, life and long-term disability insurance.
<PAGE>
Mr. Murali Balasubamanyam
May 19, 1994
Page 2
4. Vacation and Holidays. The Company's vacation policy is detailed in the
---------------------
Employee Policy Manual.
5. Performance Review. Your performance will be reviewed periodically during
------------------
your employment with the Company.
6. Confidentiality. You recognize and acknowledge that:
---------------
(a) in the course of your employment by the Company, it will be necessary
for you to acquire information which may include, in whole or part,
information concerning the Company's sales, sales volume, sales methods,
sales proposals, customers and prospective customers, prospect lists,
sources of consultants, the Company's manuals, formulae, processes,
methods, machines, compositions, ideas, improvements, inventions or other
confidential or proprietary information belonging to the Company or
relating to the Company's affairs (collectively referred to herein as the
"confidential information");
(b) the confidential information is the property of the Company;
(c) the use, misappropriation or disclosure of the confidential information
would constitute a breach of trust and could cause irreparable injury; and
(d) it is essential to the protection of the Company's goodwill and to the
maintenance of the Company's competitive position that the confidential
information be kept secret and that you not disclose the confidential
information to others or use the confidential information to your own
advantage or the advantage of others.
You agree to hold and safeguard the confidential information in trust for
the Company, its successors and assigns and agree that you shall not,
without prior written consent of the Company, appropriate or disclose or
make available to anyone for use outside the Company at any time, either
during your employment with the Company or subsequent to the termination of
your employment with the Company for any reason, including without
limitation termination by the Company for cause or without cause, any of
the confidential information, whether or not developed by you, except as
required in the performance of your duties to the Company.
7. Return of Materials. Upon the termination of your employment with the
-------------------
Company for any reason, including without limitation termination by the
Company for cause or without cause, you shall promptly deliver to the
Company all correspondence, drawings, manuals, letters, notes, notebooks,
reports, prospect lists, flow charts, programs, proposals and any documents
concerning the Company's customers or suppliers and,
<PAGE>
Mr. Murali Balasubamanyam
May 19, 1994
Page 3
without limiting the foregoing, will promptly deliver to the Company any
and all other documents or materials containing or constituting
confidential information.
8. Noncompetition. You covenant and agree that during the period of your
--------------
employment hereunder and for a period of two (2) years following the
termination of your employment, including without limitation termination by
the Company for cause or without cause, you shall not engage, directly or
indirectly, whether as principal or as agent, officer, director, employee,
consultant, shareholder or otherwise, alone or in association with any
other person, corporation or other entity, in any competing business in the
United States of America, it being acknowledged by you that Mastech's
business is national in scope. As used in the Agreement, "competing
business" encompasses the business of software services, the management and
implementation of software design and development projects, the provision
of contract programming services and other services or products competitive
with the services or products of the Company at the time of termination of
your employment. You further agree that during your employment with the
Company you shall not, directly or indirectly, solicit the trade of, or
trade with, any customer, prospective customer, supplier or prospective
supplier of the Company for any business purpose other than for the benefit
of the Company. Additionally, you agree that for two (2) years following
termination of your employment with the Company, including without
limitation termination by the Company for cause or without cause, you shall
not, directly or indirectly, solicit the trade of, or trade with, any
customers or suppliers, or prospective customers or suppliers, of the
Company.
9. Nonsolicitation of Employees. You agree that during your employment with
----------------------------
the Company and for two (2) years following termination of your employment
with the Company, including without limitation termination by the Company
for cause or without cause, you shall not, directly or indirectly, solicit
or induce, or attempt to solicit or induce, any employee or consultant of
the Company to leave the Company for any reason whatsoever, or hire any
employee or consultant of the Company.
10. Unique Nature of Agreement. In the event of a breach by you of the terms of
--------------------------
this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages of any such breach, or to
enforce the specific performance of this Agreement by you and to enjoin you
from any further violation of this Agreement, and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided
by law. You acknowledge, however, that the remedies at law for any breach
by you of the provisions of this Agreement may be inadequate and that the
Company shall be entitled to injunctive relief against you in the event of
any breach. You represent that your experience and capabilities are such
that the provisions of this
<PAGE>
Mr. Murali Balasubamanyam
May 19, 1994
Page 4
Agreement will not prevent you from earning your livelihood, and
acknowledge that it would cause the Company serious and irreparable injury
and cost if you were to use your ability and knowledge in competition with
the Company or to otherwise breach the obligations hereunder. If the
Company prevails in any action brought under this Agreement, you agree that
the Company, in addition to any other relief, shall be entitled to recover
its reasonable attorneys' fees, costs and expenses of litigation incurred
by the Company in securing the relief granted by the court.
11. Termination. This Agreement may be terminated with or without cause by
-----------
either party without any liability for such termination by giving to the
other party at least fifteen (15) days' prior written notice, except that
the covenants of Sections 6, 7, 8, 9 and 10 hereof shall survive the
termination of this Agreement. All payments due as of the date of
termination shall be paid in full within thirty (30) days of this date.
12. Authorization to Modify Restrictions. It is the intention of the parties
------------------------------------
that the provisions of this Agreement shall be enforceable to the fullest
extent permissible under applicable law but that the unenforceability (or
modification to conform to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable,
either in whole or in part, this Agreement shall be deemed amended to
delete or modify, as necessary, the offending provision or provisions and
to alter the bounds thereof in order to render it valid or enforceable.
13. Tolling Period. The noncompetition and nonsolicitation obligations
--------------
contained in this Agreement shall be extended by the length of time during
which you shall have been in breach of any of the provisions of this
Agreement.
14. Company Violation Not a Defense. In any action by the Company to enforce
-------------------------------
this Agreement, any claims asserted by you against the Company shall not
constitute a defense to the Company's action.
15. Entire Agreement. This Agreement represents the entire agreement of the
----------------
parties and may be amended only by a writing signed by each of them.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
Each of the parties hereby submits to the exclusive jurisdiction of the
Commonwealth of Pennsylvania and the federal courts of the United States of
America for the Western District of Pennsylvania in respect of the
interpretation and enforcement of the provisions of this
<PAGE>
Mr. Murali Balasubamanyam
May 19, 1994
Page 5
Agreement, and hereby waives as a defense that it, he or she is not subject
thereto or that such action may not be brought in said courts or that the
venue of the suit is improper. Each of the parties agrees that service of
process in any such suit shall be deemed in every respect effective service
of process upon it if given by first-class mail, return receipt requested.
Sincerely,
/s/ Sunil Wadhwani
Sunil Wadhwani
Director
Intending to be legally bound, I agree with the terms stated in this letter.
/s/ Murali Balasubamanyam
- --------------------------------------
Murali Balasubamanyam
Dated: 9/16/94
--------------------------------
<PAGE>
Exhibit 10.8
December 20, 1991
Ms. Sushma Rajagopalan
F114 Oakwood, 60 S. Van Dorn Street
Alexandria, VA 22304
Dear Ms. Rajagopalan:
The following are the terms of your employment with Mastech Systems Corporation
(the "Company"); these will become effective the day you start work at Mastech.
If you agree with these terms, please sign in the space indicated on page 4.
1. Duties. You are employed as Manager, Federal Services Division, of the
------
Company and in such capacity shall use your best energies and abilities in the
performance of your duties hereunder and in the performance of any other duties
as may be assigned to you from time to time by the Company. You agree to be a
loyal employee of the Company. You agree to devote your best efforts full time
to the performance of you duties for the Company, to give proper time and
attention to furthering the Company's business and to comply with all rules,
regulations and instruments established or issued by the Company. You further
agree that during the term of this Agreement you shall not, directly or
indirectly, engage in any business which would detract from your ability to
apply your best efforts to the performance of you duties hereunder. You also
agree that you shall not usurp any corporate opportunities of the Company.
2. Compensation. You will be paid at the rate of $2,833.33 per month.
------------
This compensation will be paid at the end of each month. Applicable federal and
state taxes will be deducted from your monthly paycheck. In addition, you will
be eligible to receive a bonus equivalent to 25% of your annualized salary, or
$8,500, based on the achievement of performance targets. These targets, and
other details regarding the bonus plan, will be detailed in a separate document
which will be finalized within the next 30 days.
3. Employee Benefits. Until such time as you are covered by your
-----------------
husband's health insurance policy, you shall be covered by such medical or
health benefit plan as is available generally to employees of the Company. Other
employee benefits are detailed in the Employee Handbook.
4. Vacation and Holidays. The Company's policy is detailed in the
---------------------
Employee Handbook.
5. Performance Review. Your performance will be reviewed at the end of
------------------
your first twelve months of employment with Mastech and annually thereafter.
<PAGE>
6. Confidentiality. You recognize and acknowledge that:
---------------
(a) in the course of your employment by the Company, it will be necessary
for you to acquire information which may include, in whole or in part,
information concerning the Company's sales, sales volume, sales methods, sales
proposals, customers and prospective customers, prospect lists, sources of
consultants, the Company's manuals, formulae, processes, methods, machines,
compositions, ideas, improvements, inventions or other confidential or
proprietary information belonging to the Company or relating to the Company's
affairs (collectively referred to herein as the "confidential information");
(b) the confidential information is the property of the Company;
(c) the use, misappropriation or disclosure of the confidential information
would constitute a breach of trust and could cause irreparable injury; and
(d) it is essential to the protection of the Company's goodwill and to the
maintenance of the Company's competitive position that the confidential
information be kept secret and that you not disclose the confidential
information to others or use the confidential information to your own advantage
or the advantage of others.
You agree to hold and safeguard the confidential information in trust for
the Company, its successors and assigns and agree that you shall not, without
prior written consent of the Company, appropriate or disclose or make available
to anyone for use outside the Company at any time, either during your employment
with the Company or subsequent to the termination by the Company for cause or
without cause, any of the confidential information, whether or not developed by
you, except as required in the performance of you duties to the Company.
7. Return of Materials. Upon the termination of your employment with the
-------------------
Company for any reason, including without limitation termination by the Company
for cause or without cause, you shall promptly deliver to the Company all
correspondence, drawings, manuals, letters, notes, notebooks, reports, prospect
lists, flow charts, programs, proposals and any documents concerning the
Company's customers or suppliers and, without limiting the foregoing, will
promptly deliver to the Company any and all other documents or materials
containing or constituting confidential information.
8. Noncompetition. You covenant and agree that during the period of your
--------------
employment hereunder and for a period of two (2) years following the termination
of your employment, including without limitation termination by the Company for
cause or without cause, you shall not engage, directly or indirectly, whether as
principal or as agent, officer, director, employee, consultant, shareholder or
otherwise, alone or in association with any other person, corporation or other
entity, in any competing business in the United States of America, it being
acknowledged by you that Mastech's business is national in scope. As used in
the Agreement, "competing business" encompasses the business of software
services the management and implementation of software design and development
projects, the provision of
<PAGE>
contract programming services or other services or products competitive with the
services or products of the Company at the time of termination of your
employment.
You further agree that during your employment with the Company you shall
not, directly or indirectly, solicit the trade of, or trade with, any customer,
prospective customer, supplier or prospective supplier of the Company for any
business purpose other than for the benefit of the Company. Additionally, you
agree that for two (2) years following termination of your employment with the
Company, including without limitation termination by the Company for cause or
without cause, you shall not, directly or indirectly, solicit the trade of, or
trade with, any customers or suppliers, or prospective customers or suppliers,
of the Company.
9. Nonsolicitation of Employees. You agree that during your employment
----------------------------
with the Company and for two (2) years following termination of your employment
with the Company, including without limitation termination by the Company for
cause or without cause, you shall not, directly or indirectly, solicit or
induce, or attempt to solicit or induce, any employee or consultant of the
Company to leave the Company for any reason whatsoever, or hire any employee or
consultant of the Company.
10. Unique Nature of Agreement. In the event of a breach by you of the
--------------------------
terms of this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by you and to enjoin you from any
further violation of this Agreement, and to exercise such remedies cumulatively
or in conjunction with all other rights and remedies provided by law. You
acknowledge, however, that the remedies at law for any breach by you of the
provisions of this Agreement may be inadequate and that the Company shall be
entitled to injunctive relief against you in the event of any breach. You
represent that your experience and capabilities are such that the provisions of
this Agreement will not prevent you from earning your livelihood, and
acknowledge that it would cause the Company serious and irreparable injury and
cost if you were to use your ability and knowledge in competition with the
Company or to otherwise breach the obligations hereunder. If the Company
prevails in any action brought under this Agreement, you agree that the Company,
in addition to any other relief, shall be entitled to recover its reasonable
attorneys' fees, costs and expenses of litigation incurred by the Company in
securing the relief granted by the court.
11. Termination. This Agreement may be terminated with or without cause by
-----------
either party without any liability for such termination by giving to the other
party at least fifteen (15) days' prior written notice, except that the
covenants of Sections 6, 7, 8, 9 and 10 hereof shall survive the termination of
this Agreement. All payments due as of the date of termination shall be paid in
full within thirty (30) days of this date.
12. Authorization to Modify Restrictions. It is the intention of the
------------------------------------
parties that the provisions of this Agreement shall be enforceable to the
fullest extent permissible under applicable law but that the unenforceability
(or modification to conform to such law) of any
<PAGE>
provision or provisions hereof shall not render unenforceable, or impair, the
remainder thereof. If any provision or provisions hereof shall be deemed invalid
or unenforceable, either in whole or in part, this Agreement shall be deemed
amended to delete or modify, as necessary, the offending provision or provisions
and to alter the bounds thereof in order to render it valid or enforceable.
13. Tolling Period. The noncompetition and nonsolicitation obligations
--------------
contained in this Agreement shall be extended by the length of time during which
you shall have been in breach of any of the provisions of this Agreement.
14. Company Violation Not a Defense. In any action by the Company to
-------------------------------
enforce this Agreement, any claims asserted by you against the Company shall not
constitute a defense to the Company's action.
15. Entire Agreement. This Agreement represents the entire agreement of
----------------
the parties and may be amended only by a writing signed by each of them.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the Commonwealth of Pennsylvania. Each
of the parties hereby submits to the exclusive jurisdiction of the Commonwealth
of Pennsylvania and the federal courts of the United States of America for the
Western District of Pennsylvania in respect of the interpretation and
enforcement of the provisions of this Agreement, and hereby waives as a defense
that it, he or she is not subject thereto or that such action may not be brought
in said courts or that the venue of the suit is improper. Each of the parties
agrees that service of process in any such suit shall be deemed in every respect
effective service of process upon it if given by first-class mail, return
receipt requested.
Sincerely,
/s/ Sunil Wadhwani
Sunil Wadhwani
Director
Intending to be legally bound, I agree with the terms stated in this letter.
/s/ Sushma Rajagopalan
- ------------------------------
Sushma Rajagopalan
<PAGE>
Exhibit 10.9
MEMO
TO: Steve Shangold
FROM: Sunil Wadhwani
SUBJECT: 1995 Compensation Plan
DATE: June 9, 1995
The following confirms my 1995 compensation plan, effective (retroactively)
January 1, 1995:
I. Annual Base Salary: $80,000
II. Bonus Incentives: Total $120,000 for 100% of Gross Margin Quota
. lst Quarter Bonus for 100% of Vendor Division Quota: $ 30,000
lst Quarter Gross Margin Quota: $2,029,024
. 2nd Quarter Bonus for 100% of Vendor Division Quota: $ 30,000
2nd Quarter Gross Margin Quota: $2,216,485
. 3rd Quarter Bonus for 100% of Vendor Division Quota: $ 22,500
3rd Quarter Gross Margin Quota (Vendor): $2,664,222
3rd Quarter Bonus for 100% of Mastech Quota: $ 7,500
3rd Quarter Gross Margin Quota (Mastech) to be determined
. 4th Quarter Bonus for 100% of Vendor Division Quota: $ 22,500
4th Quarter Gross Margin Quota (Vendor): $3,012,612
4th Quarter Bonus for 100% of Mastech Quota: $ 7,500
4th Quarter Gross Quota (Mastech) to be determined
Bonus is pro-rated on actual percentage of Quota achieved (straight line below
or above 100%) Bonus adjusts on a year-to-date basis from each quarter to the
next,
Please countersign as acknowledgment for Accounting.
/s/ Steven J. Shangold /s/ Sunil Wadhwani
- ----------------------------------- -----------------------------------
Steven J. Shangold Sunil Wadhwani
<PAGE>
February 21, 1992
Mr. Steven Shangold
756 Windvue Drive
Pittsburgh, PA 15205
Dear Mr. Shangold:
The following are the terms of your employment with Mastech Systems Corporation
(the "Company"). If you agree with these terms, please sign in the space
indicated on the last page of this agreement.
1. Duties. You are employed as National Sales Director - General Systems
------
Division of the Company and in such capacity shall use your best energies and
abilities in the performance of your duties hereunder and in the performance of
any other duties as may be assigned to you from time to time by the Company.
The General Systems Division of Mastech provides Consultants to Clients whose
needs include general business expertise other than the expertise needed for
manufacturing and UNIX-related projects. Thus, sales to these unique segments
will NOT be credited to your Division.
Also excluded from your Division is the local Southwest Pennsylvania
Region, a region that will be managed and marketed to by the National Sales
Director of the UNIX Division. No sales personnel in your group will be
involved in selling to this region, except during a brief period of transition
which should correspond to your orientation period. The Southwest Region is
defined as Allegheny and all of its contiguous counties.
Please note that all current Southwestern Pennsylvania Region and UNIX-
related deals in progress will be reserved by their respective Regional Sales
Managers for a brief and to-be-defined period as they are transitioned to their
ultimate sales unit.
You agree to be a loyal employee of the Company. You agree to devote you
best efforts full time to the performance of your duties for the Company, to
give proper time and attention to furthering the Company's business and to
comply with all rules, regulations and instruments established or issued by the
Company. You further agree that during the term of this Agreement you shall
not, directly or indirectly, engage in any business which would detract from
your
<PAGE>
ability to apply your best efforts to the performance of your duties hereunder.
You also agree that you shall not usurp any corporate opportunities of the
Company.
2. Compensation. You will be paid at the base salary amount of $4,500.00 per
------------
month. This compensation will be paid at the end of each month. Applicable
federal and state taxes will be deducted. You will also be entitled to receive
a monthly bonus based on the achievement of performance targets, as detailed
below:
A. Base Bonus. You will receive a bonus of $2,000 for the placement of
----------
fifteen (15) Consultants within a given Commission Month. A "Commission
Month" is a calendar month. In order to qualify as a placement, the
Consultant must be on-site at the client location for at least one (1) day
during the Commission Month. Should that Consultant leave the client
location within thirty (30) days of his or her start date, your credit for
that placement becomes null and void.
This bonus will increase, by $133.33, for each Consultant placed after
the fifteenth Consultant, with no "top end." Thus, should your division be
responsible for placing thirty (30) Consultants, you will earn $4,000 in
total bonus monies (30 x $133.33). Given that there is no "cap" on your
earnings potential, a month wherein you place fifty (50) Consultants would
result in bonus dollars earned of $6,666.50. Mastech has had such months in
its past.
But no bonus will be paid in months wherein your total valid placements are
less than fifteen (15). Please keep this in mind.
Your quota target is thirty placements. You are expected to place at least
this number of Consultants each month.
Please note that on turn-key/fixed price products, you will also receive
credit for Consultants placed, even though the commission plan for your
Regional Sales Managers compensates them on a fixed percentage of the gross
revenues earned.
B. Deductions for "Bench Time" - For the purpose of calculating the above
---------------------------
"Base Bonus," please note the following:
1.) Occasionally, Consultants working in the Commercial Division will
complete their assignments and not have a new assignment awaiting
them. These Consultants are thus deemed "Bench Consultants."
2.) Bench Consultants are netted against your gross placements each
month. Thus, a Consultant deemed to have gone "on the Bench" will
have the effect of reducing your net placements by one.
3.) A Consultant is deemed to have gone on the Bench after he or she
is idle (i.e., not generating billings for Mastech) for more than ten
(10) working days.
<PAGE>
4.) All individuals having the above status will be deemed "Bench
Consultants." The total number of Consultants having this status will
be multiplied times the number of weeks that they are idle, and this
will be your "Bench Time Penalty." Thus, if a total of three (3)
Benched Consultants are each idle for a total of one week, your total
Bench Time Penalty would be three "units," and therefore your net
Consultants placed for that Commission Period would be reduced by
three.
5.) Bench Time Penalty calculations will apply to the relevant
Commission Month only. In the event that a week carries over from one
Commission Month to another, that prorated portion will be applied as
appropriate to both Commission Months.
C. Bonus for Price Override - Please now refer to the "Revised Commission
------------------------
Plan" attached, and dated February 10, 1992. This is Mastech's current
Commission Plan for all of its Regional Sales Managers.
You are entitled to a special bonus on price overrides. You will earn
the same override bonus as is earned by each of your Regional Sales
Managers (RSMs) each month. The rules governing your earning of these
bonuses will conform exactly to the rules in the Revised Commission
Plan of 2/10/92. The relevant section is covered in Item Three, Page
Four. Again, please also note that this is the same plan that will
govern all commissions earned by your sales managers.
Please also note that all of the commission adjustment rules relating
to such issues as the overall term of the Consultant at the Client
site and the Cost of Living (COLA) adjustment for high-cost-of-living
areas are also defined in this plan. Specifically, these adjustments
are defined in the section entitled "Item Six."
An example of a price override is as follows:
1.) One of your Sales Managers sells a Consultant at a monthly rate
of $7,000. His cost basis is $6,055.
2.) The difference between these two numbers is $945. Your Override
Bonus is therefore $945 divided by two. Thus, you would earn $472.50
as an override for this placement.
3.) There may, however, be certain adjustments to your override
bonus number. These are known as COLA and/or "Short-term Assignment"
adjustments, which are referenced above and defined in detail in the
Revised Commission Plan.
D. Stock Incentive - For each of the first three (3) years of your
---------------
employment with Mastech, for each year that the total number of Consultant
placements for which you are responsible exceeds three hundred and sixty
(360), you will be entitled to receive
<PAGE>
Stock Appreciation Rights (S.A.R.s) equal to one percent (1%) of the
company's current outstanding stock. A separate agreement relating to this
feature of your compensation will be provided to you within thirty (30)
days of your employment start date. This agreement will contain all
customary terms, conditions and restrictions relating to the award of this
incentive bonus. Please note that the 360-Consultant target is computed on
the premise that each Mastech Sales Manager should place a minimum of five
(5) Consultants each month. Therefore, Mastech expects that the net number
of placements will increase linearly as additional sales people are added.
This, then, would have the effect of increasing your 360-placement target
in subsequent years. As such, both parties have agreed, as Mastech grows,
to "revisit" and, possibly, adjust this relationship on an annual basis, by
mutual agreement.
The general concept of the S.A.R. is, however, to provide incentive to
you to place a minimum of 360 Consultants each year. (Note: A year will
be defined as twelve months from the date that you have completed your
orientation to Mastech. Our expectation is that you will begin your S.A.R.
year on April 1, 1992. Therefore, this will be the anniversary date for
measuring annual S.A.R. performance.)
Should you fail to achieve the 360-placement target in any one year,
you will have the right to "recapture" that year by overachieving your
target in the subsequent year. An example of this would be to place four
hundred and twenty (420) Consultants in year two, after having placed only
three hundred (300) in year one. The same logic would apply to year three;
you could "use" year three to recapture years one and two or, perhaps, just
year one. (Example, you place 200 Consultants in year one, 300 in year two
and then 500 in year three. Under this scenario, would have enough excess
-- 500 plus 200 plus 300, or 1,000 total placements. This would then
entitle you to two S.A.R. points, as you would have retrospectively
fulfilled your quota minimum for two of the three years.)
3. Employee Benefits. At all times during the term of your employment
-----------------
hereunder, you shall be covered by such medical or health benefit plan as is
available generally to employees of the Company.
4. Vacation and Holidays. The Company's vacation policy is detailed in the
---------------------
Employee Policy Manual.
5. Performance Review. Your performance will be reviewed at the end of your
------------------
first twelve months of employment with Mastech and annually thereafter.
6. Confidentiality. You recognize and acknowledge that:
---------------
(a) in the course of your employment by the Company, it will be
necessary for you to acquire information which may include, in whole or
part, information concerning the Company's sales, sales volume, sales
methods, sales proposals, customers and prospective customers, prospect
lists, sources of consultants, the Company's manuals, formulae, processes,
methods, machines, compositions, ideas, improvements, inventions
<PAGE>
or other confidential or proprietary information belonging to the Company
or relating to the Company's affairs (collectively referred to herein as
the "confidential information");
(b) the confidential information is the property of the Company;
(c) the use, misappropriation or disclosure of the confidential
information would constitute a breach of trust and could cause irreparable
injury; and
(d) it is essential to the protection of the Company's goodwill and to
the maintenance of the Company's competitive position that the confidential
information be kept secret and that you not disclose the confidential
information to others or use the confidential information to your own
advantage or the advantage of others.
You agree to hold and safeguard the confidential information in trust for
the Company, its successors and assigns and agree that you shall not, without
prior written consent of the Company, appropriate or disclose or make available
to anyone for use outside the Company at any time, either during your employment
with the Company or subsequent to the termination of your employment with the
Company for any reason, including without limitation termination by the Company
for cause or without cause, any of the confidential information, whether or not
developed by you, except as required in the performance of your duties to the
Company.
7. Return of Materials. Upon the termination of your employment with the
-------------------
Company for any reason, including without limitation termination by the Company
for cause or without cause, you shall promptly deliver to the Company all
correspondence, drawings, manuals, letters, notes, notebooks, reports, prospect
lists, flow charts, programs, proposals, and any documents concerning the
Company's customers or suppliers and, without limiting the foregoing, will
promptly deliver to the Company any and all other documents or materials
containing or constituting confidential information.
8. Noncompetition. You covenant and agree that during the period of your
--------------
employment hereunder and for a period of two (2) years following the termination
of your employment, including without limitation termination by the Company for
cause or without cause, you shall not engage, directly or indirectly, whether as
principal or as agent, officer, director, employee, consultant, shareholder or
otherwise, alone or in association with any other person, corporation or other
entity, in any competing business in the United States of America, it being
acknowledged by you that Mastech's business is national in scope. As used in
this agreement, "competing business" encompasses the business of software
services, including the management and implementation of software design and
development projects and the provision of contract programming services, and any
other products or services competitive with the products or services being sold
by the Company at the time of termination. You further agree that during your
employment with the Company you shall not, directly or indirectly, solicit the
trade of, or trade with, any customer, prospective customer, supplier or
prospective supplier of the Company for any business purpose other than for the
benefit of the Company. Additionally, you agree that for two (2) years
following termination of your employment with the Company, including without
limitation termination by the Company for cause or without cause, you shall not,
directly or indirectly, solicit the trade of, or trade with, any customers or
suppliers, or
<PAGE>
prospective customers or suppliers, of the Company and any other products or
services competitive with the products or services being sold by the Company at
the time of termination.
9. Nonsolicitation of Employees. You agree that during your employment with
----------------------------
the Company and for two (2) years following termination of your employment with
the Company, including without limitation termination by the Company for cause
or without cause, you shall not, directly or indirectly, solicit or induce, or
attempt to solicit or induce, any employee or consultant of the Company to leave
the Company for any reason whatsoever, or hire any employee or consultant of the
Company.
10. Unique Nature of Agreement. In the event of a breach by you of the terms
--------------------------
of this Agreement, the Company shall be entitled, if it shall so elect, to
institute legal proceedings to obtain damages for any such breach, or to enforce
the specific performance of this Agreement by you and to enjoin you from any
further violation of this Agreement, and to exercise such remedies cumulatively
or in conjunction with all other rights and remedies provided by law. You
acknowledge, however, that the remedies at law for any breach by you of the
provisions of this Agreement may be inadequate and that the Company shall be
entitled to injunctive relief against you in the event of any breach. You
represent that your experience and capabilities are such that the provisions of
this Agreement will not prevent you from earning your livelihood, and
acknowledge that it would cause the Company serious and irreparable injury and
cost if you were to use your ability and knowledge in competition with the
Company or to otherwise breach the obligations hereunder. If the Company
prevails in any action brought under this Agreement, you agree that the Company,
in addition to any other relief, shall be entitled to recover its reasonable
attorneys' fees, costs and expenses of litigation incurred by the Company in
securing the relief granted by the court.
11. Termination. This Agreement may be terminated with or without cause by
-----------
either party without any liability for such termination by giving to the other
party at least fifteen (15) days' prior written notice, except that the
covenants of Sections 6, 7, 8, 9 and 10 hereof shall survive the termination of
this Agreement. All payments due as of the date of termination shall be paid in
full within thirty (30) days of this date.
12. Authorization to Modify Restrictions. It is the intention of the parties
------------------------------------
that the provisions of this Agreement shall be enforceable to the fullest extent
permissible under applicable law but that the unenforceability (or modification
to conform to such law) of any provision or provisions hereof shall not render
unenforceable, or impair, the remainder thereof. If any provision or provisions
hereof shall be deemed invalid or unenforceable, either in whole or in part,
this Agreement shall be deemed amended to delete or modify, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it valid or enforceable.
13. Tolling Period. The noncompetition and nonsolicitation obligations
--------------
contained in this Agreement shall be extended by the length of time during which
you shall have been in breach of any of the provisions of this Agreement.
<PAGE>
14. Company Violation Not a Defense. In any action by the Company to enforce
-------------------------------
this Agreement, any claims asserted by you against the Company shall not
constitute a defense to the Company's action.
15. Entire Agreement. This Agreement represents the entire agreement of the
----------------
parties and may be amended only by a writing signed by each of them.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the Commonwealth of Pennsylvania. Each
of the parties hereby submits to the exclusive jurisdiction of the Commonwealth
of Pennsylvania and the federal courts of the United States of America for the
Western District of Pennsylvania in respect of the interpretation and
enforcement of the provisions of this Agreement, and hereby waives as a defense
that it, he or she is not subject thereto or that such action may not be brought
in said courts or that the venue of the suit is improper. Each of the parties
agrees that service of process in any such suit shall be deemed in every respect
effective service of process upon it if given by first-class mail, return
receipt requested.
Sincerely,
/s/ Sunil Wadhwani
Sunil Wadhwani
Director
Intending to be legally bound, I agree with the terms stated in this letter.
/s/ Steven Shangold 2/21/92
- --------------------------------------
Steven Shangold Date
<PAGE>
Exhibit 10.10
Agreement for Lease
-------------------
Agreement between Sunil Wadhwani residing at 930 Osage Road, Pittsburgh,
Pennsylvania, 15243, U.S.A. and Ashok Trivedi residing at 1446 Peterson Place,
Pittsburgh, Pennsylvania, 15241, U.S.A. (hereinafter jointly referred as
"Owners") of the one part and Mascot Systems Pvt Ltd Company registered under
the Indian Companies Act 1956 and having its registered office at Flat No. A-
208, Block III, Software Technology Park, KSSIDC Complex, Electronic City,
Bangalore-561 229 (hereinafter referred to as the "Lessee') of the other part.
WHEREAS, Sunil Wadhwani and Ashok Trivedi are the joint owners of the office
premises at 401 to 410 of Mittal Towers, "C" Wing, Mahatma Gandhi Road,
Bangalore (hereinafter referred to as "the said premises")
WHEREAS, Mascot Systems Private Limited (hereinafter referred to as "Lessee") is
desirous of taking the said premises and the Owners have agreed to lease the
said premises to the Lessee.
NOW, it is therefore, agreed that
1. The Owners shall give the said premises on lease to the Lessee for a period
of three years commencing from the Sixteenth day of January 1995. The
--------- -------
agreement may be renewed for further periods as may be agreed by the
parties in writing.
2. Lessee will pay Owners a monthly compensation of Rs 20,000/- (Rupees twenty
thousand only) exclusive of outgoings.
3. Lessee shall pay all maintenance charges, water charges and other charges
payable relating to the said premises occupied by the Lessee during the
lease period as determined presently by the builders and thereafter by the
Association or society of office owners.
4. Lessee shall not make any additions or alternations in the above premises
without the consent of the Owners.
5. Lessee shall use the said premises strictly for its business and shall not
violate the rules and regulations of the Society.
6. Lessee shall allow Owner or Owner's authorized representatives to inspect
the said premises at all reasonable times.
7. Lessee shall not sub-let the said premises without Owner's written
permission.
8. The Owners may at their option terminate the lease by giving Lessee a
notice of not less than three months and the Lessee shall on the expiry of
the said period of notice hand
<PAGE>
over vacant and peaceful possession of the said premises to the Owners'
authorized representative.
In witness whereof the parties have set their respective hands and seal on the
Second day of January, 1995.
- ------ -------
Signed and delivered by the within named
Sunil Wadhwani
- --------------------------------
Signed and delivered by the within named
Ashok Trivedi
- --------------------------------
Signed and delivered by V.V. Kumar
Executive Director of Mascot Systems (P) Ltd
and the common seal of the company was
Affixed in his presence.
<PAGE>
Exhibit 10.11
MEMORANDUM OF LEAVE AND LICENSE
This Memorandum of Leave and License made on this ____ day of November 1996
between:
(1) Sunil Wadhwani, residing at 930 Osage Road, Pittsburgh, PA 15243,
U.S.A.
(2) Ashok Trivedi, residing at 1446 Peterson Place, Pittsburgh PA 15241,
U.S.A.
(hereinafter collectively referred to as "the Licensors," which expression
shall, unless repugnant to its context, mean and include their heirs, successors
and assigns) of the One Part;
and
Mascot Systems Private Limited, a company incorporated under the Companies
Act, 1956 and having its Registered Office at 401 to 410, "C" Wing, Mittal
Tower, 47/6 Mahatma Gandhi Road, Bangalore 560 001 (hereinafter referred to as
"the Licensee," which expression shall include its successors and liquidators or
assigns) of the Other Part.
WHEREAS, the Licensors are the owners of commercial premises bearing
Corporation No. 1 in ward no. 66 (previously known as property no. 99 of
Jakkasandra Village and Survey no: 49/43A) situated on Kalyanamadapa Road,
Jakasandra, Bangalore more particularly described in the Schedule appended
hereto (hereinafter referred to as "the said premises").
WHEREAS, the Licensees are desirous of taking the said premises on leave
and license basis for use as software development center.
NOW THIS MEMORANDUM WITNESSES AS UNDER:
1) The Licensee has been given a License to make use of the said premises
and more particularly described in the Schedule appended hereto.
<PAGE>
2) The said license has been and shall be regarded as operative from
October 1, 1996. The Licensee has agreed to and shall continue to pay
license fee in the sum of Rs. 3,25,000 (Rupees three lakhs twenty-five
thousand only) per month, inclusive of Municipal Taxes, Cess and all
other charges leviable by the local Municipal Authorities. The said
sum shall be paid in advance by the Licensee to the Licensors
regularly on first day of every English calendar month.
3) Both the Licensors are equal owners of the said premises, and the
Licensee shall pay the monthly License Fee of Rs. 3,25,000 in equal
proportion to both the Licensors by drawing a cheque of Rs. 1,62,500
in the name of each of the Licensor.
4) The said license is given only for the purpose of carrying out the
business activities of the Licensee, and the Licensee shall not sublet
or subassign the same in favour of anyone.
5) The License is personal to the Licensee and the Licensee shall have no
right to sublet, transfer or part with the possession or occupation of
the said premises or any part thereof in any manner and shall not have
any right to allow anyone else to make use of the License given to it
by the Licensors.
6) At all times during the continuance of the license, the Licensees
shall keep the premises in good and substantial and tenantable repair,
and all charges for doing so shall be borne by the Licensee. If,
however, there are any major repairs or any reconstruction required by
reason of any portion falling down, or being in danger
-2-
<PAGE>
of falling down, the Licensor shall effect such repairs or make
reconstruction at its own cost.
7) The Licensee shall make use of the said premises carefully and always
keep them neat and clean and all cost for doing so shall be borne by
the Licensee. The Licensee shall not do or cause to be done any act
or thing which may amount to nuisance or annoyance, waste or damage to
the said premises. If any such damage is, however, caused to the
premises, the same shall be repaired by the Licensee at its cost.
8) If the Licensee is desirous of making at its own cost any alterations
or constructions in temporary or permanent structure of constructions
in the said premises to meet or suit its needs it may do so with prior
written consent of the Licensors, provided there is no permanent
damage to the existing premises. Licensors shall not be required to
spend any amount in respect of such alterations or reconstructions,
and the Licensee shall not be entitled to claim any compensation for
such expenses incurred by the Licensee for such alterations or
constructions.
9) The Licensor shall not be liable to the Licensee for any loss or
damage caused to any goods or machinery of the Licensee or the life or
property or invitees in or out of such premises or on the passage
permitted to be used at any time by reason of theft, fire, riot,
leakage of water or any act of God or by any reason whatsoever.
10) In case of any default by the Licensee to abide by the terms and
conditions of this License, including failure to pay the License fee
for a continuous period of three
-3-
<PAGE>
months, the Licensor shall be entitled to give the Licensee a notice
of his intention to revoke the License on the expiry of thirty days
from the date of such notice. If the Licensee fails to make good the
breach of terms and conditions or fails to make the payment to
Licensor, the Licensor shall be entitled to revoke the License by
communicating to the Licensee in writing.
11) Nothing contained herein shall create or shall be construed to create
any tenancy right or any interest, estate or rights in respect of the
licensed premises, and the premises shall continue to be and shall be
deemed to continue to remain in the possession of the Licensors.
12) This license shall terminate at the end of eleven months. However, by
consent of the parties, the said period can be extended for further
period of eleven months at a time.
13) The Licensors or their authorized representatives shall at all times
during the continuance of the license be entitled to inspection of the
said premises.
14) If at any time the Licensee is ordered to be wound-up under the orders
of a competent court or authority or by passing a resolution for
winding-up or permanently closes its business or if any receiver is
appointed to take possession of its properties, the license shall come
to an end forthwith automatically, and the Licensors shall be entitled
to forthwith receive the vacant and peaceful possession of the said
premises.
15) In determination or revocation of the License for any other reason
whatsoever, the Licensee shall forthwith hand over to the Licensors
the vacant and peaceful
-4-
<PAGE>
possession of the said premises, and the Licensee shall not be
entitled to continue to make use of the premises and shall cease to
make use of the premises forthwith without raising any dispute and
shall remove all its goods, machineries and other properties from the
premises, and no employee or servant or any agent or representative of
the Licensee shall enter the premises, and the Licensors shall be free
to restrain the Licensee and its servants and employees, agents or
representatives from entering the premises and making any use thereof,
and the Licensors shall also be entitled to remove from the premises
any goods or machineries of the Licensee lying in or upon the premises
if need be without resource to a court of law, and without incurring
any liability whatsoever for any claim or compensation.
16) This Memorandum of Leave and License shall supersede all earlier
understandings, written or otherwise, between the Licensors and
Licensee with respect to the lease of the said premises.
-5-
<PAGE>
S C H E D U L E
Commercial premises being Corporation No. 1 in ward no: 66 (previously known as
property no: 99 of Jakkasandra Village and Survey No: 49/43A) situated on the
Main Road also known as Kalyanamandapa Road, Jakkasandra, Bangalore, consisting
of building with basement, ground floor and four upper floors admeasuring about
32500 square feet of built-up area.
IN WITNESS WHEREOF, the Licensors and the Licensee have signed and sealed
this Memorandum the day and year first above written.
SIGNED, SEALED AND DELIVERED )
by the Licensors )
(1) Sunil Wadhwani )
(2) Ashok Trivedi )
SIGNED, SEALED AND DELIVERED )
by the Licensee )
Mascot Systems Private Limited )
by its Managing Director )
Mr. V. Ramakrishna )
-6-
<PAGE>
Exhibit 10.12
Agreement for Lease
-------------------
Agreement between Sunil Wadhwani residing at 930, Osage Road, Pittsburgh, PA
15243, U.S.A. and Ashok Trivedi residing at 1446, Peterson Place, Pittsburgh, PA
15241, U.S.A. (hereinafter jointly referred as "Owners") of the one part and
Scott Systems Private Limited a Company registered under the Indian Companies
Act, 1956 and having its registered office at Mahindra Chambers, Dhole Patil
Road, Pune 411 001 (hereinafter referred to as the "Lessee") of the other part.
WHEREAS, Sunil Wadhwani and Ashok Trivedi are the joint owners of the office
premises at 308 of Navkar Chambers, Andheri-Kurla Road, Andheri (East), Bombay
400 069 (hereinafter referred to as "the said premises")
WHEREAS owners have agreed to lease the said premises to the Lessee.
NOW it is therefore, agreed that
1. The Owners shall give the said premises on lease to the Lessee for a period
of one year commencing from April 1996. The agreement may be renewed for
further period as may be agreed mutually by the parties in writing.
2. Lessee will pay Owners a monthly compensation of Rs.9,000 (Rupees Nine
thousand only) exclusive of outgoings.
3. Lessee shall pay all rates and taxes to the central, provincial or local
authorities, maintenance charges and other charges payable relating to the
said premises occupied by the Lessee during the lease period.
4. Lessee shall not make any additions or alternations in the above premises
without the consent of the Owners.
5. Lessee shall hand over the vacant and peaceful possession of the premises to
the Owners forthwith upon the expiry of the lease period unless the lease has
been renewed in writing.
6. Lessee shall use the said premises strictly for its business and shall not
violate the rules and regulations of the Society.
7. Lessee shall allow Owner or Owner's authorized representatives to inspect the
said premises at all reasonable times.
8. Lessee shall not sub-let the said premises without Owner's written
permission.
9. The Owners may at their option terminate the lease by giving Lessee a notice
of not less than three months and the Lessee shall on the expiry of the said
period of notice hand over vacant
<PAGE>
and peaceful possession of the said premises to the Owners or to Owners'
authorised representative.
In witness whereof the parties have set their respective hands on the
-------
day , 1996.
----------------------
Signed and delivered by the withinnamed
Sunil Wadhwani in the presence of
- ---------------------------------
Signed and delivered by the withinnamed
Ashok Trivedi in the presence of
- ---------------------------------
Signed and delivered by Murali Santhanam
Managing Director of Scott Systems
Private Limited in the presence of
- ---------------------------------
<PAGE>
Exhibit 10.13
Agreement for Lease
-------------------
Agreement between Sunil Wadhwani residing at 930, Osage Road, Pittsburgh, PA
15243, U.S.A. (hereinafter referred as "Owner") of the one part and Scott
Systems Private Limited a Company registered under the Indian Companies Act,
1956 and having its registered office at Mahindra Chambers, Dhole Patil Road,
Pune 411 001 (hereinafter referred to as the "Lessee") of the other part.
WHEREAS Sunil Wadhwani is the owner of the office premises at 306 and 309 of
Navkar Chambers, Andheri-Kurla Road, Andheri (East), Bombay 400 069 (hereinafter
referred to as "the said premises")
WHEREAS owner has agreed to lease the said premises to the Lessee.
NOW it is therefore, agreed that
1. The Owner shall give the said premises on lease to the Lessee for a period of
one year commencing from April 1996. The agreement may be renewed for
further period as may be agreed mutually by the parties in writing.
2. Lessee will pay Owner a monthly compensation of Rs. 25,000 (Rupees Twenty
five thousand only) exclusive of outgoings.
3. Lessee shall pay all rates and taxes to the central, provincial or local
authorities, maintenance charges and other charges payable relating to the
said premises occupied by the Lessee during the lease period.
4. Lessee shall not make any additions or alternations in the above premises
without the consent of the Owner.
5. Lessee shall hand over the vacant and peaceful possession of the premises to
the Owner forthwith upon the expiry of the lease period unless the lease has
been renewed in writing.
6. Lessee shall use the said premises strictly for its business and shall not
violate the rules and regulations of the Society.
7. Lessee shall allow Owner or Owner's authorised representatives to inspect the
said premises at all reasonable times.
8. Lessee shall not sub-let the said premises without Owner's written
permission.
9. The Owner may at his option terminate the lease by giving Lessee a notice of
not less than three months and the Lessee shall on the expiry of the said
period of notice hand over vacant and peaceful possession of the said
premises to the Owner or to Owner's authorised representative.
<PAGE>
In witness whereof the parties have set their respective hands on the
-------
day , 1996.
------------------------
Signed and delivered by the withinnamed
Sunil Wadhwani in the presence of
- --------------------------------
Signed and delivered by Murali Santhanam
Managing Director of Scott Systems
Private Limited in the presence of
- --------------------------------
<PAGE>
Exhibit 10.14
Agreement for Lease
-------------------
Agreement between Ashok Trivedi residing at 1446, Peterson Place, Pittsburgh, PA
15241, U.S.A. (hereinafter referred as "Owner") of the one part and Scott
Systems Private Limited a Company registered under the Indian Companies Act,
1956 and having its registered office at Mahindra Chambers, Dhole Patil Road,
Pune 411 001 (hereinafter referred to as the "Lessee") of the other part.
WHEREAS Ashok Trivedi is the owner of the office premises at 307 and 310 of
Navkar Chambers, Andheri-Kurla Road, Andheri (East), Bombay 400 069 (hereinafter
referred to as "the said premises").
WHEREAS Owner has agreed to lease the said premises to the Lessee.
NOW it is therefore agreed that
1. The Owner shall give the said premises on lease to the Lessee for a period of
one year commencing from April 1996. The agreement may be renewed for
further period as may be agreed mutually by the parties in writing.
2. Lessee will pay Owner a monthly compensation of Rs. 25,000 (Rupees twenty-
five thousand only) exclusive of outgoings.
3. Lessee shall pay all rates and taxes to the central, provincial or local
authorities, maintenance charges and other charges payable relating to the
said premises occupied by the Lessee during the lease period.
4. Lessee shall not make any additions or alternations in the above premises
without the consent of the Owner.
<PAGE>
5. Lessee shall hand over the vacant and peaceful possession of the premises to
the Owner forthwith upon the expiry of the lease period unless the lease has
been renewed in writing.
6. Lessee shall use the said premises strictly for its business and shall not
violate the rules and regulations of the Society.
7. Lessee shall allow Owner or Owner's authorized representatives to inspect the
said premises at all reasonable times.
8. Lessee shall not sub-let the said premises without Owner's written
permission.
9. The Owner may at his option terminate the lease by giving Lessee a notice of
not less than three months and the Lessee shall on the expiry of the said
period of notice hand over vacant and peaceful possession of the said
premises to the Owner or to Owner's authorized representative.
In witness whereof the parties have set their respective hands on the _____ day
of ___________, 1996.
Signed and delivered by the withinnamed Ashok Trivedi in the presence of
________________________________________
Signed and delivered by Murali Santhanam Managing Director of Scott Systems
Private Limited in the presence of
________________________________________
<PAGE>
Exhibit 10.15
SALE AGREEMENT
--------------
This AGREEMENT made this day of One
--------------------- ---------------
Thousand Nine Hundred and Ninety six.
BETWEEN
(1) MR SUNIL WADHWANI residing at 930 Osage Road, Pittsburgh, PA 15243, U.S.A.
(2) MR. ASHOK TRIVEDI residing at 1446 Peterson Place, Pittsburgh, PA 15241,
U.S.A. all residents of United States of America, (hereinafter collectively
referred to as "the Sellers" which expression unless the context otherwise
requires includes its successors and assigns).
AND
MASTECH CORPORATION a Corporation organised under the laws of the state of
Pennsylvania in the United States of America and having its offices at 1004,
Mckee Road, Oakdale, PA 15071, USA (hereinafter referred to as "the Purchaser"
which expression unless the context otherwise requires includes its successors
and assigns).
WHEREAS the Sellers are the beneficial and registered holders of 270,000 (Two
hundred seventy thousand) equity shares of Indian Rupees 10 (the "Sale Shares")
each in Mascot Systems Private Limited (hereinafter referred to as "the Indian
Company"), a company incorporated under the Indian Companies Act, 1956 and
having its registered office at 401 to 410, "C" Wing, Mittal Tower, 47/6,
Mahatma Gandhi Road, Bangalore - 560 001.
AND WHEREAS the individual shareholding of the Sellers is more specifically
stated in the Annexure to this agreement.
AND WHEREAS the Sellers are desirous of selling the Sale Shares with the rights
attached thereto and free from any encumbrances and the Purchaser has expressed
its desire to acquire the same.
BY THIS AGREEMENT IT IS HEREBY AGREED THAT
1. The Sellers shall sell and the Purchaser shall acquire the Sale Shares on
clear understanding that the said shares are free from encumbrances on
terms and conditions hereinbelow mentioned.
<PAGE>
2
2. The purchase of the Sale Shares is subject to the appropriate approvals, if
any, required under the exchange control regulations of India from the
Reserve Bank of India and/or other authorities in India.
3. (a) The consideration for sale of the Sale Shares is as follows:
<TABLE>
<S> <C> <C>
1. Mr. Sunil Wadhwani Indian Rupees 2,970,000 [Rupees Two million nine
hundred seventy thousand only]
2. Mr. Ashok Trivedi Indian Rupees 2,970,000 [Rupees Two million nine
hundred seventy thousand only]
</TABLE>
(b) The consideration shall be paid in equivalent US dollars within such
time and as agreed to between the Parties hereto and not later than
one month from the date of approval referred to in clause (2) above.
4. As the Purchaser requires prior approval of the Reserve Bank of India to
acquire the Sale Shares and be entered as a shareholder in the Indian
company, it is agreed between the Parties hereto that the Purchaser shall
make the necessary application to the Reserve Bank of India in the
prescribed form, and agree to comply with the relevant requirements of the
exchange control regulations of India.
5. As the Sellers require the prior permission of the Reserve Bank of India to
transfer the Sale Shares, the Sellers shall address appropriate letters to
the Reserve Bank of India, seeking such approval which letters shall be
handed over to the Purchaser for submission to the Reserve Bank of India
togetherwith the application referred to in para 4 above.
6. The Sellers are responsible for the payment of tax on capital gains arising
on the sale of the Sale Shares whether it arises in India or in the United
States of America and agree to make the payment in advance or on assessment
as required by the laws of the respective countries.
7. The Purchaser shall meet all costs for acquisition of the Shares including
without limiting stamp duty, if any.
8. The Purchaser acknowledges that it has not entered into this agreement in
reliance on any representations other than those contained in this
agreement.
<PAGE>
3
9. This agreement embodies the entire understanding of the Parties in respect
of the matter contained or referred to in it and there are no promises,
terms, conditions or obligations, oral or written, express or implied other
than those contained in this agreement.
10. No variation or amendment of this agreement shall be valid unless committed
to writing and signed by both the parties.
This Agreement will be governed by the laws of the United States of America.
IN WITNESS HEREOF the Parties hereto have executed this Agreement on the date,
day and year hereinabove mentioned.
SIGNED on behalf of the said
MASTECH CORPORATION
by SUNIL WADHWANI, CHAIRMAN
in the presence of
- -------------------------
SIGNED by the said
SUNIL WADHWANI,
in the presence of
- -------------------------
SIGNED by the said
MR. ASHOK TRIVEDI
in the presence of
- -------------------------
Pr:Saleagre.doc
<PAGE>
ANNEXURE
Individual shareholding of Sellers in Mascot Systems Private Limited.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
i) Ledger Folio of Shares : Three
Shareholder(s) : Mr. Sunil Wadhwani
Father/Husband's
Name : Mr. Teckchand Wadhwani
Residential Address : 930 Osage Road,
Pittsburgh,
PA 15243, U.S.A.
Description, Nominal
value and Number of
of Shares Held : 135,000 (One hundred thirty
five Thousand)
Equity shares of Rs.10/- each
ii) Ledger Folio of Shares : Four
Shareholder(s) : Mr. Ashok Trivedi
Father/Husband's
Name : Mr. Amar Nath Trivedi
Residential Address : 1446 Peterson Place,
Pittsburgh,
PA 15241, U.S.A.
Description, Nominal
value and Number of
of Shares Held : 135,000 (One Hundred thirty
five Thousand)
Equity shares of Rs.10/- each
</TABLE>
<PAGE>
Exhibit 10.16
AGREEMENT AND PLAN OF MERGER
OF
SWAT SYSTEMS CORPORATION
(a Pennsylvania corporation)
AND
MASTECH SYSTEMS CORPORATION
(a Pennsylvania corporation)
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") entered into as of
November 18, 1996, by and between SWAT Systems Corporation, a Pennsylvania
corporation ("SWAT"), and Mastech Systems Corporation, a Pennsylvania
corporation ("Mastech").
WITNESSETH:
WHEREAS, SWAT and Mastech are business corporations organized under
the laws of the Commonwealth of Pennsylvania.
WHEREAS, Mastech and SWAT through their respective Boards of Directors
deem it advisable and in the best interests of said corporations to merge SWAT
with and into Mastech pursuant to the provisions of the Pennsylvania Business
Corporation Law of 1988, as amended (hereinafter the "PBCL"), upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and covenants
contained herein and intending to be legally bound hereby, the following terms
and conditions are hereby agreed to by the parties as follows:
1. SWAT shall merge with and into Mastech (the merged entities
shall sometimes hereinafter referred to as the "surviving corporation"),
effective as of the date the Articles of Merger are first filed with the
Corporation Bureau of the Commonwealth of Pennsylvania (the "Effective Date") in
accordance with the provisions of, and having the effects specified in, Section
1929 of the PBCL.
2. The Articles of Incorporation of Mastech, as the same shall be
in force and effect on the Effective Date, shall continue to be the Articles of
Incorporation of said surviving corporation until amended pursuant to the
provisions of the PBCL.
3. The Bylaws of Mastech on the Effective Date shall be the Bylaws
of the surviving corporation until changed, altered, or amended as therein
provided and in the manner prescribed by the provisions of the PBCL.
4. The directors and officers of Mastech on the Effective Date
shall be the members of the Board of Directors and officers of the surviving
corporation, all of whom shall
<PAGE>
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the Bylaws of the surviving corporation.
5. All authorized and outstanding shares of SWAT Common Stock, and
all rights in respect thereof, shall be canceled as of the Effective Date, and
the certificates representing such shares shall be surrendered to Mastech, and
canceled, and the merger shall be deemed to be a capital contribution by the
shareholders of SWAT of the outstanding shares of SWAT to Mastech. The issued
shares of Mastech Common Stock shall not be converted or exchanged in any
manner, but each said share which is issued on the Effective Date shall continue
to represent one issued share of the surviving corporation.
6. Notwithstanding the full approval and adoption of this Agreement
and Plan of Merger by the Board of Directors of SWAT and its shareholders, and
the Board of Directors of Mastech, this Agreement and Plan of Merger may be
terminated at any time prior to the filing of the Articles of Merger with the
Secretary of State of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, this Agreement and Plan of Merger is hereby
executed upon behalf of each of the constituent corporations parties thereto.
SWAT SYSTEMS CORPORATION
By: /s/ Ashok Trivedi
-------------------------------
Title:
----------------------------
MASTECH SYSTEMS CORPORATION
By: /s/ Sunil Wadhwani
-------------------------------
Title:
----------------------------
-2-
<PAGE>
Exhibit 10.17
S CORPORATION REVOCATION, TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
This Revocation, Tax Allocation and Indemnification Agreement, dated as of
____________ ___, 1996 (the "Agreement"), is made by and between Mastech Systems
Corporation, a Pennsylvania corporation (the "Company"), and the persons
identified on the signature pages hereto who constitute all of the shareholders
of the Company on the date hereof (each individually, a "Shareholder," and
collectively, the "Shareholders").
RECITALS:
A. The Company is an S corporation, within the meaning of section 1361 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the Shareholders
are its only shareholders as of the date of this Agreement.
B. The Company intends to enter into an underwriting agreement to sell
shares of its common stock to the public in an initial public offering
registered under the Securities Act of 1933, as amended (the "Public Offering").
C. The Shareholders are currently the only shareholders of the Company and
will continue to be so until immediately before the Closing (as defined below)
of the Public Offering.
D. In connection with the Public Offering, and in order to induce the
investment by the public in the Company, the Company and the Shareholders desire
to provide for an S corporation revocation, tax allocation and indemnification
agreement in connection with tax periods prior to and following the Termination
Date (as defined below).
NOW, THEREFORE, for mutual consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Shareholders do hereby
covenant and agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Accumulated Adjustments Account" shall have the meaning set forth in
Section 1368(e)(1) of the Code.
"Closing" shall mean the closing and completion of the offering by the
Company of shares of its stock, as described in the Registration Statement on
Form S-1 filed by Mastech Corporation with the Securities and Exchange
Commission on October 15, 1996, as subsequently amended.
"Code" shall have the meaning set forth in Recital A.
"C Short Year" shall have the meaning set forth in Section 1362(e)(1)(B) of
the Code.
<PAGE>
"Public Offering" shall have the meaning set forth in Recital B.
"S corporation" shall have the meaning set forth in Section 1361(a) of the
Code.
"S Corporation Taxable Income" shall mean, for periods beginning on or
after the date the Company became an S corporation and ending with the close of
the last day of the S Short Year, the sum of (i) the Company's items of
separately stated income and gain (within the meaning of Section 1366(a)(1)(A)
of the Code) reduced, to the extent applicable, by the Company's separately
stated items of deduction and loss (within the meaning of Section 1366(a)(1)(A)
of the Code) and (ii) the Company's nonseparately computed net income (within
the meaning of Section 1366(a)(1)(B) of the Code).
"S Short Year" shall have the meaning set forth in Section 1362(e)(1)(A) of
the Code.
"Termination Date" shall mean the date on which the Company's status as an
S corporation is terminated by reason of revocation of the election for the
Company to be an S corporation pursuant to Section 1362(d)(1) of the Code, which
date shall be not earlier than the date the registration statement related to
the Public Offering is declared effective by the Securities and Exchange
Commission and not later than two days prior to the date of the Closing, as
designated by the Company.
ARTICLE II
REVOCATION; TERMINATION PAYMENTS
2.1 Revocation of S Corporation Status. The Company shall revoke its
----------------------------------
status as an S corporation pursuant to an election, as permitted pursuant to
Section 1362(d)(1) of the Code, which election shall be made by the Company and
the Shareholders and shall be effective on the Termination Date. The revocation
shall be made in accordance with and in the manner provided by Treasury
Regulation Section 1.1362-6(a)(3) and shall be substantially in the form
attached hereto as Exhibit A.
2.2 Termination Payments to Shareholders. Immediately prior to the
------------------------------------
Termination Date, the Company shall distribute to the Shareholders (pro rata in
accordance with the relative number of shares of stock of the Company held by
each Shareholder) an amount equal to the Accumulated Adjustments Account of the
Company calculated as of the Termination Date, including the S Corporation
Taxable Income for the S Short Year ending on the Termination Date. Such
distribution shall take the form of a promissory note of the Company in the form
set forth as Exhibit B. For purposes of this Section 2.2, the Accumulated
Adjustments Account be determined by the chief financial officer of the Company
in accordance with the Company's books and records and without regard to any
future adjustments to the Company's taxable income as described in Section 2.3.
In the event the chief financial officer increases the Accumulated Adjustments
Account as of the Termination Date by virtue of more accurate accounting
information received subsequent to the Termination Date, the Company shall
distribute to the Shareholders (pro rata in accordance with the relative number
of shares of stock of the Company held by each Shareholder) an amount equal to
such increase within thirty days of such determination.
-2-
<PAGE>
2.3 Future Adjustments. In the event that any future examination of any
------------------
tax return by any taxing authority results in a final determination increasing
the taxable income of the Company for the S Short Year, or for any period ending
prior to the Termination Date, the Company shall distribute to the Shareholders
(pro rata in accordance with the relative number of shares of stock of the
Company held by each Shareholder), within 30 days of such final determination,
cash in an amount equal to the product of (i) the amount of such increase in the
taxable income of the Company resulting from such final determination,
multiplied by (ii) the highest marginal federal income tax rate applicable to
individuals for the taxable year to which such adjustment relates.
2.4 Short Taxable Years. The parties acknowledge that the taxable year in
-------------------
which the S corporation status of the Company is terminated will be an S
Termination Year for tax purposes, as defined in Section 1362(e)(4) of the Code.
Pursuant to Section 1361(e)(1) of the Code, the S Termination Year of the
Company shall be divided into two short taxable years: an "S Short Year" and a
"C Short Year." As defined in Section 1362(e)(1)(A) of the Code, the S Short
Year shall be that portion of the Company's S Termination Year ending on the day
immediately preceding the Termination Date. Pursuant to Section 1362(e)(1)(B) of
the Code, that portion of the S Termination Year beginning on the Termination
Date and ending on the last day of the taxable year shall be the C Short Year of
the Company.
ARTICLE III
ALLOCATION OF INCOME
The Company and the Shareholders agree that for tax purposes (including for
purposes of determining the Company's S Corporation Taxable Income for its
fiscal year ending December 31, 1996) the Company shall allocate its items of
income, gain, loss, deduction and credit for its fiscal year ending December 31,
1996 between the S Short Year and the C Short Year in accordance with the so-
called "closing of the books method," as permitted by Section 1362(e)(3) of the
Code. The Company will make the election permitted by Section 1362(e)(3) in a
timely manner. The Shareholders agree to consent to such election and to
provide the Company with the statement of consent of all shareholders described
in Section 1.1362-6(b) of the Treasury Regulations. The Company and the
Shareholders agree to make, and to provide such information and obtain such
consents as are necessary to make, any comparable election required under
applicable state and local income tax laws.
ARTICLE IV
TAXES
4.1 Liability for Taxes Incurred During the S Short Year and for Tax
----------------------------------------------------------------
Periods Ending Prior to the Termination Date. The Shareholders, severally and
- --------------------------------------------
not jointly, each covenant and agree that: (i) the Shareholders have duly
included, or will duly include, in their own federal, state, and local income
tax returns their respective allocable shares of all items of income, gain,
loss, deduction, or credit attributable to the S Short Year of the Company or to
any prior period (or that portion of any period) during which the Company was an
S corporation to the extent required by applicable law; (ii) such returns shall,
to the extent required by applicable law,
-3-
<PAGE>
include their allocable share of S Corporation Taxable Income of the Company
from all sources through and including the close of business on the last day of
the S Short Year of the Company, and (iii) the Shareholders shall, to the extent
required by applicable law, pay any and all taxes they are required to pay, as a
result of being a shareholder of the Company, for all taxable periods (or that
portion of any period) during which the Company was an S corporation.
4.2 Shareholder Indemnification for Tax Liabilities. The Shareholders,
-----------------------------------------------
severally (according to the relative percentage of the outstanding shares of
Company common stock owned by each Shareholder on the last day of any applicable
period to which a liability described below relates) and not jointly, each
hereby indemnify and hold the Company harmless from, against and in respect of
any unpaid income tax liabilities of the Company (including interest and
penalties imposed thereon) (i) which are attributable to the S Short Year or any
period ending prior to the Termination Date, or (ii) which are incurred by the
Company as a result of a final determination of an adjustment (by reason of an
amended return, claim for refund, audit, judicial decision or otherwise) to the
taxable income of the Shareholders for any period (including, without
limitation, the S Short Year) which (in the case of this clause (ii)) results in
a decrease for any period in the Shareholders' taxable income and a
corresponding increase for any period in the taxable income of the Company.
4.3 Company Indemnification for Tax Liabilities. The Company hereby
-------------------------------------------
indemnifies and agrees to hold the Shareholders harmless from, against and in
respect of income tax liabilities (including interest and penalties imposed
thereof), if any, incurred by the Shareholders as a result of a final
determination of an adjustment made after the Termination Date (by reason of an
amended return, claim for refund, audit, judicial decision or otherwise) to the
taxable income of the Company which results in a decrease for any period in the
computation of the Company's taxable income and a corresponding increase for any
period in the taxable income of the Shareholders.
4.4 Payments. The Shareholders or the Company, as the case may be, shall
--------
make any payment required under this Agreement (except for the promissory note
described in Section 2.2 hereof) within 30 days after receipt of notice from the
other party that a final determination has occurred and a payment is due by such
party to the appropriate taxing authority.
4.5 Refunds. If the Company receives a refund of any income tax
-------
(including penalties and interest) for any reporting period ending on or prior
to the Termination Date, or as to which it has previously been indemnified by
the Shareholders, it shall pay an amount equal to such refund, within 30 days
after receipt thereof, to the Shareholders in accordance with the percentage of
the outstanding shares of Company common stock owned by each such Shareholder on
the last day of any applicable period which the refund relates. If the
Shareholders receive a refund of any income tax (including penalties and
interest) as to which they have previously been indemnified by the Company, they
shall, within 30 days after receipt thereof, remit an amount equal to such
refund to the Company.
4.6 Notice and Control of Proceedings. Each of the Company and the
---------------------------------
Shareholders agree that (i) within 10 days of receiving written notice of any
income tax examinations, claims,
-4-
<PAGE>
settlements, proposed adjustments or related matters that may affect in any way
the income tax liability of a party under this Agreement, such person shall
provide written notice thereof to such each other party hereto, and (ii) the
party or parties who would be responsible for the payment of the applicable
taxes if the matter in question were to be resolved adversely shall be entitled,
in his or its reasonable discretion and at his or its sole expense, to handle,
control and compromise or settle the defense thereof, so long as such party or
parties are acting diligently and in good faith. Such party or parties shall
keep the other party(ies) apprised of the status thereof and shall consult with
such other party(ies) concerning the conduct of the defense thereof.
Notwithstanding the foregoing, however, the party handling such matters shall
not compromise or settle any matter which could adversely affect the tax
liability of another party without such other party's prior written consent,
which shall not be unreasonably withheld. The parties hereto shall execute all
instruments required to effectuate the provisions of this Section 4.6.
4.7 Cooperation. The parties will make available to one another, as
-----------
reasonably requested, and to any taxing authority, all information, records or
documents relating to the liability for taxes covered by this Agreement and will
preserve any such information, records or documents until the expiration of the
applicable statute of limitations or extensions thereof. The party requesting
such information shall reimburse the other party for all reasonable out-of-
pocket-costs incurred in producing such information.
4.8 Costs. Except as otherwise provided herein, each party shall bear his
-----
or its own costs in administering this Agreement.
4.9 Conduct of the Company in the Ordinary Course of Business. From the
---------------------------------------------------------
date hereof until the Termination Date, the Company will be conducted in the
ordinary course of business, consistent with past practices (including, without
limitation, its receivables collection and expense payment practices).
ARTICLE V
MISCELLANEOUS
5.1 Counterparts. This Agreement may be executed in counterparts, each of
-------------
which shall be deemed an original, but all of which counterparts collectively
shall constitute an instrument representing the Agreement between the parties
hereto.
5.2 Construction of Terms. Nothing herein expressed or implied is
---------------------
intended, or shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors, any
rights or remedies under or by reason of this Agreement.
5.3 Intent of Parties. It is the parties' intent that the liability for
-----------------
income taxes arising from the operations of the Company will be borne by the
Shareholders for all periods through and including the S Short Year and by the
Company for all subsequent periods beginning with the C Short Year, and this
Agreement shall be construed so as most equitably to achieve such intent.
-5-
<PAGE>
5.4 Governing Law. This Agreement between the parties hereto shall be
-------------
governed by and construed in accordance with the substantive laws of the
Commonwealth of Pennsylvania without regard to its choice of law rules.
5.5 Severability. In the event that any one or more of the provisions of
------------
this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
5.6 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery or telecopy (receipt confirmed, with a copy to be
sent by reputable overnight courier as set forth herein) to the party to be
notified, or one business day after delivery to a reputable overnight courier,
postage prepaid, and addressed to the party to be notified at the address
provided to the Company, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
5.7 Amendments and Waivers. Any term of this Agreement may be amended,
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of each of the parties hereto; provided, however, that
no consent of the Company shall be effective unless approved by the Board of
Directors.
5.8 Full Understanding. Each Shareholder represents and agrees that such
------------------
Shareholder fully understands his or her right to discuss all aspects of this
Agreement with such Shareholder's private attorney, and that to the extent, if
any, that the Shareholder desired, has availed himself or herself of such right.
Each Shareholder further represents that he or she has carefully read and fully
understands all of the provisions of this Agreement, that such Shareholder is
competent to execute this Agreement, that the Shareholder's agreement to execute
this Agreement has not been obtained by any duress and that he or she freely and
voluntarily enters into it, and that he or she has read this document in its
entirety and fully understands the meaning, intent and consequences of this
document.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
this first date set forth above.
MASTECH SYSTEMS CORPORATION SHAREHOLDERS
By:
---------------------------- ----------------------------
Co-Chairman and Chief Executive Sunil Wadhwani
Officer
Sunil Wadhwani
----------------------------
Ashok Trivedi
WADHWANI FAMILY TRUST
By:
------------------------
Sunil Wadhwani, natural parent
for Rohan Wadhwani, a minor, Fund A
By:
------------------------
Sunil Wadhwani, natural parent
for Shalina Wadhwani, a minor, Fund B
TRIVEDI FAMILY TRUST
By:
------------------------
Ashok Trivedi, natural parent
for Shelley Trivedi, a minor, Fund A
By:
------------------------
Ashok Trivedi, natural parent
for Sheena Trivedi, a minor, Fund B
By:
------------------------
Ashok Trivedi, natural parent
for Shivani Trivedi, a minor, Fund C
-7-
<PAGE>
EXHIBIT A
---------
Internal Revenue Service Center
[address] [where the original S election was filed]
Re: Revocation of S Corporation Election
Dear Sir or Madam:
Mastech Systems Corporation (the "Corporation") has the mailing
address 1004 McKee Road, Oakdale, Pennsylvania 15071. The federal
identification number for the Corporation is 25-1529755. The Corporation
revokes its S Corporation election made under Internal Revenue Code Section
1362(a) effective immediately prior to the effective date of the Corporation's
Form S-1 registration statement [which is expected to be on or about December
16, 1996].
The number of shares of common stock issued and outstanding at the
time of this revocation is 250,000. Attached to this letter of revocation are
consents signed by persons who own more than one-half of the total issued and
outstanding common stock.
Mastech Systems Corporation
By
-----------------------------------------
Its:
---------------------------------------
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
(Consent of spouse who is not a shareholder)
If I have any interest, under community property laws or otherwise, in the
shares listed above, I hereby consent to the revocation by Mastech Systems
Corporation of its election under Section 1362(a) of the Internal Revenue Code
of 1986, as amended.
--------------------------------------------------
--------------------------------------------------
Spouse's Name, Address, Social Security Number
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Sunil Wadhwani
--------------------------------------------------
Spouse
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
(Consent of spouse who is not a shareholder)
If I have any interest, under community property laws or otherwise, in the
shares listed above, I hereby consent to the revocation by Mastech Systems
Corporation of its election under Section 1362(a) of the Internal Revenue Code
of 1986, as amended.
--------------------------------------------------
--------------------------------------------------
Spouse's Name, Address, Social Security Number
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Ashok Trivedi
--------------------------------------------------
Spouse
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Ashok Trivedi, natural parent for Shelley Trivedi,
a minor, Fund A
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Ashok Trivedi, natural parent for Sheena Trivedi,
a minor, Fund B
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Ashok Trivedi, natural parent for Shivani Trivedi,
a minor, Fund C
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Sunil Wadhwani, natural parent for
Rohan Wadhwani, a minor, Fund A
<PAGE>
CONSENT TO REVOCATION OF S ELECTION
-----------------------------------
The undersigned shareholder consents to the revocation by Mastech
Systems Corporation, whose mailing address is 1004 McKee Road, Oakdale,
Pennsylvania 15071, of its election under Internal Revenue Code Section 1362(a).
Name and address of consenting shareholder:
Number of issued and outstanding shares owned:
Social Security number of consenting shareholder:
Corporation's federal identification number:
Date or dates on which shares were acquired:
Date on which consenting shareholder's taxable year ends:
Under penalties of perjury, I declare (1) that I consent to the revocation by
the above-named corporation of its election to be an "S Corporation" under
Section 1362(a), and (2) that I have examined this consent statement and, to the
best of my knowledge and belief, it is true, correct and complete.
Date:
------------------- --------------------------------------------------
Sunil Wadhwani, natural parent for Shalina
Wadhwani, a minor, Fund B
<PAGE>
EXHIBIT B
---------
DEMAND PROMISSORY NOTE
----------------------
, 1996
-----------------
FOR VALUE RECEIVED, MASTECH SYSTEMS CORPORATION, a Pennsylvania corporation
("Maker"), promises to pay the persons identified on Exhibit B-1 hereto (each a
"Payee" and, collectively, the "Payees"), the Principal (as defined herein),
----- ------
with interest on the balance of the Principal outstanding from time to time at a
rate per annum equal to the Interest Rate (as defined herein), compounded
annually, on the following terms and conditions:
1. Definitions. For purposes of this Demand Promissory Note, the
------------
following capitalized terms shall have the meaning ascribed thereto:
(a) "Agreement" shall mean that certain S Corporation
---------
Revocation, Tax Allocation and Indemnification Agreement, dated as of
1996 by and among Maker and Payees, a copy of which is
------------
attached hereto as Exhibit B-2 and is incorporated herein by this
reference.
(b) "Interest Rate" shall mean the prime rate of interest as
-------------
published by the Wall Street Journal under the caption "Money Rates" on
the Termination Date (as defined in the Agreement).
(c) "Principal" shall mean a dollar amount not previously paid
---------
to Payees equal to the amount payable by Maker to Payees pursuant to
Section 2.2 of the Agreement.
2. Payment. The entire Principal balance (together with all accrued and
-------
unpaid interest) shall be due and payable immediately upon the presentment of
written demand therefor by Payees to Maker; provided, however, that no such
demand may be made prior to , 1997 (45 days after issuance of the
--------------
Note). Principal and interest accrued hereunder shall be payable in lawful money
of the United States of America to Payees, at 1004 McKee Road, Oakdale,
Pennsylvania 15017, or at such other address as Payees may designate in writing
from time to time to Maker. All payments to Payees hereunder shall be made pro
rata to each Payee in proportion to the number of shares of stock of the Company
held by each Payee on the Termination Date as set forth on Exhibit B-1.
3. Prepayments. The indebtedness evidenced by this Demand Promissory Note
-----------
may be prepaid in full or in part without penalty at the option of Maker at any
time.
<PAGE>
4. Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default under this Note:
(a) Failure by Maker to pay Principal or interest under this
Demand Promissory Note when and as the same becomes due and payable
and the continuation of such failure for a period of five (5) days
thereafter; or
(b) Maker shall: (i) be generally unable or admit in writing the
inability to pay Maker's debts as they become due; (ii) have an order
for relief entered in any case commenced by Maker under the federal
bankruptcy laws, as now or thereafter in effect; (iii) commence a
proceeding under any federal or state bankruptcy, insolvency,
reorganization or similar law, or have such a proceeding commenced
against Maker and either have an order of insolvency or reorganization
entered against Maker or have the proceeding remain undismissed and
unstayed for ninety (90) days; (iv) make an assignment for the benefit
of creditors; or (v) have a receiver, trustee or custodian appointed
for Maker for the whole or any substantial part of Maker's properties.
5. Penalty Interest. Upon the occurrence of an Event of Default, and to
----------------
the extent permitted by applicable law, interest shall accrue on the amount of
unpaid Principal and interest at a rate per annum equal to the Interest Rate,
plus two percent (2%), until said Principal and interest is paid in full to
Payees.
6. Waiver. Maker agrees (i) that the failure of Payees to exercise any
------
rights or remedies granted hereunder shall not constitute a waiver of such
rights or remedies or any other rights or remedies, or preclude the exercise of
such rights or remedies or any other rights or remedies at any time, and (ii)
that failure of Payees to exercise any rights or remedies granted hereunder, in
the event of a breach thereof or an Event of Default hereunder, shall not be
deemed a waiver of such breach or Event of Default or of any other or further
breaches or Events of Default. In addition, Maker hereby waives demand,
presentment for payment, notice of dishonor, protest and notice of protest, and
diligence in collection and bringing suit and agrees that Payee may extend the
time for payment, accept partial payment, or take, exchange, or release security
without discharging or releasing Maker .
7. Governing Law. This Note shall be construed and enforced in accordance
-------------
with the laws of the Commonwealth of Pennsylvania, without giving effect to
principles of conflicts of law.
8. Rights and Remedies. The rights and remedies set forth herein shall be
-------------------
cumulative and in addition to any other or further rights and remedies available
at law or in equity. The invalidity or unenforceability of any term or provision
of this Demand Promissory Note, or the application of such term or provision to
any person or circumstance, shall not impair or affect the remainder of this
Demand Promissory Note and its application to other persons and circumstances
and the remaining terms and provisions hereof shall not be invalid, but shall
remain in full force and effect.
<PAGE>
9. Assignment by Maker. Assignment by Maker and the assumption by any
-------------------
third party of Maker's obligations hereunder shall be made only with the written
consent of Payees.
IN WITNESS WHEREOF, this Demand Promissory Note has been executed by Maker
as of the day and year first above written.
MAKER:
MASTECH SYSTEMS CORPORATION
By:
------------------------------------------------
Co-Chairman of the Board and Chief Executive
Officer
Sunil Wadhwani
<PAGE>
EXHIBIT B-1
-----------
Shareholders Shares
- ------------ ------
Sunil Wadhwani
Ashok Trivedi
Wadhwani Family Trust
Rohan Wadhwani, Fund A
Shalina Wadhwani, Fund B
Trivedi Family Trust
Shelley Trivedi, Fund A
Sheena Trivedi, Fund B
Shivani Trivedi, Fund C
<PAGE>
Exhibit B-2
-----------
S Corporation Revocation, Tax Allocation and Indemnification Agreement
<PAGE>
Exhibit 10.18
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this day of July, 1993, by and
---
between MASTECH SYSTEMS CORPORATION, a Pennsylvania corporation and PNC BANK,
NATIONAL ASSOCIATION.
RECITALS:
Borrower has agreed to borrow, and Bank agrees to lend amounts hereinafter set
forth, under and upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
-----------
1.1 Defined Terms. As used herein and in the Exhibits hereto, the following
-------------
terms shall have the following meanings, unless the context otherwise requires:
"Account Debtor" means each person, natural or artificial, obligated to pay on,
under or pursuant to a Contract.
"Advance" means any loan, advance or other disbursement to or for the account of
Borrower by Bank.
"Agreement" means this Loan and Security Agreement, as it may from time to time
be amended, supplemented or otherwise modified.
"Availability Report" means the Bank form which the Borrower must submit with
each request for an Advance or otherwise as provided in this Agreement. A copy
of the Availability Report is attached hereto as Exhibit "C".
"Bank" means PNC Bank, National Association.
"Borrower" means Mastech Systems Corporation.
"Borrowing Base" means an amount which is the total of 85% of the Net Amount of
Qualified Contracts.
"Cash Flow" means net income plus depreciation plus amortization plus other non-
---- ---- ----
cash items.
"Cash Flow Recapture" means on an annual basis, an amount equal to twenty
percent (20%) of Borrower's net income less the total of distributions to
----
shareholders for payment of federal and state income taxes (whenever made),
Unfunded Capital Expenditures and current maturities of long term debt and other
expenses Borrower and Bank may agree upon from time to time.
1
<PAGE>
"Contract" means Borrower's right to the payment of money however evidenced or
arising. The term includes each existing and future account, contract right,
chattel paper, instrument and document as defined by the applicable Uniform
Commercial Code as in effect on the date of this Agreement.
"Default" means an event specified in Section 16 after the expiration of any
applicable cure period.
"Equipment" means all goods new or used (other than Inventory), now owned and
hereafter acquired by Borrower, wherever located, including, but not limited to,
machinery, vehicles and fixtures, together with all accessions, parts,
accessories and appurtenances thereto appertaining or attached or kept or used
or intended to be used in connection therewith and all substitutions, renewals,
improvements, replacements and additions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it may
from time to time be amended, supplemented, or otherwise modified.
"Expiration Date" means May 31, 1994 or such subsequent date so designated by
written notice from Bank to Borrower.
"Financial Statements" means Borrower's balance sheets and statements of cash
flows for the year or quarter or month prepared in accordance with generally
accepted accounting principles consistently applied on a basis consistent with
prior years, unless specifically noted therein.
"Floating Rate" means a rate per annum which is at all times equal to the sum of
the Prime Rate plus one-half of one percent (1/2%).
----
"Indebtedness" means all obligations and liabilities of Borrower to Bank, of
every kind and nature, due or to become due, direct or contingent, whether
arising under this Agreement or independently hereof, whether jointly liable
with any other person or persons or not, and whether now existing or hereafter
arising or contracted.
"Inventory" means all goods new or used, now owned and hereafter acquired by
Borrower, wherever located, and held for sale or lease or furnished under a
contract of service in the ordinary course of Borrower's business, including,
but not limited to, all raw materials, work-in-process, materials used or
consumed in Borrower's business, and finished goods, and all supplementary
items, packing and shipping supplies, advertising materials and returned and
repossessed goods.
"Letter Agreement" means that certain letter agreement dated June 7, 1993 from
Bank to Borrower, a copy of which is attached hereto as Exhibit "D".
-----------
2
<PAGE>
"Liens" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any capitalized lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Loan" means collectively the Revolving Credit and the Term Loan.
"Loan Documents" means this Agreement, the Notes, the Security Documents, if
any, UCC Financing Statements, if any, and all other documents executed and
delivered by Borrower to govern, evidence or secure the Indebtedness, and the
statements, reports, certificates and other documents required by, or related
to, any of the foregoing.
"Net Amount of Qualified Contracts" means the gross amount payable under
Qualified Contracts outstanding at any time less claims, returns, maximum
discounts, credits and allowances to Account Debtors in connection therewith,
and less sales, excise and similar taxes.
"Notes" means, collectively, the Revolving Credit Note and the Term Note.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to
ERISA.
"Permitted Encumbrances" means (a) Liens for taxes or assessments which are not
yet due, Liens for taxes or assessments or Liens of judgments which are being
contested, appealed or reviewed in good faith by appropriate proceedings which
prevent foreclosure of any such Lien or levy of execution thereunder and against
which Liens, if any, adequate insurance or reserves have been provided; (b)
pledges or deposits to secure payment of workers' compensation obligations,
unemployment insurance, deposits or indemnities to secure public or statutory
obligations or for similar purposes; (c) those minor defects which in the
opinion of Bank's counsel do not materially affect title to the collateral for
the Loan; (d) Liens in favor of Bank; (e) the lessor's retained title to
personal property which is the subject matter of a true operating lease to
Borrower; and (f) those further encumbrances, if any, shown on Schedule 1
----------
attached hereto.
"Plan" means any employee pension or other benefit plan of Borrower covered by
ERISA.
"Prime Rate" means the interest rate per annum publicly announced by Bank from
time to time as its prime rate. The Prime Rate is
3
<PAGE>
determined from time to time by Bank as a means of pricing some loans to its
borrowers and neither is it tied to any external rate of interest or index, nor
necessarily reflects the lowest rate of interest actually charged by it to any
particular class or category of customers.
"Qualified Contract" means a Contract that at all pertinent times:
(i) Bank has a first and prior perfected security interest in;
(ii) resulted from a bona fide outright sale and delivery of goods or
services that is in no way dependent upon further performance by Borrower, that
such goods or services are free of encumbrances to an Account Debtor who has
accepted the goods or services and who is not a parent, subsidiary or affiliate
of Borrower, nor an officer, stockholder, employee, or a member of the family of
an officer, stockholder or employee of Borrower;
(iii) no payment on account thereof is 60 days or more past due according to
its original terms and the amount indicated as owing thereon is absolutely and
actually owing, and is not contingent debt;
(iv) the Account Debtor is located in the United States but the Account
Debtor is not any state, county, municipality or other local governmental unit,
or any department, agency or instrumentality thereof;
(v) is to the best of Borrower's knowledge free of default, dispute,
counterclaim and set-off;
(vi) is to the best of Borrower's knowledge enforceable according to its
terms against each named Account Debtor, the goods identified thereto have not
been returned or repossessed and Borrower has no reason to expect potential
liability to an Account Debtor with respect thereto;
(vii) complies with all applicable law; and
(viii) the Borrower has no notice of or any reason to expect the existence of
any state of facts or the occurrence of any event that impairs its validity and
Borrower knows of nothing that might render it less valuable than it purports to
be and has done and will do nothing that might reasonably be expected to impair
its value or Bank's right in it.
"Request Date" means each date on which Borrower applies to Bank for an Advance.
"Revolving Credit" means Bank's obligation to make Advances to Borrower in the
maximum principal amount which may not exceed the lesser of (i) the Borrowing
Base, or (ii) $3,000,000.00.
4
<PAGE>
"Revolving Credit Note" means the Revolving Credit Note, in substantially the
form of Exhibit "A" hereto, duly executed by Borrower and delivered to Bank to
-----------
evidence Advances under the Revolving Credit, including any amendments,
modification, renewals, extensions, substitutions or replacements thereof.
"Security Documents" means any security agreement, assignment, hypothecation,
mortgage, pledge, or other agreement of any type given as security for the
Indebtedness.
"Settlement Date" means any date on which the unpaid balance of Advances under
the Revolving Credit exceeds the maximum Revolving Credit.
"Tangible Net Worth" means stockholders' equity in Borrower less all items
----
properly classified as intangible, as determined in accordance with generally
accepted accounting principles consistently applied.
"Term Loan" means the term loan in the aggregate principal amount of
$4,000,000.00 made by Bank to Borrower, including any extensions or renewals
thereof.
"Term Note" means the Term Note, in substantially the form of Exhibit "B"
-----------
hereto, duly executed by Borrower and delivered to Bank to evidence the Term
Loan, including any amendment, modification, renewal, extension, substitution,
or replacement thereof.
"Unfunded Capital Expenditures" means capital expenditures made from Borrower's
funds other than borrowed funds.
"Unmatured Default" means any event which with notice, or lapse of time, or
both, would constitute a Default.
1.2 Use of Defined Terms. All terms defined in this Agreement shall have the
--------------------
defined meanings when used in the Loan Documents, unless the context otherwise
requires.
1.3 Accounting Terms. Each accounting term not defined herein and each
----------------
accounting term partly defined herein, to the extent not defined, shall have the
meaning given it under generally accepted accounting principles.
1.4 Other Definitional Provisions. The words "hereof", "herein", "hereunder"
-----------------------------
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
SECTION 2. AMOUNT AND TERMS OF LOAN
------------------------
2.1 Revolving Credit. (a) Bank agrees to make Advances to Borrower up to the
----------------
amount of the Revolving Credit subject to the
5
<PAGE>
terms of this Agreement, from time to time, but in no event after the Expiration
Date.
(b) Bank will make Advances to Borrower, upon Borrower's request, up to such
amount as Borrower is entitled under this Agreement, on the next business day of
Bank after the Request Date.
(c) Immediately upon notice from Bank, Borrower will make such payments as
may be necessary at any time to reduce the unpaid balance of Advances at such
time to such amount as may be then permitted under the Revolving Credit.
2.2 Revolving Credit Note. Prior to the first Advance hereunder, if any,
---------------------
Borrower shall execute the Revolving Credit Note. The Revolving Credit Note
shall be enforceable only to the extent of (i) the aggregate amount of the
unpaid Advances made under the Revolving Credit plus (ii) the accrued and unpaid
----
interest on the Advances from the date the Advances are made. The Revolving
Credit Note shall be payable on the Expiration Date.
2.3 Interest. (a) Borrower agrees to pay to Bank monthly, interest based on a
--------
360-day year, on the average daily unpaid balance of Advances at the Floating
Rate. The Floating Rate charged shall change automatically effective as of the
dates of changes in the Prime Rate without prior notice to Borrower.
(b) Interest shall be payable in consecutive monthly installments commencing
on the last day of each month following the first Advance and continuing in the
same manner until the Expiration Date.
2.4 Borrower's Advance Account. Advances made, interest due, interest paid,
--------------------------
repayments on Advances and all other charges billed to or paid by Borrower shall
be recorded in an account on Bank's books designated "Borrower's Advance
Account". Borrower agrees that the Advance Account is sufficient evidence of
Borrower's obligations to Bank incurred hereunder and that none other is
necessary absent manifest error. All billing statements and statements of
account rendered by Bank to Borrower shall be derived from Borrower's Advance
Account and shall be presumed to be correct and accurate.
2.5 Prepayment. Prior to any date on which payment is due, Borrower may, on
----------
any business day, upon payment of all accrued unpaid interest, fees and other
amounts then due and payable by Borrower to Bank, repay all or part of the
outstanding principal amount of the Revolving Credit Note without premium or
penalty.
2.6 Term Loan. Bank agrees to lend to Borrower, and Borrower agrees to repay
- --------------
in accordance with the terms herein, the Term Loan.
2.7 Term Note. The Term Loan shall be evidenced by the Term Note.
---------
6
<PAGE>
2.8 Interest. Interest on the unpaid balance of the Term Loan shall be at a
--------
rate per annum which shall be at all times equal to the sum of the Prime Rate
plus one percent (1%); provided, however, in return for deficiency guarantees to
- ----
Bank (which deficiency guarantees are optional and may or may not be executed),
satisfactory in form and content to Bank, from both Sunil Wadhwani and Ashok
Trivedi, the rate of interest on the portion of the Term Loan in excess of
$2,000,000.00 shall be at a rate per annum equal to the Floating Rate. The
interest rate charged shall change automatically effective as of the dates of
changes in the Prime Rate without prior notice to the Borrower.
2.9 Principal and Interest Payments. Principal shall be payable in (i) 12
-------------------------------
equal consecutive monthly installments in the amount of $33,334.00 each,
commencing on the first day of the month after the Advance of the Term Loan and
continuing on the first day of the next 11 months, (ii) 47 equal consecutive
monthly installments in the amount of $75,000.00 each, commencing on the first
day of the next month thereafter and continuing on the first day of the next 46
months and (iii) a final payment of $74,992.00 due and payable on the first day
of the next month. Interest on the Advances shall be payable monthly until the
principal payments begin and thereafter at the same times as the principal
payments. In addition, beginning June 1, 1994 and annually thereafter Borrower
will pay an amount equal to the prior year's Cash Flow Recapture.
2.10 Prepayment. On any business day, upon payment of all accrued interest,
----------
fees and other amounts then due and payable by Borrower to Bank under the Term
Loan, Borrower may repay in advance of maturity, without premium or penalty, all
or part of the outstanding principal amount of the Term Loan. All prepayments
and Cash Flow Recapture payments shall be applied to the unpaid principal
installments of the Term Note in the inverse order of their regular maturities.
Prepayments shall not affect the duty of Borrower to pay all installments when
due or change the amount of such installments and they shall not affect or
impair the right of Bank to pursue all remedies available to Bank under this
Agreement or the Term Note.
2.11 Requirements of Law. In the event that any change in law, regulation,
-------------------
treaty or directive or in the interpretation or application thereof or
compliance by Bank with any request or directive made subsequent to the date
hereof (whether or not having the force of law) from any central bank or other
governmental authority, agency or instrumentality:
(i) shall subject Bank to any tax of any kind whatsoever with respect to
this Agreement, the Notes or the Loan made by it hereunder, or change the basis
of taxation of payments to Bank of principal, interest or any other amount
payable hereunder including but not limited to any fees (except for any taxes
imposed on or measured by the overall income by Bank);
7
<PAGE>
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan, FDIC insurance or similar requirement against assets held by,
or deposits or other liabilities in or for the account of, advances or loans by,
or other credit extended by, or any other acquisition of funds by, any office of
Bank which are not otherwise included in the determination of the interest rate
hereunder;
(iii) affects the amount of capital required or expected to be maintained by
Bank or any corporation controlling Bank, and the amount of capital required is
increased by or based upon the existence of this Agreement or the Loan; or
(iv) shall impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining the Loan or to reduce any amount receivable
thereunder then, in any such case, Borrower shall promptly pay Bank, upon its
demand, any additional amounts necessary to compensate Bank for such additional
costs or reduced amount receivable. If Bank becomes entitled to claim any
additional amounts pursuant to this Section 2.11, it shall promptly notify
Borrower of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to the foregoing
sentence submitted by Bank to Borrower shall be conclusive in the absence of
manifest error.
SECTION 3. SECURITY INTEREST
-----------------
To secure payment and performance of all the Indebtedness, Borrower hereby
pledges, conveys, assigns and grants to Bank a continuing security interest in,
and upon Default will deliver to Bank: (i) all present and future Contracts,
general intangibles, including, but not limited to, good will, trade marks,
copyrights, names, patents, licenses, and inventions, choses in action and all
goods represented by Contracts, including goods in which Borrower has retained a
security interest or which have been reclaimed or repossessed from or returned
by Account Debtors; (ii) all present and future Inventory, and all documents of
title and warehouse receipts representing any thereof; (iii) all present and
future Equipment, and (iv) the proceeds of all the foregoing as well as all
insurance policies, files and records relating to all the foregoing. Borrower
will join in the execution of all financing statements, continuation statements,
and other documents required by Bank or its legal counsel to evidence, create,
perfect, and notify third parties of the security interests granted by Borrower
to Bank pursuant to the terms hereof. Borrower will execute and deliver to Bank
such documentation as Bank reasonably believes necessary to comply with the
Assignment of Government Claims Act. Borrower shall pay the cost of filing or
recording such documents in all public offices where deemed necessary or
appropriate by Bank or its legal counsel. Borrower will promptly furnish all
documents
8
<PAGE>
of title, affidavits and other papers reasonably required by Bank or its legal
counsel to further evidence, create, perfect, or notify third parties of the
security interests granted herein.
SECTION 4. ADDITIONAL SECURITY
-------------------
As additional security for payment and performance of all the Indebtedness,
Borrower hereby grants to Bank a security interest in all property, credits,
securities or monies which may at any time be delivered to, or be in the
possession of, or owed by, Bank in any capacity whatever (exclusive of custodial
or fiduciary accounts), including, but not limited to, the balance of any
deposit account maintained by Borrower with Bank. After a Default Borrower
authorizes Bank to apply any of the above security to the payment of the
Indebtedness, or any part thereof, or interest due thereon, at the Bank's option
and discretion, at any time and from time to time, after any Default hereunder.
SECTION 5. BORROWER'S REPORTS
------------------
On each Request Date, Settlement Date and monthly and at such other times as
Bank shall reasonably request, Borrower will submit an Availability Report to
enable Bank to accurately determine the status of Bank's security interests, the
net Advance which Borrower may request or the net amount due Bank.
From time to time, upon the creation of Contracts, Borrower shall provide Bank
with copies of invoices and such other documents, evidence and information as
Bank shall reasonably request.
SECTION 6. [This Section purposely blank.]
SECTION 7. BORROWER'S RECORDS
------------------
Borrower will (i) maintain at its principal place of business or such other
location as approved in advance by Bank, an individual account record for each
Contract; (ii) enter each Contract payment in the appropriate account records;
(iii) keep said account records segregated; (iv) allow Bank at any reasonable
time to audit, inspect and copy the account records; and, (v) mark each Contract
and its account record conspicuously to show the interest of Bank, after any
Default hereunder. Prior to each delivery of Contracts to Bank, Borrower shall
supply any necessary assignment or endorsement thereon.
For each location where Borrower keeps Inventory or Equipment, Borrower shall
maintain a separate, accurate and detailed record of all such items in a manner
acceptable to Bank. Borrower shall permit Bank to audit, inspect and copy all
records relating thereto during normal business hours.
9
<PAGE>
Borrower hereby authorizes Bank to verify with any Account Debtor the status of
any Contract and before a Default, Bank will give prior notice to Borrower of
Bank's intention to do so. After a Default, Bank may do so from time to time
and without notice to Borrower.
SECTION 8. COLLECTIONS BY BORROWER
-----------------------
Until a Default occurs, Bank authorizes Borrower to collect Contracts and
Inventory proceeds without cost to Bank. Borrower will receive all payments on
the aforesaid as custodian for Bank. Borrower will diligently collect the
amounts owing under Contracts as and when due and, in this connection, may make
rebates and adjustments, and issue credits and allowances, to which an Account
Debtor may be in good faith entitled or which Borrower may in good faith deem
proper in accordance with established industry customs and under the
circumstances, including the acceptance of rejected goods; provided, however,
-------- -------
that after any Default hereunder Bank, in its sole discretion, may disallow any
such rebates, adjustments, credits and allowances as it deems appropriate.
Borrower may repossess and may take any other actions with respect to any goods
or Contracts not inconsistent with this Agreement.
SECTION 9. COLLECTION BY BANK AFTER DEFAULT
--------------------------------
After any Default hereunder, Bank may terminate Borrower's authorization to
collect Contracts and Inventory proceeds at any time, upon notice to Borrower,
and, upon Bank's request, Borrower will notify each Account Debtor to make all
future payments directly to Bank. Bank may also give notice to each Account
Debtor that they are to make all future payments to Bank and Bank will have no
liability to Borrower by reason of giving or not giving such notice. In
collecting and enforcing Contracts, Bank will have all the rights of Borrower.
Borrower will use its best efforts to assist Bank in collecting and enforcing
all Contracts. Bank will apply all amounts collected first to costs of
collection, if any; next to accrued and unpaid interest; next to the unpaid
balance of Advances; and finally to other Indebtedness. After all Indebtedness
has been satisfied, Bank will cease to collect and, subject to the rights of
junior lien holders, if any, will immediately remit all surplus to Borrower
together with any property of Borrower's in Bank's possession. Provided that
Bank immediately remits any surplus to Borrower, in no event will Bank be liable
to Borrower for interest on any surplus. Notwithstanding anything to the
contrary contained in this Agreement, Bank has no obligation to junior
lienholders, Account Debtors or other third parties.
SECTION 10. POWER OF ATTORNEY
-----------------
Borrower does hereby appoint Bank, or Bank's nominee, as its attorney-in-fact,
to exercise the following powers, at Borrower's
10
<PAGE>
expense, after any Default hereunder, which appointment, being coupled with an
interest, is irrevocable until all of the Indebtedness is paid in full:
(a) administer Contracts, Inventory, Equipment and other collateral and the
proceeds thereof;
(b) receive and endorse for the sole use and benefit of Bank all checks,
drafts and remittances made payable to Borrower representing payments on
Contracts or payment of insurance claims on goods identified to Contracts, and
to endorse Borrower's name on any bill of lading, receipt, freight item or
similar document;
(c) receive, open and dispose of mail addressed to Borrower and, in
connection therewith, to execute and deliver notices and documents of suit and
authorizations, in the name of Borrower or Bank, as the United States Postal
Department or other agency may require;
(d) send verifications and to sign the name of Borrower or Bank or Bank's
designee to all audit inquiries made of Account Debtors, to information release
authorizations in connection therewith, to all applications for documents of
title, title certificates and similar documents, to any financing statements or
other documents deemed necessary to continue Bank's perfected security interest,
to any notice of claim, satisfaction or release in connection with a Contract,
and to any Proof of Claim in Bankruptcy or similar document;
(e) settle, adjust or compromise any Contract or any legal action involving a
Contract;
(f) take all necessary action to collect Contracts, including bringing legal
proceedings in the name of Borrower; and
(g) do all acts and things necessary, in Bank's sole discretion, to fulfill
Borrower's obligations under this Agreement.
Bank shall use reasonable efforts to apprise Borrower of all Bank's actions and,
to the extent it will not negate Bank's remedies for Default, preserve
Borrower's business intact.
SECTION 11. INDEMNIFICATION
---------------
Borrower hereby indemnifies Bank from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the payment of the
Indebtedness) be imposed on, incurred by or asserted against Bank in any way
relating to or
arising out of Bank's exercise of its rights under Sections 9 and 10 of this
Agreement; provided that Borrower shall not be liable
--------
11
<PAGE>
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Bank's gross negligence or wilful misconduct. The agreements in
this Paragraph shall survive the payment of the Indebtedness.
SECTION 12. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Bank to enter into this Agreement and make the Loan, Borrower
represents and warrants to Bank that:
12.1 Existence. Borrower is a corporation duly organized, validly existing
---------
and in good standing under the laws of its state of incorporation, has all
requisite corporate power to own its assets and carry on its business as now or
proposed to be carried on, and is duly qualified, licensed and in good standing
as a foreign corporation to do business in all jurisdictions wherein its
ownership of property or the nature of its business requires such qualification
or licensing.
12.2 Authority. Borrower is duly authorized to execute and deliver the Loan
---------
Documents. All necessary action to authorize the execution and delivery of the
Loan Documents has been properly taken, Borrower is and will continue to be duly
authorized to borrow hereunder and to perform all of the other terms and
provisions of the Loan Documents.
12.3 Enforceable Obligation. This Agreement has been duly and validly
----------------------
executed and delivered by Borrower and constitutes a valid and legally binding
agreement of Borrower enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights. The other Loan Documents
when duly executed and delivered by Borrower pursuant to the provisions hereof,
will constitute valid and binding obligations of Borrower enforceable in
accordance with the terms thereof and of this Agreement, except as limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights.
12.4 Application of Other Restrictions. Borrower is not a party to any
---------------------------------
contract or agreement or subject to any charter or other corporate or legal
restriction of any kind which, in the opinion of Borrower, materially and
adversely affects the business, properties or assets, or the condition,
financial or otherwise of Borrower. Neither the execution and delivery of this
Agreement nor compliance with the terms, conditions and provisions hereof and of
the other Loan Documents will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, the Articles of
Incorporation or By-Laws of Borrower or of any law or of any regulation, order,
writ, injunction or decree of any court or governmental agency, or of any
indenture or other
12
<PAGE>
agreement or instrument to which Borrower is a party or by which Borrower is
bound or to which Borrower is subject, or will result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the property or assets of Borrower pursuant to the terms of any such
indenture or agreement or instrument, except as contemplated by the provisions
of this Agreement, and does not and will not require any approval or consent of
the government or of any other federal regulatory body or of any state or local
commission or authority having jurisdiction with respect thereto, or that such
approval has been obtained and is in full force and effect on the date hereof.
12.5 Financial Condition. Borrower has delivered or caused to be delivered
-------------------
to Bank the latest copies of Financial Statements of Borrower. The Financial
Statements are complete and correct and fairly present the financial condition
of Borrower and the results of its operations and transactions in its surplus
accounts as of the date and for the periods referred to. Borrower has no
material liabilities, direct or indirect, fixed or contingent, as of the date of
such Financial Statements which are not reflected therein or in the notes
thereto. Since the date of the Financial Statements, there has been no material
adverse change in the financial condition of Borrower.
12.6 Litigation; Proceedings; Title to Property. There are no legal actions
------------------------------------------
or proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower before any court or any governmental department or agency the
result of which might substantially impair Borrower's operations or financial
condition or its ability to repay the Indebtedness. Borrower (i) has complied
with all applicable statutes and regulations of all governmental authorities
having jurisdiction over it, (ii) is not in default with respect to any order,
writ, injunction or decree of any court or governmental agency, and (iii) has
good title to its properties and assets.
12.7 Pension Plans. Borrower is in compliance in all material respects with
-------------
all applicable provisions of ERISA related to minimum funding requirements for
each Plan. Borrower has not incurred any material liability to the PBGC with
respect to any Plan maintained for employees of Borrower or any of its
subsidiaries or of any member of a "controlled group of corporations", as that
term is defined in Section 1563 of the Internal Revenue Code of 1986, as
amended, of which Borrower is a part.
12.8 Letter Agreement. Borrower shall comply fully with the terms and
----------------
conditions of the Letter Agreement, which shall survive the execution of this
Agreement.
13
<PAGE>
SECTION 13. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that, unless compliance is waived in writing by Bank and
until payment in full of all of its Indebtedness to Bank and interest thereon:
13.1 Corporate Existence. Borrower will preserve, or cause to be preserved,
-------------------
its corporate existence and be qualified, or cause to be qualified, to do
business in all jurisdictions where ownership of property or the nature of its
business requires such qualifications, and obtain and retain all necessary
licenses, permits, leases and other permissions to conduct its business.
13.2 Payments of Taxes and Other Charges. Borrower will pay or cause to be
-----------------------------------
paid all taxes, assessments and other governmental charges to which Borrower or
its properties are or shall be subject before such charges become delinquent,
except that no such charge need be paid for so long as its validity or amount
shall be contested in good faith by appropriate proceedings duly prosecuted and
Borrower shall have set up on its books such reserve with respect thereto as
shall be dictated by sound accounting practices.
13.3 Financial Statements and Reports. Borrower will deliver to Bank as soon
--------------------------------
as practicable, but in any event (i) within 120 days after the close of each
fiscal year, Borrower's annual audited Financial Statements, all certified
without qualification by an independent certified public accountant reasonably
acceptable to Bank; (ii) within 45 days after the end of each calendar month,
Borrower's Financial Statements, certified, subject to ordinary and usual
adjustment, by a principal officer of Borrower; and (iii) within 20 days
following the close of each month, Borrower's detailed schedules of accounts
receivable aging analysis. All statements shall be prepared in accordance with
generally accepted accounting principles consistently applied. Further,
Borrower shall at any time and from time to time submit to Bank such other or
additional information relating to its affairs as Bank shall reasonably request.
13.4 Access to Records. Borrower will (i) maintain proper books of record
-----------------
and account in accordance with sound accounting practice in which full, true and
correct entries shall be made of all its properties and assets and its dealings
and business affairs; (ii) permit Bank to have access, at any time and from time
to time, on reasonable notice and during normal business hours, to its books and
records to the extent that Bank shall reasonably request; and (iii) permit Bank
to make copies of such books and records and to remove such copies from the
offices of Borrower to the extent that the same is reasonably necessary.
13.5 Certificate of No Default. Borrower will simultaneously with the
-------------------------
delivery of the annual Financial Statements, issue a
14
<PAGE>
certification of the chief financial officer of Borrower stating whether the
preparation of the Financial Statements by the certified public accountant has
disclosed any condition or event which constitutes a Default or an Unmatured
Default, and, if such a condition or event has been so disclosed, specifying the
nature and extent thereof and the corrective measures which Borrower proposes to
take in relation thereto.
13.6 Insurance. Borrower will maintain at all times adequate insurance to the
---------
satisfaction of Bank with insurers acceptable to Bank against such risks of loss
as are customarily insured against and in amounts customarily carried by persons
owning, leasing or operating similar properties, including, but not limited to,
fire, theft and extended coverage insurance in an amount at least equal to the
total full insurable value of Borrower's Inventory and Equipment, provided that
the amount of such insurance shall at all times be sufficient to prevent
Borrower from becoming a co-insurer under the terms of any insurance policy.
Such insurance shall have a long form lender's loss payable endorsement in favor
of Bank, providing for at least thirty (30) days written notice to Bank prior to
cancellation and, in this regard, Borrower shall cause a certificate of
insurance to be delivered to Bank prior to the initial Advance under this
Agreement and no later than thirty (30) days prior to the expiration of any such
insurance coverage. Borrower will also keep itself adequately insured at all
times against liability on account of injury to persons or property and comply
with the insurance provisions of all applicable worker's compensation laws and
will effect all such insurance under valid and enforceable policies issued by
insurers of recognized responsibility. Prior to the initial Advance under this
Agreement and thereafter within ninety (90) days of the close of each fiscal
year, Borrower will deliver to Bank a schedule indicating all insurance then in
force.
In the event Borrower fails to secure insurance as provided above, Bank is
hereby authorized, at its election, to pay the cost of insurance. Borrower
hereby agrees to repay all sums so paid on demand with interest at the highest
rate provided for in this Agreement. Until repayment, all such sums shall be
secured by the security interests provided for herein.
13.7 Maintenance of Assets. Borrower will maintain, or cause to be maintained,
---------------------
its properties and assets in good order and preserve and protect Bank's security
interests provided for herein as first, prior and only liens on Borrower's
property and assets.
In the event Borrower fails to maintain its property and assets in good order,
or fails to preserve and protect Bank's security interests as hereinabove
provided, Bank is authorized at its election to pay the cost of maintaining
Borrower's property and assets or the costs of discharging any lien thereon and
Borrower agrees to repay all sums so paid on demand with interest at the
15
<PAGE>
rate provided for in this Agreement. Until repayment, all such sums shall be
secured by the security interests provided for herein.
13.8 Payment of Certain Obligations. Borrower will pay or cause to be paid
------------------------------
all costs and expenses in connection with the recording and/or filing of any
documents, statements or instruments incidental hereto, or the insuring of same,
and any stamp or other taxes which may be payable with respect to the execution
or delivery of the Loan Documents or of any statements, instruments or
documents, which obligation shall survive the termination of this Agreement.
13.9 Litigation and Proceedings. Borrower will promptly notify Bank of any
--------------------------
material litigation or proceedings commenced against Borrower.
13.10 SEC Statements. Borrower will promptly furnish to Bank copies of all
--------------
material which Borrower shall file with the Securities and Exchange Commission
or any national securities exchange, including, but not limited to, all
registration statements, annual reports on Form 10K, quarterly reports on Form
10Q, reports on Form 8K, proxy material and annual reports to shareholders, and
any and all amendments thereof or supplements thereto.
13.11 Use of Advances. Borrower will use Advances only for shareholder
---------------
distributions and working capital.
13.12 Notice of Default. Borrower will promptly notify Bank of (i) the
-----------------
happening of any event which constitutes a Default or an Unmatured Default; or
(ii) any other materially adverse change in Borrower's financial condition,
business or operation.
13.13 Bank Accounts. Borrower will establish and maintain at Bank all of
-------------
Borrower's primary depository accounts.
13.14 Tangible Net Worth. Borrower will maintain a minimum Tangible Net Worth
------------------
of $1,000,000.00 plus 35% of Borrower's net income, to be measured at fiscal
year end. The base will be reset on an annual basis.
13.15 Ratio of Total Liabilities to Tangible Net Worth. Borrower will maintain
------------------------------------------------
a ratio of total liabilities to Tangible Net Worth of not greater than (i) 6 to
1 through December 31, 1993, (ii) 3 to 1 through December 31, 1994 and (iii) 2
to 1 thereafter.
13.16 Ratio of Cash Flow to the total of Current Maturities of Long Term Debt
-----------------------------------------------------------------------
plus Unfunded Capital Expenditures. Borrower will maintain a ratio of Cash Flow
- ----------------------------------
to the total of current maturities of long term debt plus Unfunded Capital
Expenditures of not less than 1.0 to 1.
16
<PAGE>
13.17 Further Action. At the request of Bank, Borrower will execute such
--------------
other documents as Bank may reasonably require to carry out the intent and
purpose of this Agreement.
SECTION 14. NEGATIVE COVENANTS
------------------
Borrower covenants that, unless compliance is waived in writing by Bank, so long
as it may borrow hereunder and until payment in full of all of its Indebtedness
to Bank and interest thereon:
14.1 Change in Business, Management or Ownership. Borrower will not make or
-------------------------------------------
permit any material change in the nature of its business as carried on as of the
date of this Agreement, in composition of its current executive management, or
in its stock ownership,except for the changes anticipated by the investment of
T. A. Associates substantially in the form presented to Bank.
SECTION 15. CONDITIONS OF LENDING.
---------------------
15.1 Conditions Precedent to Initial Advance. The obligation of the Bank to
---------------------------------------
make the initial Advance is subject to the condition precedent that the Bank
shall have received all of the following:
(a) A certified copy of the resolution of the Board of Directors of Borrower
authorizing the execution and delivery of, and performance under the Loan
Documents;
(b) An incumbency certificate, executed by the Secretary or Assistant
Secretary of Borrower, which shall identify the name and title and bear the
signatures of the Borrower's officers who are authorized to sign the Loan
Documents;
(c) A favorable legal opinion, acceptable to Bank, of Borrower's legal
counsel as to the representations and warranties of Borrower set forth in
Sections 12.1, 12.2, 12.3, 12.4, 12.6 and 12.7 of this Agreement;
(d) The evidence of insurance required by this Agreement; and
(e) Such other instruments and documents Bank or its legal counsel shall
reasonably request.
15.2 Conditions Precedent to All Advances. The obligation of the Bank to make
------------------------------------
any Advance (including the initial Advance) shall be further subject to the
satisfaction of each of the following conditions:
(a) On each such date, no Default or Unmatured Default shall have occurred
and be continuing;
(b) There is no default by Borrower in the performance of obligations under
any contract, indenture or other agreement or
17
<PAGE>
instrument to which Borrower is a party which would have a materially adverse
effect on the operations of Borrower;
(c) The representations and warranties of Borrower contained in Section 12 of
this Agreement shall be true on and as of the date of each report, as of the
time of each supplemental assignment and as of the time of each Advance with the
same effect as though such representations and warranties had been made on and
as of such date; and
(d) Borrower shall promptly provide Bank with such other opinions, documents,
evidence, materials and information as Bank may from time to time reasonably
require.
SECTION 16. DEFAULT
-------
The occurrence of any of the following events shall be deemed a Default:
16.1 Default in Payment. Borrower shall fail to pay principal or interest
------------------
when due on the Notes, which failure remains uncured for ten days.
16.2 Insolvency. (a) Borrower shall become insolvent or shall be unable to
----------
pay its debts as they mature, or Borrower shall cease operations, file a
voluntary petition in bankruptcy or a voluntary petition seeking reorganization
or to effect a plan or other arrangement with creditors, or shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition pursuant to any Act of Congress relating to bankruptcy, or
shall be the subject of any order for relief, or shall make an assignment for
the benefit of creditors or make an assignment to an agent (authorized to
liquidate any substantial amounts of the assets of Borrower), or shall apply for
or consent to or suffer the appointment of a receiver or trustee for Borrower or
a substantial part of its property; or
(b) An order for relief shall be entered pursuant to an Act of Congress
relating to bankruptcy with respect to an involuntary petition seeking
reorganization of, or an order shall be entered appointing any receiver or
trustee for, Borrower or a substantial part of its property, or a writ or
warrant of attachment or any similar process shall be issued against a
substantial part of the property of Borrower, or an order shall be entered at
either the state court level enjoining or preventing Borrower from conducting
all or any part of its business as it is usually conducted, or garnishment
proceedings shall be instituted by attachment, levy or otherwise, against any
deposit balance maintained, or any property deposited, with Bank by Borrower,
which remains in effect unstayed for 60 days.
18
<PAGE>
16.3 Litigation. Borrower shall fail, within the period allowed by law, to
----------
contest in good faith or take reasonable corrective measures with respect to any
litigation or proceedings then pending against Borrower, the outcome of which,
in the reasonable judgment of Bank, would materially and adversely affect the
financial condition, business or properties of Borrower.
16.4 Default in Performance of Agreements or Covenants. Borrower shall
-------------------------------------------------
default in the performance of any of Borrower's agreements and covenants set
forth in the Loan Documents or any other agreement with Bank and such default
shall remain uncured for a period of thirty days after written notice from Bank
to Borrower.
16.5 Representations. Any representation or warranty made by Borrower is
---------------
untrue or incomplete in any material respect or any schedule, statement, report,
warranty, representation, notice or writing furnished by Borrower pursuant to
this Agreement is untrue or incomplete in any material respect on the date as of
which the facts set forth are stated or certified.
16.6 Pension Plans. There occurs a "reportable event" or a "prohibited
-------------
transaction" on the part of the Borrower under ERISA which remains uncured for a
period of thirty (30) days after Borrower receives written notice thereof.
16.7 Assignment. Borrower shall voluntarily assign, or there shall occur any
----------
transfer, by operation of law or otherwise, of, all or any portion of this
Agreement or any of the Loan Documents without the prior written consent of
Bank.
16.8 Materially Adverse Change. Any materially adverse change in the
-------------------------
financial condition of Borrower shall occur and remain uncured for thirty days
after written notice form Bank to Borrower.
16.9 Cross Default. Any other indebtedness of Borrower becomes, or is declared
-------------
to be, due and payable prior to its expressed maturity by reason of any default
with respect thereto, or is not paid or renewed at its stated maturity and such
default remains uncured for a period of thirty days.
16.10 Judgment. A judgment or judgments in excess of $100,000 in the aggregate
--------
shall be entered against Borrower for the payment of money, and Borrower shall
fail to promptly and diligently appeal the same in good faith.
16.11 Tax Lien. A tax lien or liens in excess of $100,000 in the aggregate
--------
shall be levied against Borrower or its property, and Borrower shall not satisfy
the same within five (5) days of such levy or Borrower shall fail to promptly
and diligently contest the validity or amount of such tax lien in good faith by
appropriate proceedings.
19
<PAGE>
SECTION 17. REMEDIES
--------
Upon Borrower's default:
If any Default occurs, all Indebtedness shall be immediately due and payable,
and Bank's commitment to lend hereunder shall immediately terminate. Bank may
exercise all the remedies available under the Loan Documents, and under all
applicable law including, but not limited to, the power to confess judgment
contained in the Notes, the right to reasonable attorney's fees and legal
expenses, and all remedies set forth in the applicable Uniform Commercial Code.
At the request of Bank, Borrower will assemble the collateral and make it
available to Bank at a place to be designated by Bank. Without limiting any
other rights Bank may have, Bank may sell any or all collateral at one or more
public or private sales and apply the proceeds of any such sale to the expenses
of the sale, reasonable attorney's fees, court costs, expenses of storing and
preserving the collateral, accrued interest and unpaid principal. Subject to
applicable law and the rights of junior lienholders, if any, any surplus shall
be paid to Borrower. Borrower shall be liable for any deficiency. Borrower
waives its right to redeem the collateral. All rights and remedies given Bank
hereunder and by law shall be cumulative and not alternative and are not
exclusive of any other remedies that may be available to Bank, whether at law,
in equity or otherwise.
SECTION 18. MISCELLANEOUS
-------------
18.1 Notices. Any notices required or permitted to be given pursuant hereto,
-------
or in connection therewith, shall be deemed to have been fully given when
addressed and mailed, postage prepaid, as follows:
If to Bank: If to Borrower:
PNC Bank Mastech Systems Corporation
One PNC Plaza 2090 Greentree Rd.
Pittsburgh, Pa. 15265 Pittsburgh, Pa. 15220
Attention: Attention:
--------------- ---------------
18.2 Expenses. All reasonable costs and expenses, including, but not limited
--------
to, the cost of services of Bank's in-house legal counsel and/or reasonable
outside attorney's fees, incurred by Bank in all efforts made to enforce payment
or otherwise effect collection of any Contract, as well as all attorney's fees
and legal expenses incurred in instituting, maintaining, preserving, enforcing
and foreclosing the security interest in any of the collateral, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions or
proceedings arising out of or relating to this Agreement, shall be charged to
Borrower's account and added to the Advances. All statements, reports,
20
<PAGE>
certificates, opinions and other documents or information furnished to Bank
shall be supplied without cost to Bank.
18.3 Waiver.
------
(a) Bank's delay or failure to enforce any right, power or remedy hereunder
will not operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy by Bank preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
(b) Borrower hereby waives notice of non-payment of any of the Contracts,
demand, presentment, protest and notice thereof with respect to any and all
instruments, notice of acceptance hereof, notice of loans or advances made,
credit extended, collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.
18.4 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the parties and their respective successors and assigns (except that
Borrower shall have no right to assign, voluntarily or by operation of law, any
of its rights hereunder without Bank's consent in writing and provided further
that nothing herein is intended by any party to confer any rights upon any third
party as a beneficiary), for so long as Borrower remains indebted to Bank for
any sums loaned or advanced pursuant hereto and any interest due thereon.
18.5 Jurisdiction. This Agreement and the Notes have been accepted at and will
------------
be deemed to have been made at Pittsburgh, Pennsylvania and will be interpreted
and the rights and liabilities of the parties hereto determined in accordance
with the laws of the Commonwealth of Pennsylvania, and Borrower hereby agrees to
the jurisdiction of any state or federal court located within Allegheny County,
Pennsylvania, or such other venue as Bank chooses, and consents that all service
of process be made by certified mail directed to Borrower at Borrower's address
set forth herein for notices and service so made will be deemed to be completed
five (5) business days after the same has been deposited in U.S. mails, postage
prepaid; provided that nothing contained herein will prevent Bank from bringing
any action or exercising any rights against any security or against the
undersigned individually, or against any property of Borrower within any other
state or nation to enforce any award or judgment obtained in the federal or
state court located within Allegheny County, Pennsylvania, or such other venue
as Bank chooses. Borrower waives any objection based on forum non conveniens
--------------------
and any objection to venue in any action instituted hereunder.
18.6 Non-Banking Days. Whenever any payment hereunder shall become due and
----------------
payable on a day which is not a banking day in
21
<PAGE>
Pittsburgh, Pennsylvania, such payment may be made on the next succeeding
banking day and such extension of time shall in such case be included in
computing interest in connection with such payment.
18.7 Integration. This Agreement, including the Letter Agreement, is the
-----------
entire agreement relating to this financing transaction and it supersedes all
prior understandings and agreements, whether written or oral, between the
parties hereto and thereto relating to the transactions provided for herein and
therein.
18.8 Amendment or Waiver. No amendment or waiver of any provision of this
-------------------
Agreement, nor consent to any departure by Borrower therefrom will be valid
unless stated in a writing executed by the parties.
18.9 Severability. If any part or provision of this Agreement is found or
------------
declared to be invalid or in contravention of any governing law or regulation,
such part or provision shall be severable without affecting the validity of any
other part or provision of this Agreement.
18.10 Participation. At any time and from time to time, without any notice to
-------------
Borrower, Bank may sell, assign, transfer, negotiate, grant participations in,
or otherwise dispose of all or any part of Bank's interest in the Loan.
Borrower hereby authorizes Bank to provide from time to time, upon notice to
Borrower, any information concerning Borrower, including without limitation,
information pertaining to Borrower's financial condition, business operations or
general creditworthiness, to any person or entity which may succeed to or
participate in all or any part of Bank's interest in the Loan.
18.13 Headings. Section headings used in this Agreement are intended for
--------
convenience only and shall not affect the meaning or construction of this
Agreement.
18.14 Waiver of Jury Trial. BORROWER WAIVES ANY AND ALL RIGHTS BORROWER MAY
--------------------
HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE
RELATING TO THIS AGREEMENT OR THE NOTES, ANY DOCUMENTS EXECUTED IN CONNECTION
WITH THIS AGREEMENT OR THE NOTES OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS AND ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
22
<PAGE>
WITNESS the due execution hereof with the intent to be legally bound hereby.
ATTEST: MASTECH SYSTEMS CORPORATION
/s/ Sunil Wadhwani By /s/ Ashok Trivedi
- -------------------------- ----------------------------
Title Title President
--------------------- -------------------------
ATTEST: PNC BANK, NATIONAL ASSOCIATION
By /s/ William L. Campbell
- -------------------------- --------------------------
Title Title Vice Presient
-------------------- ------------------------
rtl/mastech.lsa
23
<PAGE>
EXHIBIT "A"
REVOLVING CREDIT NOTE
$3,000,000.00 Pittsburgh, Pennsylvania
, 1993
---------------
FOR VALUE RECEIVED, the undersigned promises to pay to the order of PNC BANK,
NATIONAL ASSOCIATION ("Bank"), its successors or assigns, at Fifth Avenue and
Wood Street, Pittsburgh, Pennsylvania, or at such other place as any holder may
direct, THREE MILLION DOLLARS ($3,000,000.00), or so much thereof as may be
disbursed to or for the account of the undersigned and remains unpaid, on the
Expiration Date, together with interest from date of disbursement on the unpaid
balance until payment in full, at a rate or rates per annum as set forth in
Section 2.3 of the Agreement.
After maturity, this Revolving Credit Note shall bear interest until paid,
whether or not judgment hereon has been entered against the undersigned, at a
rate per annum which is at all times equal to the sum of the above stated rate
plus one percent (1%). Where required by law, no interest rate charged
- ----
hereunder shall exceed the applicable usury rate in effect on the date of this
Note. Where not prohibited by law, interest shall be computed on the basis of a
year of 360 days and paid on the actual number of days elapsed.
This Revolving Credit Note is executed and delivered under and pursuant to the
terms of that certain Loan and Security Agreement dated , 1993
---------------
between Bank and the undersigned, as the same may be amended from time to time
("Agreement"), to which reference is hereby made for the purpose of
incorporating herein all of the terms thereof. All capitalized terms used
herein and not otherwise defined shall have the meanings as used and defined in
this Agreement.
POWER TO CONFESS JUDGMENT. The undersigned hereby empowers any Prothonotary or
attorney of any court of record within the United States of America or
elsewhere, after any Default under the terms of the Agreement, to appear for the
undersigned and, with or without complaint filed, confess judgment, or a series
of judgments, against the undersigned in favor of the payee or any holder hereof
for the above sum together with interest thereon, whether by acceleration or
otherwise, costs of suit and an attorney's fee for collection hereinafter
provided for. The undersigned hereby forever waives and releases all errors in
said proceedings, waives stay of execution and extension of time of payment, and
waives all exemptions from levy and sale of any property that now is or
hereafter may be exempted by law.
24
<PAGE>
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be valid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the holder hereof shall elect until such time as the holder shall have
received payment in full of the debt, interest and costs.
WAIVER OF EXEMPTIONS. The undersigned waives all laws exempting real or
personal property from execution.
ATTORNEY'S FEE FOR COLLECTION. If this Revolving Credit Note is not paid when
due and is placed with an attorney for collection, and whether or not suit is
entered hereon or judgment confessed against the undersigned, the undersigned
further agrees to pay holder hereof, in addition to the principal and interest
then due, the costs of suit and a reasonable attorney's fee not to exceed 5% of
such principal for collection.
No failure on the part of the holder to exercise any of its rights hereunder
shall be deemed a waiver of such rights or of any default.
As used in this Note, "Bank" shall mean "Bank, its successors and assigns" and
"undersigned", if there are more than one, shall mean "all of the undersigned or
each or any of them", and they are jointly and severally bound.
WITNESS the due execution and sealing hereof with the intent to be legally bound
hereby.
ATTEST: MASTECH SYSTEMS CORPORATION (SEAL)
By
- -------------------------- -----------------------
Title Title
____________________ _____________________
rtl/mastech.exa
25
<PAGE>
EXHIBIT "B"
TERM NOTE
$4,000,000.00 Pittsburgh, Pennsylvania
, 1993
---------------
FOR VALUE RECEIVED, the undersigned promises to pay to the order of PNC BANK,
NATIONAL ASSOCIATION ("Bank"), its successors or assigns, at Fifth Avenue and
Wood Street, Pittsburgh, Pennsylvania 15222, or at such other place as any
holder may direct, FOUR MILLION DOLLARS ($4,000,000.00), together with interest
from date advanced until maturity, at the rate or rates per annum as set forth
in Section 2.8 of the Agreement.
After maturity, this Term Note shall bear interest until paid, whether or not
judgment hereon has been entered against the undersigned, at a rate per annum
which is at all times equal to the sum of the above stated rate plus one percent
----
(1%). Where required by law, no interest rate charged hereunder shall exceed
the applicable usury rate in effect on the date of this Note. Where not
prohibited by law, interest shall be computed on the basis of a year of 360 days
and paid on the actual number of days elapsed.
Principal and interest shall be due and payable as provided in Section 2.9 of
the Agreement.
This Term Note is executed and delivered under and pursuant to the terms of that
certain Loan and Security Agreement dated , 1993 between the
------------------
Bank and the undersigned, as the same may be amended from time to time
("Agreement"), all of the terms and conditions of which are specifically
incorporated herein by reference. All capitalized terms not otherwise defined
in this Note are used herein with the same meaning as used and defined in the
Agreement unless the context otherwise requires.
POWER TO CONFESS JUDGMENT. The undersigned hereby empowers any attorney of any
court of record within the Commonwealth of Pennsylvania or elsewhere, after any
Default under the terms of the Agreement, to appear for the undersigned and,
with or without complaint filed, confess judgment, or a series of judgments,
against the undersigned in favor of the Bank for the above sum together with
interest thereon, costs of suit and attorney's fees hereinafter provided for.
The undersigned hereby forever waives and releases all errors in said
proceedings, waives stay of execution and extension of time of payment, and
waives all exemptions from levy and sale of any property that now is or
hereafter may be exempted by law.
26
<PAGE>
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be valid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the Bank shall elect until such time as the Bank shall have received
payment in full of the debt, interest and costs.
ATTORNEY'S FEE FOR COLLECTION. If this Term Note is not paid when due and is
placed with an attorney for collection, and whether or not suit is entered
hereon or judgment confessed against the undersigned, the undersigned further
agrees to pay the Bank, in addition to the principal and interest then due, the
costs of suit and a reasonable attorney's fee not to exceed 5% of such principal
and interest.
As used in this Note, "Bank" shall mean "Bank, its successors and assigns" and
"undersigned", if there are more than one, shall mean "all of the undersigned or
each or any of them", and they are jointly and severally bound.
No failure on the part of the Bank to exercise any of its rights hereunder shall
be deemed a waiver of such rights or of any default. Any notice which the Bank
shall elect to give shall be
deemed to be given if deposited in the mails addressed to the undersigned at its
address on the Bank's records.
Presentment, protest, notice of dishonor and notice of default are hereby
waived.
WITNESS the due execution and sealing hereof with the intent to be legally bound
hereby.
ATTEST: MASTECH SYSTEMS CORPORATION
By
- -------------------------- ----------------------- (SEAL)
Title Title
____________________ _____________________
rtl/mastech.exb
27
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made this ___ day of
December 1993, by and between MASTECH SYSTEMS CORPORATION, a Pennsylvania
corporation and PNC BANK, NATIONAL ASSOCIATION.
RECITALS:
On July __, 1993 Borrower and Bank entered into a loan and security agreement
wherein Bank agreed to lend and Borrower agreed to borrow amounts, in the
aggregate, not to exceed $7,000,000.00 in the form of a term loan and a line of
credit.
Borrower has requested various changes to the loan agreement, including
increasing the Revolving Credit and deleting the Term Loan and release of the
Bank's security interest.
Bank has agreed to the changes and has agreed to amend and restate the loan and
security agreement to incorporate the changes.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
-----------
1.1 Defined Terms. As used herein and in the Exhibits hereto, the following
-------------
terms shall have the following meanings, unless the context otherwise requires:
"Account Debtor" means each person, natural or artificial, obligated to pay on,
under or pursuant to a Contract.
"Advance" means any loan, advance or other disbursement to or for the account of
Borrower by Bank.
"Affected Loan" means the Loans described in Section 2.12 hereof.
"Agreement" means this Amended and Restated Loan and Security Agreement, as it
may from time to time be amended, supplemented or otherwise modified.
"Availability Report" means the Bank form which the Borrower must submit with
each request for an Advance or otherwise as provided in this Agreement. A copy
of the Availability Report is attached hereto as Exhibit "C".
"Bank" means PNC Bank, National Association.
"Borrower" means Mastech Systems Corporation.
1
<PAGE>
"Borrowing Base" means an amount which is the total of 85% of the Net Amount of
Qualified Contracts.
"Business Day" means a day other than a Saturday, Sunday or other day on which
commercial banks in Pittsburgh, Pennsylvania are required or authorized to
close.
"Cash Flow" means net income plus depreciation plus amortization plus other non-
---- ---- ----
cash items.
"Contract" means Borrower's right to the payment of money however evidenced or
arising. The term includes each existing and future account, contract right,
chattel paper, instrument and document as defined by the applicable Uniform
Commercial Code as in effect on the date of this Agreement.
"Default" means an event specified in Section 16 after the expiration of any
applicable cure period.
"Equipment" means all goods new or used (other than Inventory), now owned and
hereafter acquired by Borrower, wherever located, including, but not limited to,
machinery, vehicles and fixtures, together with all accessions, parts,
accessories and appurtenances thereto appertaining or attached or kept or used
or intended to be used in connection therewith and all substitutions, renewals,
improvements, replacements and additions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it may
from time to time be amended, supplemented, or otherwise modified.
"Expiration Date" means May 31, 1994 or such subsequent date so designated by
written notice from Bank to Borrower.
"Financial Statements" means Borrower's balance sheets and statements of cash
flows for the year or quarter or month prepared in accordance with generally
accepted accounting principles consistently applied on a basis consistent with
prior years, unless specifically noted therein.
"Indebtedness" means all obligations and liabilities of Borrower to Bank, of
every kind and nature, due or to become due, direct or contingent, whether
arising under this Agreement or independently hereof, whether jointly liable
with any other person or persons or not, and whether now existing or hereafter
arising or contracted.
"Interest Payment Date" means for any Libor Loan with an Interest Period of
three (3) months or less, the last day of such Interest Period; and for any
Libor Loan with an Interest Period longer than three (3) months, (i) each day
which is three (3), six (6) or nine (9) months after the first day of such
Interest Period, and (ii) the last day of such Interest Period.
2
<PAGE>
"Interest Period" means the period commencing on the date on which a Libor
Loan is made or continued as a Libor Loan and ending one (1), two (2), three
(3), six (6), nine (9) or twelve (12) months thereafter, as selected by Borrower
in its Notice of Borrowing or its Notice of Conversion or Continuation; provided
--------
that, all of the foregoing provisions relating to Interest Periods are subject
- ----
to the following:
(A) if any Interest Period would otherwise end on a day which is not a
Working Day, that Interest Period shall be extended to the next succeeding
Working Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period shall end
on the immediately preceding Working Day;
(B) any Interest Period that would otherwise extend beyond the Expiration
Date shall end on the Expiration Date;
(C) if Borrower gives a Notice of Conversion or Continuation but shall fail
to give notice of the length of the Interest Period to be applicable thereto as
provided above, Borrower shall be deemed to have selected an Interest Period of
two (2) months for the affected Libor Loan;
(D) any Interest Period that begins on the last Working Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last Working
Day of such calendar month.
"Inventory" means all goods new or used, now owned and hereafter acquired by
Borrower, wherever located, and held for sale or lease or furnished under a
contract of service in the ordinary course of Borrower's business, including,
but not limited to, all raw materials, work-in-process, materials used or
consumed in Borrower's business, and finished goods, and all supplementary
items, packing and shipping supplies, advertising materials and returned and
repossessed goods.
"Libor Loans" means loans hereunder at such time as they are made and/or being
maintained at a rate of interest based upon the Libor Rate.
"Libor Base Rate" means, with respect to each Interest Period for any Libor
Advance, the average rate per annum at which Bank is offered dollar deposits in
immediately available funds in United States dollars by prime banks in any
eurodollar market reasonably selected by Bank two (2) Working Days prior to the
beginning of such Libor Interest Period as at or about 10 A.M., London time, for
delivery on the first day of such Interest Period for the number of days
comprised thereof and in an amount equal to the amount of the Libor Advance to
be outstanding during such Interest Period.
3
<PAGE>
"Libor Rate" means a rate per annum calculated as follows:
Libor Base Rate
-------------------------------
1.00 - Libor Reserve Percentage
"Libor Reserve Percentage" means , relative to any Interest Period, the reserve
percentage (expressed as a decimal fraction, rounded upward to the nearest 1/100
of 1%), equal to the maximum aggregate reserve requirements (including all
basic, emergency supplemental, marginal and other reserves and taking into
account any transitional adjustments on other scheduled changes in reserve
requirements), as prescribed by the Board of Governors of the Federal Reserve
System (or any successor) and then applicable to assets or liabilities
consisting of and including "Eurocurrency liabilities" as currently defined in
Regulation D, issued by the Board of Governors of the Federal Reserve System,
having a term approximately equal or comparable to such Interest Period.
"Liens" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any capitalized lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Loan" means the Revolving Credit Loan.
"Loan Documents" means this Agreement, the Revolving Credit Note, the Security
Documents, if any, UCC Financing Statements, if any, and all other documents
executed and delivered by Borrower to govern, evidence or secure the
Indebtedness, and the statements, reports, certificates and other documents
required by, or related to, any of the foregoing.
"Net Amount of Qualified Contracts" means the gross amount payable under
Qualified Contracts outstanding at any time less claims, returns, maximum
discounts, credits and allowances to Account Debtors in connection therewith,
and less sales, excise and similar taxes.
"Notice of Borrowing" shall have the meaning given in Section 2.3.
"Notice of Conversion or Continuation" shall have the meaning given in Section
2.9.
"PBGC" means the Pension Benefit Guaranty Corporation established pursuant to
ERISA.
4
<PAGE>
"Permitted Encumbrances" means (a) Liens for taxes or assessments which are not
yet due, Liens for taxes or assessments or Liens of judgments which are being
contested, appealed or reviewed in good faith by appropriate proceedings which
prevent foreclosure of any such Lien or levy of execution thereunder and against
which Liens, if any, adequate insurance or reserves have been provided; (b)
pledges or deposits to secure payment of workers' compensation obligations,
unemployment insurance, deposits or indemnities to secure public or statutory
obligations or for similar purposes; (c) those minor defects which in the
opinion of Bank's counsel do not materially affect title to the collateral for
the Loan; (d) Liens in favor of Bank; (e) the lessor's retained title to
personal property which is the subject matter of a true operating lease to
Borrower; and (f) those further encumbrances, if any, shown on Schedule 1
----------
attached hereto.
"Plan" means any employee pension or other benefit plan of Borrower covered by
ERISA.
"Prime Rate" means the interest rate per annum publicly announced by Bank from
time to time as its prime rate. The Prime Rate is determined from time to time
by Bank as a means of pricing some loans to its borrowers and neither is it tied
to any external rate of interest or index, nor necessarily reflects the lowest
rate of interest actually charged by it to any particular class or category of
customers.
"Qualified Contract" means a Contract that at all pertinent times:
(i) resulted from a bona fide outright sale and delivery of goods or
services that is in no way dependent upon further performance by Borrower, that
such goods or services are free of encumbrances to an Account Debtor who has
accepted the goods or services and who is not a parent, subsidiary or affiliate
of Borrower, nor an officer, stockholder, employee, or a member of the family of
an officer, stockholder or employee of Borrower;
(ii) no payment on account thereof is 60 days or more past due according
to its original terms and the amount indicated as owing thereon is absolutely
and actually owing, and is not contingent debt;
(iii) the Account Debtor is located in the United States but the Account
Debtor is not any state, county, municipality or other local governmental unit,
or any department, agency or instrumentality thereof;
(iv) is to the best of Borrower's knowledge free of default, dispute,
counterclaim and set-off;
(v) is to the best of Borrower's knowledge enforceable according to its
terms against each named Account Debtor, the goods
5
<PAGE>
identified thereto have not been returned or repossessed and Borrower has no
reason to expect potential liability to an Account Debtor with respect thereto;
(vi) complies with all applicable law; and
(vii) the Borrower has no notice of or any reason to expect the existence
of any state of facts or the occurrence of any event that impairs its validity
and Borrower knows of nothing that might render it less valuable than it
purports to be and has done and will do nothing that might reasonably be
expected to impair its value or Bank's right in it.
"Request Date" means each date on which Borrower applies to Bank for an Advance.
"Revolving Credit" means Bank's obligation to make Advances to Borrower in the
maximum principal amount which may not exceed the lesser of (i) the Borrowing
Base, or (ii) $7,000,000.00.
"Revolving Credit Note" means the Revolving Credit Note, in substantially the
form of Exhibit "A" hereto, duly executed by Borrower and delivered to Bank to
-----------
evidence Advances under the Revolving Credit, including any amendments,
modification, renewals, extensions, substitutions or replacements thereof.
"Settlement Date" means any date on which the unpaid balance of Advances under
the Revolving Credit exceeds the maximum Revolving Credit.
"Tangible Net Worth" means stockholders' equity in Borrower less all items
----
properly classified as intangible, as determined in accordance with generally
accepted accounting principles consistently applied.
"Unfunded Capital Expenditures" means capital expenditures made from Borrower's
funds other than borrowed funds.
"Unmatured Default" means any event which with notice, or lapse of time, or
both, would constitute a Default.
"Working Day" means any day on which dealings in foreign currencies and exchange
between banks may be carried on in Pittsburgh, Pennsylvania and London, England.
1.2 Use of Defined Terms. All terms defined in this Agreement shall have the
--------------------
defined meanings when used in the Loan Documents, unless the context otherwise
requires.
1.3 Accounting Terms. Each accounting term not defined herein and each
----------------
accounting term partly defined herein, to the extent not
6
<PAGE>
defined, shall have the meaning given it under generally accepted accounting
principles.
1.4 Other Definitional Provisions. The words "hereof", "herein", "hereunder"
-----------------------------
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
SECTION 2. AMOUNT AND TERMS OF LOAN
------------------------
2.1 Revolving Credit Commitment. (a) Subject to the terms and conditions of
---------------------------
this Agreement, Bank agrees to extend credit to Borrower by making Advances to
it from time to time in an aggregate principal amount up to but not exceeding at
any one time outstanding the Revolving Credit Commitment. Borrower may use the
Revolving Credit by borrowing, paying or prepaying and reborrowing, all as
provided herein.
(b) Bank will make Advances to Borrower, upon Borrower's request, up to
such amount as Borrower is entitled under this Agreement, on the next business
day of Bank after the Request Date.
(c) Immediately upon notice from Bank, Borrower will make such payments as
may be necessary at any time to reduce the unpaid balance of Advances at such
time to such amount as may be then permitted under the Revolving Credit.
2.2 Revolving Credit Note. (a) The Advances made by Bank pursuant to Section
---------------------
2.1 shall be evidenced by the Revolving Credit Note, payable to the order of
Bank, and representing the obligation of Borrower to pay the lesser of (i) the
amount of the Revolving Credit and (ii) the aggregate unpaid principal amount of
all Loans made by Bank hereunder, with interest thereon as prescribed in Section
2.6. The Revolving Credit Note shall (A) be dated the date of the initial
Advance hereunder, (B) be stated to mature on the Expiration Date and (C) bear
interest for the period from the date thereof on the unpaid principal amount
thereof from time to time outstanding at the interest rate per annum determined
as provided in Section 2.6. Interest on the Revolving Credit Note shall be
payable as specified in Section 2.6.
(b) Bank shall open and maintain on its books a loan account in Borrower's
name with respect to disbursements made, prepayments, the computation and
payment of interest and other amounts due and sums paid to Bank hereunder. Such
loan account shall be conclusive and binding on Borrower as to the amount at any
time due to Bank from Borrower except in the case of manifest error in
computation.
2.3 Borrowing Procedure. Borrower may borrow under the Revolving Credit on any
-------------------
Business Day; provided that Borrower shall give Bank irrevocable telephonic,
--------
written or telecopy notice, (in the case of telephonic notice, such notice shall
be immediately confirmed in
7
<PAGE>
writing or by telecopy) prior to the requested borrowing date ("Notice of
Borrowing"), (which notice must be received by Bank prior to 12:00 Noon,
Pittsburgh time, specifying (i) the amount to be borrowed, and (ii) the
requested borrowing date. The proceeds of each borrowing will be made available
to Borrower by Bank by crediting the account of Borrower with the amount of such
borrowing.
2.4 Commitment Fee. Borrower agrees to pay to Bank a commitment fee
--------------
("Commitment Fee") for the period from the date of this Agreement to and
including the Expiration Date, computed at the rate of 1/8% per annum on the
Revolving Credit. The Commitment Fee shall be payable quarterly on the last day
of each , , and , commencing , and
------- -------- -------- -------- ----------
upon termination of the Revolving Credit.
2.5 Optional Prepayments. On the last day of the Interest Period, Borrower may
--------------------
prepay the Revolving Credit Note, in whole or in part, without premium or
penalty, by giving one (1) Business Day's prior irrevocable telephonic, written
or telecopy notice, (in the case of telephonic notice, such notice shall be
immediately confirmed in writing or by telecopy) to Bank (effective upon
receipt), specifying the date and amount of prepayment. If such notice is
given, Borrower shall make such prepayment, and the payment amount specified in
such notice shall be due and payable on the date specified therein.
2.6 Interest Rate and Payment Dates. (a) Each Advance shall bear interest for
-------------------------------
the period from the first day of each Interest Period with respect thereto to,
but not including, the last day of such Interest Period at a rate per annum
equal to the Libor Rate determined for such Libor Interest Period plus one and
----
one-half percentage points (1-1/2%).
(b) Interest on all Advances shall be payable in arrears on each Interest
Payment Date.
2.7 Computation of Interest and Fees. (a) The Commitment Fee shall be
--------------------------------
calculated on the basis of a 365 or 366 day year (as the case may be) for the
actual days elapsed. Interest in respect of the Advances shall be calculated on
the basis of a 360 day year for the actual days elapsed. Bank shall promptly
notify Borrower of each determination of a Libor Rate. Any change in the
interest rate on the Advances resulting from a change in the Prime Rate shall
become effective as of the opening of business on the day on which such change
in the Prime Rate shall become effective. Bank shall promptly notify Borrower
of the effective date and the amount of each such change in the Prime Rate.
(b) Each determination, pursuant to and in accordance with any provision of
this Agreement, of any interest rate applicable to an Advance for any Interest
Period by Bank shall be conclusive and
8
<PAGE>
binding on Borrower in the absence of manifest error. Bank shall, at the
request of Borrower, deliver to Borrower a statement showing the quotations
given by Bank and the computations used by Bank in determining any Libor Rate.
2.8 Inability to Determine Interest Rate. In the event that Bank shall have
------------------------------------
determined (which determination shall be conclusive and binding upon Borrower),
that by reason of circumstances affecting the interbank eurodollar market,
adequate and reasonable means do not exist for ascertaining the Libor Rate
applicable for any Interest Period with respect to Borrower's request for a
proposed borrowing for an Interest Period (any such Libor Rate Loan being herein
called an "Affected Loan"), Bank shall forthwith give telecopy notice of such
determination, confirmed in writing, to Borrower at least one (1) day prior to,
the requested borrowing date, the requested conversion date, or the last day of
the then current Interest Period for such Affected Loan that is to be continued
as the same type of loan for an additional Interest Period as the case may be.
If such notice is given (i) any requested Affected Loan shall be made as a Prime
Rate Loan, (ii) any Loan that was to have been converted to an Affected Loan
shall be continued as, or converted to, a Prime Rate Loan, as the case may be,
and (iii) any outstanding Affected Loan shall be converted, on the last day of
the then current Interest Period with respect thereto, to a Prime Rate Loan.
Until such notice has been withdrawn by Bank, no further Affected Loans shall be
made, nor shall Borrower have the right to convert a Loan of another type to an
Affected Loan or to continue any Affected Loan as an Libor Rate Loan. Bank
shall promptly withdraw such notice when it shall have determined that the
conditions described in the first sentence of this Section 2.8 no longer exist.
2.9 Illegality. Notwithstanding any other provisions herein, if any law,
----------
regulation, treaty or directive or any change therein or in the interpretation
or application thereof, shall make it unlawful for Bank to make or maintain
Libor Rate Loans as contemplated by this Agreement, (a) the obligation of Bank
hereunder to make a Libor Loan shall forthwith be cancelled and (b) the Advances
then outstanding shall be converted automatically to Prime Rate Loans on the
last day of the then current Interest Period with respect thereto or within such
earlier period as required by law. Borrower hereby agrees promptly to pay Bank,
upon demand by Bank, any additional amounts necessary to compensate Bank for any
costs incurred by Bank in making any conversion in accordance with this Section
2.9 on a day other than the last day of an Interest Period, including, but not
limited to, any interest or fees payable by Bank to lenders of funds obtained by
it in order to make or maintain its Libor Rate Loans hereunder and any loss
incurred in liquidating or re-employing deposits from which such funds were
obtained. Bank agrees to use all reasonable efforts to minimize such cost but
Bank's notice of such costs shall be conclusive absent manifest error.
9
<PAGE>
2.10 Requirements of Law. In the event that any change in law, regulation,
-------------------
treaty or directive or in the interpretation or application thereof or
compliance by Bank with any request or directive made subsequent to the date
hereof (whether or not having the force of law) from any central bank or other
governmental authority, agency or instrumentality:
(i) shall subject Bank to any tax of any kind whatsoever with respect to
this Agreement, the Revolving Credit Note or any Loans made by it hereunder, or
change the basis of taxation of payments to Bank of principal, interest, the
Commitment Fee, or any other amount payable hereunder (except for any taxes
imposed on or measured by the overall income of Bank);
(ii) shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan, FDIC insurance or similar requirement against assets held by,
or deposits or other liabilities in or for the account of, advances or loans by,
or other credit extended by, or any other acquisition of funds by, any office of
Bank which are not otherwise included in the determination of the Libor Rate
hereunder;
(iii) affects the amount of capital required or expected to be maintained by
Bank or any corporation controlling Bank and Bank determines the amount of
capital required is increased by or based upon the existence of this Agreement
or the Revolving Credit, as determined by Bank in its reasonable discretion; or
(iv) shall impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any Advance hereunder or to reduce any amount
receivable thereunder then, in any such case, Borrower shall promptly pay Bank,
upon its demand, any additional amounts necessary to compensate Bank for such
additional costs or reduced amount receivable as determined by Bank. If Bank
becomes entitled to claim any additional amounts pursuant to this Section 2.10,
it shall promptly notify Borrower of the event by reason of which it has become
so entitled. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Bank to Borrower shall be conclusive in the
absence of manifest error.
2.11 Indemnity. Borrower agrees to indemnify Bank and to hold Bank harmless
---------
from any loss or expense which Bank may sustain or incur as a consequence of (i)
default by Borrower in payment when due of the principal amount of or interest
on the Advances, including, but not limited to, any such loss or expense arising
from interest or fees payable by Bank to lenders of funds obtained by it in
order to maintain its Libor Rate Loans hereunder and any loss incurred in
liquidating or re-employing deposits from which such funds were obtained, (ii)
default by Borrower in making a
10
<PAGE>
borrowing or conversion after the Borrower has given a notice in accordance with
Section 2.3 hereof, (iii) default by Borrower in making any prepayment after
Borrower has given a notice in accordance with Section 2.5 hereof or (iv) a
prepayment of a Libor Rate Loan on a day which is not the last day of an
Interest Period with respect thereto, or the failure of Borrower to borrow any
Libor Rate Loan after notice has been given to Bank in accordance with Section
2.3 hereof, including, but not limited to, any such loss or expense arising from
interest or fees payable by Bank to lenders of funds obtained by it in order to
maintain its Libor Rate Loans hereunder any and loss incurred in liquidating or
re-employing deposits from which such funds were obtained. This covenant shall
survive for one (1) year following the termination of this Agreement and payment
of the Revolving Credit Note; Bank agrees, however, to promptly notify Borrower
of any event which would result in an indemnification obligation on the part of
Borrower pursuant to this Section 2.11.
2.12 Payments. Any other provision of this Agreement to the contrary
--------
notwithstanding, Borrower shall make all payments of interest on and principal
of the Advances and fees and other payments due under this Agreement or any
other Loan Document in immediately available funds to Bank, at the office
specified by Bank from time to time. Borrower authorizes Bank to charge from
time to time against Borrower's account with Bank any payments when due and Bank
agrees to promptly notify Borrower of such action. Borrower hereby authorizes
Bank to make an Advance, at Bank's sole discretion, to make, on behalf of
Borrower, any payment owing on the Revolving Credit Note or pursuant to any of
the other Loan Documents without further action on the part of Borrower and
regardless of whether Borrower is able to comply with the terms, conditions and
covenants of this Agreement at the time of such Loan.
2.13 Set-Off; etc. Upon the occurrence of an Event of Default, Bank is hereby
------------
authorized at any time and from time to time, without notice to Borrower (any
such notice being expressly waived by Borrower), to set-off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by Bank to or for the credit
or the account of Borrower, including specifically any amounts held in any
account maintained at Bank, against any and all Obligations irrespective of
whether Borrower shall have made any requests for an Advance under this
Agreement.
2.14 Borrower's Advance Account. Advances made, interest due, interest paid,
--------------------------
repayments on Advances and all other charges billed to or paid by Borrower shall
be recorded in an account on Bank's books designated "Borrower's Advance
Account". Borrower agrees that the Advance Account is sufficient evidence of
Borrower's obligations to Bank incurred hereunder and that none other is
necessary absent manifest error. All billing statements and
11
<PAGE>
statements of account rendered by Bank to Borrower shall be derived from
Borrower's Advance Account and shall be presumed to be correct and accurate.
SECTION 3. NEGATIVE PLEDGE
---------------
In order to induce Bank to extend the Revolving Credit to Borrower, Borrower
hereby agrees that so long as any of the Revolving Credit remain outstanding
Borrower will not sell, transfer, assign, pledge or otherwise dispose of the
following: (i) all present and future Contracts, general intangibles, including,
but not limited to, good will, trade marks, copyrights, names, patents,
licenses, and inventions, choses in action and all goods represented by
Contracts, which have been reclaimed or repossessed from or returned by Account
Debtors; (ii) all present and future Inventory, and all documents of title and
warehouse receipts representing any thereof; (iii) all present and future
Equipment, and (iv) the proceeds of all the foregoing as well as all insurance
policies, files and records relating to all the foregoing; provided however,
-------- -------
that Borrower shall be permitted to allow Permitted Encumbrances to exist with
respect to all of such assets set forth in subparagraphs (i) through (iv) above.
In addition, Borrower hereby agrees that Borrower will not provide a negative
pledge of its assets to any other creditor.
SECTION 4. [This Section purposely blank.]
SECTION 5. BORROWER'S REPORTS
------------------
On each Request Date, Settlement Date and monthly and at such other times as
Bank shall reasonably request, Borrower will submit an Availability Report to
enable Bank to accurately determine the status of the net Advance which Borrower
may request or the net amount due Bank.
From time to time, upon the creation of Contracts, Borrower shall provide Bank
with copies of invoices and such other documents, evidence and information as
Bank shall reasonably request.
SECTION 6. [This Section purposely blank.]
SECTION 7. BORROWER'S RECORDS
------------------
Borrower will (i) maintain at its principal place of business or such other
location as approved in advance by Bank, an individual account record for each
Contract; (ii) enter each Contract payment in the appropriate account records;
(iii) keep said account records segregated; and (iv) allow Bank at any
reasonable time to audit, inspect and copy the account records.
Borrower shall permit Bank to audit, suspect and copy all records relating
thereto during normal business hours.
12
<PAGE>
Borrower hereby authorizes Bank to verify with any Account Debtor the status
of any Contract and before a Default, Bank will give prior notice to Borrower of
Bank's intention to do so. After a Default, Bank may do so from time to time
and without notice to Borrower.
SECTION 8. COLLECTIONS BY BORROWER
-----------------------
Borrower will diligently collect the amounts owing under Contracts as and when
due and, in this connection, may make rebates and adjustments, and issue credits
and allowances, to which an Account Debtor may be in good faith entitled or
which Borrower may in good faith deem proper in accordance with established
industry customs and under the circumstances, including the acceptance of
rejected goods. Borrower may repossess and may take any other actions with
respect to any goods or Contracts not inconsistent with this Agreement.
SECTION 9. [This Section purposely blank.]
SECTION 10. [This Section purposely blank.]
SECTION 11. [This Section purposely blank.]
SECTION 12. REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Bank to enter into this Agreement and make the Loan, Borrower
represents and warrants to Bank that:
12.1 Existence. Borrower is a corporation duly organized, validly existing
---------
and in good standing under the laws of its state of incorporation, has all
requisite corporate power to own its assets and carry on its business as now or
proposed to be carried on, and is duly qualified, licensed and in good standing
as a foreign corporation to do business in all jurisdictions wherein its
ownership of property or the nature of its business requires such qualification
or licensing.
12.2 Authority. Borrower is duly authorized to execute and deliver the Loan
---------
Documents. All necessary action to authorize the execution and delivery of the
Loan Documents has been properly taken, Borrower is and will continue to be duly
authorized to borrow hereunder and to perform all of the other terms and
provisions of the Loan Documents.
12.3 Enforceable Obligation. This Agreement has been duly and validly
----------------------
executed and delivered by Borrower and constitutes a valid and legally binding
agreement of Borrower enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights. The other Loan Documents
when duly executed and delivered by Borrower pursuant to the provisions
13
<PAGE>
hereof, will constitute valid and binding obligations of Borrower enforceable in
accordance with the terms thereof and of this Agreement, except as limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights.
12.4 Application of Other Restrictions. Borrower is not a party to any
---------------------------------
contract or agreement or subject to any charter or other corporate or legal
restriction of any kind which, in the opinion of Borrower, materially and
adversely affects the business, properties or assets, or the condition,
financial or otherwise of Borrower. Neither the execution and delivery of this
Agreement nor compliance with the terms, conditions and provisions hereof and of
the other Loan Documents will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, the Articles of
Incorporation or By-Laws of Borrower or of any law or of any regulation, order,
writ, injunction or decree of any court or governmental agency, or of any
indenture or other agreement or instrument to which Borrower is a party or by
which Borrower is bound or to which Borrower is subject, or will result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of Borrower pursuant to the terms
of any such indenture or agreement or instrument, except as contemplated by the
provisions of this Agreement, and does not and will not require any approval or
consent of the government or of any other federal regulatory body or of any
state or local commission or authority having jurisdiction with respect thereto,
or that such approval has been obtained and is in full force and effect on the
date hereof.
12.5 Financial Condition. Borrower has delivered or caused to be delivered
-------------------
to Bank the latest copies of Financial Statements of Borrower. The Financial
Statements are complete and correct and fairly present the financial condition
of Borrower and the results of its operations and transactions in its surplus
accounts as of the date and for the periods referred to. Borrower has no
material liabilities, direct or indirect, fixed or contingent, as of the date of
such Financial Statements which are not reflected therein or in the notes
thereto. Since the date of the Financial Statements, there has been no material
adverse change in the financial condition of Borrower.
12.6 Litigation; Proceedings; Title to Property. There are no legal actions
------------------------------------------
or proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower before any court or any governmental department or agency the
result of which might substantially impair Borrower's operations or financial
condition or its ability to repay the Indebtedness. Borrower (i) has complied
with all applicable statutes and regulations of all governmental authorities
having jurisdiction over it, (ii) is not in default with respect to any order,
writ, injunction or decree of
14
<PAGE>
any court or governmental agency, and (iii) has good title to its properties and
assets.
12.7 Pension Plans. Borrower is in compliance in all material respects with
-------------
all applicable provisions of ERISA related to minimum funding requirements for
each Plan. Borrower has not incurred any material liability to the PBGC with
respect to any Plan maintained for employees of Borrower or any of its
subsidiaries or of any member of a "controlled group of corporations", as that
term is defined in Section 1563 of the Internal Revenue Code of 1986, as
amended, of which Borrower is a part.
SECTION 13. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that, unless compliance is waived in writing by Bank and
until payment in full of all of its Indebtedness to Bank and interest thereon:
13.1 Corporate Existence. Borrower will preserve, or cause to be preserved,
-------------------
its corporate existence and be qualified, or cause to be qualified, to do
business in all jurisdictions where ownership of property or the nature of its
business requires such qualifications, and obtain and retain all necessary
licenses, permits, leases and other permissions to conduct its business.
13.2 Payments of Taxes and Other Charges. Borrower will pay or cause to be
-----------------------------------
paid all taxes, assessments and other governmental charges to which Borrower or
its properties are or shall be subject before such charges become delinquent,
except that no such charge need be paid for so long as its validity or amount
shall be contested in good faith by appropriate proceedings duly prosecuted and
Borrower shall have set up on its books such reserve with respect thereto as
shall be dictated by sound accounting practices.
13.3 Financial Statements and Reports. Borrower will deliver to Bank as soon
--------------------------------
as practicable, but in any event (i) within 120 days after the close of each
fiscal year, Borrower's annual audited Financial Statements, all certified
without qualification by an independent certified public accountant reasonably
acceptable to Bank; (ii) within 45 days after the end of each calendar month,
Borrower's Financial Statements, certified, subject to ordinary and usual
adjustment, by a principal officer of Borrower; and (iii) within 20 days
following the close of each month, Borrower's detailed schedules of accounts
receivable aging analysis. All statements shall be prepared in accordance with
generally accepted accounting principles consistently applied. Further,
Borrower shall at any time and from time to time submit to Bank such other or
additional information relating to its affairs as Bank shall reasonably request.
13.4 Access to Records. Borrower will (i) maintain proper books of record
-----------------
and account in accordance with sound accounting practice
15
<PAGE>
in which full, true and correct entries shall be made of all its properties and
assets and its dealings and business affairs; (ii) permit Bank to have access,
at any time and from time to time, on reasonable notice and during normal
business hours, to its books and records to the extent that Bank shall
reasonably request; and (iii) permit Bank to make copies of such books and
records and to remove such copies from the offices of Borrower to the extent
that the same is reasonably necessary.
13.5 Certificate of No Default. Borrower will simultaneously with the
-------------------------
delivery of the annual Financial Statements, issue a certification of the chief
financial officer of Borrower stating whether the preparation of the Financial
Statements by the certified public accountant has disclosed any condition or
event which constitutes a Default or an Unmatured Default, and, if such a
condition or event has been so disclosed, specifying the nature and extent
thereof and the corrective measures which Borrower proposes to take in relation
thereto.
13.6 Insurance. Borrower will maintain at all times adequate insurance to the
---------
satisfaction of Bank with insurers acceptable to Bank against such risks of loss
as are customarily insured against and in amounts customarily carried by persons
owning, leasing or operating similar properties, including, but not limited to,
fire, theft and extended coverage insurance in an amount at least equal to the
total full insurable value of Borrower's Inventory and Equipment, provided that
the amount of such insurance shall at all times be sufficient to prevent
Borrower from becoming a co-insurer under the terms of any insurance policy.
Such insurance shall have a long form lender's loss payable endorsement in favor
of Bank, providing for at least thirty (30) days written notice to Bank prior to
cancellation and, in this regard, Borrower shall cause a certificate of
insurance to be delivered to Bank prior to the initial Advance under this
Agreement and no later than thirty (30) days prior to the expiration of any such
insurance coverage. Borrower will also keep itself adequately insured at all
times against liability on account of injury to persons or property and comply
with the insurance provisions of all applicable worker's compensation laws and
will effect all such insurance under valid and enforceable policies issued by
insurers of recognized responsibility. Prior to the initial Advance under this
Agreement and thereafter within ninety (90) days of the close of each fiscal
year, Borrower will deliver to Bank a schedule indicating all insurance then in
force.
In the event Borrower fails to secure insurance as provided above, Bank is
hereby authorized, at its election, to pay the cost of insurance. Borrower
hereby agrees to repay all sums so paid on demand with interest at the highest
rate provided for in this Agreement. Until repayment, all such sums shall be
secured by the security interests provided for herein.
16
<PAGE>
13.7 Maintenance of Assets. Borrower will maintain, or cause to be maintained,
---------------------
its properties and assets in good order.
In the event Borrower fails to maintain its property and assets in good order,
Bank is authorized at its election to pay the cost of maintaining Borrower's
property and assets or the costs of discharging any lien thereon and Borrower
agrees to repay all sums so paid on demand with interest at the rate provided
for in this Agreement.
13.8 Litigation and Proceedings. Borrower will promptly notify Bank of any
--------------------------
material litigation or proceedings commenced against Borrower.
13.9 SEC Statements. Borrower will promptly furnish to Bank copies of all
--------------
material which Borrower shall file with the Securities and Exchange Commission
or any national securities exchange, including, but not limited to, all
registration statements, annual reports on Form 10K, quarterly reports on Form
10Q, reports on Form 8K, proxy material and annual reports to shareholders, and
any and all amendments thereof or supplements thereto.
13.10 Use of Advances. Borrower will use Advances only for shareholder
---------------
distributions and working capital.
13.11 Notice of Default. Borrower will promptly notify Bank of the happening
-----------------
of any event which constitutes a Default or an Unmatured Default.
13.12 Bank Accounts. Borrower will establish and maintain at Bank all of
-------------
Borrower's primary depository accounts.
13.13 Tangible Net Worth. Borrower will maintain a minimum Tangible Net Worth
------------------
of $7,000,000.00 prior to the anticipated initial public offering.
13.14 Ratio of Cash Flow to the total of Current Maturities of Long Term Debt
-----------------------------------------------------------------------
plus Unfunded Capital Expenditures plus Distributions and Dividends. Borrower
- -------------------------------------------------------------------
will maintain a ratio of Cash Flow to the total of current maturities of long
term debt plus Unfunded Capital Expenditures plus distributions plus dividends
---- ---- ----
of not less than 1.1 to 1.
13.15 Ownership of Borrower. Sunil Wadhwani and Ashok Trivedi will continue to
---------------------
own more than 50% of the voting stock of the Borrower.
13.16 Further Action. At the request of Bank, Borrower will execute such other
--------------
documents as Bank may reasonably require to carry out the intent and purpose of
this Agreement.
17
<PAGE>
SECTION 14. NEGATIVE COVENANTS
------------------
Borrower covenants that, unless compliance is waived in writing by Bank, so long
as it may borrow hereunder and until payment in full of all of its Indebtedness
to Bank and interest thereon:
14.1 Change in Business or Management. Borrower will not make or permit any
--------------------------------
material change in the nature of its business as carried on as of the date of
this Agreement, or in composition of its current executive management.
SECTION 15. CONDITIONS OF LENDING.
---------------------
15.1 Conditions Precedent to Initial Advance. The obligation of the Bank to
---------------------------------------
make the initial Advance is subject to the condition precedent that the Bank
shall have received all of the following:
(a) A certified copy of the resolution of the Board of Directors of Borrower
authorizing the execution and delivery of, and performance under the Loan
Documents;
(b) An incumbency certificate, executed by the Secretary or Assistant
Secretary of Borrower, which shall identify the name and title and bear the
signatures of the Borrower's officers who are authorized to sign the Loan
Documents;
(c) A favorable legal opinion, acceptable to Bank, of Borrower's legal
counsel as to the representations and warranties of Borrower set forth in
Sections 12.1, 12.2, 12.3, 12.4, 12.6 and 12.7 of this Agreement;
(d) The evidence of insurance required by this Agreement; and
(e) Such other instruments and documents Bank or its legal counsel shall
reasonably request.
15.2 Conditions Precedent to All Advances. The obligation of the Bank to make
------------------------------------
any Advance (including the initial Advance) shall be further subject to the
satisfaction of each of the following conditions:
(a) On each such date, no Default or Unmatured Default shall have occurred
and be continuing;
(b) There is no default by Borrower in the performance of obligations under
any contract, indenture or other agreement or instrument to which Borrower is a
party which would have a materially adverse effect on the operations of
Borrower;
(c) The representations and warranties of Borrower contained in Section 12 of
this Agreement shall be true on and as of the date of each report, as of the
time of each supplemental assignment and as
18
<PAGE>
of the time of each Advance with the same effect as though such representations
and warranties had been made on and as of such date; and
(d) Borrower shall promptly provide Bank with such other opinions, documents,
evidence, materials and information as Bank may from time to time reasonably
require.
SECTION 16. DEFAULT
-------
The occurrence of any of the following events shall be deemed a Default:
16.1 Default in Payment. Borrower shall fail to pay principal or interest
------------------
when due on the Notes, which failure remains uncured for ten days.
16.2 Insolvency. (a) Borrower shall become insolvent or shall be unable to
----------
pay its debts as they mature, or Borrower shall cease operations, file a
voluntary petition in bankruptcy or a voluntary petition seeking reorganization
or to effect a plan or other arrangement with creditors, or shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition pursuant to any Act of Congress relating to bankruptcy, or
shall be the subject of any order for relief, or shall make an assignment for
the benefit of creditors or make an assignment to an agent (authorized to
liquidate any substantial amounts of the assets of Borrower), or shall apply for
or consent to or suffer the appointment of a receiver or trustee for Borrower or
a substantial part of its property; or
(b) An order for relief shall be entered pursuant to an Act of Congress
relating to bankruptcy with respect to an involuntary petition seeking
reorganization of, or an order shall be entered appointing any receiver or
trustee for, Borrower or a substantial part of its property, or a writ or
warrant of attachment or any similar process shall be issued against a
substantial part of the property of Borrower, or an order shall be entered at
either the state court level enjoining or preventing Borrower from conducting
all or any part of its business as it is usually conducted, or garnishment
proceedings shall be instituted by attachment, levy or otherwise, against any
deposit balance maintained, or any property deposited, with Bank by Borrower,
which remains in effect unstayed for 60 days.
16.3 Litigation. Borrower shall fail, within the period allowed by law, to
----------
contest in good faith or take reasonable corrective measures with respect to any
litigation or proceedings then pending against Borrower, the outcome of which,
in the reasonable judgment of Bank, would materially and adversely affect the
financial condition, business or properties of Borrower.
19
<PAGE>
16.4 Default in Performance of Agreements or Covenants. Borrower shall
-------------------------------------------------
default in the performance of any of Borrower's agreements and covenants set
forth in the Loan Documents or any other agreement with Bank and such default
shall remain uncured for a period of thirty days after written notice from Bank
to Borrower.
16.5 Representations. Any representation or warranty made by Borrower is
---------------
untrue or incomplete in any material respect or any schedule, statement, report,
warranty, representation, notice or writing furnished by Borrower pursuant to
this Agreement is untrue or incomplete in any material respect on the date as of
which the facts set forth are stated or certified.
16.6 Pension Plans. There occurs a "reportable event" or a "prohibited
-------------
transaction" on the part of the Borrower under ERISA which remains uncured for a
period of thirty (30) days after Borrower receives written notice thereof.
16.7 Assignment. Borrower shall voluntarily assign, or there shall occur any
----------
transfer, by operation of law or otherwise, of, all or any portion of this
Agreement or any of the Loan Documents without the prior written consent of
Bank.
16.8 Cross Default. Any other indebtedness of Borrower becomes, or is declared
-------------
to be, due and payable prior to its expressed maturity by reason of any default
with respect thereto, or is not paid or renewed at its stated maturity and such
default remains uncured for a period of thirty days.
16.9 Judgment. A judgment or judgments in excess of $100,000 in the aggregate
--------
shall be entered against Borrower for the payment of money, and Borrower shall
fail to promptly and diligently appeal the same in good faith.
16.10 Tax Lien. A tax lien or liens in excess of $100,000 in the aggregate
--------
shall be levied against Borrower or its property, and Borrower shall not satisfy
the same within five (5) days of such levy or Borrower shall fail to promptly
and diligently contest the validity or amount of such tax lien in good faith by
appropriate proceedings.
SECTION 17. REMEDIES
--------
Upon Borrower's default:
If any Default occurs, all Indebtedness shall be immediately due and payable,
and Bank's commitment to lend hereunder shall immediately terminate. Bank may
exercise all the remedies available under the Loan Documents, and under all
applicable law including, but not limited to, the power to confess judgment
contained in the Revolving Credit Note, the right to reasonable attorney's fees
and legal expenses, and all remedies set forth in
20
<PAGE>
the applicable Uniform Commercial Code. All rights and remedies given Bank
hereunder and by law shall be cumulative and not alternative and are not
exclusive of any other remedies that may be available to Bank, whether at law,
in equity or otherwise.
SECTION 18. MISCELLANEOUS
-------------
18.1 Notices. Any notices required or permitted to be given pursuant hereto,
-------
or in connection therewith, shall be deemed to have been fully given when
addressed and mailed, postage prepaid, as follows:
If to Bank: If to Borrower:
PNC Bank Mastech Systems Corporation
One PNC Plaza 2090 Greentree Rd.
Pittsburgh, Pa. 15265 Pittsburgh, Pa. 15220
Attention: William L. Campbell Attention: Sunil Wadhwani
18.2 Expenses. All reasonable costs and expenses, including, but not limited
--------
to, the cost of services of Bank's in-house legal counsel and/or reasonable
outside attorney's fees, incurred by Bank in all efforts made to enforce payment
or otherwise effect collection of any Contract, as well as all attorney's fees
and legal expenses incurred in instituting, maintaining, preserving, enforcing
and foreclosing the security interest in any of the collateral, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions or
proceedings arising out of or relating to this Agreement, shall be charged to
Borrower's account and added to the Advances. All statements, reports,
certificates, opinions and other documents or information furnished to Bank
shall be supplied without cost to Bank.
18.3 Waiver.
------
(a) Bank's delay or failure to enforce any right, power or remedy hereunder
will not operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy by Bank preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
(b) Borrower hereby waives notice of non-payment of any of the Contracts,
demand, presentment, protest and notice thereof with respect to any and all
instruments, notice of acceptance hereof, notice of loans or advances made,
credit extended, collateral received or delivered, or any other action taken in
reliance hereon, and all other demands and notices of any description, except
such as are expressly provided for herein.
18.4 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the parties and their respective successors and
21
<PAGE>
assigns (except that Borrower shall have no right to assign, voluntarily or by
operation of law, any of its rights hereunder without Bank's consent in writing
and provided further that nothing herein is intended by any party to confer any
rights upon any third party as a beneficiary), for so long as Borrower remains
indebted to Bank for any sums loaned or advanced pursuant hereto and any
interest due thereon.
18.5 Jurisdiction. This Agreement and the Notes have been accepted at and will
------------
be deemed to have been made at Pittsburgh, Pennsylvania and will be interpreted
and the rights and liabilities of the parties hereto determined in accordance
with the laws of the Commonwealth of Pennsylvania, and Borrower hereby agrees to
the jurisdiction of any state or federal court located within Allegheny County,
Pennsylvania, or such other venue as Bank chooses, and consents that all service
of process be made by certified mail directed to Borrower at Borrower's address
set forth herein for notices and service so made will be deemed to be completed
five (5) business days after the same has been deposited in U.S. mails, postage
prepaid; provided that nothing contained herein will prevent Bank from bringing
any action or exercising any rights against any security or against the
undersigned individually, or against any property of Borrower within any other
state or nation to enforce any award or judgment obtained in the federal or
state court located within Allegheny County, Pennsylvania, or such other venue
as Bank chooses. Borrower waives any objection based on forum non conveniens
--------------------
and any objection to venue in any action instituted hereunder.
18.6 Business Days. Whenever any payment hereunder shall become due and
-------------
payable on a day which is not a Business Day, such payment may be made on the
next succeeding Business Day and such extension of time shall in such case be
included in computing interest in connection with such payment.
18.7 Integration. This Agreement, including the Letter Agreement, is the
-----------
entire agreement relating to this financing transaction and it supersedes all
prior understandings and agreements, whether written or oral, between the
parties hereto and thereto relating to the transactions provided for herein and
therein.
18.8 Amendment or Waiver. No amendment or waiver of any provision of this
-------------------
Agreement, nor consent to any departure by Borrower therefrom will be valid
unless stated in a writing executed by the parties.
18.9 Severability. If any part or provision of this Agreement is found or
------------
declared to be invalid or in contravention of any governing law or regulation,
such part or provision shall be severable without affecting the validity of any
other part or provision of this Agreement.
22
<PAGE>
18.10 Participation. At any time and from time to time, without any notice to
-------------
Borrower, Bank may sell, assign, transfer, negotiate, grant participations in,
or otherwise dispose of all or any part of Bank's interest in the Loan.
Borrower hereby authorizes Bank to provide from time to time, upon notice to
Borrower, any information concerning Borrower, including without limitation,
information pertaining to Borrower's financial condition, business operations or
general creditworthiness, to any person or entity which may succeed to or
participate in all or any part of Bank's interest in the Loan.
18.11 Headings. Section headings used in this Agreement are intended for
--------
convenience only and shall not affect the meaning or construction of this
Agreement.
18.12 Waiver of Jury Trial. BORROWER WAIVES ANY AND ALL RIGHTS BORROWER MAY
--------------------
HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE
RELATING TO THIS AGREEMENT OR THE NOTES, ANY DOCUMENTS EXECUTED IN CONNECTION
WITH THIS AGREEMENT OR THE NOTES OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS AND ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
WITNESS the due execution hereof with the intent to be legally bound hereby.
ATTEST: MASTECH SYSTEMS CORPORATION
/s/ Ashok Trivedi By /s/ Sunil Wadhwani
- -------------------------- --------------------------
Title Title Chairman
--------------------- ----------------------
ATTEST: PNC BANK, NATIONAL ASSOCIATION
By /s/ William L. Campbell
- -------------------------- --------------------------
Title Title Vice President
--------------------- ----------------------
rtl/mastech.lsa
23
<PAGE>
EXHIBIT "A"
REVOLVING CREDIT NOTE
$7,000,000.00 Pittsburgh, Pennsylvania
December , 1993
----
FOR VALUE RECEIVED, the undersigned promises to pay to the order of PNC BANK,
NATIONAL ASSOCIATION ("Bank"), its successors or assigns, at Fifth Avenue and
Wood Street, Pittsburgh, Pennsylvania, or at such other place as any holder may
direct, SEVEN MILLION DOLLARS ($7,000,000.00), or so much thereof as may be
disbursed to or for the account of the undersigned and remains unpaid, on the
Expiration Date, together with interest from date of disbursement on the unpaid
balance until payment in full, at a rate or rates per annum as set forth in
Section 2.6 of the Agreement.
After maturity, this Revolving Credit Note shall bear interest until paid,
whether or not judgment hereon has been entered against the undersigned, at a
rate per annum which is at all times equal to the sum of the above stated rate
plus one percent (1%). Where required by law, no interest rate charged
- ----
hereunder shall exceed the applicable usury rate in effect on the date of this
Note. Where not prohibited by law, interest shall be computed on the basis of a
year of 360 days and paid on the actual number of days elapsed.
This Revolving Credit Note is executed and delivered under and pursuant to the
terms of that certain Amended and Restated Loan and Security Agreement dated
December ___, 1993 between Bank and the undersigned, as the same may be amended
from time to time ("Agreement"), to which reference is hereby made for the
purpose of incorporating herein all of the terms thereof. All capitalized terms
used herein and not otherwise defined shall have the meanings as used and
defined in this Agreement.
POWER TO CONFESS JUDGMENT. The undersigned hereby empowers any Prothonotary or
attorney of any court of record within the United States of America or
elsewhere, after any Default under the terms of the Agreement, to appear for the
undersigned and, with or without complaint filed, confess judgment, or a series
of judgments, against the undersigned in favor of the payee or any holder hereof
for the above sum together with interest thereon, whether by acceleration or
otherwise, costs of suit and an attorney's fee for collection hereinafter
provided for. The undersigned hereby forever waives and releases all errors in
said proceedings, waives stay of execution and extension of time of payment, and
waives all exemptions from levy and sale of any property that now is or
hereafter may be exempted by law.
24
<PAGE>
No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be valid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the holder hereof shall elect until such time as the holder shall have
received payment in full of the debt, interest and costs.
WAIVER OF EXEMPTIONS. The undersigned waives all laws exempting real or
personal property from execution.
ATTORNEY'S FEE FOR COLLECTION. If this Revolving Credit Note is not paid when
due and is placed with an attorney for collection, and whether or not suit is
entered hereon or judgment confessed against the undersigned, the undersigned
further agrees to pay holder hereof, in addition to the principal and interest
then due, the costs of suit and a reasonable attorney's fee not to exceed 5% of
such principal for collection.
No failure on the part of the holder to exercise any of its rights hereunder
shall be deemed a waiver of such rights or of any default.
This Note shall bind the Borrower and the heirs, executors, administrators,
successors and assigns of the Borrower, and the benefits hereof shall inure to
the benefit of Bank and its successors and assigns. All references herein to
the "Borrower" and "Bank" shall be deemed to apply to the Borrower and Bank and
their respective successors and assigns.
WITNESS the due execution and sealing hereof with the intent to be legally bound
hereby.
ATTEST: MASTECH SYSTEMS CORPORATION (SEAL)
By
- -------------------------- --------------------------
Title Title
--------------------- ----------------------
rtl/mastech.exa
25
<PAGE>
FIRST AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
AND WAIVER OF CONVENANT VIOLATION
This First Amendment to Amended and Restated Credit Agreement and Waiver of
Covenant Violations (the "Amendment") dated as of August __, 1994 is entered
into by and among MASTECH SYSTEMS CORPORATION (the "Borrower"), and PNC BANK,
NATIONAL ASSOCIATION (the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank entered into that Amended and Restated Loan
Agreement dated as of December ____, 1993, (the Amended and Restated Credit
Agreement and all extensions, renewals, amendments, substitutions and
replacements thereto and thereof the "Agreement") pursuant to which the Banks
made available to the Borrower certain term loan and line of credit;
WHEREAS, the Borrower has requested that the Bank extend the expiration date on
the the Line of Credit;
WHEREAS, the Borrower and the Bank are willing to amend the Agreement as
specifically set forth herein;
NOW, THEREFORE, in consideration of the premises and other valuable
consideration and with the intent to be legally bound hereby, the parties hereto
agree as follows:
1. The capitalized terms used herein as defined terms shall have the same
meanings given them in the Agreement, unless the context clearly indicates
otherwise.
2. The definition of the term "Expiration Date", is hereby amended and restated
to read in its entirety as follows:
"Expiration Date" means May 31, 1995, or, such subsequent date so
designated by written notice from Bank to Borrower.
3. Borrower has informed the Bank that Borrower is in violation of the
covenant contained in the Agreement with respect to Tangible Net Worth for
Borrower's fiscal year ending December 31, 1993. The Bank hereby waives such
covenant violation, but only as to the end of the fiscal year ending December
31, 1993.
4. Section 13.13 of the Agreement titled "Tangible Net Worth" is hereby
amended and restated to read in its entirety as follows:
13.13 Tangible Net Worth. Borrower will maintain a minimum Tangible Net
------------------
Worth of $7,000,000.00 plus 25% of net income measured quarterly for each
quarter ending after December 31, 1994.
5. Borrower has no defenses or set-offs against the Bank, their officers,
directors, employees, agents or attorneys with respect to the Agreement is in
full force and effect and shall remain in full force and effect unless and until
modified or amended in writing in accordance with its terms. Borrower hereby
<PAGE>
ratifies and confirms its obligations and agrees that the execution and delivery
of this Amendment does not in any way diminish or invalidate any of Borrower's
obligations.
6. In consideration of this Amendment, and other good and valuable
consideration, the receipt of which is hereby acknowledged, Borrower represents
and warrants that Borrower has no claims, counterclaims, setoffs, actions or
causes of action, damages or liabilities of any kind or nature whatsoever
whether at law or in equity, in contract or in tort, whether now accrued or
hereafter maturing (collectively "Claims") against the Bank, its heir direct or
indirect parent corporation or any direct or indirect affiliates of such parent
corporation, or any of the foregoing's respective directors, officers,
employees, agents, attorneys and legal representatives, or the heirs,
administrators, successors or assigns of any of them (collectively, "Bank
Parties") that directly or indirectly arise out of, are based upon or are in any
manner connected with any Prior Related Event. As an inducement to Bank to
enter into this Amendment, Borrower on behalf of Borrower, and all of Borrower's
respective successors and assigns hereby knowingly and voluntarily releases and
discharges all Bank Parties from any and all Claims, whether known or unknown,
that directly or indirectly arise out of, are based upon or are in any manner
connected with any Prior Related Event. As used herein, the term "Prior Related
Event" means any transaction, event, circumstance, action, failure to act,
occurrence of any sort or type, whether known or unknown, which occurred,
existed, was taken, was permitted or begun in accordance with, pursuant to or by
virtue of any of the terms of the Agreement, or any documents executed in
connection with the Agreement or which was related to or connected in any
manner, directly or indirectly to the Agreement.
7. Borrower hereby represents and warrants to Bank that the representations and
warranties in the Agreement are true and correct on and as of the date hereof
and that no Conditional Default or Event of Default exists or is continuing and
that this Amendment has been duly authorized, executed and delivered by
Borrower.
8. The Agreement, taking into consideration this Amendment, is in all respects
ratified and confirmed, and all of the rights and powers created thereby or
thereunder shall be and remain in full force and effect. The execution,
delivery and effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of the Bank
under the Agreement, and the Loan Documents, as each may be amended or modified
from time to time, nor constitute a waiver of any other provision of the
Agreement.
9. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
10. Except as amended hereby the terms and provisions of the Agreement remain
in full force and effect.
WITNESS the execution of this Amendment as of the day and year first above
written.
ATTEST: MASTECH SYSTEMS CORPORATION
2
<PAGE>
/s/ Michael E. Mlinar By /s/ Sunil Wadhwani
- ------------------------- --------------------------
Title Director of Finance Title Director
--------------------- ----------------------
ATTEST: PNC BANK, NATIONAL ASSOCIATION
/s/ Charles M. Rhodes, Jr. By /s/ William L. Campbell
- -------------------------- --------------------------
Title Vice President Title Vice President
-------------------- ----------------------
DAB\MASTECH.AM1
3
<PAGE>
SECOND AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
This Second Amendment to Amended and Restated Credit Agreement (the "Amendment")
dated as of November __, 1994 is entered into by and among MASTECH SYSTEMS
CORPORATION (the "Borrower"), and PNC BANK, NATIONAL ASSOCIATION (the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank entered into that Amended and Restated Loan
Agreement dated as of December ____, 1993, (the Amended and Restated Credit
Agreement and all extensions, renewals, amendments, substitutions and
replacements thereto and thereof the "Agreement") pursuant to which the Banks
made available to the Borrower certain term loan and line of credit;
WHEREAS, the Borrower has requested that the Bank extend the expiration date on
the the Line of Credit;
WHEREAS, the Borrower and the Bank are willing to amend the Agreement as
specifically set forth herein;
NOW, THEREFORE, in consideration of the premises and other valuable
consideration and with the intent to be legally bound hereby, the parties hereto
agree as follows:
1. The capitalized terms used herein as defined terms shall have the same
meanings given them in the Agreement, unless the context clearly indicates
otherwise.
2. Section 2.6 of the Agreement is hereby amended and restated to read in its
entirety as follows:
"2.6 Interest Rate and Payment Dates. (a) Each Advance shall bear interest
-------------------------------
for the period from the first day of each Interest Period with respect
thereto, but not including, the last day of such Interest Period at a rate
per annum equal to the Libor Rate determined for such Libor Interest Period
plus one and one-half of one percent (1-1/2%) or the Borrower shall have
---- --
the option to have Advances bear interest at a rate per annum which is at
all times equal to the rate of interest publicly announced by the Bank as
its prime rate (the "Prime Rate")."
3. Borrower has no defenses or set-offs against the Bank, their officers,
directors, employees, agents or attorneys with respect to the Agreement is in
full force and effect and shall remain in full force and effect unless and until
modified or amended in writing in accordance with its terms. Borrower hereby
ratifies and confirms its obligations and agrees that the execution and
delivery of this Amendment does not in any way diminish or invalidate any of
Borrower's obligations.
4. In consideration of this Amendment, and other good and valuable
consideration, the receipt of which is hereby acknowledged, Borrower represents
and warrants that Borrower has no claims, counterclaims, setoffs, actions or
causes of action, damages or liabilities of any kind or nature whatsoever
whether at law or in equity, in contract or in tort, whether now accrued or
hereafter maturing (collectively
<PAGE>
"Claims") against the Bank, its heir direct or indirect parent corporation or
any direct or indirect affiliates of such parent corporation, or any of the
foregoing's respective directors, officers, employees, agents, attorneys and
legal representatives, or the heirs, administrators, successors or assigns of
any of them (collectively, "Bank Parties") that directly or indirectly arise out
of, are based upon or are in any manner connected with any Prior Related Event.
As an inducement to Bank to enter into this Amendment, Borrower on behalf of
Borrower, and all of Borrower's respective successors and assigns hereby
knowingly and voluntarily releases and discharges all Bank Parties from any and
all Claims, whether known or unknown, that directly or indirectly arise out of,
are based upon or are in any manner connected with any Prior Related Event. As
used herein, the term "Prior Related Event" means any transaction, event,
circumstance, action, failure to act, occurrence of any sort or type, whether
known or unknown, which occurred, existed, was taken, was permitted or begun in
accordance with, pursuant to or by virtue of any of the terms of the Agreement,
or any documents executed in connection with the Agreement or which was related
to or connected in any manner, directly or indirectly to the Agreement.
5. Borrower hereby represents and warrants to Bank that the representations and
warranties in the Agreement are true and correct on and as of the date hereof
and that no Conditional Default or Event of Default exists or is continuing and
that this Amendment has been duly authorized, executed and delivered by
Borrower.
6. The Agreement, taking into consideration this Amendment, is in all respects
ratified and confirmed, and all of the rights and powers created thereby or
thereunder shall be and remain in full force and effect. The execution,
delivery and effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of the Bank
under the Agreement, and the Loan Documents, as each may be amended or modified
from time to time, nor constitute a waiver of any other provision of the
Agreement.
7. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
<PAGE>
8. Except as amended hereby the terms and provisions of the Agreement remain in
full force and effect.
WITNESS the execution of this Amendment as of the day and year first above
written.
ATTEST: MASTECH SYSTEMS CORPORATION
/s/ P. L. Franks By /s/ Sunil Wadhwani
- --------------------------- -------------------------
Title E.A. Title Chairman
---------------------- ---------------------
ATTEST: PNC BANK, NATIONAL ASSOCIATION
/s/ James M. Kubaney By /s/ Karen P. Etling
- --------------------------- -------------------------
Title AVP Title Vice President
---------------------- ---------------------
DAB\MASTECH.AM2
<PAGE>
THIRD AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT AND FIRST AMENDMENT TO
REVOLVING CREDIT NOTE
This Third Amendment to Amended and Restated Credit Agreement and First
Amendment to Revolving Credit Note (the "Amendment") dated as of June ____, 1995
is entered into by and among MASTECH SYSTEMS CORPORATION (the "Borrower"), and
PNC BANK, NATIONAL ASSOCIATION (the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank entered into that certain Amended and
Restated Loan Agreement dated as of December 23, 1993, (the Amended and Restated
Credit Agreement and all extensions, renewals, amendments, substitutions and
replacements thereto and thereof the "Agreement") pursuant to which the Bank
made available to the Borrower a Revolving Credit Note in the original principal
amount of Seven Million Dollars ($7,000,000.00) dated December 23, 1993 (the
"Note");
WHEREAS, the Borrower and the Bank have amended the Agreement on two prior
occasions;
WHEREAS, the Borrower has requested that the Bank increase the maximum principal
amount outstanding under the Note to Ten Million Dollars ($10,000,000.00);
WHEREAS, the Borrower and the Bank are willing to amend the Agreement and the
Note as specifically set forth herein;
NOW, THEREFORE, in consideration of the premises and other valuable
consideration and with the intent to be legally bound hereby, the parties hereto
agree as follows:
1. The capitalized terms used herein as defined terms shall have the same
meanings given them in the Agreement and the Note, unless the context clearly
indicates otherwise.
2. Section 1.1 of the Agreement entitled "Definitions" is hereby amended by
restating the definitions for "Expiration Date" , "Interest Payment Date",
"Interest Period" and "Revolving Credit " to read in its entirety as follows:
"Expiration Date" means May 31, 1996, or such subsequent date so designated
by written notice from Bank to Borrower.
"Interest Payment Date" means for a Libor Loan the last day of such
Interest Period; and for any Prime Rate Loan the last business day of each
month.
"Interest Period" means the period commencing on the date of which a Libor
Loan is made or continued as a Libor Loan and ending one month thereafter,
as selected by Borrower in its Notice of Borrowing or its Notice of
Conversion or Continuation; provided that, all of the foregoing provisions
relating to Interest Periods are subject to the following:
<PAGE>
(A) if any Interest Period would otherwise end on a day which is not a
Working Day, that Interest Period shall be extended to the next succeeding
Working Day unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such Interest
period shall end in the immediately preceding Working Day;
(B) any Interest Period that would otherwise extend beyond the
Expiration Date shall end on the Expiration Date;
(C) if upon the expiration of any Interest Period applicable to a
Libor Loan, the Borrower fails to elect a new Interest Period and Libor
Loan, the Borrower shall be deemed to have elected to convert such Libor
Loan into a Prime Rate Loan effective as of the expiration date of such
current Interest Period.
(D) any Interest Period that begins on the last Working Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end in
the last Working Day of such calendar month.
"Revolving Credit" means Bank's obligation to make Advances to Borrower in
the maximum principal amount which may not exceed the lesser of (i) the
Borrowing Base, or (ii) $10,000,000.00.
3. Section 1.1 of the Agreement entitled "Definitions" is hereby amended by
adding the definition for "Prime Rate Loan" to read in its entirety as follows:
"Prime Rate Loan" means loans hereunder at such time as they are made
and/or being maintained at a rate of interest based upon the Prime Rate.
4. Section 2.3 of the Agreement entitled "Borrowing Procedure" is hereby
amended and restated to read in its entirety as follows:
"2.3 Borrowing Procedure. Borrower may borrow under the Revolving Credit on
-------------------
any Business Day; provided that Borrower shall give Bank irrevocable
telephonic written or telecopy notice, such notice shall be immediately
confirmed in writing or by telecopy) prior to the requested borrowing date
("Notice of Borrowing") (which notice must be received by Bank prior to
12:00 Noon, Pittsburgh time, specifying (i) the amount to be borrowed, (ii)
the borrowing date, and (iii) the election of an interest rate option."
5. Section 2.6 of the Agreement entitled "Interest Rate and Payment Dates" is
hereby amended and restated to read in its entirety as follows:
"2.6 Interest Rate and Payment Dates. (a) Each Advance shall bear interest
-------------------------------
for the period from the first day of each Interest Period with respect
thereto, but not including, the last day of such Interest Period with
respect thereto, but not including, the last day of such Interest Period at
a rate per annum equal to the Libor Rate determined for such Libor Interest
period plus one and one-half of one percent (1-1/2%) or the Borrower shall
have the option to have Advances bear interest at a rate per annum which is
at all times equal to the Prime Rate. It being understood that
<PAGE>
the Borrower may select different options to apply simultaneously to
different portions of the Loan;
(b) Interest on all Advances shall be payable in arrears on each Interest
Payment Date."
6. Section 13.13 of the Agreement entitled "Tangible Net Worth" is hereby
amended and restated to read in its entirety as follows:
"13.13 Tangible Net Worth. Borrower will maintain at all times a minimum
------------------
Tangible Net Worth of $14,000,000.00 plus 25% of the Borrower's net income
measured quarterly for each fiscal quarter ending on or after June 30,
1995."
7. The Note is hereby amended by increasing the maximum principal amount of
the Note to Ten Million Dollars ($10,000,000.00).
8. Borrower has no defenses or set-offs against the Bank, their officers,
directors, employees, agents or attorneys with respect to the Agreement and Note
is in full force and effect and shall remain in full force and effect unless and
until modified or amended in writing in accordance with its terms. Borrower
hereby ratifies and confirms its obligations and agrees that the execution and
delivery of this Amendment does not in any way diminish or invalidate any of
Borrower's obligations.
9. In consideration of this Amendment, and other good and valuable
consideration, the receipt of which is hereby acknowledged, Borrower represents
and warrants that Borrower has no claims, counterclaims, setoffs, actions or
causes of action, damages or liabilities of any kind or nature whatsoever
whether at law or in equity, in contract or in tort, whether now accrued or
hereafter maturing (collectively "Claims") against the Bank, its heir direct or
indirect parent corporation or any direct or indirect affiliates of such parent
corporation, or any of the foregoing's respective directors, officers,
employees, agents, attorneys and legal representatives, or the heirs,
administrators, successors or assigns of any of them (collectively, "Bank
Parties") that directly or indirectly arise out of, are based upon or are in any
manner connected with any Prior Related Event. As an inducement to Bank to enter
into this Amendment, Borrower on behalf of Borrower, and all of Borrower's
respective successors and assigns hereby knowingly and voluntarily releases and
discharges all Bank Parties from any and all Claims, whether known or unknown,
that directly or indirectly arise out of, are based upon or are in any manner
connected with any Prior Related Event. As used herein, the term "Prior Related
Event" means any transaction, event, circumstance, action, failure to act,
occurrence of any sort or type, whether known or unknown, which occurred,
existed, was taken, was permitted or begun in accordance with, pursuant to or by
virtue of any of the terms of the Agreement and Note, or any documents executed
in connection with the Agreement and Note or which was related to or connected
in any manner, directly or indirectly to the Agreement and Note.
10. Borrower hereby represents and warrants to Bank that the representations
and warranties in the Agreement and Note are true and correct on and as of the
date hereof and that no Event of Default exists or is continuing and that this
Amendment has been duly authorized, executed and delivered by Borrower.
11. The Agreement and Note, taking into consideration this Amendment, is in all
respects ratified and confirmed, and all of the rights and powers created
thereby or thereunder shall be and remain in full force and effect. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
the Bank under the Agreement and
<PAGE>
Note, and the loan documents, as each may be amended or modified from time to
time, nor constitute a waiver of any other provision of the Agreement and Note.
12. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
13. Except as amended hereby the terms and provisions of the Agreement and Note
remain in full force and effect.
WITNESS the execution of this Amendment as of the day and year first above
written.
ATTEST: MASTECH SYSTEMS CORPORATION
/s/ M. J. Zugay By /s/ Sunil Wadhwani
- -------------------------- -------------------------
Title CFO Title Chairman & CEO
--------------------- ----------------------
ATTEST: PNC BANK, NATIONAL ASSOCIATION
By /s/ Karen P. Etling
- -------------------------- -------------------------
Karen P. Etling
Title Vice President
----------------------
DAB\MASTECH.AM3
<PAGE>
FOURTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT AND SECOND AMENDMENT
TO REVOLVING CREDIT NOTE
This Fourth Amendment To Amended and Restated Credit Agreement and Second
Amendment To Revolving Credit Note (this "Amendment") is made as of June 1, 1996
by and between Mastech Systems Corporation (the "Borrower"), and PNC Bank,
National Association (the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank entered into that certain Amended and
Restated Loan Agreement dated as of December 23, 1993, (the Amended and Restated
Credit Agreement and all extensions, renewals, amendments, substitutions and
replacements thereto and thereof the "Agreement") pursuant to which the Bank
extended to the Borrower a Revolving Credit Loan (the "Loan") evidenced by a
Revolving Credit Note in the original principal amount of Seven Million Dollars
($7,000,000.00) dated December 23, 1993 (the "Note");
WHEREAS, the Borrower and the Bank have amended the Agreement on three
prior occasions and the Note on one prior occasion; and
WHEREAS, the Borrower and the Bank desire to amend the Agreement and the
Note as provided for below.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and intending to be legally bound hereby, the parties hereto agree as follows:
1. The Agreement and the Note are amended as set forth in Exhibit A
attached hereto and made a part hereof. Any and all references to the Agreement
or the Note in any document, instrument or certificate evidencing, securing or
otherwise delivered in connection with the Loan shall be deemed to refer to the
Agreement and the Note as amended hereby. Any initially capitalized terms used
in this Amendment without definition shall have the meanings assigned to those
terms in the Agreement or the Note.
2. This Amendment is deemed incorporated into the Agreement and the Note.
To the extent that any term or provision of this Amendment is or may be deemed
expressly inconsistent with any term or provision in the Agreement or the Note,
the terms and provisions hereof shall control.
3. The Borrower hereby represents and warrants that (a) all of its
representations and warranties in the Agreement are true and correct, (b) no
default or Event of Default exists under the Agreement or the Note, and (c) this
Amendment has been duly authorized, executed and delivered and constitutes the
legal, valid and binding obligation of the Borrower, enforceable in accordance
with its terms.
4. The Borrower hereby confirms that any collateral for the Loan,
including but not limited to liens, security interests, mortgages, and pledges
granted by the Borrower or third parties (if applicable), shall continue
unimpaired and in full force and effect.
<PAGE>
5. This Amendment may be signed in any number of counterpart copies and by
the parties hereto on separate counterparts, but all such copies shall
constitute one and the same instrument.
6. This Amendment will be binding upon and inure to the benefit of the
Borrower and the Bank and their respective heirs, executors, administrators,
successors and assigns.
7. Except as amended hereby, the terms and provisions of the Agreement and
the Note remain unchanged and in full force and effect. Except as expressly
provided herein, this Amendment shall not constitute an amendment, waiver,
consent or release with respect to any provision of the Agreement or the Note, a
waiver of any default or Event of Default thereunder, or a waiver or release of
any of the Bank's rights and remedies (all of which are hereby reserved). The
Borrower expressly ratifies and confirms the confession of judgment and waiver
of jury trial provisions (if applicable).
WITNESS the due execution hereof as a document under seal, as of the date first
written above.
ATTEST: MASTECH SYSTEMS CORPORATION
/s/ Michael J. Zugay By: /s/ Sunil Wadhwani
- ---------------------------- -------------------------
(SEAL)
Print Name: Michael J. Zugay Print Name: Sunil Wadhwani
----------------- ------------------
Title: Chairman
-----------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/
-------------------------
(SEAL)
Print Name:
------------------
Title:
-----------------------
akm\mastech.amd
-2-
<PAGE>
EXHIBIT "A" TO
FOURTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT AND SECOND AMENDMENT TO REVOLVING
CREDIT NOTE
1. The defined term "Expiration Date" in subsection 1.1 of the Agreement
entitled "Defined Terms" is hereby amended in its entirety to read as
follows:
"Expiration Date" means May 31, 1997, or such subsequent date so designated
by written notice from Bank to Borrower."
2. The defined term "Revolving Credit" in subsection 1.1 of the Agreement
entitled "Defined Terms" is hereby amended in its entirety to read as
follows:
"Revolving Credit" means Bank's obligation to make Advances to Borrower in
the maximum principal amount which may not exceed the lesser of (i) the
Borrowing Base, or (ii) $15,000,000.00."
3. Subsection 13.13 of the Agreement entitled "Tangible Net Worth" is hereby
amended in its entirety to read as follows:
"Tangible Net Worth. The Borrower will maintain a minimum Tangible Net
------------------
Worth of $13,000,000.00 for the fiscal quarters ending June 30, 1996,
September 30, 1996 and December 31, 1996 and a minimum Tangible Net Worth of
$15,000,000.00 for the fiscal quarter ending March 31, 1997."
4. Subsection 13.14 of the Agreement entitled "Ratio of Cash Flow to the Total
of Current Maturities of Long Term Debt plus Unfunded Capital Expenditures
plus Distributions and Dividends" is hereby amended in its entirety to read
as follows:
"13.14 Ratio of Cash Flow to the Total of Current Maturities of Long Term
------------------------------------------------------------------
Debt plus Unfunded Capital Expenditures plus Distributions and Dividends.
-------------------------------------------------------------------------
Borrower will maintain at all times a ratio of Cash Flow to the total of
Current Maturities of Long Term Debt plus Unfunded Capital Expenditures plus
----
distributions plus dividends of at least 1.0 to 1. "Cash Flow" means net
income plus depreciation plus amortization plus other non-cash items.
---- ---- ----
"Unfunded Capital Expenditures" means capital expenditures made from the
Borrower's funds other than borrowed funds."
5. Section 13 of the Agreement entitled "Affirmative Covenants" is amended by
adding a new subsection 13.17 entitled "Adjusted Quick Ratio" as follows:
"13.17 Adjusted Quick Ratio. Borrower will maintain at all time an Adjusted
--------------------
Quick Ratio of at least 1.2 to 1. "Adjusted Quick Ratio means cash plus cash
----
equivalents plus accounts receivable divided by current liabilities
-------
(including outstandings under the Revolving Credit."
-3-
<PAGE>
6. Section 13 of the Agreement entitled "Affirmative Covenants" is hereby
amended by adding thereto a new subsection 13.18 entitled "Collateral" as
follows:
"13.18 Collateral. In the event Borrower's outstandings under the Revolving
----------
Credit exceed $10,000,000.00 for 90 consecutive days, Borrower shall execute
and deliver to the Bank within thirty (30) days of Bank's written request
(i) a security agreement in form and content satisfactory to bank granting
the Bank a first priority perfected lien on Borrower's existing and future
accounts, general intangibles, chattel paper, documents and instruments and
(ii) financing statements to be filed in all applicable jurisdictions."
7. The Note is hereby amended by increasing the maximum principal amount of the
Note to Fifteen Million Dollars ($15,000,000.00).
-4-
<PAGE>
Exhibit 10.19
SUBLEASE
THIS SUBLEASE is made this ___________ day of February, 1995, between
WESTINGHOUSE ELECTRIC CORPORATION, a Pennsylvania corporation with its principal
office at Westinghouse Building, Gateway Center, Pittsburgh, Pennsylvania 15222
(hereinafter called "Sublessor"), and MASTECH CORPORATION, a Pennsylvania
corporation with its principal office at 2090 Greentree Road, Pittsburgh,
Pennsylvania 15220 (hereinafter called "Sublessee") and
WITNESSETH:
-----------
WHEREAS Greyhound Leasing & Financial Corporation (hereinafter called
"Lessor") and Sublessor entered into a Lease Agreement dated November 15, 1985
(hereinafter called "Lease") for certain land and improvements located in North
Fayette Township, Allegheny County, Pennsylvania, known as 1000 McKee Road,
Oakdale, Pennsylvania, as more fully described in Exhibit A attached hereto and
made a part hereof (hereinafter called "Premises"), and
WHEREAS, Sublessor desires to sublease a portion of the leased premises to
Sublessee.
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND, THE PARTIES HEREBY AGREE AS
FOLLOWS:
1. PREMISES:
That for and in consideration of the payment by Sublessee of the rent
hereinafter reserved and the performance by Sublessee of the covenants and
agreements hereinafter agreed to be performed by it, and in accordance with all
of the provisions hereinafter set forth, Sublessor does hereby let and demise
unto Sublessee and Sublessee does hereby take and hire from Sublessor,
<PAGE>
an amount agreed to be 21,996 rentable square feet in the Premises as more fully
set forth and outlined in yellow on Exhibit B attached hereto and made a part
hereof (hereinafter called the "Subleased Premises") together with the
furnishings, fixtures and equipment, located thereon (including, without
limitation, those items of furnishings and equipment which are listed on Exhibit
C attached hereto and made a part hereof) and with all the rights, easements and
appurtenances thereto or therewith usually held and enjoyed, and use of the
Common Areas as more fully described in Section 7(d) below, for a term beginning
on the later of (1) the first day that Sublessee takes possession of any portion
of the Subleased Premises, or (2) January 15, 1995 (but in no event later than
June 1, 1995) and ending on May 31, 2000, and subject to renewal and extension
by Sublessee as hereinafter provided. Notwithstanding the foregoing, Sublessee
has the right to take possession of the Subleased Premises in increments of
useable square feet at its reasonable discretion. No rent shall be payable by
Sublessee from the commencement of the lease term until June 1, 1995.
2. RENT:
(a) Sublessee shall pay Sublessor rent, in advance, without notice or
demand in equal monthly payments, on or before the first day of each month,
during the period of time indicated below at the following rates:
Lease Term Rental Rate
June 1, 1995 - May 31, 1997 $14.00 per rentable square foot per year
June 1, 1997 - May 31, 1999 $15.00 per rentable square foot per year
June 1, 1999 - May 31, 2000 $16.00 per rentable square foot per year
The total rentable square feet of 21,996 shall be multiplied by
Fourteen Dollars ($14.00) to produce the annual base rent for the initial two
years of the term of the Sublease and
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thereafter the total rentable square feet shall be multiplied by the rental rate
indicated in the schedule above to determine the annual base rental payable by
Sublessee. The applicable annual rent shall be divided by 12 to determine the
monthly rent payable by Sublessee.
(b) Any additional sum Sublessee is required to pay Sublessor under the
terms of this Sublease is designated as Additional Rent.
(c) The obligation to pay rent including Additional Rent hereunder is an
independent covenant of the Sublessee and such payment shall be net of any other
obligation Sublessee may have and shall be made without demand, offset or
counterclaim.
(d) Except as specifically set forth herein, Sublessor's only obligations
are as set forth in this Sublease and Sublessee indemnifies Sublessor of all
costs and liabilities incurred by Sublessor on account of Sublessee's tenancy of
the Subleased Premises or failure of Sublessee to perform any of its obligations
hereunder.
(e) Any rent and/or additional rent shall be paid to Sublessor at 11
Stanwix Street, Pittsburgh, Pennsylvania 15222, Attention: G. Segner.
3. SECURITY DEPOSIT:
Sublessor acknowledges receipt from Sublessee of the sum of $30,000.00 to
be held as security for the payment of any rent and all other sums of money
payable by Sublessee under this Sublease and for the faithful performance of all
covenants of Sublessee hereunder. The amount of such security deposit, without
interest, shall be refunded to Sublessee after termination of this Sublease
provided that Sublessee shall have made all such payments and performed such
covenants. Upon default by Sublessee hereunder, all or part of such security
deposit may, at Sublessor's sole option, be applied on account of such default
and thereafter Sublessee shall
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restore the resulting deficiency in such security deposit upon demand. Sublessee
hereby waives the benefit of any provision of law requiring such security
deposit to be held in escrow, in trust, or in an interest-bearing account and
such security deposit shall be deemed to be the property of Sublessor and may be
commingled with Sublessor's other funds.
4. SUBLESSEE IMPROVEMENTS:
(a) Sublessor shall provide construction of the tenant improvements in
accord with specifications set forth in Exhibit D attached hereto and made a
part hereof, the cost to Sublessor of which shall not exceed $240,000.00, which
sum shall be used for architectural drawings, office design services, working
drawings (including mechanical engineering and plumbing) and furniture work
station relocation and installation. Prior to the full execution of this
Sublease all plans and specifications to be incorporated into this Sublease as
Exhibit D shall be approved in writing by Sublessor. The cost of any work in
Exhibit D in excess of $240,000 as well as for work outside of the scope of work
set forth on Exhibit D shall be to Sublessee's account. Upon Sublessor's
completion of the tenant improvements, Sublessor and Sublessee shall agree on a
punch list of areas of work which were not done to Sublessee's reasonable
satisfaction and Sublessor shall within fifteen (15) days thereafter cause such
punch list items to be corrected and completed. Sublessor agrees to transfer to
Sublessee any warranties it may receive for tenant improvements constructed for
Sublessee.
(b) Sublessor agrees to grant Sublessee a moving allowance of up to
Twenty One Thousand Three Hundred Eighteen and 00/100 ($21,318.00) Dollars.
Sublessor may use such allowance to cover any cost for tenant improvements for
which Sublessee is responsible. The balance of the moving allowance set forth
herein shall be credited to Sublessee against the rentals
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due under the terms of this Sublease in the order that such rentals become due.
To the extent that Sublessee's actual moving expenses do not equal Twenty One
Thousand Three Hundred Eighteen and 00/100 ($21,318.00) Dollars, Sublessor shall
have the right to use the balance of the unused moving allowance toward the
Sublessee Improvements set forth in Section 4 herein.
(c) Sublessor shall provide Sublessee with up to eighty (80) furniture
workstations and all other furnishings which are located on the Subleased
Premises at the time of execution of this Sublease. Sublessee shall have the
right, at the end of the initial term or any renewal term of this Sublease, to
remove and retain the original eighty workstations identified on Exhibit C,
provided that, upon removal, Sublessee shall restore the Subleased Premises as
required in Section 24 hereunder. Title to such work stations shall pass at the
end of the initial term, and Sublessor shall upon request of Sublessee deliver
such bills of sale or other instruments (warranting title and otherwise
disclaiming all warranties whatsoever) as Sublessee may require in order to more
effectively transfer title to Sublessee.
(d) Sublessee, at Sublessee's sole cost and expense, shall have the right
to install a satellite dish either on the property surrounding the building on
the Premises or on the roof of the building, at Sublessor's sole option. In the
event Sublessee desires to install a satellite dish on the Premises, Sublessee
shall advise Sublessor in writing of the proposed placement of the satellite
dish and Sublessor shall notify Sublessee of its approval or disapproval of
Sublessee's request within ten (10) days of Sublessee's request. If Sublessor
approves Sublessee's request, Sublessee shall comply with all of Sublessor's
requirements for the placement, maintenance, repair and restoration of any area
to which the satellite dish is affixed. Sublessee, at its cost and expense will
secure all necessary government approvals and comply with all applicable
government codes and regulations related to the satellite dish.
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5. COMPLIANCE WITH LAWS; USE OF SUBLEASED PREMISES:
Sublessee will use and occupy the Subleased Premises for general office
purposes. Sublessor warrants that the Subleased Premises, after completion of
improvements set forth in Section 4 hereof shall comply with all laws,
ordinances, rules, orders or regulations of any governmental authority excluding
the Americans with Disabilities Act. Thereafter, Sublessee will use the
Subleased Premises in compliance with any and all laws, ordinances, rules,
orders and regulations of any governmental authority (including but not limited
to any mandated repairs or alterations) which are applicable to or arise from
the conduct of Sublessee's business on the Subleased Premises. Nothing herein
shall be interpreted to require Sublessee to make repairs or improvements which
are the responsibility of Sublessor pursuant to the terms of this Sublease.
6. TAXES AND ASSESSMENTS:
(a) During the term of this Sublease, Sublessee shall pay as Additional
Rental its pro rata share of any real estate tax or assessment (allocable to the
land and building of which the Subleased Premises are a part) which is in excess
of the real estate tax or assessment imposed or assessed on the same land and
building for the base tax year. The base tax year shall be the calendar year of
1995.
With respect to any general or special assessments which may be levied
upon or against the Premises, and which may be paid in annual or semi-annual
installments, only the current amount of such installment, prorated for any
partial year, and statutory interest, shall be included within the computation
of taxes for which Sublessee is responsible herein.
(b) Sublessee's share of any increased real estate tax shall be due and
payable thirty (30) days after receipt of billing by Sublessor.
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(c) The Sublessee's proportionate share of any increase or decrease in
real estate tax shall be that percentage derived by dividing the number of
square feet of rentable space subleased by Sublessee (21,996 square feet) by the
total number of square feet of rentable space in the Premises (151,800 square
feet), which percentage is 14.49%.
(d) Sublessor may, in its reasonable discretion, estimate the amount of
taxes next due and collect from Sublessee on a monthly or quarterly basis, at
Sublessor's option, the amount of Sublessee's estimated tax obligation;
provided, however, that such estimate shall reasonably related to the prior tax
year estimate as adjusted for any rate increase announced or publicly considered
by taxing bodies and assessments with respect to the Premises. In the event that
Sublessee has not paid sufficient amount in estimated tax payments to cover its
pro rata share for the year in question, Sublessee shall pay to Sublessor the
full amount of any such shortage within thirty (30) days of date of billing. If
it is established that Sublessee has made an overpayment of its tax obligation
upon such reconciliation, Sublessee shall receive, at Sublessor's option, either
a credit applicable to the next ensuing estimated tax payments, or, a direct
payment of such overpaid amount to Sublessee within thirty (30) days of such
determination. At the end of the Sublease term, Sublessor shall refund any
overpayment to Sublessee attributable to the final lease year.
(e) Sublessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Sublessee contained in the Subleased Premises or elsewhere. When
possible, Sublessee shall cause such trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Sublessor. If any of Sublessee's said personal property shall be
assessed with Sublessor's real property, Sublessee shall pay Sublessor taxes
attributable to
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Sublessee within thirty (30) days after receipt of a written statement setting
forth the taxes applicable to Sublessee's property.
(f) In the event it shall not be lawful for Sublessee to reimburse
Sublessor for any of the taxes covered by this Section, the monthly rent payable
to Sublessor under the terms of this Sublease shall be increased by the amount
of the portion allocable to Sublessee so as to net to Sublessor the amount which
would have been receivable by Sublessor if such tax had not been imposed.
7. OPERATING EXPENSE
(a) Tenant shall pay as Additional Rental its proportionate share of any
increase in operating expenses for the Premises of which the Subleased Premises
are a part which may be sustained by Sublessor during the term of this lease
which exceed the sum of the operating expenses of the calendar year 1995 (base
year). Sublessee's proportionate share of any increase shall be that percentage
determined by dividing the rentable number of square feet hereby subleased by
Sublessee (21,996 square feet) by the total number of rentable square feet in
the Premises (151,800 square feet), which percentage is 14.49%. Notwithstanding
the foregoing, for any period of this Sublease not constituting a full calendar
year, Sublessee shall pay only a fractional part of its proportionate share of
any applicable increase in the operating expenses based upon the number of days
of its occupancy of the Sublease Premises for such year divided by 365.
(b) The term "operating expenses" shall mean all expenses, costs and
disbursements of every kind and nature (including but not limited to "Capital
Costs" as hereinafter defined and to the extent stated herein and reasonable
management fees, which fees shall be included in base
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year 1995), excluding however, taxes, expense of alternations of premises for
the accommodation of a specific tenant, brokers fees, and expenditures made for
capital investment or improvements, which the Sublessor shall pay or become
obligated to pay in connection with the operation of the Common Areas (as
hereinafter defined) and the Premises which, in accordance with generally
accepted principles of sound accounting practice, apply to the operation and
maintenance of comparable buildings.
(c) Capital Costs are defined as those expenditures which do not normally
recur more frequently than at five (5) year intervals in the normal course of
operation and maintenance of the Premises. Notwithstanding anything above which
may be to the contrary, operating expenses shall include a portion of all
Capital Costs, representing any costs of capital improvements made by Sublessor
to the Premises for the purpose of reducing recurring expenses or utility costs
and from which Sublease can expect a reasonable benefit, or that are required by
governmental law, ordinance, regulation or mandate, not applicable to the
Premises at the time of the original construction. The portion thereof to be
included each year in operating expenses shall be that fraction allocable to the
calendar year in question calculated by amortizing the cost over the reasonably
useful life of such improvement, as reasonably determined by the Sublessor, with
interest on the unamortized balance at ten percent (10%) per annum or such
higher rate as may have been paid by Sublessor for funds borrowed for the
purpose of constructing such improvements, but in no event to exceed the highest
rate permissible by law.
(d) The term "Common Areas" as used herein means all areas and facilities
outside the Subleased Premises, that are provided and designated by Sublessor
from time to time for the general use and convenience of Sublessee, Sublessor,
and of other tenants of Sublessor having the common use of such areas, and their
respective authorized representatives and invitees.
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Common Areas include, without limitation, driveways, parking areas, sidewalks,
landscaped areas, the reception area, the large conference rooms as designated
by Sublessor located on the first and second floors and highlighted in green on
Exhibit B, the cafeteria, the fitness center and specific corridors designated
by Sublessor which lead from the Subleased Premises to the internal common areas
set forth above. Notwithstanding the foregoing, Sublessor may, at its sole
option, and at any time, discontinue the operation of the cafeteria, if the
cafeteria operates at a loss. In the event Sublessor elects to reduce, limit,
change or discontinue the operation of the cafeteria, Sublessor shall make
reasonable efforts to substitute an alternative food service. Sublessee hereby
agrees that the use of the Common Areas by it or any of its employees, agents or
invitees will not interfere with the conduct of business of any of the other
occupants of the Building or the Premises.
(e) Notwithstanding anything to the contrary contained in the above
subparagraph (d), the fitness center will only be included in the Common Areas
if Sublessee provides insurance coverage and limits applicable to the use of the
fitness center by Sublessee or Sublessee's employees, which is acceptable to
Sublessor in its sole discretion. As a further condition to inclusion of the
fitness center in the common Areas, Sublessee agrees, on behalf of itself, and
its employees, to indemnify and hold harmless Sublessor from any and all
liabilities, claims, demands, actions, costs and expenses which may be sustained
by Sublessor by reason of any injury to or death of persons and for any loss of
or damage to property caused in any manner or to any degree by the use of the
fitness center by Sublessee or its employees. Sublessee, and its employees shall
faithfully observe and comply with the rules and regulations established by
Sublessor (and conveyed by written notice to Sublessee) regarding use and
operation of the fitness center. Sublessor reserves the unconditional right to
discontinue the operation of the
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fitness center at any time during the term of this lease or any renewal thereof.
In the event that Sublessor elects to discontinue the operation of the fitness
center, Sublessee shall have the option to sublease the area presently known as
the fitness center on the basis of the terms and conditions herein for the sole
purpose of using that area as a fitness center exclusively for the use of
Sublessee's employees. Sublessor shall give Sublessee written notice that
Sublessor intends to discontinue the operation of the fitness center and
Sublessee shall have fifteen (15) days within which to give Sublessor written
notice that Sublessee will sublet the area known as the fitness center for the
use of its employees. Effective on the date of Sublessee's notice to Sublessor
electing to sublease the fitness center, that area will be added to the
Subleased Premises at the prevailing rental rate then in effect for the
Subleased Premises and all of the other terms and conditions of this Sublease
shall apply to the fitness center area added to the Subleased Premises except
the use shall be described in this Section 7(e).
(f) Sublessor shall, in a reasonable manner maintain the Common Areas in a
condition representative of a well-maintained commercial office building, and in
doing so, Sublessor may establish and enforce reasonable rules and regulations
concerning such areas which are enforced in a non-discriminating manner as to
all occupants of the Premises. Sublessor may also close any of the Common Areas
to whatever necessary extent required in the opinion of Sublessor's counsel to
prevent a dedication of any of the Common Areas or the accrual of any rights of
any person (other than Sublessee) or of the public to the Common Areas, close
temporarily any of the Common Areas for maintenance purposes, and make changes
to the Common Areas including, without limitation, changes in the location of
driveways, entrances, exits, vehicular parking spaces, parking area, the
designation of areas for the exclusive use of others, the direction of the flow
of traffic or construction of additional buildings thereupon.
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(g) If, during the base year less than 95% of the building rentable area
shall be occupied by tenants and fully used by them, operating expenses of the
Premises for the base year for purposes of the determination of Sublessee's
proportionate share of operating expense shall be deemed to be increased to an
amount equal to the like operating expense which would normally be expected to
be incurred if the building had been 95% occupied and fully utilized during the
base year.
(h) Sublessee agrees to pay its proportionate share of any increase in
operating expenses as set forth in subparagraph (a) above to the Sublessor
within thirty (30) days after receipt of the Sublessor's statement. Sublessor
shall have the right, in its reasonable discretion, to estimate Sublessee's pro
rata share of operating expenses due within the following twelve (12) months
from Sublessee and to collect from Sublessee on a monthly or quarterly basis, as
Sublessor may elect, the amount of Sublessee's estimated pro rata share of such
costs; provided, however, that such estimate shall reasonably reflect actual
operating expenses for which Sublessee is proportionately responsible and which
Sublessor may reasonably expect to incur and pay within such period. Sublessor
shall provide Sublessee with a reconciliation of Sublessee's account at least
annually, and if such reconciliation shall indicate that Sublessee's account is
insufficient to satisfy Sublessee's pro rata share of operating expenses for the
period estimated, Sublessee shall pay to Sublessor any deficiency within thirty
(30) days of Sublessor's billing. Any excess in such account indicated by the
reconciliation shall be credited to Sublessee's account to reduce the estimated
payments for the next ensuing period or paid to Sublessee within thirty (30)
days if occurring in the final year of the Sublease term.
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8. PARKING:
Sublessee shall direct its employees to use the employee parking area
located in the back of the Premises. Sublessor shall preserve 110 non-reserved
parking spaces for use by Sublessee's employees and invitees in such parking
area. Notwithstanding the foregoing, Sublessor shall designate sixteen (16)
reserved parking stalls within the front parking area for Sublessee's exclusive
use. Apart from the reserved spaces, Sublessee's employees shall not park in
the visitors parking area. The remaining parking spaces within the front
parking area shall be reserved by Sublessor for visitors.
9. INSURANCE:
(a) Sublessee shall, at its sole cost and expense, procure and maintain
throughout the term of this Sublease or any renewal or extension thereof, a
policy of public liability insurance (which shall include inter alia an
endorsement or rider for contractual liability coverage) secured from an
insurance company licensed and qualified to do business in the State of
Pennsylvania, acceptable to Sublessor, and naming Sublessor as an additional
insured, with limits not less than $3,000,000.00 with respect to any one
occurrence, and said policy shall contain a clause that the insurer will not
cancel or change said policy without first giving Sublessor at least thirty (30)
days' prior written notice. Sublessee shall provide Sublessor a copy of such
insurance policy or certificate of insurance evidencing such coverage upon the
execution of this Sublease and subsequently on the renewal or extension date of
such policy.
(b) Sublessee shall procure and maintain throughout the term of this
Sublease or any renewal thereof, at Sublessee's expense, policies of casualty
insurance covering all tenant improvements, trade fixtures, equipment,
merchandise and other personal property from time to
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time in the Subleased premises in an amount not less than one hundred percent
(100%) of their actual replacement cost, providing protection against any peril
included within the classification "Fire and Extended Coverage". The proceeds of
such insurance shall be used for the repair and replacement of the property so
insured. Such insurance shall name Sublessor as an additional insured and shall
contain a clause that the insurer will not cancel or change said policy without
first giving Sublessor at least thirty (30) days' prior written notice.
Sublessee shall provide Sublessor a certificate of said insurance upon the
execution of this Sublease and subsequently on the renewal or extension date of
such policy.
(c) Nothing contained in this Sublease shall be construed to require
either party to repair, replace, reconstruct, or pay for any property of the
other party which may be damaged or destroyed by fire, flood, windstorm,
earthquake, strikes, riots, civil commotions, acts of public enemy, acts of God,
or other casualty, and each party hereby waives, on behalf of itself and its
insurer, all rights of subrogation and claims against the other for all loss or
damage arising out of perils normally insured against by standard fire and
extended coverage insurance.
10. MAINTENANCE AND REPAIRS:
(a) Subject to Sublessor's maintenance and repair obligations set forth in
subparagraph (b) below, Sublessee shall maintain the interior of the Subleased
Premises in a neat and orderly condition and shall not commit waste therein, and
shall perform all maintenance and repairs of damage caused by the negligence of
Sublessee, its servants, agents, or employees or which is otherwise required
pursuant to the terms of this Sublease.
(b) Sublessor shall maintain and keep in good condition, at Sublessor's
expense the Common Areas as well as all structural elements of Subleased
Premises, including without
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limitation, heating, ventilation and air conditioning systems, roof, plumbing,
electrical systems, fire and sprinkler systems (to the extent there are fire and
sprinkler systems in the Premises, it being understood and acknowledged that
Sublessor shall have no obligation to install additional such systems unless
required by law) alarm systems, sewage systems, except for such maintenance,
repairs, and replacements necessitated by the negligence of Sublessee, its
servants, agents, or employees or as a result of legal requirements arising from
Sublessee's use or occupancy of the Subleased Premises.
(c) Sublessor shall have the right to enter upon the Subleased Premises
from time to time upon reasonable notice in order to inspect the same and to
perform any maintenance, repairs, and replacements which it is required to make
under the provisions of this Sublease. Such entry shall in no event be
considered a constructive eviction of Sublessee. Sublessor shall use reasonable
efforts not to disrupt Sublessee's business activities in the performance of
such maintenance.
11. BUILDING SERVICES:
(a) During the hours of 7:00 a.m. and 7:00 p.m. on weekdays and 9:00 a.m.
to 2:00 p.m. on Saturdays ("Business Hours") except for public holidays
("Business Days"), Sublessor shall furnish to the Subleased Premises as part of
the operating expense of the Premises, reasonable amounts of electricity, water,
heat and air conditioning typical of a commercial office building. In the event
of an interruption in, or failure or inability to provide any of the utilities
described herein, such interruption or failure shall not, regardless of its
duration, constitute an eviction of Sublessee, constructive or otherwise, or
impose upon Sublessor any liability whatsoever, including, but not limited to,
liability for consequential
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damages or loss of business by Sublessee or entitle Sublessee to an abatement of
rent or to terminate this Sublease. Notwithstanding the foregoing, in the event
that Sublessor is unable to provide any of the utilities (i.e., electricity,
heat, water or air conditioning) for five (5) consecutive business days and
Sublessee is unable to conduct business in the Subleased Premises as a result of
such failure to provide utilities, and further provided that such failure is not
due to force majeure as hereinafter defined, then Sublessee shall be entitled to
abate rent on a daily basis until such utility is restored. In no event is
Sublessee authorized to terminate this Sublease as a result of such failure of
utilities.
(b) The term "force majeure" as used herein shall mean any circumstance
beyond the reasonable control of Sublessor which shall prevent or delay
Sublessor from performing any obligation outlined herein including, but not
limited to, acts of nature, acts of God, labor strikes, material shortages and
other acts causing delays. Any delay resulting from a force majeure shall excuse
Sublessor's performance of its obligations under this Sublease for a period
equal to the period of such delay.
(c) On Business Days, Sublessor shall furnish to the Subleased Premises
and its attendant restrooms and other common areas, janitorial service, window
washing, fluorescent tube replacement and toilet room supplies.
(d) Sublessee shall give Sublessor reasonable prior written notice of its
request of Sublessor to supply utilities or services to the Subleased Premises
during non-Business Hours which are in excess of the standard of such utilities
or services normally provided during non-Business Hours in buildings used for
office purposes. Any additional utilities or services Sublessee requests during
non-Business Hours shall be at Sublessee's sole expense. In the event the
Sublessee's usage of electricity, water or any other utility exceeds the
reasonable use of such
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utility, Sublessor may determine the amount of such excess use by any reasonable
means (including, but not limited to, the installation at Sublessor's request
but at Sublessee's expense of a separate meter or other measuring device) and
charge Sublessee for the cost thereof. In addition, Sublessor may impose a
reasonable charge for the use of any additional or unusual janitorial services
required by Sublessee because of the carelessness of Sublessee or the nature of
Sublessee's business (including hours of operation).
(e) All sums payable hereunder by Sublessee for additional services or for
excess utility usage or other services shall be payable within thirty (30) days
after notice from Sublessor of the amounts due; except that Sublessor may
require Sublessee to pay monthly for the estimated cost of Sublessee's excess
utility usage if such usage occurs on a regular basis, and such estimated
amounts shall be payable in advance on the first day of each month.
(f) Sublessor shall provide Sublessee's employees and visitors with
limited access to the building during non-Business Hours, provided, however,
that Sublessor shall be entitled to impose upon Sublessee reasonable security
precautions related to such access.
(g) At the time this Sublease is fully executed by both parties, the
Premises will be supplied by Sublessor with (a) security guard services sixteen
(16) hours per day during Business Days and twenty-four (24) hours per day
during non-Business Days, and (b) a Simplex fire system. Sublessor reserves the
right, at its sole discretion, to replace the type of security service at the
Premises. Notwithstanding anything to the contrary set forth herein, Sublessee
shall be totally responsible for the security of the Subleased Premises and
Sublessor shall not have any liability whatsoever as a result of any failure of
Sublessor's security services for any injuries to persons or loss or theft
incurred by Sublessor, its employees and invitees, in, on or about the Subleased
Premises or the Premises.
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12. DAMAGE TO OR DESTRUCTION OF PREMISES:
If, during the term of this Sublease, the Subleased Premises are damaged by
fire, flood, windstorm, strikes, riots, civil commotions, acts of public enemy,
acts of God, or other casualty so that the same are rendered wholly or
substantially unfit for occupancy, Sublessor shall promptly notify Sublessee
whether the Subleased Premises can be repaired to be fully fit for Sublessee's
occupancy. If pursuant to said notice said Subleased Premises cannot be
repaired within sixty (60) days from the time of such damage, then this
Sublease, at the option of the Sublessor or Sublessee, may be terminated as of
the date of such damage and any insurance proceeds under Section 9(a) of this
Sublease agreement shall be paid to Sublessor. Likewise if a substantial
portion of the Premises (but not a substantial portion of the Subleased
Premises) are so damaged such that Sublessor determines that it will not repair
such damages, and/or restore the premises, then Sublessor at its sole option may
terminate this Sublease as of the date of last occupancy by Sublessee and any
insurance proceeds under Section 9(a) shall be payable to Sublessor. In the
event that Sublessor or Sublessee elects to terminate the Sublease, the
Sublessee shall pay the rent apportioned to the time of damage and shall
immediately surrender the Subleased Premises to Sublessor who may enter upon and
repossess the same. If neither the Sublessor or the Sublessee elects to
terminate the Sublease, Sublessor agrees to repair or replace as required such
damage to the Premises and the Subleased Premises (but not to any Sublessee
improvements made by Sublessee to the extent it receives insurance proceeds),
and this Sublease shall not be affected in any manner except that the rent shall
be suspended and shall not accrue from the date of such damage until such
repairs have been completed.
If said Subleased Premises shall be so slightly damaged by any of the above
casualties as not to be rendered unfit for occupancy to any substantial extent
and the same shall be repairable
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within sixty (60) days from the time of such damage, Sublessor shall repair the
Subleased Premises (but not Sublessee improvements made by Sublessee) to the
extent it receives insurance proceeds, and during the period from the date of
such damage until the repairs are completed the rent shall be apportioned so
that Sublessee shall pay as rent an amount which bears the same ratio to the
entire monthly rent as the portion of the Subleased Premises which Sublessee is
able to occupy without disturbance during such period bears to the entire
Premises. If the damage by any of the above casualties is so slight that
Sublessee is not disturbed in its possession and enjoyment of the Subleased
Premises, then Sublessor shall repair the same promptly and in that case the
rent accrued or accruing shall not abate.
13. ACTIONS OF PUBLIC AUTHORITIES:
In the event that any exercise of the power of eminent domain by any
governmental authority, Federal, State, County or Municipal, or by any other
party vested by law with such power shall at any time prevent the full use and
enjoyment of the Subleased Premises by Sublessee, Sublessor or Sublessee shall
have the right thereupon to terminate this Sublease. In the event of any such
action, Sublessor shall have the right to claim, recover, and retain from the
governmental authority or other party taking such action any award for the value
of the Premises and Sublessee hereby waives any claim for the leasehold value of
the Subleased Premises. Notwithstanding the foregoing, Sublessee may make a
separate claim for the value of its fixtures or its moving expenses to the
extent it does not diminish any award payable to Sublessor.
14. IMPROVEMENTS BY SUBLESSEE:
Sublessee shall not have the right to make any alterations, additions, or
improvements in or to the Subleased Premises without the written consent of
Sublessor, which consent shall not be
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unreasonably withheld. Should Sublessee desire to perform alterations or
improvements upon the Subleased Premises, it shall, prior to commencing the
work, transmit a reasonably detailed description of the work to Sublessor,
including drawings or plans. Within thirty (30) days of the receipt of the same,
Sublessor shall notify Sublessee as to its approval or disapproval of the
proposed alteration, addition or improvement. Upon thirty (30) days of the
request of Sublessor, Sublessee shall also deliver to Sublessor a bond in an
amount equal to at least 150% of the potential lien or claim to secure Sublessor
against any and all potential liens or claims. If Sublessor approves such
alteration, addition or improvement, all such work shall be done in a good and
workmanlike manner, the structural integrity of the building shall not be
impaired, and any liens attaching to the Subleased Premises shall be released
within thirty (30) days or appropriately bonded to protect Sublessor. Upon the
termination of this Sublease, such alterations, additions, or improvements
shall, at the option of Sublessor, (1) become the property of Sublessor, or (2)
be removed by the Sublessee provided that any part of the Subleased Premises
affected by such removal shall be restored to its original condition.
15. FIXTURES AND SIGNS:
(a) Sublessee shall have the right to install in or place on the Subleased
Premises trade or moveable fixtures, or other equipment as it may choose and
which fixtures or equipment do not exceed the weight permitted by the floor
structure. Such fixtures, machines, tools, or other equipment shall at all times
remain the personal property of Sublessee regardless of the manner or degree of
attachment thereof to the Subleased Premises and may be removed at any time by
Sublessee whether at the termination of this Sublease or otherwise, provided,
however,
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that Sublessee shall make restoration of the Subleased Premises in the event
that any damage is done thereto in the removal of such property.
(b) Sublessee shall initially have the right to install a sign in
accordance with the Sign Plan to be attached hereto as Exhibit E. Thereafter,
Sublessee shall have the right, with Sublessor's written consent, which consent
shall not be unreasonably withheld, to install or erect on the Premises such
signs as it may deem necessary or appropriate to advertise its name and
business; provided, however, that such signs comply with all applicable laws or
ordinances. Sublessee shall have the right, subject to the restrictions of
subsection (a) above, to install and affix signs within the Subleased Premises,
subject to Sublessor's prior written consent, which consent shall not be
unreasonably withheld.
16. LIABILITY; INDEMNITY:
(a) Sublessee shall be liable for any injury to or death of persons and
for any loss of or damage to property caused by the negligent or willful acts or
omissions of its agents, employees, or invitees, or caused by Sublessee's
failure to perform the maintenance, repairs, and replacements required to be
performed by it under the provisions of Section 10 (Maintenance and Repairs) or
any other obligations it has under this Sublease or otherwise arising from its
use or occupancy of the Subleased Premises or from any injury or damage or any
other claim arising from or relating to the presence in any Common Areas by any
of Sublessee's employees, agents, or invitees. Sublessee shall indemnify and
save Sublessor harmless against any and all liabilities, claims, demands,
actions, costs, and expenses which may be sustained by Sublessor by reason of
any of the causes for which Sublessee is liable pursuant to this subsection (a).
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(b) Sublessor shall be liable for any injury to or death of persons and
for any loss of or damage to property caused by the negligent or willful acts or
omissions of its agents, employees, or invitees, or caused by Sublessor's
failure to perform the maintenance, repairs, and replacements required to be
performed by it under the provisions of Section 10 (Maintenance and Repairs) or
any other obligation it has under this Sublease. Sublessor shall indemnify and
save Sublessee harmless against any and all liabilities, claims, demands,
actions, costs, and expenses which may be sustained by Sublessee by reason of
any of the causes for which Sublessor is liable pursuant to this subsection (b).
(c) The obligations of this Section 16 shall survive termination of this
Sublease for any reason whatsoever with regard to events occurring during the
term of this Sublease (or any extension thereof) arising from acts or omissions
during the term of this Sublease (or any extension thereof).
17. DEFAULT:
(a) If Sublessee shall fail to pay any rent or Additional Rent to
Sublessor within ten (10) days after the same is due and payable under the terms
of this Sublease and following the passage of ten (10) days notice of such
failure by Sublessor, or if the Sublessee shall fail to perform any other duty
or obligation imposed upon it by this Sublease and such default shall continue
for a period of thirty (30) days after written notice thereof has been given to
Sublessee by Sublessor (except where Sublessee has diligently begun to correct
such other duties or obligations within such period and continues to cure such
default on a diligent basis), or if the Sublessee shall be adjudged bankrupt, or
shall make a general assignment for the benefit of its creditors, or if a
receiver of any property of Sublessee in or upon the Subleased premises be
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appointed in any actions, suit, or proceeding by or against Sublessee, or if the
interest of Sublessee in the Subleased Premises shall be sold under execution or
other legal process, then and in any such event Sublessor shall have the right
to enter upon the Subleased Premises and again have, repossess, and enjoy the
same as if this Sublease had not been made, and thereupon this Sublease shall
terminate without prejudice, however, to the right of Sublessor to recover from
Sublessee all rent due and unpaid up to the time of such re-entry. In the event
of any such default and re-entry, Sublessor shall have the right to relet the
Subleased Premises for the remainder of the then existing term whether such term
be the initial term of this Sublease or any renewed or extended term, and to
recover from Sublessee the difference between the rent reserved by this Sublease
and the amount obtained through such reletting less the costs and expenses
reasonably incurred by Sublessor in such reletting. Sublessor hereby expressly
reserves all other rights and remedies available to it, whether at law or
equity.
(b) If any rent (including Additional Rent) shall not be paid within ten
(10) days after due, in addition to, and without waiving or releasing any other
rights and remedies of Sublessor, a late charge of one and one-half percent
(1.5%) per month on the amount of such rent shall become immediately due and
payable to Sublessor, as liquidated damages for Sublessee's failure to make
prompt payment, and the same shall be considered as additional rent.
18. ASSIGNMENT; SUBLETTING:
Sublessee shall not have the right to assign this Sublease or to sublet the
Subleased Premises or any part thereof, without the prior written consent of
Sublessor; which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, no assignment or subletting shall
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relieve Sublessee from its duty to perform fully all of the agreements,
covenants, and conditions set forth in this Sublease.
19. HAZARDOUS MATERIALS:
(a) "Hazardous Materials" shall mean any material or substance (i) which
is defined as a "hazardous substance", "hazardous waste", oil, petroleum, or oil
or petroleum products or byproducts, asbestos, Polychlorinated Byphenyls
("PCBs"), or "extremely hazardous substance", "hazardous chemical", "toxic
substance", "pollutant", "contaminant" or the like under any federal, state, or
local environmental, or occupational health and safety statute, law, regulation,
rule or ordinance ("Environmental Laws", as specifically defined below), (ii)
which contains Polychlorinated Byphenyls (PCBs), (iii) which contains asbestos,
(iv) which is radioactive or (v) the presence of which requires investigation or
remediation under any Environmental Law, as well as any toxic or otherwise
hazardous substance, material or waste which is or becomes regulated as such by
any Environmental Law.
(b) Sublessee shall not introduce, permit the introduction, storage or
use of Hazardous Materials onto the Subleased Premises, or cause or permit the
discharge, emission or release of Hazardous Materials other than in the normal
course of its business and only then in accordance with all applicable
Environmental Laws, including without limitation any consents, orders, licenses,
permits or approvals of any governmental authority.
(c) Sublessee shall conduct all of its operations at the Subleased
Premises in compliance with all applicable federal, state, and local statutes,
including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as amended,
(CERCLA); the Resource Conservation and Recovery Act, 42 U.S.C.
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Section 6901 et seq., as amended (RCRA); the Clean Air Act, 42 U.S.C. 7401 et
seq., as amended; the Clean Water Act, 33 U.S.C. 1251 et seq., as amended, the
Occupational Health and Safety Act, 29 U.S.C. Section 651 et seq., as amended,
and all applicable federal, state and local statutes related to health and
safety and the environment now or hereafter enacted and any additions and
amendments thereto and regulations enacted thereunder, ordinances, orders and
requirements of common law, regarding, but not limited to (i) discharges to the
air, soil, surface or ground water; and (ii) handling, utilizing, storage,
treatment, or disposal of any Hazardous Materials as defined therein
("Environmental Laws").
(d) If Sublessor suspects that there has been a release of Hazardous
Materials in violation of applicable Environmental Laws, or a governmental
authority requires testing to ascertain whether there has been a release of
Hazardous Materials by Sublessee, its agents, servants, employees or invitees,
from, on, in or around the Subleased Premises, and if the costs of such testing
are payable by, charged to or assessed against Sublessor, such costs shall be
reimbursed by Sublessee to Sublessor as additional rent. Sublessee shall execute
affidavits or representations, at Sublessor's request, stating that, to the best
of Sublessee's knowledge and belief after due inquiry, since the time that
Sublessee took possession of the Subleased Premises, there have been no and
there presently are no Hazardous Materials present in the Subleased Premises in
violation by Sublessee, its agents, employees, contractors, subcontractors,
invitees, officers, directors, successors and assigns of this Sublease.
(e) Sublessee hereby agrees to indemnify Sublessor and to hold Sublessor
harmless from and against any and all expense, loss, cost, damages, fines,
penalties, or liability, but excluding consequential damages, suffered (i) by
reason of Sublessee's breach of any of the provisions of this Sublease, (ii) or
arising or resulting from the introduction, handling, use,
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treatment, storage, disposal, dumping, spilling, leaking, emitting, release or
discharge of Hazardous Materials onto, on, in, around or from the Subleased
Premises by Sublessee or its suppliers, contractors, subcontractors, invitees or
any of its or their respective officers, agents, or employees, and irrespective
of whether any consent or approval has been given with respect thereto.
(f) The provisions of Section 16.(e) shall survive the termination of this
Sublease.
(g) Sublessor shall conduct all of its operations at the Premises in
compliance with all applicable Environmental Laws.
20. QUIET ENJOYMENT:
Sublessor covenants and warrants that it has lawful title and right to make
this Sublease, and that, if Sublessee shall pay the rent and perform all of the
agreements, covenants, and conditions required by this Sublease to be performed
by it, Sublessee may freely, peaceably and quietly occupy and enjoy the
Subleased Premises free from any molestation from Sublessor or anyone acting by,
through or under Sublessor.
21. RENEWAL OR EXTENSION:
(a) Sublessee shall have the option to renew and extend the term of the
Sublease for two (2) periods of five (5) years each. The first renewal shall
begin upon the expiration of the initial term and the second renewal term shall
begin upon the expiration of the first renewal term. Sublessee, at least one
hundred eighty (180) days prior to the expiration of the initial term and the
first renewal term, respectively, shall give Sublessor written notice of its
intention to exercise such option.
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(b) Upon receipt of Sublessee's notice of its exercise of option to
extend the term of the Sublease, Sublessor shall, within twenty (20) days of
receipt of Sublessee's notice, give Sublessee written notice of the rental rate
for such renewal term. The renewal rate for such renewed and extended terms
shall not exceed ninety five (95%) percent of the then prevailing rental rate
for comparable office space in the suburban Pittsburgh, Pennsylvania area but in
no event will the rent during such option period be greater than 110% of the sum
of the base rent plus Sublessee's pro rata share of increases in real estate
taxes and operating expenses set for in Sections 6 and 7 in effect at the time
the option to renew is exercised by Sublessee. Notwithstanding the foregoing, in
no event shall the renewal rate during either renewal term be less than the base
rent being paid by Sublessee to Sublessor during the last month of the preceding
lease term. Sublessee shall have twenty (20) days from the receipt of
Sublessor's notice setting forth the renewal rental rate for the renewal term to
give Sublessor written notice that Sublessee will either (1) confirm its
exercise of the option to renew the Sublease for the renewal term at the rental
rate set forth in Sublessor's notice or (2) rescind the exercise of option to
renew the Sublease term.
22. OPTION TO EXPAND:
Sublessee shall have a one-time option exercisable between December 1, 1996
and June 1, 1997 inclusive (the "Option Period") upon written notice to
Sublessor to lease approximately 15,000 additional rentable square feet which
shall be comprised of approximately 6,200 additional rentable square feet as
highlighted in red on Exhibit B and 8,800 additional rentable square feet
located in areas of the Premises to be designated by Sublessor and accessible by
Sublessee through Common Areas. Any additional square feet which Sublessee
shall elect to
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sublease shall be subleased at the same rental rate per square foot then in
effect for the initial Subleased Premises, and shall otherwise be subject to the
same terms and conditions as are set forth herein. Once Sublessee exercises such
option within the Option Period, Sublessor and Sublessee shall attempt to agree
on the exact location of the additional subleased area which shall be more fully
set forth in an amendment to this Sublease. Sublessor shall make the additional
space available to Sublessee at any time between the date of receipt by
Sublessor of Sublessee's exercise of option and six (6) months after receipt of
Sublessee's exercise of option.
23. SURRENDER:
When this Sublease shall terminate in accordance with the terms hereof,
Sublessee shall quietly and peaceably deliver up possession to Sublessor without
notice from Sublessor other than as may be specifically required by any
provision of this Sublease. Sublessee expressly waives the benefit of all laws
now or hereafter in force requiring notice from Sublessor with respect to
termination. Sublessee shall deliver up possession of the Subleased Premises in
as good order, repair, and condition as the same are in at the beginning of the
term of this Sublease except for reasonable wear and tear.
24. BASE LEASE:
All of the agreements, covenants and conditions contained in Sections 2,
6(b), 7, 19(a), 21, 22, 23, 29, 30, 32, and 35 of the Lease, attached hereto as
Exhibit F, are hereby made a part of this agreement and such rights and
obligations as are contained in the aforesaid Sections of the Lease are hereby
imposed upon the respective parties hereto, as they pertain to the Subleased
Premises, the Sublessor being substituted for the Lessor, the Sublessee being
substituted for the Lessee and the Subleased Premises being substituted for the
Premises. Notwithstanding anything
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to the contrary herein, Sublessor herein shall not be responsible for the
performance of any obligations of or any defaults by Lessor under the Lease.
Sublessor covenants and agrees to perform all of its obligations under the Lease
(except to the extent required to be performed by Sublessee hereunder). In the
event there is a default by Lessor under the Lease, Sublessor will use
reasonable efforts to protect the interests of Sublessor and Sublessee under
this Sublease and the Lease. In the event that the Lessor's consent is required
for any action contemplated by Sublessee under the terms of this Sublease,
Sublessee shall obtain such consent directly from the Lessor.
25. NOTICE:
(a) Any notice or demand required by the provisions of this Sublease to be
given to Sublessor shall be deemed to have been given adequately if sent by
Certified Mail, return receipt requested, to Sublessor at 11 Stanwix Street,
Pittsburgh, Pennsylvania 15222, Attention: Real Estate Department.
(b) Any notice or demand required by the provisions of this Sublease to be
given to Sublessee shall be deemed to have been given adequately if sent by
Certified Mail, return receipt requested, to Sublessee at 2090 Greentree Road,
Pittsburgh, PA 15220, Attention: Sunil Wadhwani, Chairman (if prior to March 1,
1995) and to Sublessee's address at the Subleased Premises (if on or after March
1, 1995), with a copy to John W. Lewis, Esq., Dickie, McCamey & Chilcote, P.C.,
Suite 400, Two PPG Place, Pittsburgh, PA 15222-5402.
(c) Either party shall have the right to change its address as above
designated by giving to the other party fifteen (15) days' notice of its
intention to make such change and of the substituted address at which any notice
or demand may be directed to it.
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26. SUBORDINATION:
Sublessee agrees that this Sublease shall be subordinate to any mortgage or
trust deed that is now on or may hereafter be placed upon the demised premises
and to any and all advances to be made thereunder, and to the interest thereon,
and all renewals, replacements and extensions thereof.
27. ENTIRE AGREEMENT:
The whole and entire agreement of the parties is set forth in this
Agreement and the parties are not bound by any agreements, understandings or
conditions otherwise than as expressly set forth and stipulated hereunder.
28. CHANGES, MODIFICATIONS OR AMENDMENTS:
This agreement may not be changed, modified, discharged or terminated
orally or in any other manner than by an agreement mutually signed by the
parties hereto or their respective successors and assigns.
29. COVENANTS TO BIND RESPECTIVE PARTIES:
This Sublease, and all of the agreements, covenants, and conditions
contained herein shall be binding upon Sublessor and Sublessee and upon their
respective heirs, executors, administrators, successors, and assigns.
30. GOVERNING LAW:
This Sublease shall be governed by the laws of the Commonwealth of
Pennsylvania.
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31. RECEPTION AREA:
With respect to the reception area which is outlined in blue on Exhibit B,
Sublessor and Sublessee agree as follows:
(a) Sublessor and Sublessee may each employ a receptionist to be located
in the reception area.
(b) With Sublessor's prior written consent, which consent shall not be
unreasonably withheld, Sublessee may install a sign of
identification in the reception area.
IN WITNESS WHEREOF, Sublessor and Sublessee have caused these presents to
be executed by their duly authorized officers and have caused their respective
corporate seals to be hereto affixed, all as of the day and year first above
written.
ATTEST: WESTINGHOUSE ELECTRIC CORPORATION
/s/ By: /s/
---------------------- ------------------------------
Assistant Secretary Vice President
ATTEST: MASTECH CORPORATION
/s/ Pattie L. Franks By: /s/ Sunil Wadhwani
---------------------- ------------------------------
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FIRST AMENDMENT OF SUBLEASE
---------------------------
THIS LEASE AMENDMENT made the 20th day of March, 1996 by and between
WESTINGHOUSE ELECTRIC CORPORATION ("Sublessor") and MASTECH CORPORATION
("Sublessee").
WITNESSETH
----------
WHEREAS, Sublessor and Sublessee entered into a Sublease Agreement
dated February 10, 1995 ("Sublease") for approximately 21,996 rentable square
feet of office space at 1000 McKee Road, Oakdale, Pennsylvania ("subleased
premises"); and
WHEREAS, Sublessor and Sublessee executed a Letter Agreement dated
April 19, 1995 regarding additional equipment to be included in Exhibit C of the
Sublease and the amendment of Sublessee's expansion option set forth in Section
22 of the Sublease; and
WHEREAS, Sublessor and Sublessee desire to amend the Sublease to
increase the subleased premises.
NOW, THEREFORE, the parties hereto intending to be legally bound
hereby agree as follows:
1. Effective March 1, 1996, the subleased premises shall be increased by
approximately 2,815 rentable square feet as shown on Exhibit A attached hereto
and made a part hereof for the remainder of the term of the Sublease, and the
total square feet in the subleased premises, including the above 2,815 rentable
square feet, shall be 24,811 rentable square feet.
2. The total monthly base rental for all of the subleased premises,
including the above increased subleased area shall be as follows:
<PAGE>
Period of Time Annual Rent Monthly Rent
-------------- ----------- ------------
3/1/96 - 5/31/97 $347,354.00 $28,946.17
6/1/97 - 5/31/99 $372,165.00 $31,013.75
6/1/99 - 5/31/200 $396,976.00 $33,081.33
3. Effective March 1, 1996, Sublessee's proportionate share of any (a)
increase or decrease in real estate tax as set forth in Section 6(c) of the
Sublease and (b) increase in operating expenses as set forth in Section 7.(a) of
the Sublease shall be 16.34% which is determined by dividing the total number of
rentable square feet subleased by Sublessee (24,811) by the total number of
rentable square feet in the Premises (151,800).
4. Sublessee shall have the right to use the ten workstations and other
furnishings located in the additional space shown on Exhibit A at the time this
Lease is executed. Sublessee shall have the right, at the end of the initial
term or any renewal term of this Sublease, to remove and retain the ten
workstations in the additional space, provided that, upon removal, Sublessee
shall restore the additional space as required in Section 24 of the Lease.
Title to such workstations shall pass at the end of the initial term, and
Sublessor shall, upon request of Sublessee, deliver such bills of sale or other
instruments (warranting title and otherwise disclaiming all warranties
whatsoever) as Sublessee may require in order to more effectively transfer title
to Sublessee.
5. The following sentence shall be inserted in lieu of the first sentence
of Section 22 of the Sublease (Option to Expand):
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"Sublessee shall have a one-time option exercisable between December
1, 1996 and June 1, 1997 inclusive (the "Option Period") upon written notice to
Sublessor to lease approximately 12,185 rentable square feet located in areas of
the Premises to be designated by Sublessor and accessible by Sublessee through
Common Areas."
6. Except as otherwise set forth herein, all of the terms and conditions
in the Sublease, as amended and modified, shall remain the same.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the date first above written.
ATTEST: WESTINGHOUSE ELECTRIC
CORPORATION
__________________________ By:______________________________
Assistant Secretary Vice President
ATTEST: MASTECH CORPORATION
__________________________ By:______________________________
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Exhibit 10.20
MASTECH CORPORATION
SHAREHOLDERS AGREEMENT
THIS AGREEMENT, made as of December __, 1996, by and among Mastech
Corporation, a Pennsylvania corporation (the "Company"), Sunil Wadhwani, an
individual residing in Allegheny County, Pennsylvania ("Wadhwani"), and Ashok
Trivedi, an individual residing in Allegheny County, Pennsylvania ("Trivedi")
(Wadhwani and Trivedi are sometimes referred to herein as the "Shareholders").
WHEREAS, as of the date hereof, each of the Shareholders is the beneficial
owner of 125,000 shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), including 12,500 shares of Common Stock beneficially owned
by each of them in their respective Family Trusts, which constitutes all of the
outstanding Common Stock of the Company; and
WHEREAS, the Company and the Shareholders are contemplating an underwritten
public offering of Common Stock (the "Initial Public Offering"), and in
connection therewith will effect a stock dividend to permit the shares of Common
Stock to be issued in the Initial Public Offering at an appropriate price; and
WHEREAS, each Shareholder desires that after the Initial Public Offering,
the shares of Common Stock held by them will be voted in the election of
directors for the election of the other as a director; and
WHEREAS, in order to ensure, among other things, that the Shareholders will
have liquidity after the Initial Public Offering, the Company desires to grant
to the Shareholders certain registration rights with respect to the Common Stock
held by them on the terms provided herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended, or
any successor statute.
(b) The term "beneficial ownership" and like terms have the meaning
ascribed to the term "beneficial ownership" under Rule 13d-3 of the Securities
Exchange Act of 1934, as amended, or any successor provision.
(c) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of
such registration statement.
<PAGE>
(d) The term "Registrable Securities" means (i) the Common Stock,
and (ii) any securities of the Company issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, such Common
Stock, in either case, beneficially owned by a Holder. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (i) a registration statement with respect to the sale of such securities
shall have been declared effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement, or
(ii) such securities shall have been sold (other than in a privately negotiated
sale) pursuant to Rule 144 (or any successor provision) under the Act and in
compliance with the requirements of paragraphs (c), (e), (f) and (g) of Rule 144
(notwithstanding the provisions of paragraph (h) of such Rule).
(e) The term "Holder" means (i) Wadhwani, (ii) Trivedi, and (ii)
any Permitted Transferee.
(f) The term "Permitted Transferee" means (i) any spouse, issue, or
parents of Wadhwani or Trivedi, (ii) trusts for the benefit of any such persons,
(iii) entities controlled by Wadhwani or Trivedi or any such persons, (iv) in
the event of the death of Wadhwani or Trivedi or any such person, their heirs
and testamentary legatees, and (v) a transferee pursuant to Section 15 hereof,
in each case, to whom Wadhwani or Trivedi or any such person has transferred
their shares of Common Stock and who has agreed in writing to be bound by the
terms of this Agreement.
2. Voting of Common Stock
----------------------
(a) Each Holder agrees to vote all shares of Common Stock
beneficially owned by them, and to take all other necessary or desirable actions
within their control (including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum or execution of written
consents in lieu of meetings and, if necessary, the nomination of Wadhwani or
Trivedi, or their respective nominees in accordance with Section 2(c), for
election as a director), to effectuate the provisions of this Section 2.
(b) The Company and its subsidiaries shall take all necessary or
desirable actions within their control (including, without limitation, calling
special board and shareholder meetings) to effectuate the provisions of this
Agreement.
(c) Each Holder shall vote, or cause to be voted, all shares of
Common Stock beneficially owned by them and shall take all necessary action
within their control, to elect to the Board of Directors of the Company,
Wadhwani and Trivedi, or the person designated by either of them in a written
notice sent to each Holder, or the person designated in a written notice sent to
each Holder by the person authorized by Wadhwani or Trivedi, as the case may be,
to make such designation, provided that such person's authority to make such
designation is set forth in a notarized writing, a copy of which is filed with
the Company and sent to each Holder, and provided, further, that Wadhwani and
Trivedi agree not to designate or permit to be designated their respective
spouses for election as a director pursuant to this Section 2(c).
3. Request for Registration.
------------------------
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<PAGE>
(a) If at any time the Company shall receive a written request
(specifying that it is being made pursuant to this Section 3(a)) from Holders
holding more than thirty percent (30%) of the Registrable Securities held by all
Holders at that time outstanding, that the Company file a registration statement
or similar document under the Act covering the registration of Registrable
Securities with a market value of not less than $10,000,000, then the Company
shall promptly notify all other Holders of such request and shall use its best
efforts to cause all Registrable Securities that Holders have requested be so
registered to be registered under the Act. Holders shall have fifteen (15) days
after such notice to make such request.
(b) The Company shall be obligated to effect two registrations after
the date of this Agreement pursuant to Section 3(a); provided that the Company
shall not be obligated to effect any registrations pursuant to Section 3(a)
during the period ending two years after the date of the Initial Public
Offering.
4. Piggyback Registration. Subject to Section 7 and Section 10, if at
----------------------
any time or from time to time the Company proposes to register any of its equity
securities under the Act in connection with a primary or secondary public
offering of such securities solely for cash on a form that would also permit the
registration of the Registrable Securities (not including Form S-8 or Form S-4,
or any successor form to those forms), the Company shall, each such time,
promptly give each Holder written notice of the proposed registration. Upon the
written request of any Holder given within twenty (20) days after mailing of any
such notice by the Company, the Company shall use its best efforts to cause to
be registered under the Act all of the Registrable Securities that each such
Holder has requested be registered.
5. Registrations on Form S-3. If (i) a Holder or Holders request in
-------------------------
writing (specifying that it is being made pursuant to this Section 5) that the
Company file a registration statement on Form S-3 (or any successor form to Form
S-3 regardless of its designation) for a public offering of shares of
Registrable Securities, and (ii) the Company is a registrant eligible to use
Form S-3 to register such shares (and the Company shall use its reasonable best
efforts to become and remain eligible to use Form S-3), then the Company shall
notify all other Holders of such request and shall use its best efforts to cause
to be registered on Form S-3 (or any successor form to Form S-3) all of the
Registrable Securities that each Holder requests to be so registered. Holders
shall have fifteen (15) days after such notice to make such request. Rights to
registration under this Section 5 are unlimited in number and are in addition
to, and not in lieu of, rights to registration under Sections 3 and 4 above,
provided that the Company shall not be obligated to effect more than one
registration on Form S-3 pursuant to this Section 5 in any six-month period, and
provided further that the Company shall not be obligated to effect any
registrations pursuant to this Section 5 during the period ending two years
after the date of the Initial Public Offering.
6. Obligations of the Company. Whenever required under Sections 3, 4 or
--------------------------
5 to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
-3-
<PAGE>
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities,
and use its best efforts to cause such registration statement to become and
remain effective until all Registrable Securities to be sold under such
registration statement shall have been sold by Holders pursuant to such
registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement, and the prospectus used in connection with such
registration statement, as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish and deliver to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus in conformity with the
requirements of the Act, and such other documents as they may reasonably
request, in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and further provided that
(notwithstanding anything in this Agreement to the contrary with respect to the
bearing of expenses) if any jurisdiction in which the securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by selling
shareholders, then such expenses shall be payable by selling shareholders pro
rata, to the extent required by such jurisdiction.
(e) In the event that Holders propose to sell Registrable Securities
pursuant to an underwritten offering registered pursuant to Section 3 or 5, the
Company shall have the right to approve the managing underwriters for such
offering proposed by a majority in interest of the Holders participating in such
offering; provided, however, that such approval shall not be unreasonably
withheld. The Company shall select the underwriters, if any, for any other
public offering of securities by the Company, regardless of the Holders' right
to participate in such offering pursuant to Section 4 hereof.
7. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
8. Expenses of Demand Registration. All expenses incurred in connection
-------------------------------
with a registration pursuant to Section 3 (excluding underwriters' discounts and
commissions), including without limitation all registration and qualification
fees, printers' and accounting fees,
-4-
<PAGE>
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 3 if the
registration request is subsequently withdrawn, unless the Holders agree to
forfeit their right to one demand registration pursuant to Section 3.
9. Company Registration Expenses. In the case of any registration
-----------------------------
effected pursuant to Sections 4 or 5, the Company shall bear all registration
and qualification fees and expenses (excluding underwriters' discounts and
commissions), including any additional cost and disbursements of counsel for the
Company that result from the inclusion of securities held by the Holders in such
registration; provided, however, that each selling Holder shall bear the fees
and costs of its own counsel.
10. Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of shares being issued by the Company, such Registrable
Securities as are requested to be included in such offering pursuant to this
Agreement shall be included in such offering on the same terms as other
securities of the same class as the Registrable Securities included in such
offering; provided, however, that if in the written good faith opinion of the
managing underwriter or underwriters, the total amount of such securities to be
so registered, when added to such Registrable Securities, will exceed the
maximum amount of the Company's securities which can be marketed without
otherwise materially and adversely affecting the entire offering, then the
Company shall exclude from such offering (a) first, all securities other than
Registrable Securities held by the Holders, being sold for the account of
persons other than the Company, (b) next, the minimum number of Registrable
Securities held by the Holders, pro rata to the extent practicable on the basis
of the number of Registrable Securities requested to be registered among the
selling Holders as is necessary in the opinion of the managing underwriter or
underwriters to reduce the size of the offering, and (c) last, the minimum
number of securities for the account of the Company which in the opinion of the
managing underwriter or underwriters may be excluded.
11. Delay of Registration. No Holder shall take any action to restrain,
---------------------
enjoin, or otherwise delay any registration as the result of any controversy
that might arise with respect to the interpretation or implementation of this
Agreement.
12. Indemnification and Contribution. Subject to Section 7, and in the
--------------------------------
event any Registrable Securities are included in a registration statement under
this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the Act) for it, and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934 (the "1934 Act") against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Act, the 1934 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact
-5-
<PAGE>
contained in such registration statement, including any preliminary prospectus
or final prospectus, or any amendments or supplements thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein
not misleading or arise out of any violation by the Company of any rule or
regulation promulgated under the Act or the 1934 Act applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration; and will reimburse each such Holder such underwriter, or
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this paragraph 12(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each Holder requesting or joining in a
registration will severally indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, any
underwriter (as defined in the Act) for the Company, and each person, if any,
who controls the Company or such underwriter (within the meaning of the Act or
the 1934 Act) against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer, controlling person,
agent or underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus, or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in such registration statement, preliminary or
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder, in his capacity as
a Holder, expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, agent or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 12(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of such Holder (which consent shall not be unreasonably withheld).
The amount payable by any Holder pursuant to this Section 12(b) shall be such
Holder's pro rata share of the total amount payable, based on the number of
Registrable Securities registered by such Holder.
-6-
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof
and (unless the interest of the indemnifying party conflicts with that of the
indemnified party) the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties. The failure to notify an indemnifying
party promptly of the commencement of any such action, if prejudicial to his
ability to defend such action, shall relieve such indemnifying party, to the
extent that he is prejudiced thereby, of any liability to the indemnified party
under this paragraph, but the omission to notify the indemnifying party will not
relieve him of any liability that he may have to any indemnified party otherwise
than under this paragraph.
(d) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which either (i) any Holder exercising
rights under this Agreement, or any controlling person of any such Holder, makes
a claim for indemnification pursuant to this Section 12 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 12 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 12; then, and in each such case,
the Company and such Holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that in no event shall such Holder be responsible
for more than the portion represented by the percentage that the public offering
price represented by the Registrable Securities registered by such Holder bears
to the public offering price of all securities registered on such registration
statement, and the Company is responsible for the remaining portion; provided,
however, that, in any such case, (A) no such Holder will be required to
contribute any amount in excess of the public offering price of all such
Registrable Securities offered by it pursuant to such registration statement;
and (B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of paragraph 11(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(e) For purposes of this Section 12, the shares of Common Stock offered and
sold by Wadhwani and Trivedi in the Initial Public Offering shall be deemed to
be Registrable Securities included in a registration statement under this
Agreement and Wadhwani and Trivedi shall be entitled to the benefits of the
provisions of this Section 12 with respect to such offer and sale in such
Initial Public Offering.
13. Reports Under Securities Exchange Act of 1934. With a view to making
---------------------------------------------
available to the Holders the benefits of Rule 144, and any other rule or
regulation of the SEC promulgated under the Act, the Company agrees to use its
best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to ninety (90) days
after the effective date of the first registration statement covering an
underwritten public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1934 Act;
-7-
<PAGE>
(c) furnish to any Holder so long as such Holders own any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of said first registration
statement filed by the Company), and of the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC permitting the selling of any such
securities without registration; and
(d) file with any national securities exchange or automatic
quotation system, any and all registered documents to keep and maintain the
shares of the Company listed for trading with said exchange or quotation system.
14. Lockup Agreement. In consideration for the Company agreeing to its
----------------
obligations under this Agreement, each Holder agrees in connection with any
registration of the Company's Common Stock for sale to the general public that,
upon the request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180 days) from the
effective date of such registration as the Company or the underwriters may
specify; provided, however, that the Company may not discriminate among the
Holders with respect to any lockup arrangements pursuant to this Section 14.
15. Assignment of Registration Rights. The registration rights of the
---------------------------------
Holders under Sections 3, 4 and 5 may not be assigned except to the Permitted
Transferees specified in Sections 1(f)(i) through (iv) and except that each
Shareholder (and their respective estates) may assign the registration rights
under Sections 4 and 5 to a transferee who acquires at least 10% of the Common
Stock outstanding at the time of transfer. The Company shall be given written
notice by the Holder at the time of such transfer stating the name and address
of the transferee and identifying the securities with respect to which the
rights under this Agreement are being assigned.
16. Effectiveness and Termination. This Agreement shall become effective
-----------------------------
immediately prior to the effectiveness of the registration statement relating to
the Initial Public Offering. The rights of Holders under Sections 3, 4 and 5 of
this Agreement shall terminate as to any Holder that beneficially owns
Registrable Securities constituting less than five percent (5%) of the
outstanding Common Stock of the Company.
17. Entire Agreement. This Agreement and the documents referred to herein
----------------
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and negotiations relating
thereto.
18. Governing Law. This Agreement, together with the rights and
-------------
obligations of the parties hereunder shall be governed by and construed and
enforced in accordance with the laws
-8-
<PAGE>
of the Commonwealth of Pennsylvania without regard to any jurisdiction's
conflicts of laws provisions.
19. Payment of Legal Fees. If a Holder is required to bring any action to
---------------------
enforce rights under this Agreement, the Company shall pay to the Holder the
fees and expenses incurred by him in bringing and pursuing such action if the
Holder is successful, in whole or in part, on the merits or otherwise (including
by way of a settlement involving a payment of money by the Company to the
Holder), in such action. The Company shall pay such fees and expenses in
advance of the final disposition of such action upon receipt of an undertaking
from the Holder to repay to the Company such advances if he is not ultimately
successful, in whole or in part, on the merits or otherwise, in such action.
20. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
21. Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting this Agreement.
22. Notices. Any notice, request or other communication required or
-------
permitted under this Agreement shall be given in writing and shall be deemed to
be effectively given upon (i) personal delivery, (ii) delivery by overnight
courier service which provides evidence of delivery, (iii) legible facsimile
transmission, or (iv) the expiration of three (3) days following deposit with
the United States Postal Service, by registered or certified mail, postage
prepaid, addressed, in each case, as follows:
If to the Company:
Mastech Corporation
1004 McKee Road
Oakdale, PA 15071
with a copy to:
Buchanan Ingersoll Professional Corporation
One Oxford Centre
301 Grant Street, 20th Floor
Pittsburgh, Pennsylvania 15219
Attn: Carl A. Cohen, Esq.
Telephone: (412) 562-8854
Facsimile: (412) 562-1041
-9-
<PAGE>
If to Wadhwani:
Mr. Sunil Wadhwani
930 Osage Road
Pittsburgh, PA 15243
If to Trivedi
Mr. Ashok Trivedi
1446 Peterson Place
Pittsburgh, PA 15241
or at such other address as any party, including any Holder, may designate by
ten (10) days advance written notice to the other party in accordance with the
provisions of this paragraph.
23. Amendments. This Agreement may not be amended and no rights of the
----------
Holders may be waived without the written consent of the Company and the Holders
of at least a majority in interest of the then outstanding Registrable
Securities. Any amendment or waiver so approved shall be binding on and
enforceable against all Holders.
[remainder of page intentionally left blank]
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by a duly authorized representative as of the day first above written.
MASTECH CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
_____________________________________
SUNIL WADHWANI
_____________________________________
ASHOK TRIVEDI
The undersigned agree to be bound by the terms of this Agreement.
WADHWANI SUBCHAPTER S FAMILY TRUST
By:__________________________, Trustee
TRIVEDI SUBCHAPTER S FAMILY TRUST
By:__________________________, Trustee
-11-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Pittsburgh, Pennsylvania
November 18, 1996
<PAGE>
EXHIBIT 24
FORM OF
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or officer
of Mastech Corporation (the "Company") hereby constitutes and appoints
Sunil Wadhwani and Ashok Trivedi, and each of them, the undersigned's true
and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution in each, for the undersigned in his or her name, place
and stead, in any and all capacities (including the undersigned's capacity
as a director and/or officer of the Company), granting unto said attorneys
in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing and to execute any and all instruments
which said attorneys-in-fact and agents, or any of them, may deem necessary
or advisable or which may be required to enable the Company to comply with
the Securities Act of 1933, as amended, and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof,
in connection with the registration under said Act of Common Stock of the
Company and the offering thereof, as fully to all intents and purposes as
the undersigned might or could do in person, including specifically, but
without limiting the generality of the foregoing, the power and authority
to sign the name of the undersigned in the capacity of director and/or officer
of the Company to any registration statement to be filed with the Securities
and Exchange Commission in respect of said Common Stock, to any and all
amendments and supplements to any such registration statements, including
post-effective amendments thereto, and to any instruments or documents filed
as part of or in connection with any such registration statements or amendments
or supplements thereto, and to file such documents with the Securities and
Exchange Commission; and to do any and all acts and things and to execute
any and all instruments that said attorneys and agents and each of them
may deem necessary or desirable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission thereunder, including specifically, but
without limiting the generality of foregoing, power and authority to sign
the name of the undersigned director and/or officer in such capacity, to
any application, report, instrument, certificate, form or other document,
and any and all supplements and amendments thereto, to be filed on behalf
of the Company with the Securities and Exchange Commission; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents,
or any of them, or their or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents on the
date set forth opposite his or her name below.
Date: October , 1996 -----------------------------------------
--
Executed by the following individuals:
Sunil Wadhwani - Co-Chairman and Chief Executive Officer
Ashok Trivedi - Co-Chairman and President
Michael Zugay - Vice President - Finance
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 2,947 668
<SECURITIES> 0 0
<RECEIVABLES> 20,650 23,326
<ALLOWANCES> 500 850
<INVENTORY> 0 0
<CURRENT-ASSETS> 24,981 25,835
<PP&E> 1,141 1,618
<DEPRECIATION> 516 (618)
<TOTAL-ASSETS> 25,606 26,835
<CURRENT-LIABILITIES> 9,985 13,399
<BONDS> 0 0
0 0
0 0
<COMMON> 182 182
<OTHER-SE> 15,385 13,191
<TOTAL-LIABILITY-AND-EQUITY> 25,606 26,835
<SALES> 103,676 90,336
<TOTAL-REVENUES> 103,676 90,336
<CGS> 72,516 65,772
<TOTAL-COSTS> 85,359 79,947
<OTHER-EXPENSES> 27 9
<LOSS-PROVISION> 302 474
<INTEREST-EXPENSE> (163) (2)
<INCOME-PRETAX> 18,453 10,382
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 18,453 10,382
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,453 10,382
<EPS-PRIMARY> .61 .34
<EPS-DILUTED> .61 .34
</TABLE>
