MASTECH CORP
10-Q, 1999-11-15
COMPUTER PROGRAMMING SERVICES
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<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q



[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

               For the quarterly period ended September 30, 1999
                                       or
[ ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                        Commission File Number 000-21755

                              MASTECH CORPORATION
             (Exact name of registrant as specified in its charter)


             PENNSYLVANIA                                   25-1802235
             ------------                                   ----------
     (State or other jurisdiction                       (I.R.S. Employer
    of incorporation or organization)                  Identification No.)

             1004 McKee Road
          Oakdale, Pennsylvania                               15071
(Address of  principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:  (412) 787-2100


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

                                 Yes  X    No
                                     ----     ----

The number of shares of the registrant's Common Stock, par value $0.01 per
share, outstanding as of October 29, 1999 was 50,459,064.
<PAGE>

                              MASTECH CORPORATION
                         QUARTERLY REPORT ON FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1999

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      PAGE
                                                                                      ----
<S>          <C>                                                                      <C>
PART I.      FINANCIAL INFORMATION                                                       3

ITEM 1.      CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:

             UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR EACH OF THE
             THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER
             30, 1998                                                                    3

             CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1999
             (UNAUDITED) AND DECEMBER 31, 1998                                           4

             UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AS OF SEPTEMBER
             30, 1999                                                                    5

             UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR EACH OF
             THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998      6

             NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS              7

             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                   12

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
             OF OPERATIONS                                                              13

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                  19



PART II.     OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS                                                          20
ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS                                  20
ITEM 3.      DEFAULTS UPON SENIOR SECURITIES                                            20
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                        20
ITEM 5.      OTHER INFORMATION                                                          20
ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K                                           21

             SIGNATURES                                                                 22

             EXHIBIT INDEX                                                              23
</TABLE>

                                       2
<PAGE>

PART I. FINANCIAL INFORMATION


ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                              MASTECH CORPORATION
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                 (dollars in thousands, except per share data)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                      Three Months Ended September 30,           Nine Months Ended September 30,
                                                      --------------------------------           -------------------------------
                                                          1999             1998 (1)                  1999             1998 (1)
                                                          ----             --------                  ----             --------
<S>                                                <C>                    <C>                     <C>                 <C>

Revenues                                                 $117,173          $106,498               $363,064            $285,442
Cost of revenues                                           77,774            71,263                242,445             191,882
                                                         --------          --------               --------            --------
Gross profit                                               39,399            35,235                120,619              93,560

Selling, general and administrative                        24,395            20,407                 69,979              54,789
Special Charge (See Note 7)                                 3,528                --                  3,528                  --
                                                         --------          --------               --------            --------
Income from operations                                     11,476            14,828                 47,112              38,771

Other income, net                                            (465)             (730)                (1,801)             (2,135)
Merger-related expenses                                        --                --                  1,727               3,212
                                                         --------          --------               --------            --------
Income before income taxes                                 11,941            15,558                 47,186              37,694
Provision for income taxes                                  4,332             5,495                 16,970              14,789
                                                         --------          --------               --------            --------
Net income                                               $  7,609          $ 10,063               $ 30,216            $ 22,905
                                                         ========          ========               ========            ========

Earnings per share:
    Basic                                                $   0.15          $   0.20               $   0.60            $   0.46
                                                         ========          ========               ========            ========
    Diluted                                              $   0.15          $   0.20               $   0.59            $   0.45
                                                         ========          ========               ========            ========

Weighted average common shares outstanding:
    Basic                                                  50,440            50,115                 50,380              50,050
    Diluted                                                52,060            50,945                 51,340              50,905

</TABLE>

(1) Restated for pooling of interests transaction as discussed in Note 5.

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

                                       3
<PAGE>

                         MASTECH CORPORATION
                CONSOLIDATED CONDENSED BALANCE SHEETS
                       (dollars in thousands)

<TABLE>
<CAPTION>

                                                                              September 30,            December 31,
                                                                                  1999                   1998 (1)
                                                                              -------------            ------------
                                                                               (Unaudited)              (Audited)
<S>                                                                           <C>                      <C>
                               ASSETS
Current assets:
     Cash and cash equivalents (cost approximates market value)                 $  33,254               $  35,493
     Investments                                                                   83,218                  47,153
     Accounts receivable, net                                                      80,678                  73,313
     Unbilled receivables                                                          20,246                  12,261
     Prepaid and other assets                                                       8,637                   8,484
     Prepaid income taxes                                                           2,851                       -
     Deferred income taxes                                                          1,927                   2,312
                                                                              -------------            ------------
           Total current assets                                                   230,811                 179,016

Investments in joint ventures                                                         450                       -
Equipment and leasehold improvements, net                                          18,049                  17,234
Intangible assets, net                                                             31,160                  21,208
                                                                              -------------            ------------
           Total assets                                                         $ 280,470               $ 217,458
                                                                              =============            ============

                LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                           $   9,193               $   8,523
     Accrued payroll and related costs                                             28,151                  29,367
     Other accrued liabilities                                                     12,639                  11,015
                                                                              -------------            ------------
           Total current liabilities                                               49,983                  48,905

     Long term debt                                                                30,000                       -
     Other long term liabilities                                                    5,350                   4,563
     Deferred income taxes                                                          4,239                   5,455
                                                                              -------------            ------------
           Total liabilities                                                       89,572                  58,923

Shareholders' equity:
     Preferred Stock, without par value                                                 -                       -
     Common Stock, par value $0.01 per share                                          504                     502
     Additional paid-in capital                                                   114,783                 111,508
     Retained earnings                                                             77,312                  47,096
     Accumulated other comprehensive income                                          (785)                   (571)
     Common stock in treasury, at cost                                               (916)                      -
                                                                              -------------            ------------
            Total shareholders' equity                                            190,898                 158,535
                                                                              -------------            ------------
Total liabilities and shareholders' equity                                      $ 280,470               $ 217,458
                                                                              =============            ============
</TABLE>

(1) Restated for pooling of interests transaction as discussed in Note 5.

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

                                       4
<PAGE>

                              MASTECH CORPORATION
                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                 (dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                                  Accumu-
                                                                                                   lated
                                                     Series A       Addi-                          Other    Total
                                  Common Stock      Preferred      tional                         Compre-   Share-
                                             Par           Par     Paid-in   Retained  Treasury   hensive   holders' Comprehensive
                                 Shares     Value  Shares Value    Capital   Earnings   Shares    Income    Equity      Income
                              ------------  -----  ------ -----    -------   --------   -------   -------   -------  -------------
<S>                            <C>          <C>    <C>    <C>      <C>       <C>        <C>       <C>       <C>      <C>
Balance, December 31, 1998 (1) 50,236,080   $ 502     1      -    $111,508    $ 47,096    $ -      $ (571) $ 158,535

Exercise of stock options,
    includes effect of tax
    benefit recognized            220,984       2     -      -       3,275           -      -           -      3,277
Purchase of treasury shares       (72,500)      -     -      -           -           -   (916)          -       (916)
Comprehensive income:
  Net unrealized loss
    on investments                      -       -     -      -           -           -      -        (448)      (448)    $ (448)
Currency translation
    adjustment                          -       -     -      -           -           -      -         234        234        234
  Net income                            -       -     -      -           -      30,216      -           -     30,216     30,216
                               ------------------------------------------------------------------------------------------------
Balance, September 30, 1999    50,384,564   $ 504     1      -    $114,783    $ 77,312  $(916)     $ (785) $ 190,898   $ 30,002
                               ================================================================================================
</TABLE>
(1)  Restated for pooling of interests transaction as discussed in Note 5.

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

                                       5
<PAGE>

                              MASTECH CORPORATION
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                            (dollars in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                   Nine Months Ended September 30,
                                                                   -------------------------------
                                                                       1999            1998 (1)
                                                                     ---------         --------
<S>                                                                  <C>               <C>
Net cash flows provided by operations                                $ 17,864          $ 15,615

Cash flows from investing activities:
     Acquisitions, net of cash acquired                               (10,480)           (4,154)
     Investments in joint ventures                                       (450)                -
     Additions to equipment and leasehold improvements, net            (5,255)           (8,070)
     Dividends paid                                                         -              (749)
     Purchases of investments, net                                    (36,513)          (58,481)
                                                                     ---------         --------
Net cash flows used in investing activities                           (52,698)          (71,454)

Cash flows from financing activities:
     Net payments under revolving credit facilities                         -            (6,905)
     Proceeds from the issuance of long term debt                      30,000                 -
     Payments to acquire treasury stock                                  (916)                -
     Proceeds from exercise of stock options, net of tax benefit        3,275             3,935
     Other                                                                236              (567)
                                                                     ---------         --------
Net cash flows provided by (used in) financing activities              32,595            (3,537)

Net change in cash and cash equivalents                                (2,239)          (59,376)
Cash and cash equivalents, beginning of period                         35,493            83,152
                                                                     ---------         --------
Cash and cash equivalents, end of period                             $ 33,254          $ 23,776
                                                                     =========         ========

</TABLE>

(1)  Restated for pooling of interests transaction as discussed in Note 5.

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

                                       6
<PAGE>

         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



1.  BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements included
herein have been prepared by Mastech Corporation (the "Company") in accordance
with generally accepted accounting principles for the interim financial
information and Article 10 of Regulation S-X under the Securities Exchange Act
of 1934, as amended. The consolidated condensed financial statements as of and
for the quarter and nine months ended September 30, 1999 should be read in
conjunction with the Company's consolidated financial statements (and notes
thereto) included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Accordingly, the accompanying consolidated condensed
financial statements do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of the Company's management, all adjustments considered necessary
for a fair presentation of the accompanying consolidated condensed financial
statements have been included, and all adjustments unless otherwise discussed in
the notes to the consolidated condensed financial statements are of a normal and
recurring nature. The information contained herein is not a comprehensive
management overview and analysis of the financial condition and results of
operations of Mastech Corporation, but rather updates disclosures made in the
Company's Annual Report on Form 10-K. All significant intercompany accounts and
transactions have been eliminated in consolidation. Operating results for the
quarter and nine months ended September 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999.

As discussed in Note 5, on January 4, 1999, the Company acquired all of the
issued and outstanding capital stock of The Amber Group ("Amber").  The
transaction was accounted for as a pooling of interests and, accordingly, the
Company's historical consolidated condensed financial statements have been
restated to include results for Amber for all periods presented.

The use of generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

2.  INVESTMENTS

The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".  The Company has determined
that all of its investments in marketable securities are to be classified as
available-for-sale and recorded at fair value.  These investments are carried at
market value, with the unrealized gains or losses, net of tax, reported as a
component of comprehensive income in the statement of shareholders' equity.
Realized gains or losses on securities sold are based upon the specific
identification method.

The Company entered into two 50% owned joint ventures during the third quarter
of 1999.  Both of these joint ventures are in the start-up phase of their
existence.  The Company accounts for its 50% ownership using the equity method
of accounting.

                                       7
<PAGE>

3.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

(dollars in thousands, except per share data)

                                        Three Months Ended   Nine Months Ended
                                        September 30, 1999   September 30, 1999
                                        ------------------   ------------------
Basic earnings per share:
Net income                                  $     7,609          $    30,216
                                            ===========          ===========
Divided by:
   Weighted average common shares            50,439,747           50,380,317
                                            ===========          ===========
Basic earnings per share                    $      0.15          $      0.60
                                            ===========          ===========
Diluted earnings per share:
Net income                                  $     7,609          $    30,216
                                            ===========          ===========
Divided by the sum of:
   Weighted average common shares            50,439,747           50,380,317
   Dilutive effect of convertible
     securities                               1,070,000              360,000
   Dilutive effect of common stock
     equivalents                                550,253              599,683
                                            -----------          -----------
   Diluted average common shares             52,060,000           51,340,000
                                            ===========          ===========
Diluted earnings per share                  $      0.15          $      0.59
                                            ===========          ===========


4.  RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").  The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value.  The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met.  Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting.  SFAS No. 133 was
originally effective for fiscal years beginning after June 15, 1999. Companies
may also implement the Statement as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter).
SFAS No. 133 cannot be applied retroactively.  SFAS No. 133 must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).

In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133"  ("SFAS 137") delaying the
effective date of SFAS 133 for all fiscal quarters of all fiscal years beginning
after June 15, 2000.

The Company has not yet quantified the impacts of adopting SFAS No. 133 on its
financial statements and has not determined the timing of or method of adoption
of SFAS No. 133.  The Company does not significantly participate in derivative
contracts or participate in contracts with derivative instruments embedded in
other contracts; however, the statement may increase volatility in earnings and
other comprehensive income.

                                       8
<PAGE>

5.  BUSINESS COMBINATIONS

Purchases
- ---------

The following is a discussion of the Company's acquisitions accounted for as
purchases.  Operating results for each of the respective acquisitions have been
included in the Company's operations since the date of acquisition.  Pro forma
disclosure regarding these purchase acquisitions have not been provided because
they are not material to the operations of the Company.  On January 29, 1999,
the Company acquired Global Resource Management ("GRM"), located in
Jacksonville, Florida.  On January 9, 1999, the Company acquired Direct
Resources Scotland Limited ("Direct Resources"), of Edinburgh, Scotland.

The GRM and Direct Resources acquisitions had combined revenues of approximately
$15.7 million for the year ended December 31, 1998.  Additionally, the assets of
these two companies as of December 31, 1998 were approximately $3.2 million.
The excess of purchase price over the fair value of net assets acquired has been
recorded as goodwill and will be amortized over a thirty-year life using the
straight-line method. Future payments for each acquisition will be made based
upon an agreed upon calculation for the years ending 1999 and 2000.  The
aggregate amount of the payments related to the independent agreements will not
exceed  $2.9 million.  A payment of approximately $1.4 million was made during
the third quarter 1999 related to these agreements.

On October 26, 1998, the Company acquired International MIS, Inc. ("IMIS"),
located in San Francisco, California.  On July 1, 1998, the Company acquired MC
Computer Services Pty Limited ("MCCS") of Canberra, Australia.  As part of these
two independent agreements, an agreed upon amount was recorded as a long-term
liability which represents the unpaid purchase price related to these
acquisitions.  Additionally, goodwill has been recorded for these two purchases
and will be adjusted based upon the finalization of the fair value studies of
assets acquired and may be adjusted based upon future payments.   Any such
adjustments will not materially affect the overall financial position or results
of operations of the Company.  Future payments will be made based upon an agreed
upon calculation for the years ending 1999, 2000 and 2001. Future payments will
not exceed $8.0 million under the terms of one agreement.

Pooling of Interests
- --------------------

On January 4, 1999 the Company acquired all the issued and outstanding stock of
The Amber Group ("Amber") in exchange for 1,095,001 of the Company's common
stock.  The revenues related to Amber were $10.5 million as of December 31,
1998.  The Company's consolidated condensed financial statements have been
restated to include results for Amber for all periods presented.  In connection
with the merger, the Company incurred approximately $1.7 million of merger-
related costs which were expensed in the first quarter of 1999.


6.  SEGMENT INFORMATION

The Company is a provider of IT services, and is organized into office locations
throughout the world. The Company has three reportable segments: the High Value
Services group, the U.S. Client Services group and the International Client
Services group.  The chief operating decision-makers evaluate each segment's
performance based primarily on their revenues, gross margin and operating
income. The accounting policies of the operating segments are the same as those
of the entire Company.

                                       9
<PAGE>

The following table summarizes selected financial information of the Company's
operations by segment:


<TABLE>
<CAPTION>
(dollars in thousands)
                                                 High             U.S.        International
                                                 Value           Client           Client        Corporate
Nine Months Ended September 30, 1999           Services         Services         Services     Activities (1)      Total
- ------------------------------------           --------         --------       ------------   --------------      -----
<S>                                            <C>             <C>            <C>             <C>               <C>
Revenues                                       $171,969         $101,488          $93,813       $      -        $367,270
Intersegment sales                               (4,206)               -                -              -          (4,206)
                                               --------         --------          -------       --------        --------
Reported revenues                               167,763          101,488           93,813              -         363,064
                                               --------         --------          -------       --------        --------
Expenses                                              -                -                -        332,848         332,848
                                               --------         --------          -------       --------        --------
Net income                                                                                                      $ 30,216
                                                                                                                ========
                                                 High             U.S.        International
                                                 Value           Client           Client        Corporate
Nine Months Ended September 30, 1998(2)        Services         Services         Services     Activities (1)      Total
- ---------------------------------------        --------         --------       ------------   --------------      -----
Revenues                                       $120,400         $ 95,494          $74,283       $      -        $290,177
Intersegment sales                               (4,735)               -                -              -          (4,735)
                                               --------         --------          -------       --------        --------
Reported revenues                               115,665           95,494           74,283              -         285,442
                                               --------         --------          -------       --------        --------
Expenses                                              -                -                -        262,537         262,537
                                               --------         --------          -------       --------        --------
Net income                                                                                                      $ 22,905
                                                                                                                ========
                                                 High             U.S.        International
                                                 Value           Client           Client        Corporate
Three Months Ended September 30, 1999          Services         Services         Services     Activities (1)      Total
- -------------------------------------          --------         --------       ------------   --------------      -----
Revenues                                       $ 60,052         $ 30,155          $28,195       $      -        $118,402
Intersegment sales                               (1,229)               -                -              -          (1,229)
                                               --------         --------          -------       --------        --------
Reported revenues                                58,823           30,155           28,195              -         117,173
                                               --------         --------          -------       --------        --------
Expenses                                              -                -                -        109,564         109,564
                                               --------         --------          -------       --------        --------
Net income                                                                                                      $  7,609
                                                                                                                ========
                                                 High             U.S.        International
                                                 Value           Client           Client        Corporate
Three Months Ended September 30, 1998(2)       Services         Services         Services     Activities (1)      Total
- ----------------------------------------       --------         --------       ------------   --------------      -----
Revenues                                       $ 46,116         $ 33,926          $27,636       $      -        $107,678
Intersegment sales                               (1,180)               -                -              -          (1,180)
                                               --------         --------          -------       --------        --------
Reported revenues                                44,936           33,926           27,636              -         106,498
                                               --------         --------          -------       --------        --------
Expenses                                              -                -                -         96,435          96,435
                                               --------         --------          -------       --------        --------
Net income                                                                                                      $ 10,063
                                                                                                                ========
</TABLE>
(1) Corporate activities include all general and selling expenses as well as
    merger-related expenses and special charges. This line item also includes
    interest income and other unallocated charges. Since all expenses have not
    been allocated to the business segments, this basis is not necessarily a
    measure computed in accordance with generally accepted accounting
    principles and may not be comparable to other companies.

(2) Restated for pooling of interests transaction as discussed in Note 5.


There have been no material changes in total assets from the amount disclosed in
the 1998 annual report on Form 10-K.  Additionally, there have been no changes
to the basis of measurements of segments between the 1998 annual report on Form
10-K and the first nine months ended 1999.

                                       10
<PAGE>

7.  SPECIAL CHARGE

The Company incurred a special charge of $3.5 million or $0.05 per basic share
during the third quarter of 1999 related to the winding down of past and current
projects with a large integrator client.  These costs consist primarily of
relocation costs and extra training costs for personnel previously engaged with
this client.

8.  MERGER-RELATED EXPENSES

In connection with the acquisition of Amber,  $1.7 million or $0.03 per share of
merger-related costs and expenses were incurred and have been charged to expense
in the first quarter of 1999.  These expenses consisted primarily of severance
payments, office closures, and related professional fees. The Company assessed
its workforce as part of the acquisition of Amber and concluded that the
additional layer of management that would have been formed was not consistent
with the Company's long-range business plan.

In connection with the acquisition of Quantum Information Resources ("Quantum"),
$3.2 million or $0.06 per share of merger-related costs and expenses were
incurred and were charged to expense in the second quarter of 1998.


9.   GE  INVESTMENT

On July 22, 1999, Mastech completed a private placement of a $30,000,000
Convertible Promissory Note (the "Note") with GE Capital Equity Investments,
Inc. ("GE Capital").  The entire principal amount of the Note matures on July
22, 2004.  The Note accrues interest at the rate of 6.30% per annum, payable
semi-annually in arrears on the last day of each July and January.  The first
interest payment is scheduled for January 31, 2000.  The Note is convertible at
any time after July 22, 2003 through its maturity, at the option of the holder,
into shares of Mastech common stock at an initial conversion price of $21.64 per
share in the event that the certain performance targets are achieved.


10.  SHARE REPURCHASE PROGRAM

On September 13, 1999, the Company announced that its Board of Directors had
approved a stock repurchase plan for up to 3,000,000 common shares or
approximately 6% of the total outstanding shares of the company.  The
repurchases of common stock may occur from time to time on the open market or
through privately negotiated transactions funded through cash on hand.  As of
October 29, 1999, the Company has purchased 373,500 shares at a cost of $5.0
million and has placed these shares in treasury. Any gains or losses incurred on
the transactions based upon these shares will be properly offset to additional
paid-in capital in accordance with generally accepted accounting principles.

                                       11
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Mastech Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of
Mastech Corporation (a Pennsylvania Corporation)  and subsidiaries as of
September 30, 1999,  the related condensed consolidated statements of income for
the three and nine month periods ended September 30, 1999 and 1998 and the
condensed consolidated statement of shareholders' equity and cash flows for the
nine month periods ended September 30, 1999 and 1998. These condensed
consolidated financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Mastech Corporation and
subsidiaries as of December 31, 1998, (not presented herein) prior to the
restatement of the consolidated balance sheet in connection with the pooling of
interests transaction described in Note 1, and, in our report dated February 9,
1999, we expressed an unqualified opinion on that statement.  In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.


                                                     /S/ ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
October 22, 1999




                                       12
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Part I, Item 2 of this report should be read in conjunction with Part II, Item 7
of Mastech's Annual Report to the United States Securities and Exchange
Commission ("SEC") on Form 10-K for the year ended December 31, 1998. The
information contained herein is not a comprehensive management overview and
analysis of the financial condition and results of operations of the Company,
but rather updates disclosures made in the aforementioned filing.  The following
discussion should also be read in conjunction with the consolidated condensed
financial statements and notes thereto appearing elsewhere in this report. As
used herein, "Mastech" or the "Company" shall mean Mastech Corporation and each
of its consolidated subsidiaries.

This Form 10-Q contains certain "forward-looking statements" (statements which
are not historical facts) such as statements about future financial performance,
capital expenditures, liquidity sources and needs, the Year 2000 ("Y2K") problem
and certain other operations matters. Words or phrases denoting the anticipated
results of future events--such as "anticipate," "believe," "estimate," "expect,"
"will likely," "are expected to," "will continue," "project," and similar
expressions that denote uncertainty--are intended to identify such forward-
looking statements. These forward-looking statements are subject to several
risks and uncertainties, and the Company's actual future results may differ
significantly from those stated in any forward-looking statements. While it is
impossible to identify each factor and event that could affect the Company's
results, variations in the Company's revenues and operating results occur from
time to time as a result of a number of factors, such as the significance of
client engagements commenced and completed during a quarter or a year, the
number of working days in a quarter or a year, employee hiring, retention, and
utilization rates, acceptance and profitability of the Company's services in new
territories, integration of companies acquired, competition, general economic
conditions and economic conditions specific to the information technology
industry, which are discussed in Mastech's 1998 Annual Report to the SEC
Form 10-K under the caption "Risk Factors". Many of these factors are beyond the
Company's ability to predict or control. As a result of these and other factors,
quarterly revenues and operating results are difficult to forecast, and the
Company may experience significant quarterly and yearly variations in operating
results.


OVERVIEW

Mastech Corporation was incorporated in Pennsylvania on November 12, 1996.
Mastech Systems, a Pennsylvania corporation through which the business of the
Company has been conducted since its inception in July 1986, is an indirect,
wholly owned subsidiary of the Company.

Mastech'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 assumes responsibility for
project management and bills the client on a time-and-materials or fixed-price
basis. Revenues on fixed-price contracts are recognized by the percentage of
completion method. Revenues generated through offshore software development
centers on U.S. Client engagements are included in U.S. revenues.

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 information technology ("IT") professionals assigned to projects may
vary depending on the size and duration of each engagement. Moreover, project
terminations, project completions 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.

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 and launch of additional
service offerings, including E-Business and

                                       13
<PAGE>

Enterprise Network Solutions; (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 three offshore software development centers in India; (v) the
hiring of additional managers to support a larger organization; and (vi) 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.

Mastech sells its services to large and medium-sized organizations. The
Company's sales force is organized to meet the needs of the marketplace through
three primary groups: (i) the High Value Services group (ii) the U.S. Client
Services group; and (iii) the International Client Services group.

The High Value Services group provides IT professionals trained in ERP
implementations, E-business consulting and network services, in addition to
managing engagements in the aforementioned services. Additionally, this group
provides services through offshore software development centers which are
connected via secure, high-speed satellite links to the Company's headquarters
and client sites. This group works directly with the end-user clients and also
partners with a wide array of software companies, ranging from ERP to supply-
chain and customer relationship management, and systems integrators on teamed
implementation efforts.

The U.S. Client Services group is divided into geographic regions, each of which
is directed by a Manager or 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. The U.S. Client Services group also
focuses on developing national and global relationships with major systems
integrators such as IBM, KPMG, Ernst & Young and Oracle. Mastech assists these
integrators in meeting their customers' needs by providing specialized technical
expertise and complementary capabilities such as offshore development.

The International Client Services group operates through offices in eleven
different countries. Each office is supervised by a Country Manager and
supported by dedicated sales personnel who sell directly to new clients using an
approach similar to the Company's U.S. sales approach. Additionally, these
offices focus on leveraging Mastech's existing relationships with its U.S.-based
multinational clients.

Financial results for the nine months ended September 30, 1998 have been
restated to reflect the acquisition of Amber in a business combination that was
accounted for as a pooling of interests, which is discussed in Note 5 to the
consolidated condensed financial statements.

THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED
WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998

  Revenues.   The Company's revenues increased 10.0%, or $10.7 million, to
$117.2 million in the third quarter of 1999 from $106.5 million in the third
quarter of 1998. Of this overall increase in revenues, the High Value Services
group, U.S. Client Services group and International Client Services group
contributed an increase of $13.9 million, a decrease of $3.8 million and an
increase of $600,000, respectively. The increase in High Value Services group
can be attributed to additional services provided to existing clients and
continued market penetration, as well as the rapid increase in e-Business
services. The increase in the International Client Services group is primarily
the result of the continued increase in market penetration and strong market
demand in Australia and Europe. The decrease in the U.S. Client Services group
was primarily a result of the winding down of services with a large integrator
client as well as a general decline in demand for Company services due to the
reluctance of customers to implement new IT projects as they focus on their
internal Year 2000 compliance efforts.

  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

                                       14
<PAGE>

well as the cost of the independent contractors used by the Company. Gross
profit increased 11.8%, or $4.2 million to $39.4 million in the third quarter of
1999 from $35.2 million in the third quarter of 1998. Gross profit as a
percentage of revenues increased slightly to 33.6% in the third quarter of 1999
from 33.1% in the third quarter of 1998. The primary reasons for the increase in
gross profit as a percentage of revenues were the expansion into new higher
margin business lines such as E-Business services, network solutions and
customer relationship management and improved IT-professional utilization.

  Selling, General and Administrative Expenses.   Selling, general and
administrative ("SG&A") expenses consist of costs associated with the Company's
sales and marketing efforts, executive management, finance and human resource
functions, facilities and telecommunication costs and other general overhead
expenses. SG&A expenses increased 19.5%, or $4.0 million, to $24.4 million in
the third quarter of 1999 from $20.4 million in the third quarter of 1998. The
increase in SG&A expenses reflects the costs of supporting the Company's
continued revenue growth and expansion into new business lines and geographic
regions. As a percentage of revenues, SG&A expenses increased to 20.8% for the
third quarter of 1999 from 19.2% for the third quarter of 1998. The Company
continues to monitor SG&A costs and expenses through an aggressive focus on
utilizing cost saving technologies.

   Special Charge.    The Company incurred a special charge of $3.5 million or
$0.05 per basic share during the third quarter of 1999 related to the winding
down of past and current projects with a large integrator client. These costs
consist primarily of relocation costs and extra training costs for personnel
previously engaged with this client.

  Other Income, Net.     Other income was $465,000 in the third quarter of 1999
compared to other income of $730,000 in the third quarter of 1998. This decrease
of $265,000 in other income was primarily the result of losses incurred due to
the Company's investments in two 50% owned joint ventures during the third
quarter of 1999.

  Income taxes.   Provision for income taxes was $4.3 million, or an effective
tax rate of 36.3% for the third quarter ended September 30, 1999 compared to
$5.5 million, or an effective tax rate of 35.3% for the third quarter ended
September 30, 1998. Primary factors for the change in effective tax rates
includes the effect of non-deductible special charges recognized in the third
quarter of 1999 and acceleration of permanent tax differences into income.
Other factors contributing to the effective tax rate included an increase in the
amounts of permanent book to tax differences which consist primarily of goodwill
and amortization;  changes in tax status of acquired businesses; tax-exempt
interest income generated by the Company's municipal bond portfolio; and the tax
holiday for the Company's Indian operations as well as overall tax planning
initiatives.

   Outlook.   The Company has experienced, and expects to continue to experience
through at least December 31, 1999, a decline in the demand for its non-Year
2000 services, due to the reluctance of customers to implement new IT projects
as they focus on their Year 2000 compliance efforts.  The reduction in demand
for the Company's services arising from Year 2000 related factors could result
in significant fluctuations in the Company's quarterly revenues or operating
results and could result in significant differences between the Company's actual
and expected results.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED
WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998

  Revenues.   The Company's revenues increased 27.2%, or $77.6 million, to
$363.0 million in the first nine months of 1999 from $285.4 million in the first
nine months ended 1998. Of this overall increase in revenues, the High Value
Services group, U.S. Client Services group and the International Client Services
group contributed increases of $52.1 million, $6.0 million and $19.5 million,
respectively.  The increase in the High Value Services group can be attributed
to additional services provided to existing clients and continued market
penetration and the continued growth of e-Business services. The increase in the
International Client Services group is primarily the result of the continued
increase in market penetration and strong market demand in Australia and Europe.
The smaller increase in the U.S. Client Services group was primarily a result of
the winding down of services with a large integrator client as well as a general
decline in demand for Company services due to the reluctance of customers to
implement new IT projects as they focus on their internal Year 2000 compliance
efforts.

                                       15
<PAGE>

  Gross Profit.  Gross profit increased 28.9%, or $27.1 million to $120.6
million in the first nine months of 1999 from $93.5 million in the first nine
months ended 1998.  Gross profit as a percentage of revenues increased to 33.2%
in the first nine months of 1999 from 32.8% in the first nine months of 1998.
The primary reasons for the increase in gross profit as a percentage of revenues
were the expansion into new higher margin business lines such as E-Business
services, network solutions and customer relationship management and improved
IT-professional utilization.

  Selling, General and Administrative Expenses.   Selling, general and
administrative expenses increased 27.7%, or $15.2 million, to $70.0 million in
the first nine months of 1999 from $54.8 million in the first nine months of
1998. The increase in selling, general and administrative expenses reflects the
costs of supporting the Company's continued revenue growth and expansion into
new business lines and geographic regions. As a percentage of revenues, SG&A
expenses increased slightly to 19.3% in the first nine months of 1999 from 19.2%
in the first nine months of 1998. The Company continues to monitor its SG&A
costs and expenses through an aggressive focus on utilizing cost saving
technologies.

   Special Charge.   The Company incurred a special charge of $3.5 million or
$0.05 per basic share during the third quarter of 1999 related to the winding
down of past and current projects with a large integrator client. These costs
consist primarily of relocation costs and extra training costs for personnel
previously engaged with this client.

  Other Income, Net.   Other income was $1.8 million in the first nine months of
1999 compared to other income of $2.1 million in the first nine months of 1998.
This decrease of $300,000 in other income was primarily the result of losses
incurred due to the Company's investments in two 50% owned joint ventures during
the third quarter of 1999.

  Merger-Related Expenses.   The Company incurred $1.7 million of merger-related
expenses in connection with the Amber acquisition during the first nine months
of 1999. The Company also incurred $3.2 million of merger-related expenses in
connection with the Quantum acquisition during the first nine months of 1998.
These expenses consisted primarily of severance payments, office closures, and
related professional fees.

  Income taxes.   Provision for income taxes was $16.9 million, or an effective
tax rate of 35.9% for the first nine months of 1999 compared to $14.8 million,
or an effective tax rate of 39.2% for the first nine months of 1998. Factors
contributing to the reduction in the effective tax rate included an increase in
the amounts of permanent book to tax differences which consist primarily of
goodwill and amortization;  changes in tax status of acquired businesses; tax-
exempt interest income generated by the Company's municipal bond portfolio; and
the tax holiday for the Company's Indian operations as well as overall tax
planning.


Liquidity and Capital Resources

The Company continued to generate cash flows from operations to fund its
business growth.  The Company has also continued to strengthen its working
capital position.  At September 30, 1999, the Company had cash and short-term
investments of $116.4 million, consisting of cash of $33.2 million and short-
term investments of $83.2 million.  This compares to cash and short-term
investments of $82.6 million, consisting of cash of $35.5 million and short-term
investments of $47.1 million at December 31, 1998.   Cash provided by operating
activities was $17.9 million for the nine months ended September 30, 1999 as
compared to cash provided by operating activities of $15.6 million for the nine
months ended September 30, 1998.   The increase of $2.2 million resulted from
increases in net income and accrued liabilities.

At September 30, 1999, the Company's billed days sales outstanding ("DSO") based
upon billed receivables was 65 compared to 60 billed DSO at December 31, 1998.
The increases in DSO were primarily associated with several major clients
centered mostly in the United States.  The Company continually focuses on
collecting on its receivables, involving several management departments.

Cash used in investing activities was $52.7 million and $71.5 million for the
nine months ended September 30, 1999 and 1998, respectively. Acquisitions, net
of cash acquired totaled approximately $10.5 million during the first nine
months of 1999 compared to $4.2 million during the first nine months of 1998.
Capital expenditures for the nine months ended

                                       16
<PAGE>

September 30, 1999 and 1998 were approximately $5.3 million and $8.1 million,
respectively. These capital expenditures consisted primarily of computer and
related equipment to support its technical, consulting and administrative
functions. Also included in these capital expenditures were leasehold
improvements. Cash used to purchase investments were $36.5 million during the
first nine months of 1999. During the first nine months of 1998, the Company
recorded its net purchase of investments of $58.5 million. These investments are
classified as available-for-sale and recorded at fair value. Purchases of
investments for the first nine months of 1999 includes the proceeds from the
issuance of long term debt to GE Capital Equity Investments, Inc. (see below).

The Company entered into two 50% owned joint ventures during the third quarter
of 1999.  Both of these joint ventures are in the start-up phase of their
existence. Cash flows net of losses incurred due to start up totaled $450,000.

Net cash flows provided by financing activities was $31.1 million for the first
nine months of 1999; this amount was primarily due to the proceeds from the
issuance of long term debt as discussed below. Net cash flows used in financing
activities were $4.3 million for the first nine months of 1998.  At September
30, 1999, the company purchased treasury stock at a cost of $916,000. Cash
provided by financing activities was $3.3 million for the first nine months
ended September 30, 1999, mainly due to the proceeds from the exercise of
employee stock options. This compares to cash provided by financing activities
related to the proceeds from the exercise of employee stock options of $3.9
million for the first nine months of September 30, 1998.

On July 22, 1999, Mastech completed a private placement of a $30,000,000
Convertible Promissory Note (the "Note") with GE Capital Equity Investments,
Inc. ("GE Capital").  The entire principal amount of the Note matures on July
22, 2004.  The Note accrues interest at the rate of 6.30% per annum, payable
semi-annually in arrears on the last day of each July and January.  The first
interest payment is scheduled for January 31, 2000.  The Note is convertible at
any time after July 22, 2003 through its maturity, at the option of the holder,
into shares of Mastech common stock at an initial conversion price of $21.64 per
share in the event that the certain performance targets are achieved.

The Company has in place a $75.0 million revolving credit facility with PNC
Bank, National Association ("the Credit Facility").  This Credit Facility bears
interest at a rate per annum equal to a base rate (which is adjusted by a change
in the prime rate or the Federal Funds Effective Rate at the Company's option)
that is equal to the sum of the Euro-rate plus an applicable Euro-rate margin.
The Credit Facility contains certain restrictive covenants and financial ratio
requirements which would limit distributions to shareholders and additional
borrowings.  There were no borrowings outstanding under this arrangement at
September 30, 1999 or at December 31, 1998.

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.

Management believes that the Company will be able to meet its liquidity and cash
needs for the next twelve months through a combination of cash flows from
operating activities, cash balances and unused borrowing capacities (see above).

The Company's functional currency for financial reporting purposes is the US
Dollar. The Company generally invoices its clients in the local currency of the
country in which the client is located. Translation gains and losses arising
from differences between the functional and local currencies are recognized in
the consolidated condensed income statements and have not had a significant
impact on the results of operations. Gains and losses as a result of
fluctuations in foreign currency exchange rates are recognized in shareholders'
equity as a component of comprehensive income. The Company continually evaluates
the economic conditions of each country in which it operates and bases its
foreign currency accounting policies on those assessments.

                                       17
<PAGE>

Year 2000 ("Y2K")

The Y2K problem refers to problems which may occur because some computer systems
currently record years in a two-digit format. These computer systems may have
difficulty recognizing or processing date information after December 31, 1999.
The Y2K problem may also occur with embedded chips. The Company has been working
to evaluate the potential effect of the Y2K problem on the Company's operations.


Internal Systems

The Company developed a plan to evaluate its key internal computer systems. The
plan consisted of the following four phases: Inventory; Evaluation/Assessment of
Y2K Risk; Remediation and Testing. The Company has completed all phases of
evaluation for the internal financial and operational systems located at the
corporate headquarters of the Company. Based upon written documentation and
information available on vendor websites, certain testing procedures for
business critical hardware and software were developed and implemented by the
Company. An independent third party reviewed both vendor information and testing
results and conducted other tests to validate work performed. As a result of
this, the Company does not believe that the internal computer systems at its
corporate headquarters will experience significant Y2K problems.

The Company has also completed the evaluation of the internal financial and
operational systems of its other U.S. locations and international operations,
excluding certain systems involving operations of companies recently acquired by
the Company. The Company has completed an evaluation of the internal financial
and operational systems of companies acquired through September 30, 1999. At
this time, the Company does not believe that the internal financial and
operational systems of its other U.S. location computer systems will experience
significant Y2K problems.

Cost of Year 2000 Compliance Efforts

The Company does not expect to incur substantial costs with respect to its Y2K
compliance efforts and the Company has not deferred other information technology
projects as a result of the Y2K problem. To date, the Company has incurred
expenses totaling $129,000 and anticipates that its total expenses will not
exceed $250,000 These figures are primarily reflective of the costs associated
with the use of third parties to review and validate work performed and the
costs assessing Y2K problems relating to or arising with respect to third
parties. The cost estimates do not include the cost of internal efforts by
Company personnel. The Company has not separately accounted for these internal
costs.

Third Party Relationships

The Company has contacted its key vendors regarding their Y2K compliance
efforts. Although the Company has received some information from its vendors
regarding their Y2K compliance efforts, there can be no assurance that the
Company will not experience disruptions in its ability to conduct its business
because of Y2K problems experienced by the Company's vendors.

In addition, the Company has contacted its key customers regarding their Y2K
compliance efforts. Although the Company has received some information from its
customers regarding their Y2K compliance efforts, there can be no assurance that
such customers will not experience disruptions in their business which would
result in material adverse affects to the Company. One example of a worst case
scenario would be a failure in the accounting systems of a significant number of
the Company's key clients due to the Y2K problem that resulted in a delay in the
payment of invoices issued by the Company for services and expenses.

Potential Liability to Third Parties

The Company has participated in Y2K remediation projects for some of its
customers. Although the Company has no reason to believe that any such work will
result in litigation against the Company, it is possible that the Company could
be materially adversely affected by litigation in connection with the Y2K
remediation services provided by the Company.

                                       18
<PAGE>

The Company's policy has been to attempt to include provisions in client
contracts that, among other things, disclaim implied warranties, limit the
duration of express warranties, limit the Company's liability to predetermined
amounts, and disclaim any liability arising from third-party software that is
implemented or installed by the Company. The Company also maintains insurance to
protect against potential liability in connection with Y2K remediation services
provided by the Company. There can be no assurance that the Company will be able
to obtain the desired contractual protections in agreements or that any such
contractual provisions will prevent clients from asserting claims against the
Company with respect to the Y2K issue. There also can be no assurance that the
contractual protections, if any, obtained by the Company or the insurance
coverage will operate to protect the Company from, or adequately limit the
amount of, any liability arising from claims asserted against the Company.

Contingency Plan

The Company has developed a contingency plan to address various situations which
may result if the Company experiences Y2K problems. The plan will include
identification of major systems, dependencies on third parties and resources and
strategies necessary to restore operations or work around failures. The
contingency plan will be approved by the Board of Directors on December 6, 1999.
There can be no assurance that the contingency plan developed by the Company
will adequately protect the Company from internal Y2K problems or prevent
service interruption or failures experienced by customers and suppliers from
having a material adverse effect on the Company.

Demand for Year 2000 Services

Many of the Company's clients have needed to repair or replace their legacy
systems because of Y2K issues. The Company believes this has favorably impacted
the demand for its services and products. Mastech expects that the demand for
its  Y2K related services will diminish significantly over time and will
eventually disappear. The Company also believes that as companies focus on Y2K
issues, other less critical projects have not been and may not be initiated or
may be suspended. Although the Company provides a broad range of information
technology services, Mastech believes that the reduction in the future demand
for its services that may result from these Y2K-related factors could have an
adverse impact on its future performance.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

On June 30, 1998, the Company entered into a foreign exchange contract with PNC
Bank, National Association to hedge its foreign exchange exposure on certain
intercompany debt. This contract matured on each fiscal quarter end and was
extended for an additional three months each time.  The Company realized interim
gains on the contract extensions at each of September 30, 1998 and December 31,
1998, and September 30, 1999; and realized an interim loss on the contract
extensions at each of March 31, 1999 and June 30, 1999. Gains or losses were
recognized under hedge accounting in Shareholder's Equity as a component of
Currency Translation Adjustment. Such gains and losses are essentially offset in
Currency Translation Adjustment by gains or losses on the translation of the
related debt. On September 30, 1999, the contract was extended to December 30,
1999.

The outstanding contract is the far end of a swap for the sale by the Company of
7 million Canadian dollars at 1.4615 (US $4,789,600). It is the intention of the
Company to continue to extend the contract on a quarterly basis until ultimate
repayment of the intercompany loan. If the Canadian dollar weakens resulting in
a higher USD/CAD exchange rate than 1.4615 on September 30, 1999, the Company
will record an interim gain upon extension of the contract. If the Canadian
dollar strengthens resulting in a lower USD/CAD exchange rate than 1.4615 on
December 30, 1999, the Company will record an interim loss upon extension of the
contract.  At September 30, 1999, the USD/CAD exchange rate was 1.4680.

                                       19
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Neither the Company nor any of its subsidiaries is party to any litigation that
is expected to have a material or adverse effect on the Company or its business.


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

On July 22, 1999, Mastech completed a private placement of a $30,000,000
Convertible Promissory Note (the "Note") with GE Capital Equity Investments,
Inc. ("GE Capital").  The entire principal amount of the Note matures on July
22, 2004.  The Note accrues interest at the rate of 6.30% per annum, payable
semi-annually in arrears on the last day of each July and January.  The first
interest payment is scheduled for January 31, 2000.  The Note is convertible at
any time after July 22, 2003 through its maturity, at the option of the holder,
into shares of Mastech common stock at an initial conversion price of $21.64 per
share in the event that the certain performance targets are achieved.

The Company relied upon the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended, in connection with the offer and sale
of the Note and shares of Mastech common stock underlying the Note. In this
regard, the Company relied upon representation from GE Capital regarding its
investment intent, sophistication and status as an accredited investor. No
underwriter was involved in this private placement. The Company has agreed to
file a registration statement registering the shares of Mastech common stock
underlying the Note for resale.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.


ITEM 5.  OTHER INFORMATION


Government Regulation of Immigration

The Company recruits its IT professionals on a global basis and, therefore, must
comply with the immigration laws in the countries in which it operates,
particularly the United States. As of September 30, 1999, approximately 35% of
the Company's worldwide workforce were working under H-1B temporary work permits
in the United States. Government regulation limits the number of new H-1B
permits that may be approved in a fiscal year. On October 22, 1998, the
"American Competitiveness and Workforce Improvement Act" was signed into law.
The H-1B annual quota for fiscal year 1999 was increased from 65,000 to 115,000.
The quota for fiscal years 2000 and 2001 will be 115,000 and 107,500
respectively. If the Company is unable to obtain H-1B visas for its employees in
sufficient quantities or at a sufficient rate for a significant period of time,
the Company's business, operating results and financial condition could be
adversely affected. As of September 30, 1999, there have been no significant
amendments or modifications to this law.

                                       20
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits:

       The following exhibits are being filed with this report:

Exhibit Number     Description
- --------------     -----------
      4.1          Note Purchase Agreement dated as of July 22, 1999 between
                   Mastech Corporation and GE Capital Equity Investments, Inc.

      4.2          Registration Rights Agreement dated as of July 22, 1999
                   between Mastech Corporation and GE Capital Equity
                   Investments, Inc.

     27.1          Financial Data Schedule for the three months ended
                   September 30, 1999

(b)    Reports on Form 8-K:

       The Company filed a Form 8-K on September 9, 1999, disclosing two press
       releases. The first press release announced the Company's revision of its
       revenue and earnings estimates for the quarter ending September 30, 1999.
       The second press release, dated September 13, 1999, announced that the
       Company's Board of Directors authorized the repurchase of up to 3,000,000
       shares of the Company's outstanding common stock from time to time on the
       open market or through privately negotiated transactions.

                                       21
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                           MASTECH CORPORATION
                                               (REGISTRANT)


Dated:   November 15, 1999                 /s/ Sunil Wadhwani
                                           ----------------------------
                                           Co-Chairman, Chief Executive
                                           Officer and Director

Dated:   November 15, 1999                 /s/ Jeffrey A. McCandless
                                           ----------------------------
                                           Vice President, Finance and
                                           Chief Financial Officer

                                       22
<PAGE>

                                 EXHIBIT INDEX

Exhibit Number     Description
- --------------     -----------
     4.1           Note Purchase Agreement dated as of July 22, 1999 between
                   Mastech Corporation and GE Capital Equity Investments, Inc.

     4.2           Registration Rights Agreement dated as of July 22, 1999
                   between Mastech Corporation and GE Capital Equity
                   Investments, Inc.

    27.1           Financial Data Schedule for the three months ended
                   September 30, 1999

                                       23

<PAGE>

                                                                    Exhibit 4.1

                           NOTE PURCHASE AGREEMENT
                           -----------------------

          NOTE PURCHASE AGREEMENT, dated as of July 22, 1999, by and between
Mastech Corporation, a Pennsylvania corporation ("Company"), and GE Capital
Equity Investments, Inc., a Delaware corporation ("GE Capital" or "Purchaser").

                             W I T N E S S E T H :
                             -------------------

          WHEREAS, Company has agreed to issue and sell to Purchaser, and
Purchaser has agreed to purchase from Company, upon the terms and conditions
hereinafter provided, a senior convertible promissory note in the principal
amount of $30,000,000, which is initially convertible into 1,386,322 shares of
Common Stock (as defined herein) of Company pursuant to the terms hereof (the
"Note");

          NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:

1.  DEFINITIONS.
    ------------

          "Affiliate" shall mean, with respect to any Person, (i) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, 5% or more of the Stock having ordinary
voting power in the election of directors of such Person, (ii) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person, (iii) each of such Person's officers, directors, joint
venturers and partners, (iv) any trust or beneficiary of a trust of which such
Person is the sole trustee or (v) any lineal descendants, ancestors, spouse or
former spouses (as part of a marital dissolution) of such Person (or any trust
for the benefit of such Person).  For the purpose of this definition, "control"
of a Person shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.

          "Agreement" shall mean this Note Purchase Agreement including all
amendments, modifications and supplements hereto and any appendices, exhibits
and schedules hereto or thereto, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.

          "Balance Sheet" shall have the meaning set forth in Section 4.7(a)
hereof.

          "Business Day" shall mean any day that is not a Saturday, a Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.

          "Capital Lease" shall mean, with respect to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease
<PAGE>

on a balance sheet of such Person or otherwise be disclosed as a capital lease
in a note to such balance sheet, other than, in the case of Company or a
Subsidiary of Company, any such lease under which Company or such Subsidiary
is the lessor.

          "Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that, in accordance
with GAAP, would appear on a balance sheet of such lessee in respect of such
Capital Lease or otherwise be disclosed in a note to such balance sheet.

          "Cash Equivalents" shall mean (i) marketable direct obligations issued
or unconditionally guaranteed by the United States of America or any agency
thereof maturing within one year from the date of acquisition thereof; (ii)
commercial paper maturing no more than one year from the date of creation
thereof and at the time of their acquisition having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; and (iii) certificates of deposit, maturing not more than one
year from the date of creation thereof, issued by commercial banks incorporated
under the laws of the United States of America, each having combined capital,
surplus and undivided profits of not less than $200,000,000 and having a rating
of "A" or better by a nationally recognized rating agency.

          "Change of Control" shall mean any of the following: (a) any person or
group of persons (within the meaning of the Exchange Act) (other than GE Capital
and its Affiliates and those existing shareholders of Company set forth on
Schedule 1(A) hereto) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 30% or
more of the issued and outstanding shares of Common Stock of Company; (b)
Company shall be a party to a merger or consolidation in which Company's
stockholders immediately prior thereto own less than a majority of the
outstanding voting stock of the survivor; or (c) Company shall have sold, leased
or otherwise transferred all or substantially all of its assets.

          "Charges" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental (including, without limitation, PBGC) taxes
at the time due and payable, levies, assessments, charges, liens, claims or
encumbrances upon or relating to (i) Company's or any of its Subsidiaries'
employees, payroll, income or gross receipts, (ii) Company's or any of its
Subsidiaries' ownership or use of any of its assets, or (iii) any other aspect
of Company's or any of the Subsidiaries' business.

          "Closing" shall have the meaning set forth in Section 2.2 hereof.

          "Closing Date" shall have the meaning set forth in Section 2.2 hereof.

          "Closing Price" shall mean, in respect of any share of Common Stock on
any date herein specified which is a Business Day, (i) the last sale price on
such day on the principal stock exchange or NASDAQ National Market System
("NASDQ/NMS") on which such Common Stock is then listed or admitted to trading
or (ii) if no sale takes place on such day on such exchange or NASDAQ/NMS, the
average of the last reported

                                       2
<PAGE>

closing bid and asked prices on such day as officially quoted on any such
exchange or NASDAQ/NMS.

          "COBRA" shall have the meaning set forth in Section 4.18(m) hereof.

          "Common Stock" shall mean the common stock, $.01 par value per share,
of Company.

          "Consolidated Cash" shall mean Company's and its Subsidiaries cash
consolidated in accordance with GAAP.

          "Consolidated Cash Equivalents" shall mean Company's and its
Subsidiaries' Cash Equivalents consolidated in accordance with GAAP.

          "Consolidated Interest Expense" shall mean any Person's interest
expense, consolidated in accordance with GAAP.

          "Consolidated Net Worth" shall mean stockholders' equity of  any
Person consolidated in accordance with GAAP.

          "Consolidated Receivables" shall mean Company's and its Subsidiaries'
receivables consolidated in accordance with GAAP.

          "Consolidated Senior Indebtedness" shall mean Indebtedness of Company
and its Subsidiaries consolidated in accordance with GAAP, which Indebtedness by
its terms is not subordinated to the payment in full of the Note in a manner in
form and substance satisfactory to Purchaser.

          "Consolidated Senior Indebtedness to EBITDA Ratio" shall mean, as of
any date of determination, the ratio of the Company's Consolidated Senior
Indebtedness as of the end of the Company's most recently completed Fiscal
Quarter to Company's EBITDA for Company's four most recently completed Fiscal
Quarters treated as a single accounting period.

          "Conversion" shall have the meaning set forth in Section 7.1 hereof.

          "Conversion Price" shall have the meaning set forth in Section 7.1
hereof.

          "Credit Agreement" shall mean the Credit Agreement dated December 3,
1998 among Company, as borrower, the financial institutions party thereto, as
lenders, and PNC Bank, National Association, as Agent and L/C Issuer, and the
related ancillary documents thereto, as the same may be amended, modified or
supplemented from time to time, and including any successor or replacement
credit agreement.

          "Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the average of the daily market prices for
30 consecutive Business Days commencing 45 days before such date.  The daily
market

                                       3
<PAGE>

price for each such Business Day shall be (i) the last sale price on such
day on the principal stock exchange or NASDAQ National Market System ("NASDAQ-
NMS") on which such Common Stock is then listed or admitted to trading, (ii) if
no sale takes place on such day on any such exchange or NASDAQ-NMS, the average
of the last reported closing bid and asked prices on such day as officially
quoted on any such exchange or NASDAQ-NMS, (iii) if the Common Stock is not then
listed or admitted to trading on any stock exchange or NASDAQ-NMS, the average
of the last reported closing bid and asked prices on such day in the over-the-
counter market, as furnished by the National Association of Securities Dealers
Automatic Quotation System or the National Quotation Bureau, Inc., (iv) if
neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National
Association of Securities Dealers ("NASD") selected mutually by the Required
Holders and Company or, if they cannot agree upon such selection, as selected by
two such members of the NASD, one of which shall be selected by the Required
Holders and one of which shall be selected by the Company.

          "Default" shall mean any event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.

          "DOJ" shall mean the Antitrust Division of the Department of Justice
of the United States.

          "EBIT" shall mean the consolidated operating income (before
extraordinary items, interest, taxes) of such Person and its consolidated
Subsidiaries determined in accordance with GAAP.

          "EBITDA" shall mean the consolidated operating income (before
extraordinary items, interest, taxes, depreciation and amortization) of such
Person and its consolidated Subsidiaries determined in accordance with GAAP.

          "Environmental Laws" shall mean all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable Real Estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation).  Environmental Laws include but are not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. (S) 9601 et seq.) ("CERCLA"); the Hazardous Material
                               -- ---
Transportation Act, as amended (49 U.S.C. (S) 1801 et seq.); the Federal
                                                   -- ---
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. (S) 136 et
                                                                          --
seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. (S)
- ---
6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C.
     -- ---
(S) 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S) 740 et seq.);
         -- ---                                                     -- ---
the

                                       4
<PAGE>

Federal Water Pollution Control Act, as amended (33 U.S.C. (S) 1251 et
                                                                    --
seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. (S) 651 et
- ---                                                                          --
seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. (S) 300f
- ---
et seq.), and any and all regulations promulgated thereunder, and all analogous
- -- ---
state and local counterparts or equivalents and any transfer of ownership
notification or approval statutes.

          "Environmental Liabilities and Costs" shall mean all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim, suit,
action or demand by any person or entity, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil statute or
common law (including, without limitation, any thereof arising under any
Environmental Law, permit, order or agreement with any Governmental Authority)
and which relate to any health or safety condition regulated under any
Environmental Law or in connection with any other environmental matter or Spill
or the presence of a Hazardous Substance or threatened Spill of any Hazardous
Substance.

          "ERISA" shall mean the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto), as amended from time to time and any
regulations promulgated thereunder.

          "ERISA Affiliate" shall mean, with respect to Company, any trade or
business (whether or not incorporated) under common control with Company and
which, together with Company, are treated as a single employer within the
meaning of Sections 414(b), (c), (m) or (o) of the IRC, excluding Purchaser and
each other person which would not be an ERISA Affiliate if Purchaser did not own
any issued and outstanding shares of Stock of Company.

          "Event of Default" shall have the meaning set forth in Section 8.1
hereof.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.

          "Extraordinary Default Target Percentage Achieved" shall mean, with
respect to the occurrence of any Extraordinary Default, that percentage obtained
by dividing (i) the sum of (A) the Performance Revenues achieved for the period
commencing July 1, 1999 through close of the last full target year or years (as
contemplated in the definition of "Performance Revenue Targets"), if any, prior
to such Extraordinary Default plus (B) the product of (1) the Performance
Revenues achieved for the period after the most recently completed full target
year and through the date of such Extraordinary Default (the "Stub Period"),
multiplied by (2) a fraction, the denominator of which is the number of days
elapsed in such Stub Period and the numerator of which is 365, by (ii) the
cumulative Performance Revenue Targets for the period commencing

                                       5
<PAGE>

July 1, 1999 through the close of the full target year in which such
Extraordinary Default occurs.

          "Extraordinary Default" shall mean any (i) Payment Default or (ii)
Change of Control.

          "Financials" shall mean the financial statements referred to in
Section 4.7(a) hereof.

          "Fiscal Quarter" shall mean each three month period of Company ending
on March 31, June 30, September 30, and December 31.  Subsequent changes of the
fiscal year of Company shall not change the term "Fiscal Quarter," unless the
Required Holders shall consent in writing to such changes which consent shall
not be withheld if such changes do not materially affect the enforcement of the
financial covenants set forth in Section 5.2 in the reasonable credit judgment
of Purchaser.

          "Fiscal Year" shall mean the twelve month period ending December 31.
Subsequent changes of the fiscal year of Company shall not change the term
"Fiscal Year," unless the Required Holders shall consent in writing to such
changes which consent shall not be withheld if such changes do not materially
affect the enforcement of the financial covenants set forth in Section 5.2 in
the reasonable credit judgment of Purchaser.

          "FTC" shall mean the Federal Trade Commission of the United States.

          "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, except that for
purposes of the financial covenants contained in Section 5.1(b) hereof, GAAP
shall be as in effect on the date of the most recent Financials and shall be
applied in a manner consistent therewith.

          "GE Capital" shall have the meaning set forth in the first paragraph
of this Agreement.

          "GE Equity Companies" shall mean GE Capital, General Electric Company
or its Subsidiaries and any other entity from time to time in which General
Electric Capital Corporation or GE Capital has a minority equity investment
which is referred to Company using substantially the Referral Form attached
hereto as Exhibit D and is consented to the Company (which consent shall not be
unreasonably withheld).

          "Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

          "Guaranteed Indebtedness" shall mean, as to any Person, any obligation
of such Person guaranteeing any Indebtedness, lease, dividend, or other
obligation

                                       6
<PAGE>

("primary obligations") of any other Person (the "primary obligor") in any
manner including, without limitation, any obligation or arrangement of such
Person (a) to purchase or repurchase any such primary obligation, (b) to
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment
of such primary obligation, or (d) to indemnify the owner of such primary
obligation against loss in respect thereof.

          "Hazardous Substance" shall have the meaning set forth in Section 4.10
hereof.

          "Holder" shall mean Purchaser and any other holder of the Note.

          "HRS Act" shall mean the Hart-Scott-Rodino Antitrust Improvement Act
of 1974, as amended.

          "Indebtedness" of any Person shall mean (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (including, without limitation, reimbursement and all other obligations
with respect to surety bonds, letters of credit and bankers' acceptances,
whether or not matured, but not including obligations to trade creditors
incurred in the ordinary course of business), (ii) all obligations evidenced by
notes, bonds, debentures or similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreements with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (iv) all Capital Lease Obligations,
(v) all Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause
(i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness and (vii) all liabilities
under Title IV of ERISA.

          "Interest Payment Date" shall have the meaning assigned to such term
in Section 2.6(a) hereof.

          "IRC" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.

          "IRS" shall mean the Internal Revenue Service, or any successor
thereto.

          "IT Services" shall mean those information technology services
provided by Company from time to time, including applications design development
and

                                       7
<PAGE>

maintenance, enterprise resource package implementation, offshore software
design, development and maintenance, customer relationship management package
implementation, and e-commerce strategy and implementation.

          "Joint Venture" shall mean a joint venture between General Electric
Capital Corporation and Company for the performance of IT Services and business
process outsourcing services.

          "Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, preemptive right, assignment, deposit arrangement, lien, charge,
claim, security interest, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest as to assets owned by the relevant Person under
the Uniform Commercial Code or comparable law of any jurisdiction).

          "Loan Documents" shall mean this Agreement, the  other Transaction
Documents and all other agreements, instruments, documents and certificates,
including pledges, powers of attorney, consents, assignments, contracts,
financial statements, notices, and all other written matter whether heretofore,
now or hereafter executed by or on behalf of Company, and delivered to
Purchaser, in its capacity as a purchaser of the Note hereunder, in connection
with this Agreement and the other Transaction Documents or the transactions
contemplated hereby or thereby.

          "Material Adverse Effect" shall mean a material adverse effect on (i)
the business, assets, operations, or financial condition or results of
operations of Company and its Subsidiaries, if any, taken as a whole or (ii)
Company's ability to pay the principal amount of the Note in accordance with the
terms hereof.

          "Material Contracts" means (i) all of Company's and its Subsidiaries'
material contracts that would be required to be filed with the SEC pursuant to
item 601(b)(10) of Regulation S-K of the Securities Act, (ii) all agreements,
leases or other instruments to which Company or any of its Subsidiaries is a
party or by which Company, its Subsidiaries or its properties are bound, which
involve payments by or to Company or its Subsidiaries of more than $5,000,000,
(iii) all of Company's and its Subsidiaries' loan agreements, bank lines of
credit agreements, indentures, mortgages, deeds of trust, pledge and security
agreements, factoring agreements, conditional sales contracts, letters of
credit, guarantees or other debt instruments involving commitments of more than
$5,000,000, (iv) all non-competition and similar agreements to which Company is
a party which restrict Company's ability to engage in certain businesses, (v)
all contracts for the employment of any executive officer of Company or its
Subsidiaries, and (vi) all collective bargaining, union and similar labor
contracts of Company or its Subsidiaries.

                                       8
<PAGE>

          "Maximum Lawful Rate" shall have the meaning set forth in Section
2.6(e) hereof.

          "Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which Company, any of its Subsidiaries or
any ERISA Affiliate is making, is obligated to make, has made or been obligated
to make, contributions on behalf of participants who are or were employed by any
of them.

          "Note" shall mean the convertible promissory note of Company in the
principal amount of $30,000,000 to be issued to Purchaser hereunder,
substantially in the form of Exhibit A hereto.

          "Obligations" shall mean all amounts owing by Company to Purchaser and
any of its assignees pursuant hereto or the Note, including, without limitation,
all principal, interest, fees, expenses, attorneys' fees and any other sum
chargeable to Company under any of the Loan Documents.

          "Payment Default" shall mean a default under Section 8.1(a) hereof.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.

          "Pension Plan" shall have the meaning set forth in Section 4.18(a)
hereof.

          "Performance Revenues" shall mean the cumulative revenues of Company
and its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP, relating to IT Services performed for any GE Equity Companies, plus 37.5%
                                                                     ----
of any such revenues of Company and its Subsidiaries which are generated by the
Joint Venture relating to IT Services performed for any GE Equity Companies, in
each case, within the three year period commencing on July 1, 1999 and ending on
the date such Performance Revenues are to be measured in accordance with this
Agreement.

                                       9
<PAGE>

          "Performance Revenue Targets" shall mean the following Performance
Revenue targets:

               Year Ended                             Target
               ----------                             ------
               June 30, 2000                       $29,000,000
               -------------
               June 30, 2001                       $42,000,000
               -------------
               June 30, 2002                       $51,000,000
               -------------
               Cumulative
               Three-Year
               Target                             $122,000,000
               ----------

          "Permitted Liens" shall mean the following:   (i) Liens for taxes or
assessments or other governmental charges or levies, either not yet due and
payable or to the extent that nonpayment thereof is permitted by the terms of
this Agreement; (ii) pledges or deposits securing obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (iii) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Company or any of its Subsidiaries is a party as lessee made in the ordinary
course of business; (iv) Liens arising solely by virtue of any statutory or
common law provision relating to bankers' liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; (v) workers, mechanics, suppliers, carriers,
warehousemen's or other similar liens arising in the ordinary course of business
and securing indebtedness, not yet due and payable; (vi) deposits securing or in
lieu of surety, appeal or customs bonds in proceedings to which Company or any
of its Subsidiaries is a party; (vii) Liens arising in the ordinary course of
business in connection with obligations that are not overdue or which are being
contested in good faith and by appropriate proceedings, including, but not
limited to, Liens under bid, performance and other surety bonds, supersedeas and
appeal bonds, landlord Liens arising under leases of real property, Liens on
advance or progress payments received from customers under contracts for the
sale, lease or license of goods, software or services and upon the products
being sold or licensed, in each case securing performance of the underlying
contract or the repayment of such advances in the event final acceptance of
performance under such contracts does not occur, and Liens upon funds collected
temporarily from others pending payment or remittance on their behalf; (viii)
zoning restrictions, easements, licenses, or other restrictions on the use of
real property or other minor irregularities in title (including leasehold title)
thereto, so long as the same do not materially impair the use, value, or
marketability of such real property, leases or leasehold estates; and (ix) Liens
or pledges arising from or created pursuant to the Credit Agreement.

                                       10
<PAGE>

          "Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, any instrumentality, division, agency, body or department thereof).

          "Plan" shall have the meaning set forth in Section 4.19(a) hereof.

          "Prohibited Transaction" shall mean any prohibited transaction as
defined in Section 4975 of the IRC or Section 406 of ERISA for which neither an
individual nor a class exemption has been issued by the United States Department
of Labor.

          "Purchaser" shall have the meaning set forth in the first paragraph of
this Agreement.

          "Registration Rights Agreement" shall mean the Registration Rights
Agreement by and between Company and Purchaser, substantially in the form
attached hereto as Exhibit C, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

          "Reportable Event" shall mean a reportable event described in Section
4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer
Plan.

          "Required Holders" shall mean Persons who hold at least a majority of
the outstanding principal amount of the Note.

          "SEC" shall mean the U.S. Securities and Exchange Commission, or any
successor thereto.

          "Securities Act" shall mean the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.

          "Spill" shall have the meaning set forth in Section 4.10 hereof.

          "Stock" shall mean all shares, options, warrants, general or limited
partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the Exchange
Act).

          "Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time,

                                       11
<PAGE>

directly or indirectly, owned legally or beneficially by such Person and/or
one or more Subsidiaries of such Person, and (b) any partnership or other
entity in which such Person and/or one or more Subsidiaries of such Person
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of more than 50%.

          "Target Percentage Achieved" shall mean that percentage obtained by
dividing (i) the cumulative Performance Revenues achieved for the period
commencing July 1, 1999 through the relevant date, by (ii) $122,000,000.

          "Target Percentage Shortfall" shall mean that percentage which is
obtained by dividing (i) the difference of $122,000,000 less the cumulative
Performance Revenues achieved for the period commencing July 1, 1999 through
June 30, 2002, by (ii) $122,000,000.

          "Taxes" shall have the meaning set forth in Section 2.12(a) hereof.

          "Transaction Documents" shall mean this Agreement, the Note and the
Registration Rights Agreement.

          "Welfare Plan" shall mean any welfare plan, as defined in Section 3(1)
of ERISA, which is maintained or contributed to by Company, any of its
Subsidiaries or any ERISA Affiliate.

          "Withdrawal Liability" means, at any time, the aggregate amount of the
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.

          "Year 2000 Compliant" shall have the meaning set forth in Section 4.24
hereof.

          References to this "Agreement" shall mean this Purchase Agreement,
including all amendments, modifications and supplements and any exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.

          Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied.  That certain terms or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed to
limit the foregoing.  The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole, including the
Exhibits and Schedules hereto, as the same may from time to time be amended,
modified or supplemented, and not to any particular section, subsection or
clause contained in this Agreement.  Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural,

                                       12
<PAGE>

and pronouns stated in the masculine, feminine or neuter gender shall include
the masculine, the feminine and the neuter. The words "includes" or
"including" and other words of similar import shall mean "including, without
limitation," unless the context expressly otherwise requires.

2.  PURCHASE OF NOTE
    ----------------

        2.1  Purchase of Note.  Subject to the terms and conditions set forth
             ----------------
in this Agreement, Purchaser agrees to purchase from Company, and Company
agrees to issue and sell to Purchaser, on the Closing Date, the Note for an
aggregate purchase price of $30,000,000, containing the terms set forth herein
and in Exhibit A hereto. The principal amount of the Note shall be
$30,000,000, and the maturity date thereof shall be July 22, 2004.

        2.2  Closing.  The closing of the purchase and sale of the Note (the
             -------
"Closing") took place on the date hereof (the "Closing Date") at the offices
of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York.

        On the Closing Date, Company delivered to Purchaser the Note payable
to Purchaser against delivery by Purchaser of the purchase price therefor by
wire transfer of funds to the account of Company.

        2.3  Optional Prepayment.  At any time and from time to time, following
             -------------------
the third anniversary of the Closing Date, if the Performance Revenues do not
equal or exceed $122,000,000 at June 30, 2002, Company shall have the right,
without premium or penalty, and on thirty (30) days' prior written notice to
Purchaser, to voluntarily prepay at a price equal to 100% of the face amount
thereof, that portion (in multiples of not less than $500,000 or the amount
outstanding on the Note) of the outstanding principal amount of the Note which
equals the Target Percentage Shortfall. Each prepayment shall be accompanied
by the payment of accrued and unpaid interest on the amount being prepaid,
through the date of prepayment. Company shall not have any other right to
prepay the Note.

        2.4  Mandatory Redemption.  Upon the occurrence of a Change of Control,
             --------------------
the Purchaser shall have the right to require the Company (or any successor) to
redeem all or a portion of the Note not otherwise converted pursuant to Section
7.1 for a price equal to 100% of the face amount thereof, together with a
payment of all accrued and unpaid interest on the amount being prepaid through
the date of prepayment.  Company shall give Purchaser written notice of the
occurrence of a Change of Control within ten (10) days after the occurrence
thereof.  Purchaser shall exercise the foregoing right at any time within 90
days of a Change of Control by delivery to Company of written notice thereof
indicating the amount of the Note which Purchaser requires to be redeemed by
Company.  Company shall deliver the proceeds of such redemption by wire transfer
to Purchaser together with a new Note representing the unredeemed portion of the
Note, if any, within 10 days of receipt of Purchaser's notice described in the
preceding sentence.

                                       13
<PAGE>

        2.5  Use of Proceeds.  Company shall use the proceeds of the purchase
             ---------------
price hereunder for working capital and general corporate purposes.

        2.6  Interest on Note.  (a)  Company shall pay interest to Purchaser,
             ----------------
semi-annually in arrears on the last day of each July and January, commencing on
January 31, 2000 (each, an "Interest Payment Date"), at a rate equal to 6.30%
per annum, based on a year of 360 days for the actual number of days elapsed,
and based on the amounts outstanding from time to time under the Note.

   (b) If any payment on the Note becomes due and payable on a day other than
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.

   (c) So long as any Event of Default shall be continuing, the interest rate
applicable to the Note shall be increased by 2% per annum above the rate
otherwise applicable.

   (d) Notwithstanding anything to the contrary set forth in this Section 2.6,
if at any time until payment in full of the Note, the interest rate payable
thereon exceeds the highest rate of interest permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem
applicable hereto (the "Maximum Lawful Rate"), then in such event and so long
as the Maximum Lawful Rate would be so exceeded, the rate of interest payable
on the Note shall be equal to the Maximum Lawful Rate; provided, however, that
                                                       --------  -------
if at any time thereafter the interest rate payable  thereon is less than the
Maximum Lawful Rate, Company shall continue to pay interest thereunder at the
Maximum Lawful Rate until such time as the total interest received by Purchaser
is equal to the total interest which it would have received had the interest
rate on the Note been (but for the operation of this paragraph) the interest
rate payable since the Closing Date. Thereafter, the interest rate payable
shall be the stated interest rate unless and until such rate again exceeds the
Maximum Lawful Rate, in which event this paragraph shall again apply. In no
event shall the total interest received by Purchaser pursuant to the terms
hereof exceed the amount which it could lawfully have received had the interest
due hereunder been calculated for the full term hereof at the Maximum Lawful
Rate. In the event the Maximum Lawful Rate is calculated pursuant to this
paragraph, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. In the event that a court of competent jurisdiction,
notwithstanding the provisions of this Section 2.6(d), shall make a final
determination that Purchaser has received interest hereunder or under any of
the Loan Documents in excess of the Maximum Lawful Rate, Purchaser shall, to
the extent permitted by applicable law, promptly apply such excess first to any
interest due and not yet paid under the Note, then to the outstanding principal
of the Note, then to other unpaid Obligations and thereafter shall refund any
excess to Company or as a court of competent jurisdiction may otherwise order.

                                       14
<PAGE>

        2.7  Receipt of Payments.  Company shall make each payment under the
             -------------------
Note not later than 2:00 P.M. (New York City time) on the day when due in
lawful money of the United States of America in immediately available funds to
Purchaser's depository bank in the United States as designated by Purchaser
from time to time for deposit in Purchaser's depositary account.  For purposes
only of computing interest under the Note, all payments shall be applied by
Purchaser to the Note on the day payment has been credited by Purchaser's
depository bank to Purchaser's account in immediately available funds.

        2.8  Application of Payments.  Company irrevocably waives the right to
             -----------------------
direct the application of any and all payments at any time or times hereafter
received by Purchaser from or on behalf of Company pursuant to the terms of
this Agreement, and Company irrevocably agrees that Purchaser shall have the
continuing exclusive right to apply any and all such payments against the then
due and payable Obligations of Company and in repayment of the Note as it may
deem advisable.  In the absence of a specific determination by Purchaser with
respect thereto, the same shall be applied in the following order:  (i) then
due and payable fees and expenses; (ii) then due and payable interest payments
on the Note; and (iii) then due and payable principal payments on the Note.

        2.9  Sharing of Payments.  If any holder of the Note or a portion
             -------------------
thereof shall obtain any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise) on account of the Note held by
it in excess of its ratable share of payments on account of the Notes held by
all holders thereof, such holder shall forthwith purchase from each other
holder such participations in the Note held by it as shall be necessary to
cause such purchasing holder to share the excess payment ratably with each
other holder; provided, however, that if all or any portion of such excess
              --------  -------
payment is thereafter recovered from such purchasing holder, such purchase
shall be rescinded and such holder shall repay to the purchasing holder the
purchase price to the extent of such recovery together with an amount equal to
such holder's ratable share (according to the proportion of (i) the amount of
such holder's required repayment to (ii) the total amount so recovered from the
purchasing holder) of any interest or other amount paid or payable by the
purchasing holder in respect of the total amount so recovered.  Company agrees
that any holder so purchasing a participation from another holder pursuant to
this Section 2.9 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such holder were the direct creditor of Company in
the amount of such participation.  Company further agrees to make all payments
on the Note to all holders thereof on a pro rata basis, based on the principal
amount of the Note held by each.

        2.10  Indemnity.  Company shall indemnify and hold Purchaser and each
              ---------
of its officers, directors and Affiliates harmless from and against any and all
suits, actions, proceedings, claims, damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements, including those
incurred upon any appeal) which may be instituted or asserted against or
incurred by Purchaser or such other indemnified person as the result of
Purchaser having entered into this Agreement or any

                                       15
<PAGE>

of the other Loan Documents or purchased the Note hereunder or relating to or
arising out of any untrue representation, breach of warranty or failure to
perform any covenants or agreement by Company contained herein or in any
Transaction Document, including arising out of any Environmental Law applicable
to Company or its Subsidiaries or otherwise relating to or arising out of the
transactions contemplated hereby; provided, however, that Company shall not be
                                  --------  -------
liable for such indemnification to such indemnified Person to the extent that
any such suit, action, proceeding, claim, damage, loss, liability or expense
results from such indemnified Person's gross negligence or willful misconduct.

        2.11  Access.  Upon the occurrence of an Event of Default, an event of
              ------
default under the Credit Agreement or facts or circumstances which reasonably
could be expected to have a Material Adverse Effect, Purchaser and any of its
officers, employees and/or agents shall have the right, exercisable as
frequently as it determines to be appropriate, during normal business hours, to
visit and inspect the properties and facilities of Company and its Subsidiaries
and to inspect, audit and make extracts from all of Company's and its
Subsidiaries' records, files, corporate books and books of account and to
discuss the affairs, finances and accounts of Company and its Subsidiaries with
the principal officers of Company, all at such reasonable times, upon
reasonable notice and as often as Purchaser may reasonably request.  Company
shall deliver any document or instrument reasonably necessary for Purchaser, as
it may request, to obtain records from any service bureau maintaining records
for Company or its Subsidiaries.  Company shall instruct its and its
Subsidiaries' banking and other financial institutions to make available to
Purchaser such information and records as it may reasonably request.

        2.12  Taxes.  (a)  Any and all payments by Company hereunder or under
              -----
the Note shall be made, in accordance with this Section 2.12, free and clear of
and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on or measured by the net income (including gains
taxes) of Purchaser, by the jurisdiction under the laws of which it is
organized or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").  If Company shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under the
Note to Purchaser, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable
to additional sums payable under this Section 2.12) Purchaser receives an
amount equal to the sum it would have received had no such deductions been
made, (ii) Company shall make such deductions, and (iii) Company shall pay the
full amount deducted to the relevant taxing or other authority in accordance
with applicable law.

   (b)  In addition, Company agrees to pay any present or future stamp or
documentary taxes or any other sales, transfer, excise, mortgage recording or
property taxes, charges or similar levies that arise from any payment made
hereunder or under the Note or from the execution, sale, transfer, delivery or
registration of, or otherwise with respect to, any of the Transaction Documents
(hereinafter referred to as "Other Taxes").

                                       16
<PAGE>

   (c)  Company shall indemnify Purchaser for the full amount of Taxes or Other
Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.12) paid by Purchaser and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted.  This indemnification shall be made within 30 days from the date
Purchaser makes written demand therefor, which demand shall include an
identification of the relevant taxing authority and the amount of payment
giving rise to the claim for indemnification.

   (d)  Within 30 days after the date of any payment of Taxes, Company shall
furnish to Purchaser the original or a certified copy of a receipt evidencing
payment thereof.

   (e)  Without prejudice to the survival of any other agreement of Company
hereunder, the agreements and obligations of Company contained in this Section
2.12 shall survive the payment in full of the Note.

3.  PURCHASER'S REPRESENTATIONS AND WARRANTIES
    ------------------------------------------

        Purchaser makes the following representations and warranties to
Company, each and all of which shall survive the execution and delivery of this
Agreement and the Closing hereunder:

        3.1  Investment Intention.  Purchaser is purchasing the Note for its own
             --------------------
account, for investment purposes and not with a view to the distribution
thereof.  Purchaser will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of the Note (or solicit any
offers to buy, purchase, or otherwise acquire any of the Note), except in
compliance with the Securities Act.

        3.2  Accredited Investor.  Purchaser is an "accredited investor" (as
             -------------------
that term is defined in Rule 501 of Regulation D under the Securities Act) and
by reason of its business and financial experience, it has such knowledge,
sophistication and experience in business and financial matters as to be
capable of evaluating the merits and risks of the prospective investment, is
able to bear the economic risk of such investment and is able to afford a
complete loss of such investment.

        3.3  Corporate Existence.  Purchaser is a corporation duly organized,
             -------------------
validly existing and in good standing under the laws of the State of New York.

        3.4  Corporate Power; Authorization; Enforceable Obligations.  The
             -------------------------------------------------------
execution, delivery and performance by Purchaser of this Agreement and the
other Transaction Documents to be executed by it:  (i) are within Purchaser's
corporate power; (ii) have been duly authorized by all necessary corporate
action; (iii) are not in contravention of any provision of Purchaser's
certificate of incorporation or by-laws; and (iv) will not violate any law or
regulation, or any order or decree of any court or governmental instrumentality
binding on Purchaser.  This Agreement and the other Transaction Documents to
which Purchaser is a party have each been duly executed and

                                       17
<PAGE>

delivered by Purchaser and constitute the legal, valid and binding obligations
of Purchaser, enforceable against it in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).

4.  COMPANY'S REPRESENTATIONS AND WARRANTIES
    ----------------------------------------

        Company makes the following representations and warranties to
Purchaser, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:

        4.1  Authorized and Outstanding Shares of Capital Stock.  As of June 30,
             --------------------------------------------------
1999, the authorized capital stock of Company consisted of 100,000,000 shares of
Common Stock, $.01 par value per share, of which 50,435,989 shares were issued
and outstanding, and 20,000,000 shares of Class A Preferred Stock, no par value
per share, of which 1 share was issued and outstanding.  All of such issued and
outstanding shares are validly issued, fully paid and non-assessable.  Except as
set forth on Schedule 4.1, (i) there is no existing option, warrant, call,
commitment or other agreement to which Company is a party requiring, and there
are no convertible securities of Company outstanding which upon conversion would
require, the issuance of any additional shares of Stock of Company or other
securities convertible into shares of equity securities of Company, other than
the Note, and (ii) there are no agreements to which Company is a party with
respect to the voting or transfer of the Stock of Company.  Except as set forth
on Schedule 4.1, there are no stockholders' preemptive rights or rights of first
refusal or other similar rights with respect to the issuance of Stock by
Company.  True and correct copies of the certificate of incorporation and by-
laws of Company have been delivered to Purchaser.

        4.2  Authorization and Issuance of Note.  The issuance of the Note has
             ----------------------------------
been duly authorized by all necessary corporate action on the part of Company
and, upon delivery to Purchaser of the Note against payment in accordance with
the terms hereof, the Note will have been validly issued, free and clear of all
pledges, liens, encumbrances and preemptive rights.  The issuance of shares of
Common Stock upon conversion of the Note has been duly authorized by all
necessary corporate action on the part of Company and, when issued upon
conversion of the Note, such Common Stock will have been validly issued and
fully paid and non-assessable.  Company has duly reserved 1,386,322 shares of
Common Stock for issuance pursuant to the terms of the Note.

        4.3  Securities Laws.  In reliance on the investment representations
             ---------------
contained in Sections 3.1 and 3.2, the offer, issuance, sale and delivery of
the Note, as provided in this Agreement, are exempt from the registration
requirements of the Securities Act and all applicable state securities laws,
and are otherwise in compliance with such laws.  Neither Company nor any Person
acting on its behalf has taken or will

                                       18
<PAGE>

take any action (including any offering of any securities of Company under
circumstances which would require the integration of such offering with the
offering of the Note under the Securities Act and the rules and regulations of
the SEC thereunder) which might subject the offering, issuance or sale of the
Note, to the registration requirements of Section 5 of the Securities Act.

        4.4  Corporate Existence; Compliance with Law.  Company and each of its
             ----------------------------------------
Subsidiaries, if any, (i) is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania in the case
of Company and as set forth on Schedule 4.5 in the case of its Subsidiaries;
(ii) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification (except for jurisdictions in
which such failure to so qualify or to be in good standing would not have a
Material Adverse Effect); (iii) has the requisite corporate power and authority
and the legal right to own, pledge, mortgage or otherwise encumber and operate
its properties, to lease the property it operates under lease, and to conduct
its business as now being conducted; (iv) has, or has applied for, all material
licenses, permits, consents or approvals from or by, and has made all material
filings with, and has given all material notices to, all Governmental
Authorities having jurisdiction, to the extent required for such ownership,
operation and conduct, except where the failure to obtain such approval or
authorization would not result in a Material Adverse Effect; (v) is in
compliance with its certificate or articles of incorporation and by-laws; and
(vi) is in compliance with all applicable provisions of law, except for such
non-compliance which would not have a Material Adverse Effect.

        4.5  Subsidiaries.  There currently exist no Subsidiaries of Company
             ------------
other than as set forth on Schedule 4.5 hereto, which sets forth such
Subsidiaries, together with their respective jurisdictions of organization, and
the authorized and outstanding capital Stock of each such Subsidiary, by class
and number and percentage of each class owned by Company or a Subsidiary of
Company or any other Person.  There are no options, warrants, rights to
purchase or similar rights covering capital Stock for any such Subsidiary.

        4.6  Corporate Power; Authorization; Enforceable Obligations.  The
             -------------------------------------------------------
execution, delivery and performance by Company of this Agreement, the other
Transaction Documents to which it is a party and all instruments and documents
to be delivered by Company, the issuance and sale of the Note and the
consummation of the other transactions contemplated by any of the foregoing:
(i) are within Company's corporate power and authority; (ii) have been duly
authorized by all necessary or proper corporate action; (iii) are not in
contravention of any provision of Company's certificate of incorporation or
by-laws; (iv) will not violate any law or regulation, or any order or decree of
any court or governmental instrumentality; (v) will not conflict with or result
in the breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Company or any of its Subsidiaries is a
party or by which Company, any of its Subsidiaries or any of their property is
bound; (vi) will not result in the creation or

                                       19
<PAGE>

imposition of any Lien upon any of the property of Company or any of its
Subsidiaries; and (vii) do not require the consent or approval of, or any
filing with, any Governmental Authority or any other Person (except (A) for
those filings required by the Registration Rights Agreement and (B) to the
extent previously obtained or made).  At or prior to the Closing Date, each of
this Agreement and the other Transaction Documents shall have been duly
executed and delivered by Company and each shall then constitute a legal, valid
and binding obligation of Company, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).

        4.7  Financial Statements.  (a)  The audited consolidated balance sheet
             --------------------
of Company as at December 31, 1998, and the related consolidated statements of
income and cash flows for the year then ended, with the opinion thereon of
Arthur Andersen L.L.P., and the unaudited consolidated balance sheet of Company
as at March 31, 1999 (the "Balance Sheet") and the related unaudited
consolidated statements of income, and cash flows for the three months then
ended, copies of which have previously been delivered to Purchaser, have been,
except as noted therein, prepared in conformity with GAAP consistently applied
throughout the periods involved and present fairly in all material respects the
consolidated financial position of Company as at the dates thereof, and the
consolidated results of its operations and cash flows for the periods then
ended, subject, in the case of the interim financial statements, to normal year-
end audit adjustments and any other adjustments described therein.

   (b)  Except as set forth on Schedule 4.7, neither Company nor any of its
Subsidiaries has any material obligations, contingent or otherwise, including
liabilities for Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the Balance Sheet, other than those
incurred since December 31, 1998, in the ordinary course of business.

   (c)  Except as set forth on Schedule 4.7, no dividends or other
distributions have been declared, paid or made upon any shares of capital Stock
of Company, nor have any shares of capital Stock of Company been redeemed,
retired, purchased or otherwise acquired for value by Company since December
31, 1998.

        4.8  Ownership of Property.  Each of Company and its Subsidiaries has
             ---------------------
good and marketable and insurable fee simple title to its owned real property,
free and clear of all Liens.  Each of Company and its Subsidiaries has valid
and marketable leasehold interests in each of its leases, good and marketable
title to, or valid leasehold interests in, all of its other properties and
assets free and clear of all Liens, except Permitted Liens.  Each of such
leases is valid and enforceable in accordance with its terms (subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including

                                       20
<PAGE>

principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity)) and is in full force and effect except to the extent that such lack of
validity or enforceability would not have a Material Adverse Effect.  None of
Company, any of its Subsidiaries nor, to its knowledge, any other party to any
such lease is in default of its obligations thereunder or has delivered or
received any notice of default under any such lease, nor has any event occurred
which, with the giving of notice, the passage of time or both, would constitute
a default under any such lease except to the extent that such default would not
reasonably be expected to have a Material Adverse Effect.  Neither Company nor
any of its Subsidiaries is obligated under or a party to, any option, right of
first refusal, or any other contractual right to purchase, acquire, sell,
assign or dispose of any material real property owned or leased by Company or
such Subsidiary.

        4.9  Material Contracts.  Schedule 4.9 contains a true, correct and
             ------------------
complete list and description of all Material Contracts (other than those
Material Contracts which have been filed as an exhibit to the Company SEC
Documents). Each Material Contract is a valid and binding agreement of Company
or its Subsidiaries (as the case may be) enforceable against Company or such
Subsidiary in accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity)), and neither
Company nor any of its Subsidiaries has any knowledge that any Material
Contract is not a valid and binding agreement against the other parties
thereto.  Company and each of its Subsidiaries has fulfilled all obligations
required pursuant to the Material Contract to have been performed by Company or
such Subsidiary on its part. Except as set forth in Schedule 4.9, neither
Company nor any of its Subsidiaries is in default or breach, nor to Company's
or such Subsidiary's knowledge is any third party in default or breach, under
or with respect to any Material Contract.

        4.10  Environmental Protection.  (a)  Except as set forth on Schedule
              ------------------------
4.10, to Company's and its Subsidiaries' knowledge, all real property owned,
leased or otherwise operated by Company and its Subsidiaries (each, a
"Facility") is free of contamination from any substance, waste or material (i)
currently identified to be toxic or hazardous pursuant to, or which may result
in liability under, any Environmental Law or (ii) within the definition of a
substance which is toxic or hazardous under any Environmental Law, including
any asbestos, pcb, radioactive substance, methane, volatile hydrocarbons,
industrial solvents, oil or petroleum or chemical liquids or solids, liquid or
gaseous products, or any other material or substance which has in the past or
could at any time in the future cause or constitute a health, safety, or
environmental hazard to any Person or property or result in any Environmental
Liabilities and Costs ("Hazardous Substance") of more than $100,000 or which,
in either case, could have a Material Adverse Effect.  Except as set forth on
Schedule 4.10, neither Company nor any of its Subsidiaries has caused or
suffered to occur any release, spill, migration, leakage,

                                       21
<PAGE>

discharge, spillage, uncontrolled loss, seepage, or filtration of Hazard
Substances at or from the Facility (a "Spill") which could result in
Environmental Liabilities and Costs in excess of $100,000.

   (b)  Company and each Subsidiary has generated, treated, stored and disposed
of any Hazardous Substances in full compliance with applicable Environmental
Laws, except for such non-compliances which would not reasonably be expected to
have a Material Adverse Effect.

   (c)  Company and each Subsidiary has obtained, or has applied for, and is in
full compliance with and in good standing under all permits required under
Environmental Laws (except for such failures which would not reasonably be
expected to have a Material Adverse Effect) and neither Company nor any of its
Subsidiaries has any knowledge of any proceedings to substantially modify or to
revoke any such permit.

   (d)  Except as set forth on Schedule 4.10, there are no investigations,
proceedings or litigation pending or, to Company's or its Subsidiaries'
knowledge, threatened affecting or against Company, any of its Subsidiaries or
the Facilities relating to Environmental Laws or Hazardous Substances.

   (e)  Since January 1, 1996, except for communications in connection with the
matters listed on Schedule 4.10, neither Company nor any of its Subsidiaries
has received any communication or notice (including requests for information)
indicating the potential of Environmental Liabilities and Costs against Company
or its Subsidiaries.

        4.11  Labor Matters.  (a)  There are no strikes or other labor disputes
              -------------
against Company or any of its Subsidiaries pending or, to Company's or its
Subsidiaries' knowledge, threatened.  Hours worked by and payment made to
employees of Company and its Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable law dealing with such matters.
All payments due from Company and each of its Subsidiaries on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of Company or such Subsidiary.  There is no organizing activity
involving Company or any of its Subsidiaries pending or, to Company's or its
Subsidiaries' knowledge, threatened by any labor union or group of employees.
There are no representation proceedings pending or, to Company's or its
Subsidiaries' knowledge, threatened with the National Labor Relations Board,
and no labor organization or group of employees of Company or its Subsidiaries
has made a pending demand for recognition.  There are no complaints or charges
against Company or any of its Subsidiaries pending or, to Company's or its
Subsidiaries' knowledge, threatened to be filed with any federal, state, local
or foreign court, governmental agency or arbitrator based on, arising out of,
in connection with, or otherwise relating to the employment or termination of
employment by Company or any of its Subsidiaries of any individual.

   (b)  Neither Company nor any of its Subsidiaries is, or during the five years
preceding the date hereof was, a party to any labor or collective bargaining
agreement

                                       22
<PAGE>

and there are no labor or collective bargaining agreements which pertain to
employees of Company or its Subsidiaries.

        4.12  Other Ventures.  Except as set forth on Schedule 4.12, neither
              --------------
Company nor any of its Subsidiaries is engaged in any joint venture or
partnership with any other Person.

        4.13  Taxes.  Except as set forth on Schedule 4.13, all federal, state,
              -----
local and foreign tax returns, reports and statements required to be filed by
Company and its Subsidiaries have been timely filed with the appropriate
Governmental Authority and all such returns, reports and statements are true,
correct and complete in all material respects.  All Charges and other
impositions due and payable for the periods covered by such returns, reports
and statements have been paid prior to the date on which any fine, penalty,
interest or late charge may be added thereto for nonpayment thereof, or any
such fine, penalty, interest, late charge or loss has been paid.  Proper and
accurate amounts have been withheld by Company and its Subsidiaries from its
employees for all periods in full and complete compliance with the tax, social
security and unemployment withholding provisions of applicable federal, state,
local and foreign law and such withholdings have been timely paid to the
respective governmental agencies. Neither Company nor any of its Subsidiaries
has executed or filed with the IRS or any other Governmental Authority any
agreement or other document extending, or having the effect of extending, the
period for assessment or collection of any Charges.  No tax audits or other
administrative or judicial proceedings are pending or threatened with regard to
any Charges for which Company or any Subsidiary may be liable and no assessment
of Charges is proposed against the Company or any Subsidiary. Neither Company
nor any of its Subsidiaries has filed a consent pursuant to IRC Section 341(f)
or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection
(f) assets (as such term is defined in IRC Section 341(f)(4)).  None of the
property owned by Company or any of its Subsidiaries is property which such
company is required to treat as being owned by any other Person pursuant to the
provisions of  Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax-exempt use property" within the meaning of IRC Section
168(h).  Neither Company nor any of its Subsidiaries has agreed or has been
requested to make any adjustment under IRC Section 481(a) by reason of a change
in accounting method or otherwise.  Neither Company nor any of its Subsidiaries
has any obligation under any written tax sharing agreement.

        4.14  No Litigation.  Except as disclosed on Schedule 4.14, no action,
              -------------
claim or proceeding is now pending or, to the knowledge of Company or its
Subsidiaries, threatened against Company or any of its Subsidiaries, at law, in
equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators which
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

                                       23
<PAGE>

        4.15  Brokers.  Except as set forth on Schedule 4.15, no broker or
              -------
finder acting on behalf of Company or any of its Subsidiaries brought about the
consummation of the transactions contemplated pursuant to this Agreement and
neither Company nor any of its Subsidiaries has any obligation to any Person in
respect of any finder's or brokerage fees (or any similar obligation) in
connection with the transactions contemplated by this Agreement.  Company is
solely responsible for the payment of all such finder's or brokerage fees.

        4.16  Patents, Trademarks, Copyrights and Licenses.  Company and each of
              --------------------------------------------
its Subsidiaries owns all licenses, patents, patent applications, copyrights,
service marks, trademarks and registrations and applications for registration
thereof, and trade names necessary to continue to conduct its business as
heretofore conducted by it and now being conducted by it.  To Company's
knowledge, Company and each of its Subsidiaries conducts its businesses without
infringement or claim of infringement of any license, patent, copyright, service
mark, trademark, trade name, trade secret or other intellectual property right
of others except where the same would not reasonably be expected to have a
Material Adverse Effect.  To Company's knowledge, there is no infringement by
others of any license, patent, copyright, service mark, trademark, trade name,
trade secret or other intellectual property right of Company or any of its
Subsidiaries, except where the same would not reasonably be expected to have a
Material Adverse Effect.

        4.17  No Material Adverse Effect.  Except as disclosed in the Company
              --------------------------
SEC Documents, no event has occurred since December 31, 1998 which has had or
could be reasonably expected to have a Material Adverse Effect, other than
events or circumstances which relate exclusively to (i) changes in trends in
the information technology industry and (ii) general economic conditions in the
United States as a whole.

        4.18  ERISA.  (a)  Schedule 4.18 sets forth:  (i) all "employee benefit
              -----
plans", as defined in Section 3(3) of ERISA, and describes any other
material employee benefit arrangements (the "Plans") maintained by Company and
any of its Subsidiaries or to which Company or any its Subsidiaries
contributed or is obligated to contribute thereunder, and (ii) all "employee
pension plans", as defined in Section 3(2) of ERISA (the "Pension Plans"),
maintained by Company, any of its Subsidiaries or any of its ERISA Affiliates
to which Company, any of its Subsidiaries or any of its ERISA Affiliates
contributed or is obligated to contribute thereunder.

   (b)  Purchaser will not have (i) any obligation to make any contribution to
any Multiemployer Plan or (ii) any withdrawal liability from any such
Multiemployer Plan under Section 4201 of ERISA which it would not have had if
it had not purchased the Note from Company at the Closing in accordance with
the terms of this Agreement.

   (c)  The Pension Plans intended to be qualified under Section 401 of the IRC
are so qualified and the trusts maintained pursuant thereto are exempt from
federal income taxation under Section 501 of the IRC, and nothing has occurred
with respect to the

                                       24
<PAGE>

operation of the Pension Plans which could cause the loss of such qualification
or exemption or the imposition of any liability, penalty, or tax under ERISA or
the IRC.

   (d)  All contributions required by law or pursuant to the terms of the Plans
(without regard to any waivers granted under Section 412 of the IRC) to any
funds or trusts established thereunder or in connection therewith have been
made by the due date thereof (including any valid extension) and no accumulated
funding deficiencies exist in any of the Pension Plans.

   (e)  There is no "amount of unfunded benefit liabilities" as defined in
Section 4001(a)(18) of ERISA in any of the respective Pension Plans.  Each of
the respective Pension Plans are fully funded in accordance with the actuarial
assumptions used by the PBGC to determine the level of funding required in the
event of the termination of the Pension Plan and all benefit liabilities do not
exceed the assets of such Pension Plans.

   (f)  There has been no "reportable event" as that term is defined in Section
4043 of ERISA and the regulations thereunder with respect to the Pension Plans
which would require the giving of notice, or any event requiring disclosure
under Sections 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA.

   (g)  There is no material violation of ERISA with respect to the filing of
applicable reports, documents, and notices regarding the Plans with the
Secretary of Labor and the Secretary of the Treasury or the furnishing of such
documents to the participants or beneficiaries of the Plans.

   (h)  True, correct and complete copies of the following documents, with
respect to each of the Plans, have been made available or delivered to
Purchaser by Company: (A) any plans and related trust documents, and amendments
thereto, (B) the most recent Forms 5500 (including any schedules thereto) and
the most recent actuarial valuation report, if any, (C) the last IRS
determination letter, (D) summary plan descriptions, (E) written communications
to employees relating to the Plans and (F) written descriptions of all
non-written agreements relating to the Plans.

   (i)  There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Plans, the assets of any of the trusts under
such Plans or the Plan sponsor or the Plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefit claims), nor does Company or any of its Subsidiaries have
knowledge of facts which could form the basis for any such claim or lawsuit.

   (j)  All amendments and actions required to bring the Plans into conformity
in all material respects with all of the applicable provisions of ERISA and
other applicable laws have been made or taken except to the extent that such
amendments or actions are not required by law to be made or taken until a date
after the Closing Date.

                                       25
<PAGE>

   (k)  The Plans have been maintained, in all material respects, in accordance
with their terms and with all provisions of ERISA (including rules and
regulations thereunder) and other applicable Federal and state law, and neither
Company nor any of its Subsidiaries or "party in interest" or "disqualified
person" with respect to the Plans has engaged in a "prohibited transaction"
within the meaning of Section 4975 of the IRC or Section 406 of ERISA.

   (l)  None of Company, any of its Subsidiaries or any ERISA Affiliate has
terminated any Pension Plan, or incurred any outstanding liability under
Section 4062 of ERISA to the PBGC, or to a trustee appointed under Section 4042
of ERISA.

   (m)  None of Company, any of its Subsidiaries or any ERISA Affiliate
maintains retired life and retired health insurance plans which are Welfare
Plans and which provide for continuing benefits or coverage for any participant
or any beneficiary of a participant except as may be required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
and at the expense of the participant or the participant's beneficiary.
Company, all of its Subsidiaries and all ERISA Affiliates which maintains a
Welfare Plan has complied with the notice and continuation requirements of
COBRA and the regulations thereunder.

   (n)  None of Company, any of its Subsidiaries or any ERISA Affiliate has
contributed or been obligated to contribute to a Multiemployer Plan as of the
Closing.

   (o)  None of Company, any of its Subsidiaries or any ERISA Affiliate has
withdrawn in a complete or partial withdrawal from any Multiemployer Plan prior
to the Closing Date, nor has any of them incurred any liability due to the
termination or reorganization of a Multiemployer Plan.

   (p)  None of Company, any of its Subsidiaries, any ERISA Affiliate or any
organization to which Company is a successor or parent corporation, within the
meaning of Section 4069(b) of ERISA, has engaged in any transaction, within the
meaning of Section 4069 of ERISA.

        4.19  SEC Documents.  Company has made available to Purchaser a true and
              -------------
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Company with the SEC since January 1, 1998 and prior to
the date of this Agreement (the "Company SEC Documents"), which are all the
documents (other than preliminary material) that Company was required to file
with the SEC since such date.  As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Documents, and
none of the Company SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

                                       26
<PAGE>

        4.20  Ordinary Course of Business.  Except as set forth on Schedule 4.7
              ---------------------------
or in response to the events described therein, since January 1, 1998, Company
and each of its Subsidiaries has conducted its operations only in the ordinary
course of business consistent with past practice.

        4.21  Insurance.  There are in full force and effect for the benefit of
              ---------
Company and its Subsidiaries insurance policies and bonds providing adequate
coverage from reputable and financially sound insurers in amounts sufficient to
insure the assets and risks of Company and its Subsidiaries in accordance with
prudent business practice in the industry of Company and Subsidiaries.  No
notice has been given or claim made and to the knowledge of Company, no grounds
exist, to cancel or void any such policies or bonds or to reduce the coverage
provided thereby.

        4.22  Accounts Receivable.  All accounts receivable of Company and its
              -------------------
Subsidiaries as shown on the Balance Sheet are collectible in the ordinary
course of business by Company or such Subsidiary, net of the reserves for bad
debts shown on the Balance Sheet.

        4.23  Minute Books.  The minute books of Company for the period
              ------------
commencing October 1, 1998 through March 31, 1999, as previously made available
to Purchaser, accurately reflect all formal corporate action of the
stockholders and Board of Directors of Company during such period.

        4.24  Year 2000 Compliance.  Each system comprised of software,
              --------------------
hardware, databases or embedded control systems (microprocessor controlled or
controlled by any robotic or other device) (collectively, a "System") that
constitutes any material part of, or is used in connection with the use,
operation or enjoyment of, any material tangible or intangible asset or real
property of Company or any of its Subsidiaries will not be materially adversely
affected by the advent of the year 2000, the advent of the twenty-first century
or the transition from the twentieth century through the year 2000 and into the
twenty-first century ("Year 2000 Compliant") in a manner that could reasonably
be expected to have a Material Adverse Effect.  Company has no reason to
believe that it or any of its Subsidiaries may incur material expenses arising
from or relating to the failure of any of their Systems as a result of the
advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the
twenty-first century.  Each System of Company and its Subsidiaries is able to
accurately process date data, including, but not limited to, calculating,
comparing and sequencing from, into and between the twentieth century (through
year 1999), the year 2000 and the twenty-first century, including leap year
calculations.

        4.25  Full Disclosure.  No information contained in this Agreement or
              ---------------
any other Loan Document contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading in light of the circumstances under which
made.

                                       27
<PAGE>

5.  COVENANTS
    ---------

        5.1  Affirmative and Financial Covenants.  Company covenants and agrees
             -----------------------------------
that from and after the date hereof (except as otherwise provided herein, or
unless the Required Holders have given their prior written consent) so long as
any unpaid amount on the Note is outstanding:

   (a)  Preservation of Existence, Etc.  Company and each of its Subsidiaries
        ------------------------------
shall maintain its corporate existence and its license or qualification and its
good standing in the state of its incorporation and in each other jurisdiction
in which its ownership or lease of property or the nature of its businesses
makes such license or qualification necessary (except for such other
jurisdictions in which such failure to be so licensed or qualified individually
and in the aggregate would not result in a Material Adverse Effect).

   (b)  Accounting System; Reporting Requirements.  Company on a consolidated
        -----------------------------------------
basis will maintain a system of accounting established and administered in
accordance with GAAP.  Further, Company will:

          (i) deliver to Purchaser, within forty-five (45) days after the end of
each of the first three (3) Fiscal Quarters in each Fiscal Year of Company, (A)
consolidated balance sheet as at the end of such period for Company and its
Subsidiaries, (B) consolidated statements of income for such period for Company
and its Subsidiaries and, in the case of the second and third quarterly periods,
for the quarterly period, and (C) consolidated statements of cash flow for such
period for Company and its Subsidiaries and, in the case of the second and third
quarterly periods, for the period from the beginning of the current Fiscal Year
to the end of such quarterly period; and each such statement shall set forth, in
comparative form, corresponding figures for the corresponding period in the
immediately preceding Fiscal year; and all such statements shall be prepared in
reasonable detail and certified, subject to changes resulting from year-end
adjustments, by the chief financial Officer, treasurer or controller of Company;

          (ii) deliver to the Purchaser, within 90 days after the end of each
Fiscal Year of Company (A) consolidated balance sheets as at the end of such
year for Company and its Subsidiaries, (B) consolidated statements of income for
such year for Company and its Subsidiaries, (C) consolidated statements of cash
flow for such year for Company and its Subsidiaries, and (D) consolidated
statements of shareholders equity for such year for Company and its
Subsidiaries; and each such statement shall set forth, in comparative form,
corresponding figures for the immediately preceding Fiscal Year; and all such
financial statements shall present fairly in all material respects the financial
position of Company and its consolidated Subsidiaries, as at the dates indicated
and the results of its operations and cash flow for the periods indicated, in
conformity with GAAP; and Company shall cause each of the consolidated financial
statements described in clauses (A) through (D) of above to be certified without
limitation as to scope or material qualification by Arthur Andersen L.L.P. or
other independent certified public accountants acceptable to the Required
Holders;

                                       28
<PAGE>

          (iii)  promptly give written notice to Purchaser of the happening of
any event (which is known to Company) which constitutes an Event of Default or a
Default hereunder, but in no event shall any such notice be given later than
five (5) Business Days after Company knows or should have known of such event;

          (iv) promptly give written notice to Purchaser of any pending or, to
the knowledge of Purchaser, overtly threatened claim in writing, litigation or
threat of litigation which arises between Purchaser, or any of its Subsidiaries,
and any other party or parties (including any Governmental Authority) which
claim, litigation or threat of litigation, individually or in the aggregate, is
reasonably likely to cause a Material Adverse Effect, any such notice to be
given not later than five (5) Business Days after any of Company becomes aware
of the occurrence of any such claim, litigation or threat of litigation;

          (v) promptly deliver to Purchaser, but in no event later than twenty
(20) days after the mailing or filing thereof, copies of (A) all reports,
notices and proxy statements sent by Company to its shareholders, and (B) all
regular and periodic reports and definitive proxy materials (including Forms 10-
k, 10-Q and 8-K) filed by Company with any securities exchange or the Federal
Securities and Exchange Commission;

          (vi) promptly deliver to Purchaser, but in no event later than twenty
(20) days after Company receives the same, copies of any management letters
addressed to Company by its independent certified public accountant; and

          (vii)  such reports as are required to be delivered to the lenders
under the Credit Agreement, and if an Event of Default shall have occurred, such
other reports and information as Purchaser may from time to time reasonably
request.

   (c)  Notices Regarding Plans.
        -----------------------

          (i) Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken or
threatened by the IRS or the PBGC with respect thereto) shall be given to
Purchaser by Company of:

             a.  any Reportable Event with respect to Company or any ERISA
Affiliate,

             b.  any Prohibited Transaction which could subject Company or any
ERISA Affiliate to a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the IRS in connection with any Plan or any
trust created thereunder, if such tax and/or penalty is reasonably likely to
result in a Material Adverse Effect,

                                       29
<PAGE>

             c.  any assertion of material withdrawal liability with respect to
any Multiemployer Plan,

             d.  any partial or complete withdrawal from a Multiemployer Plan by
Company or any ERISA Affiliate under Title IV of ERISA (or assertion thereof),
where such withdrawal is likely to result in material withdrawal liability,

             e.  any cessation of operations (by Company of any member or the
ERISA Affiliate) at a facility in the circumstances described in Section
4062(e) of ERISA,

             f.  withdrawal by Company or any ERISA Affiliate from a Multiple
Employer Plan,

             g.  a failure by Company or any ERISA Affiliate to make a payment
to a Plan required to avoid imposition of a lien under Section 302(f) of ERISA,

             h.  the adoption of an amendment to a Plan requiring the provision
of security to such Plan pursuant to Section 307 of ERISA, or

             i.  any change in the actuarial assumptions or funding methods used
for any Plan, where the effect of such change is to materially increase or
materially reduce the unfunded benefit liability or obligation to make periodic
contributions.

          (ii) Promptly after receipt thereof copies of (i) all notices received
by Company or any ERISA Affiliate of the PBGC's intent to terminate any Plan
administered or maintained by Company or any ERISA Affiliate, or to have a
trustee appointed to administer any such Plan; and (ii) at the request of
Purchaser each annual report (IRS) Form 5500 series) and all accompanying
schedules, the most recent actuarial reports, the most recent financial
information concerning the financial status of each Plan administered or
maintained by Company or any ERISA Affiliate, and schedules showing the amounts
contributed to each such Plan by or on behalf of Company or any ERISA Affiliate
in which any of their respective personnel participate or from which such
personnel may derive a benefit, and each Schedule B (Actuarial Information) to
the annual report filed by the Company or any ERISA Affiliate with the IRS with
respect to each such Plan shall be given to Purchaser by Company.

          (iii)  Promptly upon the filing thereof, copies of any PBGC Form 200,
500, 600 or 601, or any successor form, filed with the PBGC in connection with
the termination of any Plan.

   (d)  Payment of Liabilities, Including Taxes, etc.  Company shall duly pay
        ---------------------------------------------
and discharge, and shall cause its Subsidiaries to pay and discharge (subject,
where applicable, to specified grace periods and, in the case of trade
payables, to normal payment practices) promptly as and when the same shall
become due and payable, all liabilities which singularly are in excess of
$100,000 or which in the aggregate exceed

                                       30
<PAGE>

$500,000 to which they are subject or which are asserted against them,
including all Taxes and Charges upon them or any of their properties, assets,
income or profits, prior to the date on which penalties attach thereto;
provided, however, Company may choose not to pay any such liabilities, including
- --------  -------
Taxes or Charges, if the same are being contested in good faith and for which
such reserves (including reserves for any additional amounts which would be
payable as a result of the failure to discharge timely any such liabilities) or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made.

   (e)  Maintenance of Insurance.  Company shall insure, and shall cause its
        ----------- -- ---------
Subsidiaries to insure, their respective properties and assets against loss or
damage in such amounts as similar properties and assets are insured by prudent
companies in similar circumstances carrying on similar businesses, and with
reputable and financially sound insurers, including self-insurance to the
extent customary, except where the failure to have such coverage would not,
individually or in the aggregate, have a Materially Adverse Effect.

   (f)  Maintenance of Properties and Leases.  Company and its Subsidiaries
        ------------------------------------
shall maintain in good repair, working order and condition (ordinary wear and
tear excepted) in accordance with the general practice of other businesses of
similar character and size, all of those properties useful or necessary to
their respective businesses, and from time to time, Company will make or cause
to be made all appropriate repairs, renewals or replacements thereof.

   (g)  Maintenance of Permits and Franchises.  Company and its Subsidiaries
        -------------------------------------
shall maintain in full force and effect all franchises, permits and other
authorizations necessary for the ownership and operation of their respective
properties and business if the failure so to maintain the same, individually or
in the aggregate, would constitute a Material Adverse Effect.

   (h)  Keeping of Records and Books of Account.  Company and its Subsidiaries,
        ---------------------------------------
shall maintain and keep proper books of record and account which enable Company
to issue financial statements in accordance with GAAP and as otherwise required
by applicable laws of any Governmental Authority having jurisdiction over
Company and its Subsidiaries, and in which full, true and correct entries shall
be made in all material respects of all their respective dealings and business
and financial affairs.

   (i)  Plans.  Company shall, and shall cause each ERISA Affiliate to, comply
        -----
with ERISA, the IRC and other applicable Laws applicable to Plans except where
such failure, alone or in conjunction with any other failure, would not result
in a Material Adverse Effect.  Without limiting the generality of the
foregoing, Company shall cause all of its Plans and all Plans maintained by any
ERISA Affiliate to be funded in accordance with the minimum funding
requirements of ERISA and shall make, and cause each ERISA Affiliate to make,
in a timely manner, all contributions due to Plans and Multiemployer Plans.

                                       31
<PAGE>

   (j)  Compliance with Laws.  Company and its Subsidiaries shall comply with
        --------------------
all applicable laws (including Environmental laws) in all respects, and shall
obtain and comply in all respects with and maintain any and all licenses,
approvals, registrations or permits required by Environmental Laws, provided
that they shall not be deemed to be a violation of this section if any failure
to comply with any law would not result in fines, penalties, other similar
liabilities or injunctive relief which in the aggregate would reasonably be
expected to have a Material Adverse Effect.  Company and its Subsidiaries shall
conduct and complete in all respects all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all respects with all lawful orders
and directives of all Governmental Authorities respecting Environmental Laws,
except to the extent that the same are being contested in good faith by
appropriate and lawful proceedings diligently conducted and for which such
reserves or other appropriate provisions, if any, required by GAAP shall have
been made, and except to the extent that the same would not reasonably be
expected to have a Material Adverse Effect.

   (k)  Use of Proceeds.  Company will use the proceeds of the purchase price
        ---------------
only for lawful purposes in accordance with Section 2.5 hereof as applicable
and such uses shall not contravene any applicable law or any other provision
hereof.

   (l)  Performance Revenues  Company shall deliver to Purchaser within 30 days
        --------------------
after the last day of each Fiscal Quarter a statement setting forth, with
supporting documentation in reasonable detail as requested by Purchaser,
the Performance Revenues achieved in such Fiscal Quarter.

   (m)  Senior Debt Status.  The obligations of Company under the Note will
        ------------------
rank at least pari passu in priority of payment with all other Indebtedness of
Company except Indebtedness of Company to the extent secured by Permitted
Liens.

   (n)  Maintenance of Exchange Listing  The Company shall maintain its listing
        -------------------------------
on the Nasdaq National Market or any other national securities exchange.
Promptly after the issuance of any shares of Common Stock in conversion of the
Note, Company shall secure the designation, listing and quotation of such
Common Stock on the Nasdaq National Market or such other national securities
exchange, as the case may be, and shall maintain such designation, listing and
quotation.

        5.2  Negative Covenants.  Company covenants and agrees that from and
             ------------------
after the date hereof (except as otherwise provided herein, or unless the
Required Holders have given their prior written consent) so long as any unpaid
amount on the Note is outstanding:

   (a)  Liens.  Company and its Subsidiaries shall not at any time create,
        -----
incur, assume or suffer to exist any Lien on any of their respective property
or assets, tangible or intangible, now owned or hereafter acquired, or agree or
become liable to do so, except Permitted Liens.

                                       32
<PAGE>

   (b)  Loans, Acquisitions and Investments.  Company and its Subsidiaries shall
        -----------------------------------
comply with all of the covenants of the Credit Agreement relating to loans,
acquisitions and investments and shall not at any time make any loan or advance
to, or purchase or otherwise acquire any stock, bonds, notes or securities of,
or any partnership interest (whether general or limited) or other equity
interest in, or assets of, or any other investment or interest in, or make any
capital contribution to any other Person, or agree to or become liable to do
any of the foregoing (each, an "Investment"), if such Investment exceeds
$100,000,000.

   (c)  Liquidations, Mergers and Consolidations.  Company shall comply with the
        ----------------------------------------
covenants of the Credit Agreement relating to liquidations, mergers and
consolidations and shall not, and shall not permit any Subsidiary of Company
to, dissolve, liquidate or wind-up its affairs (each, a "Liquidation"), or
become a party to any merger, consolidation or other business combination,
whether accounted for under GAAP's as a purchase or a pooling of interests and
regardless of whether the value of the consideration paid or received is
comprised of cash, common or preferred stock or other equity interests, or
other assets or sell, lease, transfer, or otherwise dispose of all or
substantially all of its assets (each, a "Business Combination"), if such
Liquidation involves assets of Company or any of its Subsidiaries in excess of
$250,000,000 or if such Business Combination involves assets or revenues of the
target in such Business Combination in excess the $250,000,000.

   (d)  Disposition of Assets or Subsidiaries.  The Company shall comply with
        -------------------------------------
the covenants of the Credit Agreement relating to dispositions of assets or
subsidiaries.  Excluding the payment of cash as consideration for assets
purchased by, or services rendered to, Company or any Subsidiary, subject to
paragraph (c) above, neither Company nor any of its Subsidiaries shall sell,
convey, assign, lease, or otherwise transfer or dispose of, voluntarily or
involuntarily, any of its properties or assets, tangible or intangible
(including but not limited to sale, assignment, discount or other disposition
or Receivables, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares or beneficial
interests or partnership interests in Subsidiaries) (each, a "Disposition"), if
such Disposition involves assets in excess of $50,000,000.

   (e)  Affiliate Transactions.  Except as set forth on Schedule 5.2(e), neither
        ----------------------
Company nor any Subsidiary of Company shall enter into or carry out any
material transaction (including purchasing property or services or selling
property or services) with an Affiliate which is not a Subsidiary unless such
transaction is not otherwise prohibited by this Agreement, is entered into in
the ordinary course of business upon fair and reasonable arm's length terms and
conditions in accordance with all applicable law.

   (f)  Continuation of or Change in Business.  Neither Company nor any
        -------------------------------------
Subsidiary of Company shall cease being engaged in the information technology
business or a business related thereto.

   (g)  Plans.  Company shall not, and shall not permit any ERISA Affiliate to:
        -----

                                       33
<PAGE>

          (i) fail to satisfy the minimum funding requirements of ERISA and the
IRC with respect to any Plan;

          (ii) request a minimum funding waiver from the IRS with respect to any
Plan;

          (iii)  engage in a Prohibited Transaction with any Plan or
Multiemployer Plan which, alone or in conjunction with any other circumstances
or set of circumstances resulting in liability under ERISA, would constitute a
Material Adverse Effect;

          (iv) fail to make when due any contribution to any Multiemployer Plan
that Company or any ERISA Affiliate may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining thereto;

          (v) withdraw (completely or partially) from any Multiemployer Plan or
be deemed under Section 40629e) of ERISA to withdraw from any Multiple Employer
Plan, where any such withdrawal is likely to result in a material liability of
Company or any ERISA Affiliate;

          (vi) terminate, or institute proceedings to terminate, any Plan, where
such termination is likely to result in a material liability to Company or any
ERISA Affiliate;

          (vii)  make any amendment to any Plan with respect to which security
is required under Section 307 of ERISA; or

          (viii)  fail to give any and all notices and make all disclosures and
governmental filings required under ERISA or the IRC, where such failure is
likely to result in a Material Adverse Effect.

   (h)  Change in Organizational Documents.  Company shall not, and shall not
        ----------------------------------
permit any of its Subsidiaries to, amend in any respect its certificate or
articles of incorporation without providing at least ten (10) calendar days'
prior written notice to Purchaser and, in the event such change would cause the
Common Stock to have rights which are different from the rights of other
publicly traded common stock of Company, without obtaining the prior written
consent of Purchaser.

   (i)  Financial Covenants.
        -------------------

          (i) Minimum Consolidated Net Worth.  Company will not at any time
              ------------------------------
permit its Consolidated Net Worth to be less than an amount equal to the sum of
(A) $120,000,000 plus (B) 50% of the positive Consolidated Net Income for each
Fiscal Year ending after December 31, 1998, plus (C) an amount equal to 100% of
net cash proceeds from the issuance by Company after June 30, 1999, of
additional equity securities or other equity capital investments.

                                       34
<PAGE>

          (ii) Interest Coverage.  As of the last day of each Fiscal Quarter,
               -----------------
Company shall not permit its ratio, measured on a rolling four Fiscal Quarter
basis, of  EBIT to Consolidated Interest Expense to be less than 4.0:1.0.

          (iii)  Consolidated Senior Indebtedness to EBITDA Ratio.  As of the
                 ------------------------------------------------
last day of each Fiscal Quarter, Company shall not permit its Consolidated
Senior Indebtedness to EBITDA Ratio to exceed 3.0 to 1.0.

          (iv) Liquidity Ratio.  As of the last day of each Fiscal Quarter,
               ---------------
Company shall not permit the ratio of the (A) sum of its (1) Consolidated Cash,
(2) Consolidated Cash Equivalents, and (3) Consolidated Receivables to (B) its
Consolidated Senior Indebtedness to be less than 1.00:1.00.

6.  CLOSING DELIVERIES
    ------------------

        6.1  Company Closing Deliveries.  On the date hereof, the Purchaser
             --------------------------
received from Company, the following:

   (a)  Favorable opinions of Buchanan Ingersoll, counsel to Company,
substantially in the form attached hereto as Exhibit C, and each other opinion
of counsel relied upon by Buchanan Ingersoll.

   (b)  Resolutions of the board of directors of Company, certified by the
Secretary or Assistant Secretary of Company, as of the Closing Date, duly
adopted and in full force and effect on such date, authorizing (i) the
consummation of each of the transactions contemplated by this Agreement and
(ii) specific officers to execute and deliver this Agreement and each other
Loan Document to which it is a party.

   (c)  Governmental certificates, dated the most recent practicable date prior
to the Closing Date, with telegram updates where available, showing that
Company is organized and in good standing in the Commonwealth of Pennsylvania.

   (d)  A copy of the certificate of incorporation and all amendments thereto
of Company, certified as of a recent date by the Secretary of State of the
Commonwealth of Pennsylvania, and copies of Company's by-laws, certified by the
Secretary or Assistant Secretary of Company as true and correct as of the
Closing Date.

   (e)  The letter from Company to its accountants authorizing Purchaser at any
time after the occurrence of an Event of Default to communicate directly with
Company's independent certified public accountants and tax advisors and
authorizing those accountants to disclose at any time after the occurrence of
an Event of Default to Purchaser any and all financial statements and other
supporting financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other affairs of
Company and its Subsidiaries; provided, however, it shall not be considered a
                              --------  -------
breach of Company's obligations under this Agreement if

                                       35
<PAGE>

Company's accountants shall fail to comply with the terms of the letter
described in this paragraph.

   (f)  The Registration Rights Agreement duly executed by the parties thereto.

   (g)  Certificates of the Secretary or an Assistant Secretary of Company,
dated the Closing Date, as to the incumbency and signatures of the officers of
Company executing this Agreement, the Note, each other Transaction Document to
which it is a party and any other certificate or other document to be delivered
pursuant hereto or thereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.

   (h)  Certificate of the President or CEO of Company, dated the Closing Date,
stating that all of the representations and warranties of Company contained
herein or in the other Transaction Documents are true and correct on and as of
the Closing Date that no breach of any covenant contained in Article V has
occurred or would result from the Closing hereunder.

   (i)  A memorandum of understanding duly executed by the parties with respect
to the Joint Venture.

   (j)  A wire transfer of  all reasonable fees and expenses of (i) GE
Capital's outside counsel, Weil, Gotshal & Manges LLP, and (ii) all special
local counsel retained in connection with this Agreement and the transactions
contemplated thereby; provided, however, that such fees did not, in the
                      --------  -------
aggregate, exceed $100,000.


7.  CONVERSION
    ----------

        7.1  Conversion of Note.
             ------------------

          Subject to the  provisions for adjustment hereinafter set forth, the
outstanding principal amount of the Note shall be convertible, in whole or in
part, at any time and from time to time, at the option of the holder thereof,
under the circumstances set forth in the following sentence (a "Conversion"),
into a number of fully paid and nonassessable shares of Common Stock equal to
the quotient obtained by dividing (A) the principal amount of the Note to be
converted by (B) the Conversion Price (as hereinafter defined).  Purchaser may
elect to cause a Conversion of the Note on or after the occurrence of any or all
of the following events or circumstances: an Extraordinary Default, an Event of
Default, or the third anniversary of the Closing Date.  The Conversion Price
shall initially be $21.64 per share and shall be subject to further adjustments
from time to time pursuant to Section 7.1(e) below.  If an Extraordinary Default
shall have occurred prior to the third anniversary of the Closing Date, that
portion of the Note which equals the Extraordinary Default Target Percentage
Achieved shall, at

                                       36
<PAGE>

the election of the Purchaser, be convertible into Common Stock; provided,
                                                                 --------
however, that if the Extraordinary Default Target Percentage Achieved equals
- -------
95% or greater, 100% of the Note shall be convertible into Common Stock.  On
and after the occurrence of (i) an Event of Default (other than a Payment
Default) or (ii) the third anniversary of the Closing Date, that portion of the
Note which equals the Target Percentage Achieved shall, at the election of
Purchaser, be convertible into Common Stock.

          No fractional shares shall be issued upon the conversion of the Note.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of the Note by Purchaser shall be aggregated for purposes of
determining whether conversion would result in the issuance of any fractional
share.  If, after the aforementioned aggregation, the conversion would result in
the issuance of a fraction of a share of Common Stock, Company shall, in lieu of
issuing any fractional share, pay Purchaser a sum in cash equal to the Closing
Price of such fraction on the date of conversion.

   (a)  A conversion of the Note may be effected by Purchaser upon the
surrender to Company at the principal office of Company of the Note to be
converted accompanied by a written notice stating that Purchaser elects to
convert all or a specified amount of its Note in accordance with the provisions
of this Section 7.1 and specifying the name or names in which Purchaser wishes
the certificate or certificates for shares of Common Stock to be issued.

   (b)  In case the written notice specifying the name or names in which
Purchaser wishes the certificate or certificates for shares of Common Stock to
be issued shall specify a name or names other than that of Purchaser, such
notice shall be accompanied by payment of all transfer taxes payable upon the
issuance of shares of Common Stock in such name or names.  Other than such
taxes, Company will pay any and all issue and other taxes (other than taxes
based on income) that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of the Note pursuant hereto.  As promptly
as practicable, and in any event within five Business Days after the surrender
of the Note and the receipt of such notice relating thereto and, if applicable,
payment of all transfer taxes (or the demonstration to the satisfaction of
Company that such taxes have been paid), Company shall deliver or cause to be
delivered (1) certificate(s) representing the number of validly issued, fully
paid and nonassessable full shares of Common Stock to which the holder of the
Note being converted shall be entitled and (2) if less than all of principal
amount of the Note evidenced by the surrendered Note is being converted, in
exchange for the Note surrendered, a new Note, of like tenor, in a principal
amount equal the full principal amount of the Note surrendered less the
principal amount being converted.

   (c)  A conversion shall be deemed to have been made at the close of business
on the date of giving the written notice referred to in the first sentence of
(b) above and of such surrender of the certificate or certificates representing
the Note to be converted so that the rights of the holder thereof as to the
Note being converted shall cease except for the right to receive shares of
Common Stock in accordance herewith, and the Person

                                       37
<PAGE>

entitled to receive the shares of Common Stock shall be treated for all
purposes as having become the record holder of such shares of Common Stock at
such time.

   (d)  Company shall at all times reserve, and keep available for issuance
upon the conversion of the Note, such number of its authorized but unissued
shares of Common Stock as will from time to time be sufficient to permit the
conversion of all of the outstanding principal balance of the Note, and shall
take all action required to increase the authorized number of shares of Common
Stock if necessary to permit the conversion of all of the outstanding principal
balance of the Note.

   (e)  The Conversion Price will be subject to adjustment from time to time as
follows:

      (i)  In case Company shall at any time or from time to time after the
Closing Date (A) pay a dividend, or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding
shares of Common Stock, (C) combine the outstanding shares of Common Stock into
a smaller number of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of Company, then, and in each such
case, the Conversion Price in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the
holder of any Note thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities of Company
which Purchaser would have owned or have been entitled to receive after the
happening of any of the events described above, had such Note been surrendered
for conversion immediately prior to the happening of such event or the record
date therefor, whichever is earlier.  An adjustment made pursuant to this
clause (i) shall become effective (x) in the case of any such dividend or
distribution, immediately after the close of business on the record date for
the determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (y) in the case of such subdivision,
reclassification or combination, at the close of business on the day upon which
such corporate action becomes effective.  No adjustment shall be made pursuant
to this clause (i) in connection with any transaction to which Section 7.1(f)
applies.

      (ii) In case Company shall issue shares of Common Stock (or rights,
warrants or other securities convertible into or exchangeable for shares of
Common Stock), other than pursuant to existing obligations or pursuant to any
existing employee benefit plan (or any other tax qualified employee benefit
plan adopted by Company subsequent to the Closing Date) after the Closing Date,
other than issuances covered by clause (i) above, at a price per share (or
having an exercise, conversion or exchange price per share) less than 95% of
the Current Market Price as of the date of issuance of such shares or of such
rights, warrants or other convertible or exchangeable securities, then, and in
each such case, the Conversion Price shall be reduced (but not increased) to a
price determined by dividing (A) an amount equal to the sum of (x) the number
of shares of Common Stock outstanding immediately prior to such issue
multiplied by 95% of the then existing Current Market Price, plus (y) the
consideration, if any, received by Company upon such issue, by (B) the total
number of shares of

                                       38
<PAGE>

Common Stock outstanding immediately after such issue or sale (in the case of
warrants or convertible securities, on an as exercised or as converted basis,
as the case may be, to the extent the underlying Common Stock would be deemed
outstanding in accordance with GAAP for purposes of determining book value or
net income per share).  For the purpose of determining the consideration
received by Company upon any such issue pursuant to clause (y) above, if the
consideration received by Company is other than cash, its value will be deemed
its fair market value, as determined in good faith by the Board of Directors of
Company.

      (iii)  An adjustment made pursuant to clause (ii) above shall be made on
the next Business Day following the date on which any such issuance is made and
shall be effective retroactively immediately after the close of business on
such date.  No adjustment shall be made pursuant to clause (ii) in respect of
any issuance of shares of Common Stock on or prior to the Closing Date.  For
purposes of clause (ii), the aggregate consideration received by Company in
connection with the issuance of shares of Common Stock or of rights, warrants
or other securities exchangeable or convertible into shares of Common Stock
shall be deemed to be equal to the sum of the aggregate offering price of all
such Common Stock and such rights, warrants, or other exchangeable or
convertible securities plus the aggregate amount, if any, receivable upon
exchange or conversion of any such exchangeable or convertible securities into
shares of Common Stock.

      (iv) In case Company shall at any time or from time to time after the
Closing Date declare, order, pay or make a dividend or other distribution
(including any distribution of stock or other securities or property or rights
or warrants to subscribe for securities of Company or any of its Subsidiaries
by way of dividend or spin-off), on its Common Stock, other than dividends or
distributions of shares of Common Stock which are referred to in clause (i)
above and cash dividends paid out of retained earnings, then the Conversion
Price shall be adjusted so that it shall equal the price determined by
multiplying (A) the applicable Conversion Price on the day immediately prior to
the record date fixed for the determination of stockholders entitled to receive
such dividend or distribution by (B) a fraction, the numerator of which shall
be the Current Market Price per share of Common Stock at such record date less
the amount of such dividend or distribution per share of Common Stock, and the
denominator of which shall be such Current Market Price per share of Common
Stock.  No adjustment shall be made pursuant to this clause (iv) in connection
with any transaction to which Section 7.1(f) applies.

      (v)  For purposes of this Section 7.1(e), the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock then
owned or held by or for the account of Company or any of its Subsidiaries.

      (vi) If Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution,
and shall thereafter and before the distribution to stockholders thereof
legally abandon its plan to pay or deliver such dividend or distribution, then
thereafter no

                                       39
<PAGE>

adjustment in the number of shares of Common Stock issuable upon exercise of
the right of conversion granted by this Section 7.1(e) or in the Conversion
Price then in effect shall be required by reason of the taking of such record.

      (vii)  Anything in this Section 7.1(e) to the contrary notwithstanding,
Company shall not be required to give effect to any adjustment in the
Conversion Price unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the Conversion Price by at least one cent, and
when the cumulative net effect of more than one adjustment so determined shall
be to change the Conversion Price by at least one cent, such change in
Conversion Price shall thereupon be given effect.

      (viii)  If any option or warrant expires or is cancelled without having
been exercised, then, for the purposes of the adjustments set forth above, such
option or warrant shall have been deemed not to have been issued and the
Conversion Price shall be adjusted accordingly.  No holder of Common Stock
which was previously issued upon conversion of the Note shall have any
obligation to redeem or cancel any such shares of Common Stock as a result of
the operation of this clause (viii).

   (f)  Subject to the redemption rights in Section 2.3 and the conversion
rights in Section 7.1, in case of any reorganization of capital,
reclassification of capital stock (other than a reclassification of capital
subject to 7.1(e)(i)), consolidation or merger with or into another Person, or
sale, transfer or disposition of all or substantially all the property, assets
or business of Company to another Person (any one or more of such events being
an "Organic Change"), the Note then outstanding, shall thereafter be
convertible into, in lieu of the Common Stock issuable upon such conversion
prior to consummation of such Organic Change, the kind and amount of shares of
stock and other securities and property receivable (including cash) upon the
consummation of such Organic Change by a holder of that number of shares of
Common Stock into which the Note was convertible immediately prior to such
Organic Change (including, on a pro rata basis, the cash, securities or
property received by holders of Common Stock in any tender or exchange offer
that is a step in such Organic Change).  In case securities or property other
than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this Section 7.1(f) shall be deemed to apply,
so far as appropriate and nearly as may be, to such other securities or
property.

   (g)  In case at any time or from time to time Company shall pay any stock
dividend or make any other non-cash distribution to the holders of its Common
Stock, or shall offer for subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or any other right, or there
shall be any capital reorganization or reclassification of the Common Stock of
Company or consolidation or merger of Company with or into another corporation,
or any sale or conveyance to another corporation of the property of Company as
an entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of Company, then, in any one
or more of said cases, Company shall give at least 20 days' prior written
notice to the registered holder of the Note at the address of each as shown

                                       40
<PAGE>

on the books of Company as of the date on which (i) the books of Company shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such non-bankruptcy reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that
in the case of any Organic Change to which Section 7.1(f) applies Company shall
give at least 30 days' prior written notice as aforesaid.  Such notice shall
also specify the date as of which the holders of the Common Stock of record
shall participate in such dividend, distribution or subscription rights or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such non-bankruptcy reorganization, reclassification,
consolidation, merger, sale or conveyance or participate in such dissolution,
liquidation or winding up, as the case may be.  Failure to give such notice
shall not invalidate any action so taken.

   (h)  Upon any adjustment of the Conversion Price then in effect and any
increase or decrease in the number of shares of Common Stock issuable upon the
operation of the conversion set forth in this Section 7.1, then, and in each
such case, Company shall promptly deliver to the holder of the Note, a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of Company
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Conversion
Price then in effect following such adjustment and the increased or decreased
number of shares issuable upon the conversion granted by this Section 7.1, and
shall set forth in reasonable detail the method of calculation of each and a
brief statement of the facts requiring such adjustment.

8.  EVENTS OF DEFAULT; RIGHTS AND REMEDIES
    --------------------------------------

        8.1  Events of Default.  The occurrence of any one or more of the
             -----------------
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder and under the Note:

   (a)  Company shall fail to make any payment of principal of, or interest on
or any other amount owing in respect of, the Note, or any of the other
Obligations when due and payable or declared due and payable, including
pursuant to Section 2.4 hereof, which, other than principal or interest, shall
have remained unremedied for a period of ten (10) days.

   (b)  Company shall fail or neglect to perform, keep or observe any of the
provisions of Sections 5.1 or 5.2 hereof.

   (c)  Company shall fail or neglect to perform, keep or observe any other
provision of this Agreement or of any of the other Loan Documents, and the same
shall remain unremedied for a period of thirty (30) days after Company shall
receive written notice of any such failure from Purchaser.

                                       41
<PAGE>

   (d)  A default shall occur under any other agreement, document or instrument
to which Company or any Subsidiary is a party or by which Company or any of its
Subsidiaries or any of their property is bound, and such default (i) involves
the failure to make any payment (whether of principal, interest or otherwise)
due (whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise) in respect of (A) any Indebtedness of Company or any of its
Subsidiaries in an aggregate amount exceeding $10,000,000 or (B) the Credit
Agreement, or (ii) causes (or permits any holder of such Indebtedness or a
trustee to cause) such Indebtedness or a portion thereof in an aggregate amount
exceeding $10,000,000 or any Indebtedness under the Credit Agreement, to become
due prior to its stated maturity or prior to its regularly scheduled dates of
payment.

   (e)  Any representation or warranty herein or in any Loan Document or in any
written statement pursuant thereto or hereto, report, financial statement or
certificate made or delivered to Purchaser by Company pursuant hereto or
thereto that is qualified as to materiality or Material Adverse Effect shall be
untrue or incorrect in any respect, as of the date when made, and any of such
representations or warranties that is not so qualified shall have been true and
correct in all respects, as of the date when made except as the same would not
reasonably be expected to have a Material Adverse Effect.

   (f)  Any of the assets of Company or any of its Subsidiaries shall be
attached, seized, levied upon or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors of Company or any of its Subsidiaries and shall remain
unstayed or undismissed for sixty (60) consecutive days; or Company or any of
its Subsidiaries shall have concealed, removed or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent conveyance or other similar law.

   (g)  A case or proceeding shall have been commenced against Company or any
of its Subsidiaries in a court having competent jurisdiction seeking a decree
or order in respect of Company or any of its Subsidiaries (i) under title 11 of
the United States Code, as now constituted or hereafter amended, or any other
applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator
(or similar official) of Company or any of its Subsidiaries or of any
substantial part of its or their properties, or (iii) ordering the winding-up
or liquidation of the affairs of Company or any of its Subsidiaries and such
case or proceeding shall remain undismissed or unstayed for sixty (60)
consecutive days or such court shall enter a decree or order granting the
relief sought in such case or proceeding.

   (h)  Company or any of its Subsidiaries shall (i) file a petition seeking
relief under title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) consent to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee

                                       42
<PAGE>

or sequestrator (or similar official) of Company or any of its Subsidiaries or
of any substantial part of its properties, (iii) fail generally to pay its
debts as such debts become due, or (iv) take any corporate action in
furtherance of any such action.

   (i)  Final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money, which has, or reasonably could be
expected to have, a Material Adverse Effect, shall be rendered against Company
or any of its Subsidiaries and the same shall not be (i) fully covered by
insurance, or (ii) vacated, stayed, bonded, paid or discharged for a period of
thirty (30) days.

   (j)  (i) With respect to any Plan, a prohibited transaction within the
meaning of Section 4975 of the IRC or Section 406 of ERISA occurs which in the
reasonable determination of the Agent could result in direct or indirect
liability to Company or any of its Subsidiaries, (ii) with respect to any Title
IV Plan, the filing of a notice to voluntarily terminate any such plan in a
distress termination, (iii) with respect to any Multiemployer Plan, Company,
any of its Subsidiaries or any ERISA Affiliate shall incur any Withdrawal
Liability, (iv) with respect to any Pension Plan subject to Section 412 of the
Code or Section 302 of ERISA, Company, any of its Subsidiaries or any ERISA
Affiliate shall incur an accumulated funding deficiency or request a funding
waiver from the IRS, or (v) with respect to any Title IV Plan or Multiemployer
Plan which has an ERISA Event not described in clauses (ii) - (iv) hereof, in
the reasonable determination of the Agent there is a reasonable likelihood for
termination of any such plan by the PBGC; provided, however, that the events
                                          --------  -------
listed in clauses (i) - (v) hereof shall constitute Events of Default only if
the liability, deficiency or waiver request of Company, any of its Subsidiaries
or any ERISA Affiliate, whether or not assessed, exceeds $10,000,000 in any
case set forth in (i) - (v) above, or exceeds $10,000,000 in the aggregate for
all such cases.

   (k)  There shall occur any event or circumstances which have, or reasonably
could be expected to have, a Material Adverse Effect, other than any events or
circumstances which relate exclusively to (i) changes in trends in the
information technology industry and (ii) general economic conditions in the
United States as a whole.

   (l)  There shall occur any event or circumstances which prevent, or
reasonably could be expected to prevent, Company from complying with the
conversion provision of Section 7.1, or Company shall otherwise fail to perform
its obligations under Section 7.1.

        8.2  Remedies.  If any Event of Default specified in Section 8.1 shall
             --------
have occurred and be continuing, Purchaser may, in addition to Purchaser's
rights pursuant to Section 7.1 (and without limiting the provisions of Section
9.5), without notice, declare all Obligations to be forthwith due and payable,
whereupon all such Obligations shall become and be due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by Borrower; provided, however, that upon the occurrence of an
                              --------  -------
Event of Default specified in Section 8.1(f), (g) or (h) hereof, such
Obligations shall become due and payable without declaration, notice or demand
by Purchaser.

                                       43
<PAGE>

          Purchaser may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in its best interests, including any action
(or the failure to act) pursuant to the Loan Documents.

        8.3  Waivers by Company.  Except as otherwise provided for in this
             ------------------
Agreement and applicable law, Company waives (i) presentment, demand and
protest and notice of presentment, dishonor notice of intent to accelerate and
notice of acceleration, (ii) all rights to notice and a hearing prior to
Purchaser's taking possession or control of, or to Purchaser's replevy,
attachment or levy upon, the Collateral or any bond or security which might be
required by any court prior to allowing Purchaser to exercise any of its
remedies, and (iii) the benefit of all valuation, appraisal and exemption laws.
Company acknowledges that it has been advised by counsel of its choice with
respect to this Agreement, the other Loan Documents and the transactions
evidenced by this Agreement and the other Loan Documents.

        8.4  Right of Set-Off.  Upon the occurrence of any Payment Default,
             ----------------
Purchaser is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by Purchaser to or for the credit or the
account of Company against any and all of the obligations of Company now or
hereafter existing under this Agreement and the Note held by Purchaser
irrespective of whether or not Purchaser shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured.
Purchaser agrees promptly to notify Company after any such set-off and
application made by Purchaser; provided, however, that the failure to give such
                               --------  -------
notice shall not affect the validity of such set-off and application.  The
rights of Purchaser under this Section are in addition to other rights and
remedies (including other rights of set-off) which Purchaser may have.

9.  MISCELLANEOUS
    -------------

        9.1  Complete Agreement; Modification of Agreement; Sale of Interest.
             ---------------------------------------------------------------
(a)  The Transaction Documents constitute the complete agreement between the
parties with respect to the subject matter hereof and may not be modified,
altered or amended except as provided therein, or in the case of the Loan
Documents by an agreement in writing signed by Company and Purchaser in
accordance with Section 9.1(d) hereof.  Company may not sell, assign or
transfer any of the Loan Documents or any portion thereof, including Company's
rights, title, interests, remedies, powers and duties hereunder or thereunder.
Company hereby consents to Purchaser's sale of participations, assignment,
transfer or other disposition, at any time or times to any Affiliate of
Purchaser, or if an Event of Default shall occur to any other Person, of any of
the Loan Documents or of any portion thereof or interest therein, including
Purchaser's rights, title, interests, remedies, powers or duties thereunder,
whether evidenced by a writing or not.

                                       44
<PAGE>

   (b)  In the event Purchaser assigns or otherwise transfers all or any part of
the Note, Company shall, upon the request of Purchaser issue new Notes to
effectuate such assignment or transfer.

   (c)  In addition to the provisions of the first paragraph of this Section
9.1, if an Event of Default shall have occurred and be continuing, Purchaser
may sell, assign, transfer or negotiate to one or more other lenders,
commercial banks, insurance companies, other financial institutions or any
other Person acceptable to Purchaser all or a portion of its rights and
obligations under the Note held by Purchaser and this Agreement; provided,
                                                                 --------
however, that acceptance of such assignment by any assignee shall constitute
- -------
the agreement of such assignee to be bound by the terms of this Agreement
applicable to Purchaser.  From and after the effective date of such an
assignment, (x) the assignees thereunder shall, in addition to the rights and
obligations hereunder held by it immediately prior to such effective date, have
the rights and obligations hereunder that have been assigned to it pursuant to
such assignment and (y) the assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
assignment, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an assignment and acceptance covering all
or the remaining portion of an assignor's rights and obligations under this
Agreement, such assignor shall cease to be a party hereto).

   (d)  No amendment or waiver of any provision of this Agreement or the Note or
any other Loan Document, nor consent to any departure by Company therefrom,
shall in any event be effective unless the same shall be in writing and
signed by the Required Holders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall,
       --------  -------
unless in writing and signed by each holder of a Note affected thereby do any
of the following:  (i) subject such holder to any additional obligations, (ii)
reduce the principal of, or interest on, the Note or other amounts payable
hereunder or release or discharge Company from its obligations to make such
payments, (iii) postpone any date fixed for any payment of principal of, or
interest on, the Note or other amounts payable hereunder, (iv) change the
aggregate unpaid principal amount of the Note, or the number of holders
thereof, which shall be required for such holders or any of them to take any
action hereunder, (v)  modify the terms of Section 7, or (vi) amend this
Section 9.1(d).

        9.2  Hart-Scott-Rodino Filing
             ------------------------

   (a)  Company agrees to make, and to use its reasonable best efforts to
assist Purchaser in making, appropriate filings of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and in any event within 30 days of the
Closing Date, and to supply as promptly as practicable any additional
information and documentary material that may be requested by Purchaser in
connection with the HSR Act and to take all other actions necessary to cause
the expiration or termination of the applicable waiting periods under the HSR
Act as soon as is practicable.  Purchaser shall pay any filing fee required

                                       45
<PAGE>

pursuant to the HSR Act in connection with the transactions contemplated by the
Loan Documents.

   (b)  Company, in connection with the efforts to obtain all requisite
approvals and authorizations for the transactions contemplated by this
Agreement under the HSR Act, shall use its best efforts to (i) cooperate in all
respects with Purchaser in connection with any filing or submission in
connection with any investigation or other inquiry, including any proceeding
initiating by a private party, and (ii) promptly to inform, and to the extent
permitted by law deliver to, Purchaser any communication received by such party
from, or given by such party to, the DOJ, the FTC or any other Governmental
Authority, and of any material communication received or given in connection
with any proceeding by a private party, in each case regarding the transactions
contemplated hereby, or (iii) consult with Purchaser in advance of any meeting
or conference with any other Person, and to the extent permitted by the DOJ,
the FTC and such other applicable Governmental Authority, to give the Purchaser
the opportunity to attend and participate in such meetings or conferences.

        9.3  Fees and Expenses.  Company shall pay all reasonable out-of-pocket
             -----------------
expenses of Purchaser in connection with the preparation of the Transaction
Documents and the transactions contemplated thereby, including all reasonable
legal expenses; provided, however, that the aggregate legal fees in connection
                --------  -------
with the preparation and negotiation of the Transaction Documents shall not, in
the aggregate, exceed $100,000; provided, further, that fees and expenses
                                --------  -------
relating to the Joint Venture are excluded from this Section 9.3.  If, at any
time or times, regardless of the existence of an Event of Default (except with
respect to paragraphs (iii) and (iv) below, which shall be subject to an Event
of Default having occurred and be continuing), Purchaser shall employ counsel
or other advisors for advice or other representation or shall incur reasonable
legal or other costs and expenses in connection with:

   (i)  any amendment, modification or waiver, or consent with respect to, any
of the Loan Documents or advice in connection with the administration of the
loans made pursuant hereto or its rights hereunder or thereunder;

   (ii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Purchaser, Company, any Subsidiary of Company or any other
Person) in any way relating to any of the Loan Documents or any other
agreements to be executed or delivered in connection herewith; or

   (iii)  any attempt to enforce any rights of Purchaser against Company, any
Subsidiary of Company or any other Person, that may be obligated to Purchaser
by virtue of any of the Loan Documents, including under Section 2.10;

then, and in any such event, the reasonable attorneys' and other parties' fees
arising from such services, including those of any appellate proceedings, and
all expenses, costs, charges and other fees incurred by such counsel and others
in any way or respect arising in connection with or relating to any of the
events or actions described in this Section

                                       46
<PAGE>

shall be payable, on demand, by Company to Purchaser and shall be additional
Obligations under this Agreement and the other Loan Documents.  Without
limiting the generality of the foregoing, such expenses, costs, charges and
fees may include:  paralegal fees, costs and expenses; accountants' and
investment bankers' fees, costs and expenses; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal services.

        9.4  No Waiver by Purchaser.  Purchaser's  failure, at any time or
             ----------------------
times, to require strict performance by Company of any provision of this
Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Purchaser thereafter to demand strict compliance and
performance therewith.  Any suspension or waiver by Purchaser of an Event of
Default by Company under the Loan Documents shall not suspend, waive or affect
any other Event of Default by Company under this Agreement and any of the other
Loan Documents whether the same is prior or subsequent thereto and whether of
the same or of a different type.  None of the undertakings, agreements,
warranties, covenants and representations of Company contained in this
Agreement or any of the other Loan Documents and no Event of Default by Company
under this Agreement and no defaults by Company under any of the other Loan
Documents shall be deemed to have been suspended or waived by Purchaser, unless
such suspension or waiver is by an instrument in writing signed by an officer
of Purchaser and the Required Holders and directed to Company specifying such
suspension or waiver.

        9.5  Remedies.  Purchaser's rights and remedies under this Agreement
             --------
shall be cumulative and nonexclusive of any other rights and remedies which
Purchaser may have under any other agreement, including the Loan Documents, the
other Transaction Documents, by operation of law or otherwise.

        9.6  Waiver of Jury Trial.  The parties hereto waive all right to trial
             --------------------
by jury in any action or proceeding to enforce or defend any rights under the
Transaction Documents.

        9.7  Severability.  Wherever possible, each provision of this Agreement
             ------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

        9.8  Binding Effect; Benefits.  This Agreement and the other Transaction
             ------------------------
Documents shall be binding upon, and inure to the benefit of, the successors of
Company and Purchaser and the assigns, transferees and endorsees of Purchaser,
including all provisions with respect to Change of Control of Company.

                                       47
<PAGE>

        9.9  Conflict of Terms.  Except as otherwise provided in this Agreement
             -----------------
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is
in conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.

        9.10  Governing Law.  This Agreement and the Obligations arising
              -------------
hereunder shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York applicable to contracts made and performed in
such state, without regard to the principles thereof regarding conflict of
laws, and any applicable laws of the United States of America.  Purchaser and
Company agree to submit to personal jurisdiction and to waive any objection as
to venue in the federal or New York State courts located in the County of New
York, State of New York.  Service of process on Purchaser or Company in any
action arising out of or relating to any of the Transaction Documents shall be
effective if mailed to such party at the address listed in Section 9.11 hereof.
Nothing herein shall preclude Purchaser or Company from bringing suit or taking
other legal action in any other jurisdiction.

        9.11  Notices.  Except as otherwise provided herein, whenever it is
              -------
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by another, or whenever any of the parties desires to give or
serve upon another any such communication with respect to this Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person with
receipt acknowledged or by registered or certified mail, return receipt
requested, postage prepaid, or by telecopy and confirmed by telecopy answerback
addressed as follows:

          If to Company:

          Mastech Corporation
          1004 McKee Road
          Oakdale, Pennsylvania  15071
          Attn:  Jeffrey McCandless
          Telecopy Number:  (412) 787-9225

          with a copy to:

          Buchanan Ingersoll
          One Oxford Centre
          301 Grant Street, 20th Floor
          Pittsburgh, Pennsylvania 15219
          Attn:  Carl Cohen, Esq. and James Barnes, Esq.
          Telecopy Number: (412) 562-1041

          If to Purchaser:

                                       48
<PAGE>

          General Electric Capital Corporation
          120 Long Ridge Road
          Stamford, Connecticut  06927
          Attn:  GE Equity Group - Technology and Communications Group
          Telecopy Number: (203) 357-4565

          with copies to:

          General Electric Capital Corporation
          120 Long Ridge Road
          Stamford, Connecticut  06927
          Attention:  GE Equity Group Legal Counsel
          Telecopy Number: (203) 357-3047

          and

          Weil, Gotshal & Manges LLP
          767 Fifth Avenue
          New York, New York  10153
          Attn:  Michael Lubowitz, Esq.
          Telecopy Number:  (212) 310-8007

or at such other address as may be substituted by notice given as herein
provided.  The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice.  Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) Business Days after the same shall have been deposited with the United
States mail.  Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the Persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.

        9.12  Survival.  The representations, warranties and covenants of
              --------
Company in this Agreement shall survive the execution, delivery and acceptance
hereof by the parties hereto and the closing of the transactions described
herein or related hereto.

        9.13  Section and Other Headings.  The section and other headings
              --------------------------
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.

        9.14  Counterparts.  This Agreement may be executed in any number of
              ------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.

                                       49
<PAGE>

        9.15  Publicity.  Neither Purchaser nor Company shall issue any press
              ---------
release or make any public disclosure regarding the transactions contemplated
hereby unless such press release or public disclosure is approved by the other
party in advance.  Notwithstanding the foregoing, each of the parties hereto
may, in documents required to be filed by it with the SEC or other regulatory
bodies, make such statements with respect to the transactions contemplated
hereby as each may be advised by counsel is legally necessary or advisable, and
may make such disclosure as it is advised by its counsel is required by law,
subject to advance consultation with Purchaser.

                                       50
<PAGE>

          IN WITNESS WHEREOF, Company and Purchaser have executed this Agreement
as of the day and year first above written.

                         MASTECH CORPORATION


                         By:  /s/ Sunil Wadhwani
                            _________________________________
                            Name:  Sunil Wadhwani
                            Title:

                         Purchaser:
                         ---------

                         GE CAPITAL EQUITY INVESTMENTS, INC.


                         By:  /s/ David C. Whitmore
                            _________________________________
                            Name:   David C. Whitmore
                            Title:  Duly authorized signatory

                                       51

<PAGE>

                                                                     Exhibit 4.2

                         REGISTRATION RIGHTS AGREEMENT
                         -----------------------------

          Registration Rights Agreement, dated as of July 22, 1999, by and among
Mastech Corporation, a Pennsylvania corporation ("Company"), and GE Capital
Equity Investments, Inc., a Delaware corporation ("GE Capital" or "Purchaser").

                             W I T N E S S E T H :
                             -------------------

          WHEREAS, Company and Purchaser have entered into that certain Purchase
Agreement, dated as of July 22, 1999 (the "Purchase Agreement"), pursuant to
which Company has agreed to issue and sell to Purchaser, and Purchaser has
agreed to purchase from Company, a senior convertible note in the original
principal amount of $30,000,000 ("Convertible Note"); and

          WHEREAS, in order to induce Purchaser to enter into the Purchase
Agreement and to purchase the Convertible Note, Company has agreed to provide
registration rights with respect thereto;

          NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:

          1. Definitions. Unless otherwise defined herein, terms used herein
             ------------
shall have the meaning ascribed to them in the Purchase Agreement, and the
following shall have the following respective meanings (such meanings being
equally applicable to both the singular and plural form of the terms defined):

          "Agreement" shall mean this Registration Rights Agreement, including
all amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.

          "Conversion Shares" shall mean shares of Common Stock issued upon
conversion of the of Convertible Note.

          "Holder" shall mean the holder of Conversion Shares or of the
Convertible Note.

          "Incidental Registration" shall have the meaning ascribed to it in
Section 3.

          "Majority Holders" shall mean Holders holding at the time, the
Convertible Note or Conversion Shares representing more than 50% of the sum of
(x) all then outstanding Conversion Shares and (y) all shares of Common Stock
issuable to the holders of then-outstanding Convertible Note upon the conversion
thereof.
<PAGE>

          "NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.

          "Registrable Securities" shall mean the shares of Common Stock from
time to time issued or issuable to the holders of the Convertible Note upon the
conversion thereof or hereafter acquired by Purchasers or which they hereafter
obtain the right to acquire pursuant to any dividend, distribution, stock split
or similar transaction or rights to the extent that all of the holders of the
Common Stock received shares of Common Stock.

          "Registration Statement" shall have the meaning ascribed to it in
Section 3.

          "Shelf Registration" shall have the meaning ascribed to it in
Section 2.

          "Shelf Registration Statement" shall have the meaning ascribed to it
in Section 2.

          2. Shelf Registration. As promptly as practicable, but in any event no
             ------------------
later than 90 days after the Closing Date, Company shall file with the SEC and
thereafter use its best efforts to cause to be declared effective on or prior to
the 120th day after the Closing Date a registration statement (the "Shelf
Registration Statement") on an appropriate form under the Securities Act
relating to the offer and sale of the Conversion Shares by the Holders thereof
from time to time in accordance with the methods and distribution set forth in
the Shelf Registration Statement and Rule 415 under the Securities Act
(hereafter, the "Shelf Registration"). Company shall use its best efforts to
keep the Shelf Registration Statement continuously effective in order to permit
the prospectus included therein to be lawfully delivered by Holders for a period
of 4 years from the date of issuance of the Conversion Shares upon the
conversion of the Note or such shorter period that will terminate when all the
Conversion Shares have been sold pursuant thereto; provided, however, that
                                                   --------  -------
Company shall be deemed not to have used its best efforts to keep the Shelf
Registration Statement effective during the requisite period if it voluntarily
takes any action that would result in the Holders covered thereby not being able
to sell the Conversion Shares during that period, unless such action is required
by applicable law. Notwithstanding any other provisions of this Agreement to the
contrary, Company shall cause the Shelf Registration Statement and the related
prospectus to be and any amendment or supplement thereto, as of the effective
date of the Shelf Registration Statement, amendment or supplement, (i) to comply
in all material respects with the applicable requirements of the Securities Act
and the rules and regulations of the SEC and (ii) not to contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading.

          3. Incidental Registration. If Company at any time proposes to file on
             ---------- ------------
its behalf a registration statement under the Securities Act on any form (other
than a

                                       2
<PAGE>

Registration Statement on Form S-4 or S-8 or any successor form for securities
to be offered in a transaction of the type referred to in Rule 145 under the
Securities Act or to employees of Company pursuant to any employee benefit plan,
respectively) for the general registration of securities (an "Incidental
Registration Statement", and together with the Shelf Registration Statement, a
"Registration Statement"), it will give written notice to all Holders at least
30 days before the initial filing with the SEC of such Registration Statement,
which notice shall set forth the intended method of disposition of the
securities proposed to be registered by Company.  The notice shall offer to
include in such filing the aggregate number of shares of Registrable Securities
as such Holders may request.

          Each Holder desiring to have Registrable Securities registered under
this Section 3 shall advise Company in writing within 10 Business Days after the
date of receipt of such offer from Company, setting forth the amount of such
Registrable Securities for which registration is requested.  Company shall
thereupon include in such filing the number of shares of Registrable Securities
for which registration is so requested, subject to the next sentence, and shall
use its best efforts to effect registration under the Securities Act of such
shares.  In connection with any registration subject to this Section 3, which is
to be effected in a firm commitment underwriting, Company will not be required
to include Registrable Securities in such underwriting unless the Holder of such
Registrable Securities accepts the terms and conditions of the underwriting
agreement which is agreed upon between Company and the managing underwriter
selected by Company, so long as such underwriting agreement conforms to industry
standards and practices and the obligations and liabilities imposed on the
Holders under such agreement are customary for the stockholders selling
securities in an underwritten offering.  If the managing underwriter of a
proposed public offering shall advise Company in writing that, in its opinion,
the distribution of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by Company would
materially and adversely affect the distribution of such securities by Company,
then all selling security holders shall reduce the amount of securities each
intended to distribute through such offering on a pro rata basis.  Except as
otherwise provided in Section 5, all expenses of such registration shall be
borne by Company.

          4. Registration Procedures. In connection with the requirements of
             ------------ ----------
Company pursuant to the provisions of Section 2 or if the Company is required by
the provisions of Section 3 to use its best efforts to effect the registration
of any of its securities under the Securities Act, Company will, as
expeditiously as possible:

               (a) in the case of any incidental registration pursuant to
Section 3, prepare and file with the SEC an Incidental Registration Statement
with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by the holders thereof, but not
to exceed 120 days (or, with respect to any underwritten offering, such shorter
period as the underwriters need to complete the distribution of the registered
offering);

                                       3
<PAGE>

               (b) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such Registration Statement until, in
the case of an Incidental Registration Statement filed pursuant to Section 3,
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of 120 days, or in the case of a Shelf
Registration Statement filed pursuant to Section 2, such time as is set forth in
Section 2;

               (c) furnish, to such selling security holders such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such selling security holders may reasonably request;

               (d) use its best efforts to register or qualify the securities
covered by such Registration Statement under such other securities or blue sky
laws of such jurisdictions within the United States and Puerto Rico as each
holder of such securities shall request (provided, however, that Company shall
                                         --------  -------
not be obligated to qualify as a foreign corporation to do business under the
laws of any jurisdiction in which it is not then qualified or to file any
general consent to service or process), and do such other reasonable acts and
things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;

               (e) furnish, at the request of any Holder requesting registration
of Registrable Securities, on the date that such shares of Registrable
Securities are delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Securities are not being sold through
underwriters, on the date that the Registration Statement with respect to such
shares of Registrable Securities becomes effective, (1) an opinion, dated such
date, of the independent counsel representing Company for the purposes of such
registration, addressed to the underwriters, if any, and if such Registrable
Securities are not being sold through underwriters, then to the Holders making
such request, in customary form and covering matters of the type customarily
covered in such legal opinions; and (2) a comfort letter dated such date, from
the independent certified public accountants of Company, addressed to the
underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Holder making such request and, if such
accountants refuse to deliver such letter to such Holder, then to Company, in a
customary form and covering matters of the type customarily covered by such
comfort letters and as the underwriters or such Holder shall reasonably request.
Such opinion of counsel shall additionally cover such other legal matters with
respect to the registration in respect of which such opinion is being given as
such Holders may reasonably request. Such letter from the independent certified
public accountants shall additionally cover such other financial matters
(including information as to the period ending not more than five Business Days
prior to the date of such letter) with respect to

                                       4
<PAGE>

the registration in respect of which such letter is being given as the Holders
of a majority of the Registrable Securities being so registered may reasonably
request;

               (f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;

               (g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, but not later than 18 months after the effective
date of the Registration Statement, an earnings statement covering the period of
at least 12 months beginning with the first full month after the effective date
of such Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;

               (h) give written notice to Holders:

                    (i) when such Registration Statement or any amendment
thereto has been filed with the SEC and when such Registration Statement or any
posteffective amendment thereto has become effective;

                    (ii) of any request by the SEC for amendments or supplements
to such Registration Statement or the prospectus included therein or for
additional information;

                    (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of such Registration Statement or the initiation of
any proceedings for that purpose;

                    (iv) of the receipt by Company or its legal counsel of any
notification with respect to the suspension of the qualification of the Common
Stock for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and

                    (v) of the happening of any event that requires Company to
make changes in such Registration Statement or the prospectus in order to make
the statements therein not misleading (which notice shall be accompanied by an
instruction to suspend the use of the prospectus until the requisite changes
have been made);

               (i) use its best efforts to prevent the issuance or obtain the
withdrawal of any order suspending the effectiveness of such Registration
Statement at the earliest possible time;

               (j) furnish to each Holder, without charge, at least one copy of
such Registration Statement and any post-effective amendment thereto, including

                                       5
<PAGE>

financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those, if any, incorporated by reference);

               (k) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing the Conversion Shares to
be sold free of any restrictive legends and in such denominations and registered
in such names as the Holders may request a reasonable period of time prior to
sales of the Conversion Shares;

               (l) upon the occurrence of any event contemplated by Section
4(h)(v) above, promptly prepare a post-effective amendment to such Registration
Statement or a supplement to the related prospectus or file any other required
document so that, as thereafter delivered to Holders, the prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. If the Company notifies the Holders
in accordance with Section 4(h)(v) above to suspend the use of the prospectus
until the requisite changes to the prospectus have been made, then the Holders
shall suspend use of such prospectus, and the period of effectiveness of such
Registration Statement provided for above shall each be extended by the number
of days from and including the date of the giving of such notice to Holders
shall have received such amended or supplemented prospectus pursuant to this
Section 4(l);

               (m) (i) make reasonably available for inspection by the Holders,
any underwriter participating in any disposition pursuant to such Registration
Statement and any attorney, accountant or other agent retained by the Holders or
any such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and (ii) cause the Company's
officers, directors and employees to supply all relevant information reasonably
requested by the Holders or any such underwriter, attorney, accountant or agent
in connection with the registration; provided that the foregoing inspection and
                                     --------
information gathering shall be coordinated on behalf of the Purchaser by
Purchaser and on behalf of the other parties, by one counsel designated by and
on behalf of such other parties as described in Section 4; and

               (n) in connection with any underwritten offering, make
appropriate officers of Company available to the selling security holders for
meetings with prospective purchasers of the Registrable Securities and prepare
and present to potential investors customary "road show" material in a manner
consistent with other new issuances of securities similar to the Registrable
Securities, in connection with any proposed sale of the Registrable Securities
in an aggregate offering of at least $10 million.

          It shall be a condition precedent to the obligation of Company to take
any action pursuant to this Agreement in respect of the securities which are to
be registered at the request of any Holder that such Holder shall furnish to
Company such information regarding the securities held by such Holder and the
intended method of disposition

                                       6
<PAGE>

thereof as Company shall reasonably request and as shall be required in
connection with the action taken by Company.

          5. Expenses. All expenses incurred in complying with this Agreement,
             --------
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for Company, the reasonable fees and expenses of
counsel for the selling security holders (selected by those holding a majority
of the shares being registered), expenses of any special audits incident to or
required by any such registration and expenses of complying with the securities
or blue sky laws of any jurisdiction pursuant to Section 4(d), shall be paid by
Company, except that:

               (a) all such expenses in connection with any amendment or
supplement to a Registration Statement or prospectus required to be filed
pursuant to Section 3 which is filed more than 180 days after the effective date
of such Registration Statement because any Holder has not effected the
disposition of the securities requested to be registered shall be paid by such
Holder;

               (b) Company shall not be liable for any fees, discounts or
commissions to any underwriter or any fees or disbursements of counsel for any
underwriter in respect of the securities sold by such Holder; and

               (c) in the case of any underwritten offering pursuant to Section
2 hereof, Company shall be liable only for those fees of counsel for the Holders
to the extent that such fees do not exceed in the aggregate $100,000.

          6.  Indemnification and Contribution.
              --------------------------------
               (a) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, Company shall
indemnify and hold harmless the holder of such Registrable Securities, such
holder's directors and officers, and each other person (including each
underwriter) who participated in the offering of such Registrable Securities and
each other person, if any, who controls such holder or such participating person
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director or
officer or participating person or controlling person may become subject under
the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse such holder or such director, officer or participating
person or controlling person for any legal or any other expenses reasonably
incurred by such holder or such director, officer or participating person or
controlling person in

                                       7
<PAGE>

connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Company shall not be liable in any
                     --------  -------
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any actual or alleged untrue statement or actual or
alleged omission made in such Registration Statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
written information furnished to Company by such holder specifically for use
therein or (in the case of any underwritten offering) so furnished for such
purposes by any underwriter. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such holder or
such director, officer or participating person or controlling person, and shall
survive the transfer of such securities by such holder.

               (b) Each Holder, by acceptance hereof, agrees to indemnify and
hold harmless Company, its directors and officers and each other person, if any,
who controls Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which Company or
any such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon information in writing provided to Company by such Holder
specifically for use in the following documents and contained, on the effective
date thereof, in any Registration Statement under which securities were
registered under the Securities Act at the request of such holder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto. Notwithstanding the provisions of this paragraph (b) or
paragraph (c) below, no Holder shall be required to indemnify any person
pursuant to this Section 6 or to contribute pursuant to paragraph (c) below in
an amount in excess of the amount of the aggregate net proceeds received by such
Holder in connection with any such registration under the Securities Act.


               (c) If the indemnification provided for in this Section 6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal

                                       8
<PAGE>

or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding.

          The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

          7. Certain Limitations on Registration Rights. Notwithstanding the
             ------- ----------- -- ------------ ------
other provisions of this Agreement:

               (a) Company shall not be obligated to register the Registrable
Securities of any Holder if, in the opinion of counsel to Company reasonably
satisfactory to the Holder and its counsel (or, if the Holder has engaged an
investment banking firm, to such investment banking firm and its counsel), the
sale or other disposition of such Holder's Registrable Securities, in the manner
proposed by such Holder (or by such investment banking firm), may be effected
without registering such Registrable Securities under the Securities Act;

               (b) Company shall have the right to delay the filing or
effectiveness of, or by written notice require the Holders to cease sales of
Registrable Securities pursuant to, a Shelf Registration Statement required
pursuant to Section 2 hereof during one or more periods aggregating not more
than 60 days in any twelve-month period (such period or periods, the "Suspension
Period") in the event that (i) Company would, in accordance with the advice of
its counsel, be required to disclose in the prospectus information not otherwise
then required by law to be publicly disclosed, (ii) in the judgment of Company's
Board of Directors, there is a reasonable likelihood that such disclosure, or
any other action to be taken in connection with the prospectus, would materially
and adversely affect any existing or prospective material business situation,
transaction or negotiation or otherwise materially and adversely affect Company,
or (iii) the Shelf Registration Statement can no longer be used under the
Securities Act; provided that the period of effectiveness of the Shelf
Registration Statement pursuant to Section 2 shall be extended by the length of
any such Suspension Period;

               (c) Notwithstanding Section 7(b) hereof, Company agrees that it
shall not impose a Suspension Period during the 30-day period following the date
on which the Shelf Registration is first declared effective by the SEC (the
"30-day Period") as a result of any activity initiated by Company, or in
response to any proposal, unless Company's Board of Directors determines in good
faith that it is required to impose a Suspension Period by law during such
30-day Period. To the extent Company imposes a Suspension Period during such
30-day Period as a result of such determination by Company's Board of Directors,
Company shall not, for such additional number of

                                       9
<PAGE>

consecutive days following the termination of such Suspension Period, impose an
additional Suspension Period, so as to provide the Holders with a total of 30
days without a Suspension Period; and

               (d) If Company suspends the Shelf Registration Statement or
requires the Holders to cease sales of the Common Stock pursuant to paragraph
(b) above, Company shall, as promptly as practicable following the termination
of the circumstances which entitled Company to do so, take such action as may be
necessary to reinstate the effectiveness of the Shelf Registration Statement
and/or give written notice to all Holders authorizing them to resume sales
pursuant to the Shelf Registration Statement. If, as a result thereof, the
prospectus included in the Shelf Registration Statement has been amended to
comply with the requirements of the Securities Act, Company shall enclose such
revised prospectus with a notice to Holders given pursuant to this paragraph
(d), and the Shareholders shall make no offers or sales of shares pursuant to
such Registration Statement other than by means of such revised prospectus.

          8. Selection of Managing Underwriters. The managing underwriter or
             --------- -- -------- ------------
underwriters for any offering of Registrable Securities to be registered
pursuant to Section 2 shall be of recognized national standing selected by the
holders of a majority of the shares being so registered, and shall be reasonably
acceptable to Company.

          9. Restrictions on Sale After Public Offering. Except for transfers
             ------------ -- ---- ----- ------ --------
made in transactions exempt from the registration requirements under the
Securities Act (other than Rule 144 thereunder), Company and each Holder hereby
agree not to offer, sell, contract to sell or otherwise dispose of any of their
Registrable Securities within 120 days after the date of any final prospectus
relating to the public offering of Common Stock, if underwritten, whether by
Company or by any Holders, except pursuant to such prospectus or with the
written consent of the managing underwriter or underwriters for such offering.

          10.  Miscellaneous.
               -------------

               (a) No Inconsistent Agreements. Company will not hereafter enter
                   -- ------------ ----------
into any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement. Company has not previously
entered into any agreement with respect to any of its securities granting any
registration rights to any person.

               (b) Remedies. Each Holder, in addition to being entitled to
                   --------
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision

                                       10
<PAGE>

hereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees in addition to any other available remedy.

               (c) Amendments and Waivers. Except as otherwise provided herein,
                   ----------------------
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departure from the provisions hereof may not be given
unless Company has obtained the written consent of the Majority Holders.

               (d) Notice Generally. Any notice, demand, request, consent,
                   ----------------
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:

               (i) If to any Holder, at its last known address appearing on the
books of Company maintained for such purpose.

               (ii) If to Company, at

               Mastech Corporation
               1604 McKee Road
               Oakdale, Pennsylvania 15071
               Attention:  Jeffrey McCandless
               Telecopy Number:  (412) 787-9225

               with a copy to

               Buchanan Ingersoll
               One Oxford Centre
               301 Grant Street, 20th Floor
               Pittsburgh, Pennsylvania 15219
               Attention: Carl Cohen, Esq. and James Barnes, Esq.
               Telecopy Number: (412) 562-1041

or at such other address as may be substituted by notice given as herein
provided.  The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice.  Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three Business Days after the same shall have been deposited in
the United States mail.

               (e) Successors and Assigns. This Agreement shall inure to the
                   ----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto including any person to whom Registrable Securities are transferred.

                                       11
<PAGE>

               (f) Headings. The headings in this Agreement are for convenience
                   --------
of reference only and shall not limit or otherwise affect the meaning hereof.

               (g) Governing Law; Jurisdiction. This Agreement shall be governed
                   ---------------------------
by, construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of laws provisions thereof. Each of the
parties hereby submits to personal jurisdiction and waives any objection as to
venue in the County of New York, State of New York. Service of process on the
parties in any action arising out of or relating to this Agreement shall be
effective if mailed to the parties in accordance with Section 10(d) hereof. The
parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights hereunder.

               (h) Severability. Wherever possible, each provision of this
                   ------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

               (i) Entire Agreement. This Agreement, together with the Purchase
                   ----------------
Agreement, represents the complete agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.

                                       12
<PAGE>

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

                         MASTECH CORPORATION

                         By:_________________________________
                            Name:
                            Title:

                         GE CAPITAL EQUITY INVESTMENTS, INC.

                         By:_________________________________
                            Name:
                            Title:

                                       13

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               SEP-30-1999
<CASH>                                          33,254
<SECURITIES>                                    83,218
<RECEIVABLES>                                   82,720
<ALLOWANCES>                                   (2,042)
<INVENTORY>                                          0
<CURRENT-ASSETS>                               230,811
<PP&E>                                          28,023
<DEPRECIATION>                                 (9,974)
<TOTAL-ASSETS>                                 280,470
<CURRENT-LIABILITIES>                           49,983
<BONDS>                                              0
                                0
                                          0
<COMMON>                                           504
<OTHER-SE>                                     190,394
<TOTAL-LIABILITY-AND-EQUITY>                   280,470
<SALES>                                              0
<TOTAL-REVENUES>                               363,064
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<TOTAL-COSTS>                                  242,445
<OTHER-EXPENSES>                                     0
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<INTEREST-EXPENSE>                             (1,801)
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<NET-INCOME>                                    30,216
<EPS-BASIC>                                       0.60
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</TABLE>


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