<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MASTECH CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
MASTECH CORPORATION
1004 MCKEE ROAD
OAKDALE, PENNSYLVANIA 15071
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 9, 1997
----------------
The Annual Meeting of Shareholders of Mastech Corporation will be held at
the company's Corporate Offices at 1004 McKee Road, Oakdale, Pennsylvania on
Monday, June 9, 1997, at 11:00 a.m., to consider and act upon the following
matters:
1. The election of two (2) persons to the Board of Directors; and
2. Such other matters as may properly come before the meeting.
The Board of Directors has established the close of business on Friday,
April 11, 1997, as the record date for the determination of the shareholders
entitled to notice of and to vote at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE TO
ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE IS NECESSARY
IF MAILED IN THE UNITED STATES.
By Order of the Board of
Directors
/s/ Michael J. Zugay
Michael J. Zugay, Secretary
May 1, 1997
<PAGE>
MASTECH CORPORATION
1004 MCKEE ROAD
OAKDALE, PENNSYLVANIA 15071
----------------
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON JUNE 9, 1997
----------------
This Proxy Statement is being furnished to the holders of the common stock,
par value $.01 per share (the "Common Stock"), of Mastech Corporation, a
Pennsylvania corporation, in connection with the solicitation by the Board of
Directors of the Company (the "Board of Directors" or the "Board") of proxies
to be voted at the annual meeting of shareholders (the "Annual Meeting")
scheduled to be held on Monday, June 9, 1997 at 11:00 a.m., at the Company's
Corporate Offices at 1004 McKee Road, Oakdale, Pennsylvania, or at any
adjournment thereof. This Proxy Statement is being mailed to shareholders on
or about May 1, 1997. As used in this Proxy Statement, the terms "Mastech" and
"the Company" refer to Mastech Corporation (or its predecessor) and its
subsidiaries, unless the context otherwise requires.
Only holders of record of the Common Stock as of the close of business on
April 11, 1997 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting and any adjournment thereof. On the Record Date, there were
21,654,950 shares of Common Stock outstanding. The Company completed the
initial public offering of its Common Stock on December 20, 1996 ("the IPO").
All shares of Common Stock represented by valid proxies received by the
Secretary of the Company at or prior to the Annual Meeting will be voted as
specified in the proxy. If no specification is made, the shares will be voted
FOR the election of each of the Board's nominees to the Board of Directors and
each of the matters submitted by the Board of Directors for vote by the
shareholders. Unless otherwise indicated by the shareholder, the proxy card
also confers discretionary authority on the Board-appointed proxies to vote
the shares represented by the proxy on any matter that is properly presented
for action at the Annual Meeting. A shareholder giving a proxy has the power
to revoke it any time prior to its exercise by delivering to the Secretary of
the Company a written revocation or a duly executed proxy bearing a later date
(though no revocation shall be effective until notice thereof has been given
to the Secretary of the Company), or by attendance at the meeting and voting
his or her shares in person.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the number of directors
constituting the entire Board shall be five (5). The Company's Board of
Directors is divided into three (3) classes, each as nearly equal in number as
possible, with one class being elected each year for a term of three (3) years
as follows: two (2) Class A directors whose terms expire in 1997; two (2)
Class B directors whose terms expire in 1998; and one (1) Class C director
whose term expires in 1999. Therefore, two (2) directors are being elected to
Class A at the Annual Meeting for three-year terms expiring in the year 2000.
The persons named as proxies on the enclosed proxy card were selected by the
Board of Directors and have advised the Board of Directors that, unless
authority is withheld, they intend to vote the shares represented by them at
the Annual Meeting for the election of Michel Berty and J. Gordon Garrett,
nominees of the Board of Directors, each of whom presently serves as a
director of the Company.
The Board of Directors knows of no reason why any nominee for director would
be unable to serve as director. If at the time of the Annual Meeting any of
the named nominees is unable or unwilling to serve as a director of the
Company, the persons named as proxies intend to vote for such substitute as
may be nominated by the Board of Directors.
2
<PAGE>
The section captioned "Board of Directors and Nominees" sets forth certain
information concerning the Company's nominees for election to the Board of
Directors at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
NAMED BELOW FOR ELECTION AS DIRECTOR.
VOTES REQUIRED
The presence in person or by proxy of the holders of a majority of the
shares of Common Stock outstanding is required to constitute a quorum for the
transaction of business at the Annual Meeting.
The holders of Common Stock have one vote for each share held by them as of
the Record Date. In the election of directors, the duly nominated candidates
receiving the highest number of votes will be elected as directors.
Under Pennsylvania law and the Company's Bylaws, abstentions and broker non-
votes (shares held of record by a broker which are present at the meeting by
proxy, but which the broker does not have authority to vote with respect to
the matter in question) will have no effect on the vote on any matter to come
before the meeting.
BOARD OF DIRECTORS AND NOMINEES
Nominees for Director in Class A for Terms to Expire in 2000
Michel Berty, 57, was elected as a director of the Company effective
immediately after the IPO on December 16, 1996. He currently serves as the
consultant to the President of Directoire for Cap Gemini Sogeti Group (CGS),
(computer services and consulting company), and as a U.S. representative for
P.A.C., (a foreign marketing and consulting company). Mr. Berty served in
various executive and management positions with CGS from 1972 through March
1997, most recently, from 1992 through March 1997, as Chief Executive Officer
and President of the American subsidiary of CGS. Mr. Berty also serves as a
member of the Board of Directors of Computron Software, Inc. (designer,
developer and marketer of work flow and work management software), INTERSOLV
(developer, marketer and supporter of client/server software tools), Sapiens
International (developer of applications software), and ZMAX (a telemarketer).
J. Gordon Garrett, 57, was elected as a director of the Company effective
immediately after the IPO on December 16, 1996. He is currently Chief
Executive Officer of Ricoh Canada (manufacturer and marketer of officer
machines, cameras and electronic equipment), formerly Gestetner North America,
a position he has held since 1995. From 1991 to 1995, Mr. Garrett was Chairman
of the Board, Chief Executive Officer and President of Information Systems
Management (ISM) Corporation (computer systems designer and consultant). He
also held the position of President of Gestetner USA from 1989 to 1991. Mr.
Garrett serves as a member of the Board of Directors of ISM (a wholly-owned
subsidiary of IBM) and NULOGIX Technical Services, Inc. (a majority-owned
subsidiary of IBM).
Directors in Class B Whose Terms Expire in 1998
Ashok Trivedi, 48, 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.
Ed Yourdon, 53, was elected as a director of the Company effective
immediately after the IPO on December 16, 1996. Mr. Yourdon has served as a
consultant to the information technology industry for the past five years,
most currently as a principal of NODRUOY, Inc. a New York corporation which
provides software engineering, consulting and training services focusing on
the Internet, business re-engineering, object technology and the design of
Intranet/Internet software applications. Mr. Yourdon has also authored 200
technical articles and 22 books, and he currently serves as the editor of
three software journals that analyze software technology trends and products
in the United States and several other countries throughout the world.
3
<PAGE>
Director in Class C Whose Term Expires in 1999
Sunil Wadhwani, 44, has served as Co-Chairman and Chief Executive Officer of
the Company since October 1996, and as 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.
Prior to the IPO, the Board of Directors consisted solely of Messrs.
Wadhwani and Trivedi and took formal Board action primarily by unanimous
written consent. Messrs. Yourdon, Garrett and Berty were first elected to the
Board immediately after the IPO on December 16, 1996, and there were no Board
meetings during the remainder of 1996. The Company does not have a standing
nominating committee.
CERTAIN BOARD COMMITTEES
AUDIT COMMITTEE
The Board has an Audit Committee comprised of Messrs. Garrett, Berty and
Wadhwani, a majority of whom are independent directors. The Audit Committee's
duties include recommending to the Board of Directors the firm of independent
accountants to audit the Company's financial statements, reviewing the scope
and results of the independent auditors' activities and the fees proposed and
charged therefore, reviewing the adequacy of internal controls and reviewing
the scope and results of internal audit activities, and reporting the results
of the committee's activities to the full Board. The Audit Committee did not
meet during fiscal 1996.
COMPENSATION COMMITTEE
The Board has a Compensation Committee, consisting of Messrs. Garrett, Berty
and Trivedi, a majority of whom are independent directors. The Compensation
Committee is responsible for reviewing and approving matters involving the
compensation of directors and executive officers of the Company, periodically
reviewing management development plans, administering the incentive
compensation plans and making recommendations to the full Board on these
matters. The Compensation Committee did not meet during fiscal 1996.
EXECUTIVE COMMITTEE
The Board has an Executive Committee, consisting of Messrs. Wadhwani and
Trivedi, which exercises the full power of the Board of Directors between
meetings of the Board, provided that the Executive Committee does not have
power or authority to (i) approve any fundamental change that requires
shareholder approval, (ii) create or fill vacancies on the Board of Directors,
(iii) adopt, amend or repeal the bylaws, (iv) take any action with respect to
the compensation of executive officers, (v) take any other action committed by
resolution of the Board of Directors to another committee of the Board of
Directors, (vi) authorize the issuance of any shares of the Company's stock,
or (vii) authorize any distributions with respect to the Company's outstanding
shares.
DIRECTORS' COMPENSATION
Directors who are not executive officers of the Company are paid an annual
retainer of $20,000, and all directors are reimbursed for travel expenses
incurred in connection with attending Board and committee meetings. Directors
are not entitled to additional fees for serving on committees of the Board of
Directors. Pursuant to the terms of the Company's 1996 Stock Incentive Plan,
each nonemployee director of the Company, appointed after the IPO, was
automatically granted options to purchase 15,000 shares of Common Stock. The
exercise price for options granted to nonemployee directors of the Company
under the Stock Incentive Plan was equal to the fair market value of the
underlying Common Stock on the date of grant. The options vest in annual
installments equally over three years commencing December 16, 1997, and expire
ten years after the date of grant, subject to earlier termination if the
optionee ceases to serve as a director.
4
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 11, 1997 of: (i) each
person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each executive officer named in the
Summary Compensation Table under the caption "Executive Officers and Executive
Compensation", below; and (iii) all directors and executive officers of the
Company as a group. As of April 11, 1997, there were 21,654,950 shares of
Common Stock outstanding. 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>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------
PERCENTAGE OF
NAME AND ADDRESS OF SHARES OF COMMON STOCK
BENEFICIAL OWNER COMMON STOCK OUTSTANDING
------------------- ------------- -------------
<S> <C> <C>
Sunil Wadhwani (1)(2).............................. 8,040,000 37.13%
Ramesh Thadani, as co-trustee of a Wadhwani family
trust (2)(3)....................................... 1,333,696 6.16
Ashok Trivedi (2)(4)............................... 8,040,000 37.13
Arun Nayar, as co-trustee of certain Trivedi family
trusts (2)(5)...................................... 2,243,696 10.36
Mohan Phanse, as co-trustee of certain Trivedi
family trusts (2)(5)............................... 1,333,696 6.16
Michele Berty...................................... -- --
J. Gordon Garrett.................................. 1,000 *
Ed Yourdon......................................... -- --
Steven Shangold (6)................................ 54,600 *
Michael Zugay...................................... -- --
Sushma Rajagopalan................................. 1,000 *
All directors and executive officers as a
group (11 persons)............................ 16,136,600 74.52
</TABLE>
- --------
*Less than 1%
(1) Includes 2,243,696 shares held by three family trusts, for which Mr.
Wadhwani is a co-trustee. Mr. Wadhwani exercises sole investment power and
no voting power over such shares.
(2) The address of Messrs. Wadhwani, Trivedi, Thadani, Nayar and Phanse is c/o
Mastech Corporation, 1004 McKee Road, Oakdale, Pennsylvania 15071.
(3) Mr. Thadani is a co-trustee of two of the Wadhwani family trusts referred
to in note 1, above, with no investment power and sole voting power over
such shares.
(4) Includes 2,243,696 shares held by three family trusts, for which Mr.
Trivedi is a co-trustee. Mr. Trivedi exercises sole investment power and
no voting power over such shares.
(5) Mr. Nayar is co-trustee of the three Trivedi family trusts and Mr. Phanse
is co-trustee of two of the Trivedi family trusts, in each case, referred
to in note 4, above, with no investment power and shared voting power over
such shares.
(6) These shares are restricted shares which will vest on June 30, 1998. Prior
to that date, Mr. Shangold has the right to vote and receive dividends on,
but not the power to dispose of, the shares.
5
<PAGE>
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
In addition to Messrs. Wadhwani and Trivedi, whose positions and background
are discussed above, the following persons serve as executive officers of the
Company:
Murali Balasubamanyam, age 41, 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.
Ajmal Noorani, age 35, 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, age 33, 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 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.
Steven Shangold, age 36, 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.
Shekar Sivasubramanian, age 33, has served as Managing Director/Chief
Executive Officer of Mascot Systems (a wholly-owned subsidiary of the Company)
since April 15, 1997. From August 1996 through April 15, 1997 he served as
Vice President--Applications Solutions. 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.
Michael Zugay, age 45, 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.
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. There are no family relationships between any
director or executive officer of the Company.
6
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers of the
Company for the two years ended December 31, 1996 (such executive officers are
sometimes collectively referred to herein as the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------- --------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPENSATION STOCK AWARDS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (1) ($)(2) ($) (#) ($)
------------------ ---- ---------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunil Wadhwani 1996 168,000(3) -- 21,050(4) -- -- --
Co-Chairman and Chief 1995 108,102(3) -- -- -- -- --
Executive Officer
Ashok Trivedi 1996 168,000(3) -- 20,963(4) -- -- --
Co-Chairman and 1995 108,102(3) -- -- -- -- --
President
Steven Shangold 1996 126,667 74,265 -- 819,000(5) 25,000 819,000(5)
Vice President U.S.
Sales 1995 68,333 170,003 -- -- -- --
and Marketing
Michael Zugay 1996 120,000 19,000 -- -- 56,000 --
Vice President--Finance 1995 71,923 5,000 -- -- -- --
Sushma Rajagopalan 1996 100,000 17,000 -- -- 65,000 --
Vice President-- 1995 78,333 26,000 -- -- -- --
Resourcing
</TABLE>
- --------
(1) Bonuses were paid in 1995 and 1996 for performance in 1994 and 1995,
respectively. The 1995 bonus amount shown for Mr. Shangold includes sales
commissions of $24,944.
(2) 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 when 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.
(3) In addition to these salary amounts and prior to the IPO, Messrs. Wadhwani
and Trivedi received Subchapter S distributions as shareholders of the
Company. Following the IPO this practice was terminated.
(4) During 1996, the Company leased automobiles for Messrs. Wadhwani and
Trivedi. The taxable income for the automobiles leased was $21,050 for Mr.
Wadhwani and $20,963 for Mr. Trivedi.
(5) As compensation for past services, the Company paid Mr. Shangold an amount
equal to the value of 109,200 shares of Common Stock at the initial public
offering price of $15 per share. One-half of this payment was made in
cash, at Mr. Shangold's election. The remaining half of this obligation
was satisfied through the issuance of 54,600 shares of restricted Common
Stock. The aggregate value of such restricted stock, which vests on June
30, 1998, was $1,037,400 at December 31, 1996.
7
<PAGE>
OPTION GRANTS DURING 1996
The following table sets forth the number of shares of the Company's Common
Stock underlying options granted, the exercise price per share and the
expiration date of all options granted to each of the Named Executive Officers
during 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN PER SHARE EXPIRATION GRANT DATE
EXECUTIVE OFFICER GRANTED(1) FISCAL YEAR $/SH DATE VALUE($) (2)
- ----------------- ------------ ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Sunil Wadhwani.......... -- -- -- -- --
Ashok Trivedi........... -- -- -- -- --
Steven Shangold......... 25,000 3.12% 15.00 12/16/06 146,500
Michael Zugay........... 56,000 7.00% 15.00 12/16/06 328,160
Sushma Rajagopalan...... 65,000 8.12% 15.00 12/16/06 380,900
</TABLE>
- --------
(1) The options granted during 1996 vest as follows: (i) 25,000 options
awarded to Mr. Shangold which will vest in equal annual installments over
three years commencing December 31, 1999, (ii) 6,000 options for Mr. Zugay
and 15,000 options for Ms. Rajagopalan which will vest in equal
installments on June 30, 1997 and December 31, 1997, and (iii) 50,000
options each for Mr. Zugay and Ms. Rajagopalan which will vest in equal
annual installments over five years commencing December 31, 1997.
(2) The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions for grants in 1996: (i) risk free interest rate of
6.2%; (ii) expected dividend yield of 0.0%; (iii) expected life of options
of six (6) years; and (iv) an expected volatility rate of 24.5%.
OPTION EXERCISES DURING 1996 AND YEAR END OPTION VALUES
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held, on December 31,
1996, by each of the Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF IN-THE-MONEY
UNDERLYING OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
------------------------- -------------------------
SHARES ACQUIRED VALUE
EXECUTIVE OFFICER ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Sunil Wadhwani.......... -- -- --/-- --/--
Ashok Trivedi........... -- -- --/-- --/--
Steven Shangold......... -- -- --/25,000 --/100,000
Michael Zugay........... -- -- --/56,000 --/224,000
Sushma Rajagopalan...... -- -- --/65,000 --/260,000
</TABLE>
- --------
(1) The closing price for the Company's Common Stock as reported by THE NASDAQ
NATIONAL MARKET tier of THE NASDAQ STOCK MARKET on December 31, 1996 (the
last day of trading in 1996) was $19.00. Value is calculated on the basis
of the difference between the option exercise price and $19.00, multiplied
by the number of shares of Common Stock underlying the option.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Company did not have a Compensation Committee prior to the IPO on
December 16, 1996. Accordingly, for 1996, 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. For 1996, Messrs. Wadhwani and
Trivedi determined the compensation of each executive officer based upon their
evaluation of the Company's performance and each individual's contribution to
that performance.
Effective March 9, 1997, the Board established the current Compensation
Committee, a majority of the members of which are independent directors. The
Compensation Committee is responsible for reviewing and approving matters
involving the compensation of directors and executive officers of the Company,
periodically reviewing management development plans, administering the
Company's incentive compensation plans and making recommendations to the full
Board on these matters. The Compensation Committee is expected to meet twice
during fiscal 1997 to pursue the aforementioned duties.
Sunil Wadhwani and Ashok Trivedi
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the IPO, 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 for 1996. The current Compensation Committee includes
Messrs. Garrett, Berty and Trivedi, of which, Mr. Trivedi serves as President
of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into substantially identical employment agreements
with Messrs. Wadhwani and Trivedi, pursuant to which each of them will serve
as an executive 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. 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 one year 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 agreements
which outline their responsibilities and provide generally for base salary
plus annual incentive bonuses. These executives are "at will" employees of the
Company and can be terminated by the Company with or without cause or they may
resign. Under the agreements, the executives are entitled to three months'
salary continuation if they are
9
<PAGE>
terminated by the Company without cause generally, and to six months' salary
continuation if they are terminated by the Company without cause during the 90
days following the sale of the Company to a third party. The employment
agreements also contain confidentiality provisions and noncompetition and
nonsolicitation covenants.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Initial Statements of Beneficial Ownership on Form 3 for Messrs. Garrett,
Berty and Yourdon were inadvertently not filed at the time they became
directors immediately after the IPO. The necessary forms have since been filed.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative short-term shareholder return on
the Company's Common Stock during the fifteen day period ended December 31,
1996 with the cumulative short-term return during the same period of (i) the
Standard and Poor's 500 Composite Index ("S&P 500") and (ii) a peer group
index* selected by the Company's management which includes seven public
companies within the Company's industry. The comparison assumes $100 was
invested on December 16, 1996 in the Company's stock and in each of the
foregoing indices and assumes reinvestment of dividends.
[GRAPH APPEARS HERE]
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG MASTECH, S&P 500 INDEX AND PEER GROUP INDEX
<CAPTION>
Measurement period
(Fiscal year Covered) MASTECH S&P 500 PEER GROUP
- --------------------- -------- ------- ----------
<S> <C> <C> <C>
Measurement PT -
12/16/96 $100 $100 $100
FYE 12/31/96 $126.67 $100 $107.71
</TABLE>
The Common Stock is currently traded on the NASDAQ NATIONAL MARKET tier of
THE NASDAQ STOCK MARKET under the SYMBOL "MAST".
- --------
* The peer group index reflects the stock performance of the following
information technology companies: Cambridge Technology Partners, Inc., CIBER,
Inc., Computer Horizons Corp., Computer Management Sciences, Inc., Keane,
Inc., Technology Solutions Company and Whittman-Hart, Inc.
10
<PAGE>
CERTAIN RELATED PARTY TRANSACTIONS
Effective December 16, 1996, SWAT Systems Corporation, a Pennsylvania
corporation, was merged into the Company resulting in its wholly-owned
subsidiary, Scott Systems Pvt., Ltd. ("Scott"), an India-based corporation,
becoming a wholly-owned subsidiary of Mastech. Scott provides IT professional
recruiting and training services to the Company. Messrs. Wadhwani and Trivedi,
Mastech's controlling shareholders, received nominal consideration in this
transaction. The Company also purchased the minority shares of Scott Systems,
some of which were held by relatives of the controlling shareholders, for
$26,000. During 1996, the Company paid Scott approximately $502,000 for its
services.
Scott Systems leases, for its training facilities, approximately 2,100
square feet of office space on one floor of an office building located in
Bombay, India. The leased space is divided into five separately owned suites
owned individually by the controlling shareholders. The leases have a one-year
term expiring in April 1997, and the aggregate rent is $20,000 per year. Scott
Systems also leases additional office space of approximately 900 square feet
on another floor in the same office building which is owned by the controlling
shareholders. The lease has a one-year term expiring in October 1997, and the
rent is approximately $6,000 per year.
Mascot Systems is an India-based corporation which prior to becoming a
subsidiary of the Company, was controlled by Mastech's controlling
shareholders. The Company has in the past engaged Mascot Systems as a
subcontractor to perform offshore software development projects. During 1996,
prior to the IPO, the Company paid Mascot Systems approximately $1,160,000 for
its services. On December 16, 1996, the Company purchased the shares of Mascot
Systems held by the controlling shareholders for $170,000. This price was
based upon an independent valuation of that interest. The Company also
purchased the minority shares of Mascot Systems, which were held by relatives
of the controlling shareholders, for $20,000, based upon an independent
valuation.
Mascot Systems leases and intends to lease from the controlling shareholders
the office space for the Company's offshore software development facilities in
Bangalore, Pune and Madras, India. The offshore software development
facilities located in Pune and Madras, India are presently under construction
with occupancy expected in 1997. Mascot Systems expects to enter into two
additional leases with the controlling shareholders 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. 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 the
controlling shareholders 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 the
controlling shareholders. 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
the controlling shareholders. This lease has a five-year term expiring in
October 2001, and the annual rent is approximately $110,000 per year.
The controlling shareholders leased residential properties to the Company
under lease agreements which were terminated during 1996. Payments in
accordance with these arrangements were approximately $36,000 and $9,000 for
the years ended December 31, 1995 and 1996, respectively.
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.
The Company has loans outstanding from the Company's controlling
shareholders of $16,000 as of December 31, 1995 and 1996. Additionally, as an
S corporation, the net income of the Company was attributed, for federal (and
some state) income tax purposes, directly to the Company's shareholders rather
than to the Company. During 1995 and 1996, the Company had from time to time
paid the corresponding income taxes due on these amounts on behalf of the
controlling shareholders in the form of interest-free advances which were
later repaid. The highest aggregate amounts of advances outstanding to one of
the controlling shareholders and his Qualified Subchapter S Trust during 1995
and 1996 were approximately $117,000 and $1,682,000, respectively. The highest
aggregate amounts of advances outstanding to the other controlling shareholder
during 1995 and 1996 were approximately $117,000 and $1,682,000, respectively.
This practice will be discontinued in mid 1997.
11
<PAGE>
As of December 31, 1996, Mascot Systems had borrowings outstanding under
revolving credit agreements with ICICI Banking Corporation Limited and
IndusInd Bank Limited, both of India. Borrowings under these facilities are
secured by deposits of the controlling shareholders of the Company.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters are properly presented to
the meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
regular employees, without additional remuneration, may solicit proxies by
telephone, telegraph and personal interviews. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the
owners of stock held in their names, and the Company will reimburse them for
reasonable out-of-pocket expenses in connection with the distribution of proxy
solicitation material.
A COPY OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1996 IS BEING FURNISHED WITH THIS PROXY STATEMENT. THE COMPANY
WILL, UPON WRITTEN REQUEST OF ANY SHAREHOLDER, FURNISH WITHOUT CHARGE A COPY
OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS. PLEASE
ADDRESS ALL SUCH REQUESTS TO THE COMPANY, ATTENTION OF MICHAEL ZUGAY, VICE
PRESIDENT-FINANCE, 1004 MCKEE ROAD, OAKDALE, PENNSYLVANIA 15071. EXHIBITS WILL
BE PROVIDED UPON REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company at its principal
office in Oakdale, Pennsylvania not later than January 1, 1998 for inclusion
in the Proxy Statement for that meeting.
May 1, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. YOUR PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE
MEETING. WE APPRECIATE YOUR COOPERATION.
12
<PAGE>
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Form of
PROXY
Mastech Corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Sunil Wadhwani and Ashok Trivedi, with full power of substitution in each,
are hereby authorized to represent the undersigned at the 1997 Annual
Meeting of Shareholders of Mastech Corporation to be held at the Company's
Corporate Offices at 1004 McKee Road, Oakdale, Pennsylvania on Monday,
June 9, 1997 at 11:00 a.m., and at any adjournment thereof, and thereat to
vote the same number of shares as the undersigned would be entitled to vote
if then personally present.
(IMPORTANT -- TO BE SIGNED AND DATED ON REVERSE SIDE)
ELECTION OF TWO (2) DIRECTORS
NOMINEES: For the Class A Directors Whose Terms Expire in 2000:
Michel Berty and J. Gordon Garrett
[_] FOR all nominees listed (except as marked to the contrary below)
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name on the line below.)
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<PAGE>
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THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL HAVE NO EFFECT ON THE VOTE ON ANY MATTER TO COME BEFORE THE
SHAREHOLDERS AT THE ANNUAL MEETING.
DATE: , 1997
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-----------------------------------
Shareholder(s) sign above exactly
as name is printed on label. If
signing as representative, so
indicate. For joint accounts, all
owners should sign.
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