SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[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 For the transition period from ______________ to
______________
Commission file number 0-23173
OAO TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1973990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 Greenway Center Drive
Greenbelt, Maryland 20770
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 486-0400
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 [_]
As of November 11, 1999, the registrant had outstanding 17,939,267 shares
of its Common Stock, par value $0.01 per share.
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OAO TECHNOLOGY SOLUTIONS, INC.
Quarterly Report on Form 10-Q for the Quarterly Period Ended September 30, 1999
INDEX
<TABLE>
<CAPTION>
Page Reference
--------------
<S> <C>
COVER PAGE...........................................................................................1
INDEX................................................................................................2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 (Unaudited)......................................................3
Condensed Consolidated Statements of Operations and Comprehensive
Income for the Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited)............................................................................4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 (Unaudited)......................5
Notes to Condensed Consolidated Financial Statements (Unaudited).........................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................................10
PART II - OTHER INFORMATION.......................................................................15
Item 6. Exhibits
SIGNATURES..........................................................................................16
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OAO TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,830 $ 9,615
Accounts receivable:
Billed, net of allowance for uncollectible accounts
of $814 and $959, respectively 16,803 15,458
Unbilled, net of allowance for uncollectible accounts
of $493 and $710, respectively 10,164 11,082
------------ ------------
26,967 26,540
Note receivable - related party 2,520 2,520
Income tax receivable 1,388 1,337
Deferred tax asset 1,136 1,136
Other current assets 6,875 469
------------ ------------
Total current assets 49,716 41,617
Property and equipment, net 3,761 4,007
Deposits and other assets 667 455
Goodwill 5,039 5,039
------------ ------------
Total assets $ 59,183 $ 51,118
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,893 $ 6,481
Accrued expenses 11,140 7,761
Unearned revenue 640 545
Current maturities of capital lease obligations 91 436
------------ ------------
Total current liabilities 19,764 15,223
Capital lease obligations, net of current maturities 153 447
Commitments and contigencies -- --
Stockholders' equity:
Common stock, par value $0.01 per share,
authorized shares of 50,000,000 and 25,000,000
at September 30, 1999 and December 31, 1998, respectively;
17,870,337 and 16,694,060 issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 176 167
Additional paid-in capital 41,198 35,729
Deferred compensation (142) (173)
Accumulated other comprehensive loss (361) (435)
Retained earnings 1,328 160
Stockholders' note receivable (2,933) --
------------ ------------
Total stockholders' equity 39,266 35,448
------------ ------------
Total liabilities and stockholders' equity $ 59,183 $ 51,118
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
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OAO TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 38,887 $ 34,520 $ 113,823 $ 77,866
Direct cost 34,058 29,888 101,052 66,621
--------- --------- --------- ---------
Gross profit 4,829 4,632 12,771 11,245
Selling, general and administrative 4,095 4,884 11,430 14,992
Restructuring and other charges -- 2,900 -- 2,900
--------- --------- --------- ---------
Income (loss) from operations 734 (3,152) 1,341 (6,647)
Interest and other income, net 223 134 681 515
--------- --------- --------- ---------
Income (loss) before income taxes 957 (3,018) 2,022 (6,132)
Income tax provision (benefit) 431 (1,046) 854 (2,126)
--------- --------- --------- ---------
Net income (loss) 526 (1,972) 1,168 (4,006)
Other comprehensive income (loss), net of tax: 9 (175) 44 (310)
Foreign currency translation adjustment --------- --------- --------- ---------
Comprehensive income (loss) $ 535 $ (2,147) $ 1,212 $ (4,316)
========= ========= ========= =========
Net income (loss) per common share:
Basic $ 0.03 $ (0.12) $ 0.07 $ (0.24)
Diluted $ 0.03 $ (0.12) $ 0.07 $ (0.24)
========= ========= ========= =========
Weighted average number of common
shares outstanding:
Basic 16,986 16,430 16,804 16,375
========= ========= ========= =========
Diluted 17,667 16,430 17,355 16,375
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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OAO TECHNOLOGY SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,168 $ (4,006)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,564 697
Asset abandonment -- 2,100
Increase (decrease) in the allowance for uncollectible accounts (362) 2,417
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net 109 3,234
Other current assets (3,378) 104
Deposits and other assets (536) 312
Income tax receivable, net -- (3,296)
Accounts payable 1,246 (4,920)
Accrued expenses 2,565 66
Unearned revenues 95 260
-------- --------
Net cash provided by (used in) operating activities 2,471 (3,032)
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired (164) (6,598)
Purchases of property and equipment (784) (1,979)
-------- --------
Net cash used in investing activities (948) (8,577)
-------- --------
Cash flows from financing activities:
Proceeds from the issuance of common stock, net 257 235
Payments on stockholders' receivables -- 129
Payments on capital lease obligations (639) (435)
Payments on notes payable -- (378)
-------- --------
Net cash used in financing activities (382) (449)
-------- --------
Effect of exchange rate changes on cash 74 (322)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,215 (12,380)
Cash and cash equivalents, beginning of period 9,615 22,221
-------- --------
Cash and cash equivalents, end of period $ 10,830 $ 9,841
======== ========
Supplemental disclosure of cash flow information
Cash payments for interest $ 43 $ --
Cash payments for income tax $ 831 $ 769
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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OAO TECHNOLOGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OAO Technology Solutions, Inc. (the "Company" or "OAOT") along with its
wholly owned subsidiaries, is an enterprise information technology
infrastructure solution provider. The Company provides a wide range of
out-sourced information technology solutions and professional services
including: the operation of large-scale service delivery centers and networks,
distributed system management, application development and maintenance; staff
augmentation services; enterprise application solutions, implementation training
services, web enablement and e-business solutions; and state-of-the-art software
solutions for the managed care marketplace. These services are organized through
four business lines: Managed Services; Staff Augmentation; Enterprise
Application Solutions ("EAS") and Healthcare IT Solutions.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and include, in the opinion of
the management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that its
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. The results of
operations for the three month and nine month periods ended September 30, 1999,
are not necessarily indicative of the results to be expected for the full year.
2. SOFTWARE DEVELOPMENT COSTS
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. Additional development
costs are capitalized in accordance with Statement of Financial Accounting
Standard No. 86 "Accounting for the costs of computer software to be sold,
leased or otherwise marketed." Such costs are included in deposits and other
assets on the condensed, consolidated balance sheets and amortized over the
lesser of three years or the economic life of the product. Capitalized software
costs for the three and nine months were $.1 million and $.6 million,
respectively.
3. SOFTWARE LICENSES FOR RESALE
The Company entered into a Value Added Industry Remarketer (VAIR) agreement
with Siebel Systems, Inc., on August 31, 1999. As part of this agreement, the
Company signed a Software License and Services Agreement purchasing software
license applications valued at $5.1 million for resale to third parties. The
software licenses were purchased with cash of $2.8 million and OAOT common stock
valued at $2.3 million. The OAOT common stock consisted of 228,800 shares with a
guaranteed per share value of $10 at September 1, 2000. The difference, if any,
between share price at September 1, 2000 and the guaranteed price will be paid
in cash. These licenses are included in other current assets on the condensed,
consolidated balance sheets.
4. CREDIT AGREEMENTS
The Company entered into a $35 million combined revolving credit and term
loan agreement (the "Agreement") with Bank of America on June 30, 1999. The
Agreement's $15 million revolving line of credit portion matures on May 31,
2002. It provides for a commitment fee of 0.30 % to 0.50% on the unused portion
and interest at the prime rate or, at the Company's option at LIBOR plus a 1.75%
to 2.5% risk adjusted premium based on the Company's total
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funded debt to EBITDA. The agreement's $20 million term loan facility matures on
May 31, 2001 and provides for a .50% fee payable when drawn upon and interest is
LIBOR plus a risk adjusted premium. Borrowings under the Agreement are limited
to a multiple of earnings before interest, taxes, depreciation and amortization
("EBITDA"). However, the Company may convert the revolving line of credit to an
asset-based loan limited to a percentage of eligible billed and unbilled
receivables. The Agreement also requires maintenance of certain financial
covenants, prohibits the payment of dividends and pledges all Company assets as
collateral among other restrictions and replaces the Company's Revolving Credit
Agreement with another bank. There were no borrowings outstanding under either
bank agreement as of September 30, 1999 and December 31, 1998.
5. EARNINGS PER SHARE
Basic earnings per share has been calculated as net earnings divided by
weighted average common shares outstanding, while diluted earnings per share has
been computed as net earnings divided by weighted average common and diluted
shares outstanding. For the three and nine month periods ended September 30,
1998 all common stock equivalents were anti-dilutive and therefore not included
in the calculation of diluted earnings per share. For the three and nine month
periods ended September 30, 1999, the Company's stock options outstanding
increased outstanding common shares by 681,000 and 551,000 respectively, for
total diluted shares outstanding of 17,667,000 and 17,355,000, respectively.
6. STATEMENT OF CASH FLOW NON-CASH DISCLOSURE
The condensed consolidated statement of cash flows excludes from other
current assets the non-cash portion of Siebel Systems, Inc. software licenses
purchased for 228,800 shares of the Company's common stock at the guaranteed
share value of $10. The $2.9 million value of the stockholders' note receivable
from the Chief Executive Officer of the Company, has also been excluded from the
condensed consolidated statement of cash flows as this was a non-cash
transaction.
7. ACQUISITIONS
On May 27, 1999, the Company completed the acquisition of 50% of the
outstanding capital stock of OAO/ICOR, Ltd. not already owned by the Company
pursuant to a Stock Purchase Agreement dated May 27, 1999 among Capita Business
Services Limited, a registered English and Wales company, and the Company. The
acquisition was effective as of April 1, 1999.
Pursuant to the terms of the Stock Purchase Agreement the Company paid
$161,900 for the outstanding capital stock and repayment of OAO/ICOR
indebtedness to Capita Business Services Limited in the amount of $526,200. The
purchase resulted in an excess of purchase price over net assets acquired of
$501,000, which is being amortized on a straight-line basis over 7 years. The
acquisition was accounted for under the purchase method of accounting and the
Company included the results of operations of OAO/ICOR as a consolidated entity
from the effective date of acquisition. The Company previously used the equity
method of accounting for the results of operations prior to acquisition. Pro
forma information related to this acquisition is not included herein, as the
acquisition was not material.
8. SEGMENT INFORMATION
The Company manages its business segments primarily by service line. The
Company's reportable segments are Managed Services, Staff Augmentation,
Healthcare IT Solutions, and EAS.
Managed Services includes datacenter operations management, distributed
systems management, application development and maintenance, and other IT
services.
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Staff Augmentation services are provided by OAO Services, Inc. a wholly
owned subsidiary. Staff augmentation services provides technical IT skills to
strategic customers nationwide on a time and materials basis. Highly skilled
professionals are provided to augment the client's staffing or to respond to
requirements that cannot be sufficiently defined to permit fixed prices.
Healthcare IT Solutions provides managed care information software products
and business solutions for health care organizations. OAO HealthCare Solutions,
Inc., a wholly owned subsidiary, provides full service solutions to users of the
managed care product MC400. This includes product development, customer service,
installation service, training and ongoing support.
Enterprise Application Solutions ("EAS") provides entire life cycle
services for organizations using customer resource management ("CRM") and ERP
software, internet website enablement and e-business applications. These
services range from initial business process modeling and development, through
system installation implementation to ongoing operating maintenance and system
optimization.
The Company evaluates the performance of each segment based on segment
revenues and gross profit. Segment gross profit includes only direct costs.
Corporate selling, general and administrative costs are currently not allocated
to each segment. The basis of segmentation is the same as that used for the
December 31, 1998 annual report to shareholders.
Summary information by segment as of and for the three and nine months
ended September 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
MANAGED SERVICES
Revenues $ 17,836 $ 17,257 $ 52,704 $ 55,691
Gross profit 2,430 3,112 7,314 8,897
Segment assets 23,277 23,468 23,277 23,468
STAFF AUGMENTATION
Revenues 16,645 14,898 50,134 14,898
Gross profit 2,192 1,917 6,485 1,917
Segment assets 15,401 14,147 15,401 14,147
HEALTHCARE IT SOLUTIONS
Revenues 3,418 1,882 8,277 6,101
Gross profit 807 141 995 1,155
Segments assets 5,040 2,894 5,040 2,894
EAS
Revenues 988 483 2,708 1,176
Gross loss (600) (538) (2,023) (724)
Segment assets 7,778 2,173 7,778 2,173
SEGMENT TOTALS
Revenues 38,887 34,520 113,823 77,866
Gross profit 4,829 4,632 12,771 11,245
Segments assets 51,496 42,682 51,496 42,682
</TABLE>
8
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The following table reconciles reportable gross profit and segment assets
to the Company's consolidated totals. Selling, general and administrative
expenses, interest and other income expenses are not allocated to segments (in
thousands).
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross profit for reportable segments $ 4,829 $ 4,632 $ 12,771 $ 11,245
Selling, general and administrative
expenses unallocated 4,095 7,784 11,430 17,892
-------- -------- -------- --------
Total consolidated income (loss) from operations 734 (3,152) 1,341 (6,647)
Interest and other income unallocated 223 134 681 515
-------- -------- -------- --------
Total consolidated income (loss) before income taxes $ 957 ($ 3,018) $ 2,022 ($ 6,132)
======== ======== ======== ========
Total assets for reportable segments $ 51,496 $ 42,682 $ 51,496 $ 42,682
Note receivable - related party 2,520 2,520 2,520 2,520
Property and equipment unallocated 2,643 3,031 2,643 3,031
Deferred and other income taxes unallocated 2,524 2,895 2,524 2,895
-------- -------- -------- --------
Total consolidated assets $ 59,183 $ 51,128 $ 59,183 $ 51,128
======== ======== ======== ========
</TABLE>
9. RECLASSIFICATION
Certain reclassifications have been made to the financial statements for
the three and nine months ended September 30, 1998 in order to conform to the
presentation used in 1999.
10. RELATED PARTY TRANSACTIONS
On July 14, 1999, the Chief Executive Officer of the Company, acquired
750,000 shares of common stock of the Company, $.01 par value, at a cost of
$3.91 per share. The shares were purchased through the execution of a full
recourse, interest bearing note receivable to the Company for $2.9 million. The
purchased shares were also pledged as a security interest to the Company. The
note bears interest at a rate per annum equal to 5.82% and matures on July 14,
2004. The Company recorded the common stock issuance in the stockholders' equity
section with the note receivable as an offsetting reduction.
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Item 2.
OAO TECHNOLOGY SOLUTIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Condensed
Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this quarterly report. Historical results and percentage
relationships among any amounts in these financial statements are not
necessarily indicative of trends in operating results for any future period. The
statements which are not historical facts contained in this quarterly report,
including this Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Notes to these Condensed Consolidated Financial
Statements, contain certain forward-looking statements that involve risks and
uncertainties. Future events and the Company's actual results may differ
materially from the results reflected in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
dependence on key strategic customers, limited ability to establish new
strategic customer relationships, risks associated with fixed-price contracts,
competition in the industry, ability to sustain and manage growth, variability
of quarterly operating results, general economic conditions, dependence on key
personnel, risks associated with international sales, uncertainties relating to
the difficulties of transacting on the internet, integrating solutions, reducing
expenses, offering mission critical information on a timely basis, and other
risks described herein and in the Company's other Securities and Exchange
Commission filings.
Overview
The Company is an enterprise information technology ("IT") infrastructure
solution provider. The Company provides a wide range of out-sourced IT solutions
and professional services, including the operation of large-scale service
delivery centers and networks, distributed systems management, applications
software development and maintenance, staff augmentation services, enterprise
application solutions, integration, implementation and training services, web
enablement and e-business solutions, and state-of-the-art software solutions for
the managed care marketplace. These services are provided through four business
lines: Managed Services; Staff Augmentation; Enterprise Application Solutions
and Healthcare IT Solutions.
The Company is transitioning its business model to include enterprise
solutions enabling management of information on the internet. Management intends
to reinvest profits from its managed services and staff augmentation segments to
continue to develop new IT businesses. These businesses include e-business
enablement, customer resource management ("CRM") including license sales,
application hosting, and consulting for CRM and ERP solutions. Company
management believes that timely investment in enterprise application solution
businesses that are web-centric, digital infrastructure solutions will result in
improved long-term shareholder value.
The Company provides managed services generally on a long-term, fixed-price
contractual basis, to strategic customers as part of an IT out-sourcing team
providing services to a wide range of end-user customers. The Company also
provides staff augmentation services as part of the Company's service offerings
to its strategic customers. These services, provided on a time and material
basis, are regularly utilized within engagements to meet short or indefinite
term requirements, to deliver personnel who augment the client's staffing or to
respond to requirements that cannot be sufficiently defined to permit fixed
prices. There are also instances where an engagement has started on a time and
material basis and evolved to a fixed-price basis, as the requirements became
sufficiently defined.
The Company provides Healthcare IT Solutions services under software
license agreements with end-users, mostly within the managed care segment of the
healthcare industry via its MC400 software. The agreements include product
development, customer service, installation services, training and ongoing
support. In addition, other services may be provided, such as total project
management, hardware planning and implementation, and custom programming.
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EAS implementation and consulting services are generally provided on a time
and material contractual basis; however, software licenses may be sold for a one
time fee or bundled with services and sold as an application hosting program
with monthly payments based on the number of users. The Company, through its EAS
service line, provides software solutions packages through strategic
relationships with Siebel Systems, SAP, and Microsoft and provides entire life
cycle services for organizations and internet website enablement applications.
These services range from initial business process modeling and development,
through system installation and implementation. The Company also provides a full
suite of continuous support services to help maintain and upgrade these complex,
mission-critical systems. The Company focuses its efforts on public sector
customers as well as middle market commercial customers.
Quarterly results can be affected by the Company's level of investment in
the expansion and development of new service lines, as well as the commencement
of new contracts and engagements, the loss of strategic or end-user customers,
the timing of personnel cost increases and the portion of revenues derived from
new customer engagements.
The Company's strategic customers have been IBM's Global Services and
Compaq. Revenues from its strategic customers for the three months ended
September 30, 1999 and 1998 were $35.1 million and $32.4 million which comprised
90% and 94% of revenues, respectively. Revenues from strategic customers were
$103.2 and $70.7 for the nine months ended September 30, 1999 and 1998 which
composed 91% and 91% of revenues, respectively. The Company has diversified the
type of service provided to its strategic customers and expanded the number of
strategic customer business units to whom it provides services. At January 1,
1997 OAOT earned 94% of its revenues from managed services provided to strategic
customers. At September 30, 1999, the Company earned 45% of revenues from
managed serviced, 44% from staff augmentation, 3% from ADM and 11% from
non-strategic customers. The loss of a strategic customer or a decrease in the
revenue derived from the Company's relationships with either IBM or Compaq could
have a material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that either strategic customer
will renew existing contracts maturing within the next twelve months or continue
to engage the Company's services at historical levels, if at all. The
termination or non-renewal of a strategic customer's contract by an end-user
customer could also have a material adverse effect on the Company's business,
operating results and financial conditions. The Company's data center contracts
with IBM's Global Services are up for renewal during the next nine months. These
contracts are expected to generate $36 million of revenue for the Company in
1999. Company management believes that OAOT offers the best solution and value
to its customers for these services. Management also believes that it could
replace, if needed, the revenue losses in 2000 should these contracts not be
renewed. There can be no assurance that OAOT will win all or any portion of
these contracts or that all or any portion of these contracts retained would
continue at historical profitability levels.
Results of Operations
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of net revenue:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Direct costs 87.6 86.6 88.8 85.6
----- ----- ----- -----
Gross Profit 12.4 13.4 11.2 14.4
Selling, general and administrative expenses 10.5 14.1 10.0 19.3
Restructuring and other charges -- 8.4 -- 3.7
----- ----- ----- -----
Income (loss) from operations 1.9 (9.1) 1.2 (8.6)
Interest and other income (expense), net 0.6 0.4 0.6 0.7
----- ----- ----- -----
Income (loss) before income taxes 2.5 (8.7) 1.8 (7.9)
(Provision) benefit for income taxes (1.1) 3.0 (0.8) 2.7
----- ----- ----- -----
Net income (loss) 1.4% (5.7%) 1.0% (5.2%)
===== ===== ===== =====
</TABLE>
11
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Revenues
The Company's revenues increased approximately $4.4 million or 13% to $38.9
million and $36.0 million or 46% to $113.8 million for the three and nine months
ended September 30, 1999, compared to $34.5 million and $77.9 million for the
same prior year periods.
Revenue increased for the three months ended September 30, 1999 primarily
due to higher revenue from the Company's newer businesses in which it has been
making investments. These include the EAS practice, ADM and healthcare IT
solutions businesses. Additionally, the established business of OAO Services,
Inc. realized increased revenues. EAS business revenue improved primarily
because of increased consulting revenue. Healthcare IT revenues increased due to
improved consulting and implementation revenues due to greater number of MC400
healthcare software installation projects. The ADM business increased due to a
greater number of placements on the AT&T contract. OAO Services, Inc. revenues
increased due to a higher volume of placements, largely through development of a
national recruiting group in early 1999.
For the nine months ended September 30, 1999 revenue increased $36 million
or 46.2 % to $113.8 million primarily due to increased revenue in the Company's
newer businesses, as described above, and the acquisition of OAO Services, Inc.,
which was not acquired until July 1998.
Managed services revenue declined for the nine months ended September 30,
1999 by $3.0 million compared to the same 1998 period. Revenue decreases
resulted from reductions in the amount of work, including work order projects,
head count downsizing on continuing projects due to automation, consolidation of
sites, insourcing (where Company functions were transferred back to internal
customer personnel) and elimination of revenue on smaller, non-recurring
projects with strategic customers. The Company will discontinue services on work
order projects beginning in the fourth quarter of 1999. Work order projects are
low margin business which comprised a declining portion of total Company
revenues. Total work order revenue was $.4 million and $1.4 million for the
three and nine months ended September 30, 1999.
Gross Profit
The Company's gross profit increased $.2 million and $1.5 million to $4.8
million and $12.8 million for the three and nine month periods ended September
30, 1999 versus the comparable 1998 periods. Gross profit improved due to
increased revenues for the three and nine months ended September 30, 1999. Gross
profit as percentage of revenues declined to 12.4% and 11.2% from 13.4% and
14.4% for the three and nine months ended September 30, 1999 versus 1998. Gross
profit percentage declined for the three and nine month periods ended September
30, 1999 due to increased costs in 1999 to develop and expand the Company's
newer EAS and ADM businesses that comprised a larger percentage of Company gross
profits.
Additionally, the gross profit of OAO Services, Inc., whose gross profit
percentage remained unchanged for the three and nine months ended September 30
on a year to year basis, increased to 45.4% and 50.8% of the total Company gross
profit for the three and nine months ended September 30, 1999 versus 41.3% and
17% for the same period in 1998.
The gross profit margin for OAOT's managed services business, exclusive of
the ADM business and start-up costs incurred on its AT&T contract, remains under
pressure from its strategic clients. However, it remained constant for the three
and nine months ended September 30, 1999 and 1998. The margin pressure was
offset by a reduction in the less profitable work order type of services and
increased business from strategic customers.
Additionally, the Healthcare IT business experienced higher gross profit
margins for the three months ended September 30, 1999 and lower gross profit
margins for the nine months ended September 30, 1999 versus comparable 1998
periods. Healthcare IT's gross profit margins are significantly affected by the
revenue mix of its business. Software license sales to new customers have a
higher gross profit margin than time and material based services.
12
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and nine months
ended September 30, 1999 were $4.1 million and $11.4 million respectively
compared to $4.9 million and $15.0 million for the comparable 1998 periods. The
1998 amounts include $.6 million and $3.8 million of provision for uncollectible
accounts receivable.
OAOT's selling, general and administrative expenses declined as a
percentage of revenue for the three and nine month periods September 30, 1999 to
10.5% and 10.0%, respectively compared to 12.3% and 14.3% for 1998. The decline
in selling, general and administrative expenses as a percentage of revenue is
due to OAOT leveraging its overhead structure as revenues increased by reducing
the cost of outside consultants, administrative programs, and administrative
infrastructure.
Interest and Other Income
Interest income increased primarily due to a higher amount of invested cash
and interest earned on a note receivable from OAO Corporation.
Liquidity and Capital Resources
Cash and cash equivalents were $10.8 million as of September 30, 1999, and
$9.6 million at December 31, 1998. Cash flows provided by operations were $2.5
million for the nine months ended September 30, 1999 versus a use of $3.0
million of cash flow from operations for the nine months ended September 30,
1998. Cash provided by operations for the nine months ended September 30, 1999
was primarily generated from OAOT's traditional established managed services and
staff augmentation businesses, which was used to fund its newer enterprise
application solutions and applications, development and maintenance businesses.
The Company expects to continue to invest in the operations of its
applications development and maintenance and enterprise application solutions
businesses during the next six to nine months. Such costs will continue to be
expensed as incurred and will represent a significant use of future cash which
is expected to be funded from the Company's operations and available cash. The
Company also expects to continue to incur additional costs associated with the
enhancement of existing and development of new system modules for its MC400
healthcare software.
The Company entered into a $35 million combined revolving credit and term
loan agreement (the "Agreement") with a bank on June 29, 1999. The Agreement's
revolving line of credit portion, in the amount of $15 million, matures on May
31, 2002. The term loan facility, in the amount of $20 million, matures on May
31, 2001. Borrowings under the Agreement are limited to a multiple of earnings
before interest, taxes, depreciation and amortization ("EBITDA"). However, the
Company may convert, at its option, the revolving line of credit portion of the
Agreement in to an asset based loan whose borrowing availability would be a
percentage of eligible billed and unbilled receivables. The Agreement also
requires maintenance of certain financial covenants, prohibits the payment of
dividends, among the restrictions and replaces the Company's Revolving Credit
Agreement with another bank. There were no borrowings outstanding under the
Agreement as of September 30, 1999.
The Company currently anticipates that its existing cash balances as well
as cash generated from operations will be sufficient to satisfy its operating
cash needs for the foreseeable future. The Company has announced an acquisition
program as part of its strategy to accelerate revenue and earnings growth. The
Company expects to use bank credit to leverage the Company's financial position.
In addition, the Company could consider seeking additional public or private
debt or equity financing to fund future growth opportunities. No assurance can
be given, however, that such additional debt or equity financing will be
available to the Company on terms and conditions acceptable to the Company, if
at all.
13
<PAGE>
Impact of the Year 2000 (Y2K) Issue
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Y2K failures. This problem is a result of computer
programs having been written using two digits (rather than four) to define the
applicable year. Any information technology systems that have time sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations and system failures. As of September
30, 1999, the Company has surveyed all of its business and mission critical
systems and defined its mission critical systems as its accounting, electronic
billing and collection and MC 400 software packages. All mission critical
systems are Y2K compliant except for electronic billing which is in the final
testing phase. Each of the operating segments, as well as our administrative
functions, have completed the inventory and assessment phases of the year 2000
implementation plan and remediated the non-compliant systems identified. The
Company is also in the process of obtaining compliance certificates from its
third party vendors. The total cost of the replacement systems and Y2K
contingency planning is estimated at approximately $150,000. The Company has a
written contingency plan regarding the effect, if any, should any of its third
party vendors fail to deliver Y2K compliance. The plan has been reviewed by
remote site and corporate headquarters personnel. Testing, review and revision
of the plan will be ongoing throughout the balance of the year.
Based on its efforts to date, the Company believes that the vast majority
of both its IT and its non-IT systems, including all mission critical and
important systems, will remain up and running after January 1, 2000. At this
time, the Company believes that the most likely "worst-case" scenario involves
potential disruptions in areas in which the Company's operations must rely on
such third parties whose systems may not work properly after January 1, 2000.
While such failures could affect important operations of the Company and its
subsidiaries, whether directly or indirectly, in a significant manner, the
Company cannot at present estimate either the likelihood or the potential cost
of such failures. Additionally, there can be no assurance that the Year 2000
will not have a material adverse effect on the Company's financial position of
results of operations.
The nature and focus of the Company's efforts to address the year 2000
problem may be revised periodically as new issues are identified. In addition,
it is important to note that the description of the Company's efforts
necessarily involves estimates and projections with respect to activities in the
future. The estimates and projections are subject to change as work continues,
and such changes may be substantial.
Quantitative and Qualitative Disclosures about Market Risks
The Company conducts business in foreign countries, primarily Canada and
the United Kingdom. Foreign currency transaction gains and losses were not
material to the Company's results of operations for the three and nine months
ended September 30, 1999 and 1998. OAOT believes its foreign currency risk is
related primarily to the difference between amounts the Company receives and
disburses in Canada in U.S. Dollars from U.S. dollar denominated contracts. The
Company does not expect the amount of foreign currency risk to be material in
the future. To date, the Company has not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
14
<PAGE>
Item 6. Exhibits and Reports on Form 10-Q
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
Exhibit Page
No. Description No.
- ------- ----------------------------------------------------------- -----
10.10 Amended and Restated OAO Technology Solutions, Inc.
Restricted Stock Grant Letter. Date of grant: July 14, 1999
issued to Gregory A. Pratt. (1) 17
10.11 Amended and Restated Term Note dated July 14, 1999 between
the Company and Gregory A. Pratt. (1) 24
10.12 Amended and Restated Pledge Agreement dated July 14, 1999
between the Company and Gregory A. Pratt. (1) 27
27.1 Financial Data Schedule. (1) 32
</TABLE>
- ----------
(1) Filed herewith.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned thereunto duly authorized.
OAO Technology Solutions, Inc.
(Registrant)
Date: November 15, 1999 By: ------------------------------------------
Gregory A. Pratt
President and Chief Executive Officer
Date: November 15, 1999 By: ------------------------------------------
J. Jeffrey Fox
Vice President and Chief Financial Officer
16
AMENDED AND RESTATED
OAO TECHNOLOGY SOLUTIONS, INC.
RESTRICTED STOCK GRANT LETTER
DATE OF GRANT: July 14, 1999
OAO Technology Solutions, Inc. (the "Company") has adopted the 1996 Equity
Compensation Plan (the "Plan") to provide an incentive to its employees,
officers, directors and key advisors. This Restricted Stock Grant is granted to
Gregory A. Pratt (the "Grantee") in accordance with the Plan. Capitalized terms
used and not otherwise defined in this Grant Letter are used herein as defined
in the Plan.
1. Stock Grant
The Company hereby offers to the Grantee the opportunity to acquire from
the Company 750,000 shares of common stock of the Company, $.01 par value (the
"Shares"), at a cost of $3.91 per share ("Purchase Price").
Subject to the Grantee's acceptance of this offer the Company will prepare
and issue a certificate representing the Shares, which shall be registered in
the name of the Grantee and which shall bear the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER DESCRIBED IN A RESTRICTED STOCK GRANT LETTER, A COPY OF WHICH IS
ON FILE AT THE OFFICES OF OAO TECHNOLOGY SOLUTIONS, INC. ANY ATTEMPTED
TRANSFER, PLEDGE, OR DISPOSITION OF, THESE SHARES WITHOUT COMPLIANCE WITH
THE PROVISIONS OF SUCH LETTER, AND ANY LEVY UPON THESE SHARES, SHALL BE
NULL AND VOID.
2. Acceptance by the Grantee; Deposit of Certificate into Escrow
The Grantee shall signify acceptance of the offer to acquire the Shares by
delivering to the Company, as escrow agent (the "Escrow Agent"):
(i) an executed copy of the Acceptance of Grant attached as Exhibit A
hereto;
(ii) two stock powers in the form of Exhibit C hereto, signed in blank
with a medallion signature guarantee, for completion by the
Escrow Agent at the time of any transfer of any of the Shares
pursuant to this Grant Letter; and
(iii) two executed copies of the 83(b) Election attached as Exhibit B
hereto.
Upon receipt from the Grantee of the foregoing items, the Company shall
cause certificates representing the Shares to be issued in Grantee's name and
deposited with the Escrow Agent, to be held in accordance with the terms of this
Grant.
3. Repurchase Right.
(a) Grant. Company is hereby granted the right (the "Repurchase Right"),
exercisable at any time during the ninety (90)-day period following the date
Grantee ceases for any reason to remain in the service of the Company, to
repurchase at the Purchase Price all or any portion of the Shares in which
Grantee is not, at the time of his cessation of service, vested in accordance
with the Vesting Schedule set forth in Section 3(b) (such shares to be
hereinafter referred to as the "Unvested Shares").
(b) Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to Purchaser of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the
17
<PAGE>
Unvested Shares to be repurchased shall be delivered to Company prior to the
close of business on the date specified for the repurchase. Concurrently with
the receipt of such stock certificates, Company shall pay to Grantee, in cash or
cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the lesser of the Purchase Price previously
paid for the Unvested Shares which are to be repurchased from Purchaser or the
then current fair market value of the shares as defined in the Plan.
(c) Termination of the Repurchase Right. (i) The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Section 3(b). In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Shares in which Grantee
vests in accordance with the following Vesting Schedule: Grantee shall acquire a
vested interest in, and the Repurchase Right shall lapse with respect to, the
Shares in a series of four (4) successive equal annual installments upon
Grantee's completion of each year of service with the Company over the four
(4)-year period measured from the date of this Agreement. Vesting will be
accelerated in the event the closing price of the Company's shares of common
stock equals or exceeds $25.00 for 20 consecutive trading days.
In the event of the Grantee's disability, as defined in the Plan, the
Grantee will continue to vest according to the above schedule during the period
of disability, and upon return to employment with the Company or any Affiliate
upon the Grantee's recovery, during the period of the Grantee's re-employment.
In the event the Grantee fails to return to employment upon recovery from
disability, vesting will cease and the Company's repurchase right shall become
effective.
(b) All Shares as to which the Repurchase Right lapses shall, however,
remain subject to the Market Stand-Off and the restrictions imposed under the
Plan and Section 4 hereof.
4. Restrictions
(a) Unvested Shares. All unvested Shares will be held by the Escrow Agent
until they become vested, at which time the Escrow Agent shall deliver to the
Grantee the Share certificate(s) registered in the Grantee's name. The Grantee
may not sell, assign, transfer, pledge or otherwise dispose of any unvested
Shares.
(b) Impermissible Transfers Void. Any attempt to assign, transfer, pledge
or otherwise dispose of any Shares contrary to the provisions of this Grant
Letter, and the levy of any execution, attachment or similar process upon Shares
during the Restriction Period or upon any unvested Shares, shall be null and
void and without effect.
5. Permitted Transferees.
A Grantee may transfer vested Shares to immediate family members (spouse,
siblings, or children), family trusts, or family partnerships, or by will or by
the laws of descent and distribution ("Permitted Transferees") provided that the
Grantee receives no consideration for the transfer and the transferred Shares
shall continue to be subject to the same restrictions as were applicable
immediately before the transfer, and the transferee acknowledges such
restrictions in a written instrument.
6. "Market Stand-Off Agreement"
In connection with any underwritten public offering by the Company pursuant
to an effective registration statement filed under the Securities Act of 1933,
the Grantee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose of or transfer for
value or otherwise agree to engage in any of the foregoing transactions with
respect to any Shares without the prior written consent of the Company or the
underwriter, for such period of time after the effective date of such
registration statement as may be requested by the underwriter and agreed to by
the Company.
18
<PAGE>
7. Effect of Changes in Shares
If any change is made to the common stock of the Company by reason of
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, exchange of shares, or any other change in capital
structure made without receipt of consideration, then, unless such change
results in the termination of the Restriction Period, any new, substituted, or
additional securities distributed with respect to the Shares shall be
immediately subject to the restrictions imposed upon the Shares to the same
extent that the Shares immediately prior thereto have been covered by such
provisions.
8. Voting of Shares; Dividends
During the Restriction Period, the Grantee shall exercise all voting rights
in connection with the Shares.
Effective as of the date on which the Grantee signifies acceptance of the
Shares, the Grantee or Permitted Transferees, shall be entitled to receive any
dividends, rights or other distributions payable to stockholders of record of
the Company on and after the date of such acceptance; provided, however, that
neither the Grantee nor any Permitted Transferees shall have any dividend rights
or any other rights whatsoever with respect to any Shares which are forfeited or
repurchased by the Company.
9. Withholding of Taxes
The Company shall have the right to require the Grantee to pay to the
Company the amount of any taxes which the Company is required to withhold in
respect of this grant.
10. No Contract for Employment
Nothing contained in this Grant Letter shall be deemed to require the
Company or any Affiliate to continue the Grantee's employment.
11. Administration
This Grant is made pursuant to the terms, conditions and other provisions
of the Plan as in effect on the Date of Grant, and as the Plan may be amended
from time to time. The terms of the Plan are incorporated herein by reference.
All questions of interpretation and application of the Plan and of this Grant
shall be determined by the Compensation Committee, in its discretion, and such
determination shall be final and binding upon all persons. The validity,
construction and effect of this Grant shall be determined in accordance with the
laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof. This Grant has been amended and restated to accurately
reflect the agreement between the Company and the Grantee as approved by the
Company's Board of Directors.
OAO TECHNOLOGY SOLUTIONS, INC.
By:___________________________
19
<PAGE>
EXHIBIT A
ACCEPTANCE OF GRANT
The Grantee acknowledges and agrees with the terms and conditions of the
attached Grant Letter pursuant to which OAO Technology Solutions, Inc. (the
"Company") has offered the Grantee the opportunity to acquire shares (the
"Shares") under the Company's 1996 Equity Compensation Plan.
As a condition to the issuance of the Shares, the Grantee hereby represents
and warrants to the Company and agrees with the Company as follows:
1. Investment Intent. The Grantee is acquiring the Shares for the Grantee's
own account for investment and not with a view to, or for sale in connection
with, any distribution of the Shares or any portion thereof and not with any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Shares or any portion thereof in any transaction other than a
transaction exempt from registration under the 1933 Act. The Grantee represents
that the entire legal and beneficial interest in the Shares is being acquired,
and will be held, for the Grantee's account only, and neither in whole or in
part for any other person except for permitted transferees.
2. Information Concerning the Company. The Grantee has heretofore had the
opportunity to discuss with officers and directors of the Company the plans,
operations and financial condition of the Company and has heretofore received
all such information as the Grantee has requested.
3. Economic Risk. The Grantee understands that the Shares are highly
speculative securities involving a high degree of risk. The Grantee is able,
without impairing his financial condition, to hold the Shares for an indefinite
period of time and to suffer a complete loss of value of the Shares.
4. Restricted Securities. The Grantee understands that so long as he
remains an affiliate of the Company, the Shares are characterized as "control
securities" under the Securities Act of 1933, as amended (the "1933 Act"), and
as such, are subject to the provisions of Rule 144 under the 1933 Act, except
that there is no minimum holding period requirement.
5. Disposition of Shares. The Grantee hereby agrees not to sell, assign,
transfer, pledge or otherwise dispose of any portion of the Shares unless and
until the Grantee shall have complied with all of the requirements of the Grant
Letter.
6. Legends. The Grantee understands that the certificates representing the
Shares will bear any legends required by the securities or "blue sky" laws of
any state in addition to the legends set forth in the Grant Letter.
7. Section 83(b) Election. The Grantee understands that under Section 83 of
the Internal Revenue Code of 1986, as amended (the "Code"), the difference
between the purchase price (if any) paid for the Shares and their fair market
value on the date of vesting would be reportable as ordinary income at such
time. The Grantee understands that by filing an election with the Internal
Revenue Service pursuant to Section 83(b) of the Code within 30 days after the
date of grant, in lieu of the foregoing, the Grantee will be taxed at the time
the Shares are granted to the Grantee on the fair market value of the Shares.
The Section 83(b) election, which may avoid adverse tax consequences in the
future, must be made within the 30-day period after the Date of Grant. The form
for making this election is attached as Exhibit B hereto. THE GRANTEE
ACKNOWLEDGES THAT IT IS THE GRANTEE'S SOLE RESPONSIBILITY TO SEEK ADVICE
REGARDING SECTION 83(B). THE GRANTEE IS RELYING SOLELY ON THE GRANTEE'S ADVISORS
20
<PAGE>
WITH RESPECT TO THIS SECTION 83(B) ELECTION AND THE COMPANY SHALL HAVE NO
RESPONSIBILITY OR LIABILITY IN CONNECTION THEREWITH.
The Grantee, intending to be legally bound hereby, has executed this
Acceptance of Grant on the date set forth below.
Dated: July 14, 1999
GRANTEE:
--------------------------
Gregory A. Pratt
21
<PAGE>
Exhibit B
ELECTION TO INCLUDE THE VALUE OF RESTRICTED
PROPERTY IN GROSS INCOME IN THE YEAR OF TRANSFER
The undersigned hereby makes an election pursuant to Section 83(b) of the
Internal Revenue Code, pursuant to Treasury Reg. Section 1.83-2.
1. The taxpayer who performed the services is:
Name: Gregory A. Pratt
Taxpayer I.D.:
Taxable Year: Calendar year 1999
2. The property with respect to which the election is being made is:
750,000 shares of common stock of OAO Technology Solutions, Inc. (the
"Shares").
3. The date on which the property was issued is July 14, 1999.
4. The property is subject to a restriction period during which the property
will be subject to repurchase by the Company at the lesser of $3.91 per
share and the fair market value upon the termination of taxpayer's
employment with OAO Technology Solutions, Inc.
5. The fair market value at time of transfer (determined without regard to any
restrictions other than restrictions which by their terms will never lapse)
of the property with respect to which this election is being made is $3.91
per Share.
6. The amount paid by taxpayer for said property is $3.91 per share.
6. A copy of this statement has been furnished to OAO Technology Solutions,
Inc., for whom the taxpayer rendered the services underlying the transfer
of the property.
Dated: July 14, 1999 --------------------------
Gregory A. Pratt
22
<PAGE>
Exhibit C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned, Gregory A. Pratt, hereby sells,
assigns and transfers unto __________________________________
(___________________) shares of the common stock of OAO Technology
Solutions, Inc. standing in the name of the undersigned on the books of
said corporation represented by Certificate(s)______________ No.(s)
inclusive and do hereby irrevocably constitute and appoint
________________________________ attorney to transfer the said stock on the
books of the within named corporation with full power of substitution in
the premises.
Dated: July 14, 1999 --------------------------
Gregory A. Pratt
Signed in the presence of:
- --------------------------
NOTE: The signature must be
guaranteed by an eligible guarantor
institution (banks, stockbrokers,
savings and loan associations and
credit unions) with membership in
an approved signature guarantee
medallion program pursuant to SEC
Rule 17Ad-15.
23
AMENDED AND RESTATED
TERM NOTE
(Gregory A. Pratt)
$2,932,500 July 14, 1999
In consideration of the loan (hereinafter referred to as a "Loan"), OAO
Technology Solutions, Inc., a Delaware corporation (the "Lender"), has made to
Gregory A. Pratt, (the "Borrower"), and for value received, the Borrower hereby
promises to pay to the order of the Lender, at the Lender's office located at
7500 Greenway Center Drive, 16th Floor, Greenbelt, MD 20770 or at such other
place in the continental United States as the Lender may designate in writing,
in lawful money of the United States, and in immediately available funds, the
principal sum of $2,932,500 together with all accrued interest thereon.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at a per
annum rate equal to 5.82% (the "Loan Rate"). The Borrower shall pay on demand
interest on any overdue payment of principal and interest (to the extent legally
enforceable) at the Loan Rate plus three percent (3%).
The unpaid principal balance of the Note, together with all accrued and
unpaid interest, shall be paid in full on July 14, 2004.
All payments made on this Note (including, without limitation, prepayments)
shall be applied, at the option of the Lender, first to late charges and
collection costs, if any, then to accrued interest and then to principal.
Interest payable hereunder shall be calculated for actual days elapsed on the
basis of a 360-day year. All accrued and unpaid interest shall be due and
payable upon maturity of this Note. After maturity or in the event of default,
interest shall continue to accrue on the Note at the rate set forth above and
shall be payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid in whole or in
part without any prepayment penalty or premium at any time or from time to time
by Borrower upon notice to the Lender; provided, that any prepayment shall be
applied first to any interest due to the date of such prepayment on this Note
and thereafter shall be applied to the installments of principal hereunder in
the inverse order of maturity.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by Borrower at any time shall be applied to the unpaid balance of
any outstanding principal of this Note.
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of principal or
interest under this Note as and when the same shall become due and payable; or
(ii) an event of default under the Pledge Agreement;
(iii) institution of any proceeding by or against the Borrower under any
present or future bankruptcy or insolvency statute or similar law and, if
involuntary, if the same are not stayed or dismissed within sixty (60) days, or
the Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for the Borrower
or the Borrower's property or the Borrower's being adjudicated a bankrupt or
insolvent; or
(iv) the expiration of the thirty (30) day period following the date the
Borrower ceases for any reason to remain in the employ of Lender.
24
<PAGE>
Upon the occurrence of an event of default hereunder, this Note shall
automatically without any action or notice by Lender, be accelerated and become
immediately due and payable, and Lender shall have all of the rights and
remedies provided for herein or otherwise available at law or in equity, all of
which remedies shall be cumulative.
In the event the Borrower sells or otherwise transfers for value one or
more shares of the Lender's common stock purchased with the proceeds of this
Note, then any unpaid portion of the principal balance of this Note attributable
to the purchase price of those shares shall become immediately due and payable,
together with all accrued and unpaid interest on that principal portion.
For purposes of applying the provisions of this Note, the Borrower shall be
considered to remain in the Lender's employ for so long as the Borrower renders
services as a full-time employee of the Lender, any successor entity or one or
more of the Lender's fifty (50%) percent or more owned (directly or indirectly)
subsidiaries.
The proceeds of the loan evidenced by this Note shall be applied solely to
the payment of the purchase price of 750,000 shares of the Lender's common stock
and payment of this Note shall be secured by a pledge of those shares with the
Lender pursuant to the Pledge Agreement to be executed this date by the
Borrower. THE BORROWER, HOWEVER, SHALL REMAIN PERSONALLY LIABLE FOR PAYMENT OF
THIS NOTE AND ASSETS OF THE MAKER, IN ADDITION TO THE COLLATERAL UNDER THE
PLEDGE AGREEMENT, MAY BE APPLIED TO THE SATISFACTION OF THE BORROWER'S
OBLIGATIONS HEREUNDER.
Neither the reference to nor the provisions of any agreement or document
referred to herein shall affect or impair the absolute and unconditional
obligation of the Borrower to pay the principal of and interest on this Note as
herein provided.
Any action, suit or proceeding where the amount in controversy as to at
least one party, exclusive of interest and costs, exceeds $1,000,000 ("Summary
Proceeding"), arising out of or relating to this Agreement, or the breach,
termination or validity thereof, shall be litigated exclusively in the Superior
Court of the State of Delaware (the "Delaware Superior Court") as a summary
proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any
successor rules (the "Summary Proceeding Rules"). Each of the parties hereto
hereby irrevocably and unconditionally (i) submits to the jurisdiction of the
Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence
any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and
agrees not to plead or to make, any objection to the venue of any Summary
Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead
or to make, any claim that any Summary Proceeding brought in the Delaware
Superior Court has been brought in an improper or otherwise inconvenient forum,
(v) waives, and agrees not to plead or to make, any claim that the Delaware
Superior Court lacks personal jurisdiction over it, (vi) waives its right to
remove any Summary Proceeding to the federal courts except where such courts are
vested with sole and exclusive jurisdiction by statute and (vii) understands and
agrees that it shall not seek a jury trial or punitive damages in any Summary
Proceeding based upon or arising out of or otherwise related to this Agreement
waives any and all rights to any such jury trial or to seek punitive damages.
In the event any action, suit or proceeding where the amount in controversy
as to at least one party, exclusive of interest and costs, does not exceed
$1,000,000 (a "Proceeding"), arising out of or relating to this Agreement or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
If a Summary Proceeding is not available to resolve any dispute hereunder,
the controversy or claim shall be settled by arbitration conducted on a
confidential basis, under the U.S. Arbitration Act, if applicable, and the then
current Commercial Arbitration Rules of the American Arbitration Association
(the "Association") strictly in accordance with the terms of this Agreement and
the substantive law of the State of Delaware. The arbitration shall be conducted
at the Association's regional office located closest to the Lender's principal
place of business by a single arbitrator. Judgment upon the arbitrator's award
may be entered and enforced in any court of competent jurisdiction. Neither
party shall institute a proceeding hereunder unless at least 60 days prior
thereto such party shall have given written notice to the other party of its
intent to do so.
25
<PAGE>
Neither party shall be precluded hereby from securing equitable remedies in
courts of any jurisdiction, including, but not limited to, temporary restraining
orders and preliminary injunctions to protect its rights and interests but shall
not be sought as a means to avoid or stay arbitration or Summary Proceedings.
Each of the parties hereto hereby irrevocably designates and appoints
Corporation Service Company (the "Service Agent") with offices on the date
hereof at 1013 Centre Road, Wilmington, Delaware 19805, as its agent to receive
service of process in any Proceeding or Summary Proceeding. Each of the parties
hereto further covenants and agrees that, so long as this Agreement or the
Pledge Agreement shall be in effect, each such party shall maintain a duly
appointed agent for the service of summonses and other legal processes in the
State of Delaware and will notify the other parties hereto of the name and
address of such agent if it is no longer the Service Agent.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs
and expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Notices required to be given hereunder shall be deemed validly given (i)
three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
If to the Lender: OAO Technology Solutions, Inc.
7500 Greenway Center, 16th Floor
Greenbelt, MD 20770-3522
Attn:Chief Financial Officer
If to the Borrower: Gregory A. Pratt
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it. Any provision hereof found to be
illegal, invalid or unenforceable for any reason whatsoever shall not affect the
validity, legality or enforceability of the remainder hereof. This Note shall
apply to and bind the successors of the Borrower and shall inure to the benefit
of the Lender, its successors and assigns.
This Note shall be governed by and interpreted in accordance with the laws
of the State of Delaware.
This Note has been amended and restated to accurately reflect the agreement
between the Lender and the Borrower as apporved by the Board of Directors of the
Lender.
IN WITNESS WHEREOF, the Borrower has duly executed this Term Note as of the
date first written above.
--------------------------
GREGORY A. PRATT
26
AMENDED AND RESTATED
PLEDGE AGREEMENT
For good and valuable consideration and intending to be legally bound,
GREGORY A. PRATT ("Pledgor") hereby assigns, pledges and grants to OAO
TECHNOLOGY SOLUTIONS, INC. a Delaware corporation ("Lender"), a security
interest in the shares of capital stock and/or other securities of Lender, now
owned by or standing in the name of Pledgor or in which Pledgor has a legal or
beneficial interest, which are described on Schedule A attached hereto and made
a part hereof (collectively, the "Securities"), together with all (a) additional
property issued by Borrower from time to time acquired by Pledgor in any manner,
and the certificates or instruments representing such additional property, and
all dividends, interest, cash, instruments, and other property from time to time
received, receivable, or otherwise distributed or distributable in respect of or
in exchange for any or all of such additional property; and (b) cash and
non-cash proceeds, distributions, additions, substitutions, exchanges,
redemptions and replacements of, on or by reason of any of the foregoing
(collectively, the "Collateral"), as security for the payment and performance of
all indebtedness, liabilities and obligations of Borrower (primary, secondary,
direct, contingent, related, unrelated, sole, joint or several) to Lender,
whether for principal, interest, fees, expenses or otherwise, (the
"Obligations"), arising under that certain promissory note, dated of even date
herewith, issued by Borrower in the principal amount of $2,932,500 (the "Note"),
all on the following terms and conditions.
A. Representations and Warranties. Pledgor represents and warrants that:
1. Pledgor has good title to the Securities free and clear of all
liens and encumbrances except the security interest created hereby.
2. Pledgor has delivered to Lender all stock certificates representing
or evidencing the Securities, accompanied by corresponding assignment or
transfer powers duly executed in blank by Pledgor, and this Pledge
Agreement and such powers have been duly and validly executed and are
binding and enforceable against Pledgor in accordance with their terms; and
the pledge of the Securities in accordance with the terms hereof creates a
valid and perfected first priority security interest in the Securities
securing payment of the Obligations.
3. No authorization, approval, consent, or other action by, and no
notice to or filing with, any governmental authority, regulatory body or
other person or entity is required either (i) for the pledge by Pledgor of
the Collateral pursuant to this Pledge Agreement or for the execution,
delivery or performance of this Pledge Agreement by Pledgor, or (ii) for
the exercise by Lender of the voting or other rights provided for in this
Pledge Agreement or the remedies in respect of the Collateral pursuant to
this Pledge Agreement (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities
generally).
B. Negative Pledge. Pledgor agrees not to (i) sell or otherwise dispose of,
or grant any option with respect to, any of the Collateral, or (ii) create or
permit to exist any lien, security interest or other charge or encumbrance upon
or with respect to any of the Collateral, except the security interest under
this Pledge Agreement.
C. Additional Collateral. Prior to the full payment and performance of the
Obligations, Pledgor shall pledge hereunder, as additional Collateral, and shall
forthwith transfer and deliver to Lender immediately upon acquisition (directly
or indirectly) thereof, any and all additional shares of stock or other
securities of Borrower and any other property of any kind received, receivable,
or otherwise distributed or distributable on or by reason of the Collateral,
whether in the form of or by way of stock dividends, warrants, partial
liquidation, conversion, prepayments or redemptions (in whole or in part),
liquidation or otherwise with the sole exception of normal, regularly declared
cash dividends or cash interest payments (as the case may be) paid in respect of
the Collateral.
D. Pledgor's Rights in the Pledged Collateral Before Default. So long as no
Event of Default (as such term is defined in the Note) shall have occurred and
be continuing and Pledgor is in full compliance with the terms hereof:
1. Pledgor shall be entitled to receive and retain any normal,
regularly declared cash dividends or cash interest payments (as the case
may be) paid in respect of the Collateral, if such dividends and payments
are permitted under the Loan Documents.
27
<PAGE>
2. Pledgor may exercise all voting rights, if any, pertaining to the
Collateral for any purpose not inconsistent with the terms hereof or of the
Obligations or Loan Documents. In the event any Collateral has been
transferred into the name of Lender or a nominee or nominees of Lender
prior to the occurrence of such Event of Default, Lender or its nominee
shall execute and deliver upon request of Pledgor an appropriate proxy in
order to permit Pledgor to vote, if applicable, the same.
E. Further Assurances. Pledgor shall from time to time promptly take all
actions (and execute, deliver and record all instruments and documents)
necessary or appropriate or requested by Lender, to continue the validity,
enforceability and perfected status of the pledge of the Collateral hereunder or
to enable Lender to exercise and enforce the rights and remedies hereunder with
respect to any of the Pledged Collateral.
F. Lender's Duties Toward Collateral. Lender shall be under no obligation
to take any actions and shall have no liability (except for gross negligence or
willful misconduct) with respect to the preservation or protection of the
Collateral or any underlying interests represented thereby as against any prior
or other parties. In the event Pledgor requests that Lender take or omit to take
action(s) with respect to the Collateral, Lender may refuse so to do with
impunity if Pledgor does not, upon request of Lender, post sufficient,
creditworthy indemnities with Lender which, in Lender's sole discretion, are
sufficient to hold it harmless from any possible liability of any kind in
connection therewith.
G. Waivers by Pledgor. Pledgor agrees that Lender, at any time and without
affecting its rights in the Collateral and without notice to Pledgor, may grant
any extensions, releases or other modifications of any kind respecting the Loan
Documents, the Obligations and any Collateral. Pledgor, except as otherwise
provided herein or in the Loan Documents, waives all notices of any kind in
connection with the Obligations, the Loan Documents and any changes therein or
defaults or enforcements proceedings thereunder, whether against Pledgor or any
other party. Pledgor hereby waives any rights it has at equity or in law to
require Lender to apply any rights of marshalling or other equitable doctrines
in such circumstances.
H. Remedies Upon Default. After the occurrence of any Event of Default (as
defined in the Loan Documents) or if any representation, warranty or agreement
of Pledgor hereunder is breached or proves to be false, erroneous or misleading
in any material respect:
1. Lender may transfer or cause to be transferred any of the
Collateral into its own or a nominee's or nominees' names.
2. Lender shall be entitled to receive and apply in payment of the
Obligations any cash dividends, interest or other payment on the
Collateral.
3. Lender shall be entitled to exercise in Lender's discretion all
voting rights, if any, pertaining to the Collateral, and in connection
therewith and at the written request of Lender, Pledgor shall promptly
execute any appropriate dividend, payment or brokerage orders or proxies.
4. Pledgor shall promptly take any action necessary or required or
requested by Lender, in order to allow Lender fully to enforce the pledge
of the Collateral hereunder and realize thereon to the fullest possible
extent including, but not limited to, the filing of any claims with any
court, liquidator or trustee, custodian, receiver or other like person or
party.
5. Lender shall have all the rights and remedies granted or available
to it hereunder, under the Uniform Commercial Code as in effect from time
to time in Delaware, under any other statute or the common law, or under
any of the Loan Documents, including without limitation the right to sell
the Collateral or any portion thereof at one or more public or private
sales upon ten (10) days' written notice and to bid thereat or purchase any
part or all thereof in its own or a nominee's or nominees' names, free and
clear of any equity of redemption; and to apply the net proceeds of the
sale, after deduction for any expenses of sale, including without
limitation the payment of all Lender's reasonable attorneys' fees in
connection with the Obligations and the sale, to the payment of the
Obligations in any manner or order which Lender in its sole discretion may
elect, without further notice to or consent of Pledgor and without regard
to any equitable principles of marshalling or other like equitable
doctrines.
28
<PAGE>
6. Lender may increase, in its sole discretion, but shall not be
required to do so, the Obligations by making additional advances or
incurring expenses for the account of Pledgor deemed appropriate or
desirable by Lender in order to protect, enhance, preserve or otherwise
further the sale or disposition of the Collateral or any other property it
holds as security for the Obligations.
I. Dispositions of Collateral. Pledgor recognizes that Lender may be unable
to effect a sale to the public of all or part of the Collateral by reason of
certain prohibitions or restrictions in the federal or state securities laws and
regulations (collectively, the "Securities Laws"), or the provisions of other
federal and state laws, regulations or rulings, but may be compelled to resort
to one or more private sales to a restricted group of purchasers who will be
required to agree to acquire the Collateral for their own account, for
investment and not with a view to the further distribution or resale thereof
without restriction. Pledgor agrees that any sales(s) so made may be at prices
and on other terms less favorable to Pledgor than if the Collateral was sold to
the public, and that Lender has no obligation to delay sale of the Collateral
for period(s) of time necessary to permit the issuer thereof to register the
Collateral for sale to the public under any of the Securities Laws. Pledgor
agrees that negotiated sales whether for cash or credit made under the foregoing
circumstances shall not be deemed for that reason not to have been made in a
commercially reasonable manner. Pledgor shall cooperate with Lender and shall
satisfy any requirements under the Securities Laws applicable to the sale or
transfer of the Collateral by Lender.
In connection with any sale or disposition of the Collateral, Lender is
authorized to comply with any limitation or restriction as it may be advised by
its counsel is necessary or desirable in order to avoid any violation of
applicable law or to obtain any required approval of the purchaser(s) by any
governmental regulatory body or officer and it is agreed that such compliance
shall not result in such sale being considered not to have been made in a
commercially reasonable manner nor shall Lender be liable or accountable by
reason of the fact that the proceeds obtained at such sale(s) are less than
might otherwise have been obtained.
Lender may elect to obtain the advice of any independent nationally-known
investment banking firm, which is a member firm of the New York Stock Exchange,
with respect to the method and manner of sale or other disposition of any of the
Collateral, the best price reasonably obtainable therefor, the consideration of
cash and/or credit terms, or any other details concerning such sale or
disposition. Lender, in its sole discretion, may elect to sell on such credit
terms which it deems reasonable.
J. Lender's Expenses. Pledgor shall pay Lender on demand all costs and
expenses incurred by Lender (including, without limitation, counsel fees and
expenses) in connection with (i) the preparation, negotiation, and closing of
this Pledge Agreement, and any modifications hereto, (ii) the custody,
preservation, sale or collection or realization of the Collateral, and (iii) the
exercise or enforcement of Lender's rights hereunder.
K. Successors and Assigns. This Pledge Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns and shall be governed as to its
validity, interpretation and effect by the laws of the State of Delaware; and
any terms used herein which are defined in the Uniform Commercial Code as
enacted in Delaware shall have the meanings therein set forth.
L. Amendments and Waivers. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Pledgor herefrom shall in any event be
effective unless the same shall be in writing and signed by Lender, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure or delay on
the part of Lender in the exercise of any right, power, or remedy under this
Pledge Agreement or any of the Loan Documents shall under any circumstances
constitute or be deemed to be a waiver thereof, or prevent the exercise thereof
in that or any other instance.
M. Attorney-in-Fact. Pledgor hereby irrevocably appoints Lender as its
attorney-in-fact, in the name of Pledgor or otherwise, from time to time in
Lender's discretion and at Pledgor's expense, to take any action and to execute,
deliver and record any instruments or documents in connection with the
Collateral which Lender may deem necessary or advisable to accomplish the
purposes of this Pledge Agreement including, without limitation, to receive,
endorse, and collect all instruments made payable to Pledgor representing any
dividend, interest, or other distribution in respect of the Pledged Collateral
or any part thereof and to give full discharge for the same. Lender shall not,
in its capacity as such attorney-in-fact, be liable for any acts or omissions,
nor for any error of judgment or mistake of fact or law, but only for gross
negligence or willful misconduct.
29
<PAGE>
N. Entire Agreement. This Pledge Agreement, and all agreements and
instruments to be delivered by the parties pursuant hereto or in connection
herewith, represent the entire understanding of the parties with respect to the
subject matter hereof. Except as otherwise indicated, all agreements defined
herein refer to the same as from time to time amended or supplemented or the
terms thereof waived or modified in accordance herewith and therewith. Any
provision hereof found to be illegal, invalid or unenforceable for any reason
whatsoever shall not affect the legality, validity or enforceability of the
remainder hereof.
P. Joint and Several Obligations. If more than one Pledgor signs this
Pledge Agreement, all references herein to Pledgor shall include all such
Pledgors and each shall be jointly and severally bound by the terms and
provisions hereof.
Q. Notices. All notices, demands or other communications required or
permitted hereunder shall be in writing and shall be given as provided in the
Note, using Pledgor's address as indicated below.
R. Partial Releases; Termination. Any of the Collateral may be released
from this Pledge Agreement without altering, varying, or diminishing in any way
this Pledge Agreement or the security interest granted hereby as to the
Collateral not expressly released, and this Pledge Agreement and such security
interest shall continue in full force and effect as to all of the Collateral not
expressly released. This Pledge Agreement and Lender's rights in the Collateral
shall cease, terminate and be void upon the repayment in full of the
Obligations. Upon such repayment and termination, Lender shall execute such
documents as may reasonably be required by Pledgor to release Lender's security
interest in the Collateral.
S. Amended and Restated.This Pledge Agreement has been amended and restated
to accurately reflect the agreement between the Pledgor and Lender as approved
by the Board of Directors of the Lender.
IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of the
14th day of July 1999.
WITNESS OR ATTEST: PLEDGOR:
- ------------------ ---------------------------
Name: Gregory A. Pratt
30
<PAGE>
Schedule A
Description of Pledged Securities
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Stock Certificate No. of Shares Percentage of Issued
Issuer Class of Stock No. Shares
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OAO Technology Common Stock 750,000 5%
Solutions, Inc.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,830
<SECURITIES> 0
<RECEIVABLES> 26,967<F1>
<ALLOWANCES> (1,307)
<INVENTORY> 0
<CURRENT-ASSETS> 49,716
<PP&E> 3,761<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,183
<CURRENT-LIABILITIES> 19,764
<BONDS> 153<F3>
0
0
<COMMON> 176
<OTHER-SE> 39,266
<TOTAL-LIABILITY-AND-EQUITY> 59,183
<SALES> 0
<TOTAL-REVENUES> 113,823
<CGS> 0
<TOTAL-COSTS> 101,052
<OTHER-EXPENSES> 11,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 681<F4>
<INCOME-PRETAX> 2,022
<INCOME-TAX> 854
<INCOME-CONTINUING> 1,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,168
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
<FN>
<F1> Shown net of allowance for uncollectible accounts on face of Consolidated
Balance Sheet.
<F2> Shown in this Financial Data Schedule net of related accumulated
depreciation for consistency with Consolidated Balance Sheet.
<F2> Represents the long-term portion of capital lease obligations.
<F3> Represents interest income of the Company.
</FN>
</TABLE>
