-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kph3Q0wxAFgTKYkpjB0e2bVyHUD79siyZu4UAq1lCPSZOfrrN952esC8ISsH6eC3 CSI0zfmXdj38Vazb+8oMFg== 0000950132-99-000323.txt : 19990402 0000950132-99-000323.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950132-99-000323 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASTECH CORP CENTRAL INDEX KEY: 0001024732 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 251802235 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21755 FILM NUMBER: 99581353 BUSINESS ADDRESS: STREET 1: 1004 MCKEE RD CITY: OAKDALE STATE: PA ZIP: 15071 BUSINESS PHONE: 4127872100 MAIL ADDRESS: STREET 1: 1004 MCKEE RD CITY: OAKDALE STATE: PA ZIP: 15071 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 [_] 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 15071 Oakdale, Pennsylvania (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (412) 787-2100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 26, 1999 (based on the closing price of such stock as reported by NASDAQ on such date) was $507,393,462. The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of February 26, 1999 was 50,330,605 shares. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in a definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this form 10-K [_] Documents Incorporated By Reference Portions of the Corporation's Proxy Statement, prepared for the Annual Meeting of Shareholders scheduled for June 1, 1999, to be filed with the Commission are incorporated by reference into Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MASTECH CORPORATION 1998 FORM 10-K TABLE OF CONTENTS
Page ---- PART I Item 1. Business....................................................... 3 Item 2. Properties..................................................... 14 Item 3. Legal Proceedings.............................................. 14 Item 4. Submission of Matters to a Vote of Security Holders............ 14 PART II Market for Registrant's Common Equity and Related Stockholder Item 5. Matters........................................................ 15 Item 6. Selected Financial Data........................................ 16 Management's Discussion and Analysis of Financial Condition and Item 7. Results of Operations.......................................... 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 24 Item 8. Financial Statements and Supplementary Data.................... 24 Changes in and Disagreements with Accountants on Accounting and Item 9. Financial Disclosure........................................... 48 PART III Item 10. Directors and Executive Officers of Registrant................. 49 Item 11. Executive Compensation......................................... 49 Item 12. Security Ownership of Certain Beneficial Owners and Management. 49 Item 13. Certain Relationships and Related Transactions................. 49 PART IV Exhibits, Financial Statement Schedules and Reports on Form 8- Item 14. K.............................................................. 50
2 PART I ITEM 1. BUSINESS (a) Summary Mastech Corporation, a Pennsylvania corporation, incorporated on November 12, 1996 is a worldwide provider of information technology ("IT") services to large and medium-sized organizations. 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 Mastech Corporation. Mastech Corporation, and its direct and indirect wholly owned subsidiaries shall hereinafter be referred to as "Mastech" or the "Company". Mastech provides its clients with a single source for a broad range of applications solutions and services, including client/server design and development, software modernization services, enterprise resource planning ("ERP") package implementation services, E-Business solutions, customer interaction management, applications maintenance outsourcing and Year 2000 services. These services are provided in a variety of computing environments and use leading technologies, including client/server architectures, object- oriented programming languages and tools, distributed database management systems and the latest networking and communications technologies. To enhance its services, Mastech has formed business alliances with leading software companies such as Oracle, PeopleSoft, SAP, Siebel and Genesys. In addition, the Company has developed its own proprietary methodologies and tools, under the name SmartAPPS, that enhance the productivity of the Company's Year 2000 and other services. (b) Financial Information The Company's management allocates business resources principally among three business units; the U.S. Client Services group, the High Value Services group and the International Client Services group. The financial results and data applicable to each, as well as their financing requirements (if any) are set forth in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes to Consolidated Financial Statements. Other financial information about the operations of the Company are found on pages 16 and 17 of this Form 10-K. Services rendered by the Company's international offices are considered international operations. The Company has no export revenues. (c) Services Mastech provides its clients with a single source for a broad range of IT applications solutions and services, including: (i) client/server design and development; (ii) conversion/migration services; (iii) ERP package implementation services; (iv) E-Business solutions; (v) applications maintenance outsourcing; and (vi) Year 2000 services. These services are provided in a variety of computing environments and use leading technologies including client/server architectures, object-oriented programming languages and tools, distributed database management systems, groupware and the latest networking and communications technologies. In addition, the Company has developed proprietary SmartAPPS methodologies and tools to enhance productivity. The Company's revenues are derived from fees paid by clients for professional services. Historically, a substantial majority of the Company's projects have been client-managed. On client-managed projects, Mastech provides professional services as a member of the project team on a time-and- materials basis. The Company recognizes revenues on time-and-materials projects as the services are performed. On Mastech-managed projects, Mastech assumes responsibility for project management and bills the client on a time- and-materials or fixed-price basis. 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. The Project Control Office ("PCO"), located in the Company's headquarters, provides project management oversight for all North American client engagements. For offshore projects, the PCO is the point of contact 3 during client business hours, establishing a clear line of communication with the project teams in India and the United States. Mastech uses a proprietary Lotus Notes-based Global Project Tracking System to facilitate project management and control. The Company also utilizes PC conferencing tools to conduct "virtual" meetings. The Company offers many of its services through an existing offshore software development center in Bangalore, India which is connected via secure, high-speed satellite links to the Company's headquarters and client sites. Mastech has increased its offshore capacity by developing additional offshore software development centers in Pune and Madras, India. Offshore software development offers clients certain advantages as compared to domestic development, including: (i) significant cost savings; (ii) faster delivery, as larger teams can be deployed; (iii) virtual 24-hour project schedules, due to the time difference between North America and India; and (iv) improved access to a large pool of IT professionals. The Company's services are described below:
METHODS/TOOLS SERVICES - ------------------------------- --------------------------------------------- Client/Server Design and Development . Languages: C/C++, Visual . Project management Basic, Delphi SmallTalk, Java . Tools: Powerbuilder, Gupta, . Requirements analysis and definition Developer/2000, Lotus Notes . DBMS/4GLs: Oracle, Informix, . Evaluation and selection of applications Sybase, Unify, SQLServer packages . GUI: Windows, Motif, X- . Prototyping and re-use Windows, OpenLook . CASE Tools: Oracle*CASE, IEF, . Data modeling, data warehousing Bachman . Applications systems design and development . Database design and administration . Systems development and implementation . Technology education and training Conversion/Migration . SmartAPPS Methodology . Project management and Automated Conversion Tools . Automated tools development . User interface conversion . Code conversion and testing . Control language conversion . Data migration . Cutover and implementation ERP Package Implementation . Oracle Applications . Project planning . PeopleSoft . Customization . SAP R/3 . Integration . Seibel . Migration . Genesys . Database design and administration . J.D. Edwards . Systems support . Training . Intranet/Extranet design and implementation
4
METHODS/TOOLS SERVICES - --------------------------- -------------------------------------------------- E-Business Solutions . SmartAPPS Net . Intranet/Extranet design and implementation . Languages: Java, . Consulting services Javascript, HTML, C++, CGI . Tools: NetDynamics, . Enterprise Java application development ColdFusion, Net.Commerce, and deployment MS interdevelopment . DBMS/4GLs: Oracle, . Web-enablement of databases and legacy Sybase, Progress, systems Informix, SQL Server . Methodologies: UML for Java, . JavaBeans Component Framework for Enterprise Java component development Applications Maintenance Outsourcing . SmartAPPS Maintain . Project planning Methodology and Tools . Baseline assessment and service level definition . Process enhancements . Modifications/enhancements to functionality . Interfaces and integration with new systems . Configuration management . Documentation and standardization . Applications productivity improvement . Trouble-shooting and problem resolution . 24-hours, 7-days per week emergency support Year 2000 . SmartAPPS 2000 Impact . Impact analysis Assessment and Automated Conversion Tools . Viasoft . Project planning . Microfocus Revolve . Year 2000 conversion . Compliance testing and validation . Cutover and implementation
Additional Services--Education and Training Mastech's Education and Training Department provides employees with basic and advanced courses in key technologies such as Oracle, PowerBuilder, VisualBasic, Java and ERP packages including Oracle Applications, SAP, J.D. Edwards, PeopleSoft, Siebel and Genesys. Mastech has expanded its training programs and courseware to offer them to its clients as a distinct value-added service. The Company has piloted this service with selected clients and has received positive feedback. Sales and Marketing Mastech sells its services to large and medium-sized organizations through a sales force of approximately 150 professionals. Previously, the Company's sales force was organized as four groups. To meet the needs of the marketplace more effectively, the Company's sales force is currently organized into three primary groups: (i) the U.S. Client Services group; (ii) the High Value Services group; and (iii) the International Client Services group. Sales directors and representatives in each group are highly incentivized to cross- sell the services of other groups. 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, 5 its approach and methodology, schedules, team members, pricing and terms. Mastech leverages the mobility of its software professionals and its cost- effective telephone selling model to service all areas of the United States. Each geographic region also includes Corporate Account Managers who are responsible for selling Mastech's services to existing clients. These managers, Regional Directors and senior management meet frequently on a direct, face-to-face basis with clients. The U.S. Client Services group also focuses on developing national and global relationships with major systems integrators such as EDS, 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 High Value Services group manages engagements and provides IT professionals trained in ERP package implementation services. This group works directly with end-user clients and also as partners with both the ERP software vendors and systems integrators on teamed implementation efforts. This group is also responsible for securing and managing Mastech-managed engagements and Year 2000 services. The International Client Services group operates through offices in nine different countries. Each office is supervised by a Country Manager and supported by dedicated sales personnel that sell directly to new clients using an approach similar to the Company's U.S. sales approach. Additionally, these offices focus on leveraging Mastech's existing relationships with its U.S.- based multinational clients. These relationships are particularly strong with global systems integrators and often provide a foundation on which each of Mastech's international offices can build. Mastech's marketing organization works closely with the sales organization to constantly improve results by supporting it with market research to assist in strategic planning and tactical decision making, trade show selection and exhibit planning, marketing literature, advertising and public relations support. The marketing organization develops messages and positioning for such activities by analyzing market trends and competitors' activities. Clients Substantially all of the Company's clients are large and medium-sized organizations. During the year ended December 31, 1998, the Company provided services to over 900 clients worldwide in a diverse range of industries. The Company's strategy is to maximize its client retention rate and secure follow- on engagements by providing high-quality services and client responsiveness. A significant number of the Company's clients have selected Mastech on a recurring basis to provide additional services. The Company is a preferred vendor for several large organizations, including Associates Bancorp, Bank of America, EDS and IBM Year 2000 Global Services. As a preferred vendor, the Company is one of a limited number of service providers to these organizations, enabling it to sell its services more effectively. The Company is aggressively pursuing additional preferred vendor arrangements in order to obtain new or additional business from large and medium-sized organizations. These contracts generally result in lower margins due to negotiated discounts, but are expected to generate higher revenues with lower selling costs. 6 Organizations to which the Company has provided, or is providing, services include:
Consumer Products Manufacturing Telecommunications Transportation - ----------------- ---------------- ------------------ --------------------- Philip Morris Ford Motor AirTouch Carnival Cruise Lines Sears General Electric Ameritech Royal Caribbean Wal-Mart Hitachi AT&T Union Pacific Circuit City Intel MCI J. B. Hunt K-Mart U.S. Cellular Kellogg America Online Gateway
Financial Integrators & Health Care Services Vendors - ------------------------ --------------- ------------- Blue Cross/Blue Shield Bank of America Cap Gemini Kaiser Foundation Health Citibank EDS Merck The Hartford Ernst & Young NationsBank IBM Oracle Sabre Group Unisys
During the year ended December 31, 1998, approximately 23% of the Company's revenues were derived from its top five clients (EDS, IBM, General Electric, Sabre Group and Unisys Corporation). EDS accounted for approximately 11% of the Company's revenues for the year ended December 31, 1998. Human Resources The Company's success depends in large part on its ability to attract, develop, motivate and retain highly skilled IT professionals. The Company has over 80 full-time employees dedicated to recruiting IT professionals and managing its human resources. The Company recruits in a number of countries, including India, the U.S., Canada, The U.K., Singapore, Australia, the Philippines, Russia, Bulgaria, Brazil, Sri Lanka and South Africa. The Company advertises in leading newspapers and trade magazines. In addition, the Company's employees are a valuable recruiting tool and are actively involved in referring new employees and screening candidates for new positions. Mastech uses a standardized global selection process which includes interviews, tests and reference checks. The Company's Resource Managers use a proprietary system to manage the employees and candidates in the Company's talent pool. This system enables the Company to quickly identify appropriate IT professionals for various client engagements. This database, which currently holds profiles on several thousand IT professionals, catalogs individual technical profiles and stores information pertaining to each individual's location, availability, mobility and other factors. The Company has a focused retention strategy that includes career planning, training, benefits and an incentive plan. The Company's benefits package includes Company-subsidized health insurance, group life insurance, a long- term disability plan, Company-subsidized health club memberships and tuition reimbursement. The Company intends to continue to use stock options as part of its recruitment and retention strategy. The Company also has an extensive training infrastructure. The Company's Education and Training Department trains employees on a variety of platforms and helps them transition from legacy to client/server skills by providing cross-platform training in new technologies. The Company is implementing an intranet to allow its employees to access its courseware and computer-based training modules via the Internet so that the training is available to all employees worldwide at their individual convenience and pace. Mastech's IT professionals typically have Master's or Bachelor's degrees in Computer Science or another technical discipline and two to ten years of IT experience. As of December 31, 1998, the Company had approximately 4,700 employees comprised of 4,000 IT professionals, 229 sales and recruiting personnel and 7 approximately 500 general and administrative personnel. As of December 31, 1998, approximately 37% of the Company's worldwide workforce was working under H-1B temporary work permits in the United States. See "Risk Factors-- Government Regulation of Immigration." In addition, the Company uses independent contractors to support client engagements. As of December 31, 1998, the Company had approximately 800 independent contractors working on client engagements. Competition The IT services industry is highly competitive and served by numerous national, regional and local firms, all of which are either existing or potential competitors of the Company. Primary competitors include participants from a variety of market segments, including "Big Five" accounting firms, systems consulting and implementation firms, applications software firms, service groups of computer equipment companies, general management consulting firms, programming companies and temporary staffing firms. Many of these competitors have substantially greater financial, technical and marketing resources and greater name recognition than the Company. In addition, there is a risk that clients may elect to increase their internal IT resources to satisfy their applications solutions needs. The Company believes that the principal competitive factors in the IT services industry include the range of services offered, technical expertise, responsiveness to client needs, speed in delivering IT solutions, quality of service and perceived value. The Company believes that it competes favorably with respect to these factors. Intellectual Property Rights The Company relies upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. The Company enters into confidentiality agreements with its employees and limits distribution of proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. Software developed by the Company in connection with a client engagement is typically assigned to the client. In limited situations, the Company may retain ownership or obtain a license from its client, which permits Mastech or a third party to market the software for the joint benefit of the client and Mastech or for the sole benefit of Mastech. Recent Developments On January 29, 1999, the Company acquired Global Resource Management ("GRM") of Jacksonville, Florida. GRM provides information technology consulting and support services to large companies for mission-critical projects. The Company has expertise in network support and industry-specific solutions in the telecommunications, healthcare and insurance industries. GRM will continue its operations in Jacksonville as part of Mastech's southeast operations, which are headquartered in Atlanta. On January 9, 1999, the Company acquired Direct Resources Scotland Limited of Edinburgh, Scotland, an IT services firm focusing on the financial services industry. Direct Resources will be headquartered in Edinburgh as part of the Company's European operations which are operated through Mastech's London office. On January 4, 1999, the Company acquired all the issued and outstanding capital stock of the Amber Group, an SAP services company which provides integrated consulting, development, implementation and training. The transaction was a stock purchase and will be accounted for as a pooling of interests. The Amber Group works exclusively with SAP systems, helping its clients achieve efficiency in financials, logistics, and human resources among others. On October 26, 1998, the Company acquired International MIS, Inc. ("IMIS"), a business and information technology consulting firm based in San Francisco, California. IMIS provides the financial industry with high-level project management and business analysis consulting services. 8 RISK FACTORS Recruitment and Retention of IT Professionals The Company's business involves the delivery of professional services and is labor-intensive. The Company's success depends upon its ability to attract, develop, motivate and retain highly skilled IT professionals and project managers, who possess the technical skills and experience necessary to deliver the Company's services. Qualified IT professionals are in great demand worldwide and are likely to remain a limited resource for the foreseeable future. There can be no assurance that qualified IT professionals will continue to be available to the Company in sufficient numbers, or that the Company will be successful in retaining current or future employees. Failure to attract or retain qualified IT professionals in sufficient numbers could have a material adverse effect on the Company's business, operating results and financial condition. Historically, the Company has done most of its recruiting outside of the countries where the client work is performed. Accordingly, any perception among the Company's IT professionals, whether or not well founded, that the Company's ability to assist them in obtaining temporary work visas and permanent residency status has been diminished, could lead to significant employee attrition. In the first eight months of 1996, the Company experienced a higher than normal rate of employee attrition because the Company was experiencing delays in securing the first-stage approval for permanent residency status for its foreign employees working in the U.S. This attrition resulted in the Company incurring increased costs for IT professionals and a reduction in its revenue growth. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Overview." Government Regulation of Immigration The Company recruits its IT professionals on a global basis and, therefore, must comply with the immigration laws in the countries in which it operates, particularly the United States. As of December 31, 1998, approximately 37% 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. Variability of Quarterly Operating Results The Company's revenues and operating results are subject to significant variation from quarter to quarter depending on a number of factors, including the timing and number of client projects commenced and completed during the quarter, the number of working days in a quarter, employee hiring, attrition and utilization rates and the mix of time-and-materials projects versus fixed- price projects during the quarter. The Company recognizes revenues on time- and-materials projects as the services are performed, while revenues on fixed- price projects are recognized using the percentage of completion method. Although fixed-price projects have not contributed significantly to revenues and profitability to date, operating results may be adversely affected in the future by cost overruns on fixed-price projects. Because a high percentage of the Company's expenses are relatively fixed, variations in revenues may cause significant variations in operating results. Additionally, the Company periodically incurs cost increases due to both the hiring of new employees and strategic investments in its infrastructure in anticipation of future opportunities for revenue growth. No assurances can be given that quarterly results will not fluctuate, causing a material adverse effect on the Company's business and financial condition. Increasing Significance of Non-U.S. Operations and Risks of International Operations The Company's international consulting and offshore software development operations are important elements of its growth strategy. The Company opened offices in Canada and Singapore in 1995, Japan and the 9 U.K. in 1996, and Australia, the Netherlands and the Middle East during 1997. During 1998, the Company opened offices in Switzerland and South Africa and closed the office in the Middle East. These operations depend greatly upon business, immigration and technology transfer laws in those countries, and upon the continued development of technology infrastructure. There can be no assurance that the Company's international operations will be profitable or support the Company's growth strategy. The risks inherent in the Company's international business activities include unexpected changes in regulatory environments, foreign currency fluctuations, tariffs and other trade barriers, difficulties in managing international operations and potential foreign tax consequences, including repatriation of earnings and the burden of complying with a wide variety of foreign laws and regulations. The failure of Mastech to manage growth, attract and retain personnel, manage major development efforts, profitably deliver services, or a significant interruption of the Company's ability to transmit data via satellite, could have a material adverse impact on the Company's ability to successfully maintain and develop its international operations and could have a material adverse effect on the Company's business, operating results and financial condition. Although the Company's ownership of a U.S. trademark registration covering the service mark "Mastech" gives the Company the presumption of ownership in the U.S. of the "Mastech" mark for the services identified in the registration, there can be no assurance that the Company is entitled to use the designation "Mastech" in all international operations and there is the possibility that third parties have superior rights to the "Mastech" mark (or similar marks) outside the U.S. Exposure to Regulatory and General Economic Conditions in India A significant element of the Company's business strategy is to increase the utilization of its offshore software development centers in India. Mastech has utilized an offshore software development center in Bangalore for approximately two years and has opened two more centers in Pune and Madras, India during 1998. The Company also operates recruiting and training centers in India. The Indian government exerts significant influence over its economy. In the recent past, the Indian government has provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage foreign investment in certain sectors of the economy, including the technology industry. Certain of these benefits that directly affect the Company include, among others, tax holidays (temporary exemptions from taxation on operating income), liberalized import and export duties and preferential rules on foreign investment and repatriation. To be eligible for certain of these tax benefits, the Company must continue to meet certain conditions. A failure to meet such conditions in the future could result in the cancellation of the benefits. There can be no assurance that such tax benefits will be continued in the future at their current levels. Changes in the business or regulatory climate of India could have a material adverse effect on the Company's business, operating results and financial condition. Although wage costs in India are significantly lower than in the U.S. and elsewhere for comparably skilled IT professionals, wages in India are increasing at a faster rate than in the U.S. In the past, India has experienced significant inflation and shortages of foreign exchange, and has been subject to civil unrest and acts of terrorism. Changes in inflation, interest rates, taxation or other social, political, economic or diplomatic developments affecting India in the future could have a material adverse effect on the Company's business, operating results and financial condition. Intense Competition The IT services industry is highly competitive and served by numerous national, regional and local firms, all of which are either existing or potential competitors of the Company. Primary competitors include participants from a variety of market segments, including "Big Five" accounting firms, systems consulting and implementation firms, applications software firms, service groups of computer equipment companies, general management consulting firms, programming companies and temporary staffing firms. Many of these competitors have substantially greater financial, technical and marketing resources and greater name recognition than the Company. There are relatively few barriers to entry into the Company's markets and the Company may face 10 additional competition from new entrants into its markets. In addition, there is a risk that clients may elect to increase their internal IT resources to satisfy their applications solutions needs. Further, the IT services industry is undergoing consolidation which may result in increasing pressure on margins. These factors may limit the Company's ability to increase prices commensurate with increases in compensation. There can be no assurance that the Company will compete successfully with existing or new competitors. Concentration of Revenues; Risk of Termination The Company has in the past derived, and may in the future derive, a significant portion of its revenues from a relatively limited number of clients. The Company's five largest clients represented approximately 23%, 24% and 23% of revenues for the years ended December 31, 1998, 1997 and 1996, respectively. EDS accounted for approximately 11%, 11% and 7% of the Company's revenues for the years ended December 31, 1998, 1997 and 1996, respectively. Most of the Company's projects are terminable by the client without penalty. An unanticipated termination of a major project could result in the loss of substantial anticipated revenues and could require the Company to maintain or terminate a significant number of unassigned IT professionals, resulting in a higher number of unassigned IT professionals and/or significant termination expenses. The loss of any significant client or project could have a material adverse effect on the Company's business, operating results and financial condition. Management of Growth The Company's business has experienced rapid growth over the years that could strain the Company's managerial and other resources. Revenues have grown to $390.9 million in 1998 from $97.5 million in 1994. The number of employees (excluding independent contractors) has grown to over 4,700 as of December 31, 1998. The Company's continued growth depends on adding key managers, increasing its international operations, adding service lines and growing its offshore infrastructure. The Company has broadened its range of services to include client/server design and development, software modernization services, enterprise resource planning ("ERP") package implementation services, E- Business solutions, customer interaction management, applications maintenance outsourcing and Year 2000 services. The Company opened offices in Canada and Singapore in 1995, Japan and the U.K. in 1996, and Dallas, Texas, Australia, the Netherlands and the Middle East during 1997. During 1998, the Company opened offices in Switzerland and South Africa and closed the office in the Middle East. In addition, the Company's offshore software development center in Bangalore has been operational for over two years and centers in Pune and Madras, India became operational during 1998. Effective management of these growth initiatives will require the Company to continue to improve its operational, financial and other management processes and systems. The failure to manage growth effectively could have a material adverse effect on the Company's business, operating results and financial condition. Rapid Technological Change; Dependence on New Solutions The IT services industry is characterized by rapid technological change, evolving industry standards, changing client preferences and new product introductions. The Company's success will depend in part on its ability to develop IT solutions that keep pace with changes in the IT services industry. There can be no assurance that the Company will be successful in addressing these developments on a timely basis or that, if these developments are addressed, the Company will be successful in the marketplace. In addition, there can be no assurance that products or technologies developed by others will not render the Company's services noncompetitive or obsolete. The Company's failure to address these developments could have a material adverse effect on the Company's business, operating results and financial condition. A significant number of organizations are attempting to migrate business applications from a mainframe environment to advanced technologies, including client/server architectures. As a result, the Company's ability to remain competitive will be dependent on several factors, including its ability to help existing employees maintain or develop mainframe skills and to train and hire employees with skills in advanced technologies. The Company's failure to hire, train and retain employees with such skills could have a material adverse impact on the Company's business. The Company's ability to remain competitive will also be dependent on its ability to 11 design and implement, in a timely and cost-effective manner, effective transition strategies for clients moving from the mainframe environment to client/server or other advanced architectures. The failure of the Company to design and implement such transition strategies in a timely and cost-effective manner could have a material adverse effect on the Company's business, operating results and financial condition. Dependence on Principals The success of the Company is highly dependent on the efforts and abilities of Sunil Wadhwani and Ashok Trivedi, the Company's Co-Chairman and Chief Executive Officer and the Company's Co-Chairman and President, respectively. Although Messrs. Wadhwani and Trivedi have entered into employment agreements containing noncompetition, nondisclosure and nonsolicitation covenants, these contracts do not guarantee that they will continue their employment with the Company or that such covenants will be enforceable. The loss of the services of either of these key executives for any reason could have a material adverse effect on the Company's business, operating results and financial condition. Risk of Preferred Vendor Contracts The Company is a party to several "preferred vendor" contracts and is seeking additional similar contracts in order to obtain new or additional business from large or medium-sized clients. Clients enter into these contracts to reduce the number of vendors and obtain better pricing in return for a potential increase in the volume of business to the preferred vendor. While these contracts are expected to generate higher volumes, they generally result in lower margins. Although the Company attempts to lower costs to maintain margins, there can be no assurance that the Company will be able to sustain margins on such contracts. In addition, the failure to be designated a preferred vendor, or the loss of such status, may preclude the Company from providing services to existing or potential clients, except as a subcontractor, which could have a material adverse effect on the Company's business, operating results and financial condition. Growth Through Business Combinations As an integral part of its business strategy, the Company intends to continue to expand by acquiring information technology businesses. The Company continuously evaluates potential business combinations and aggressively pursues attractive transactions. From December 1997, through February 1999, the Company completed seven business combinations. The success of this strategy depends not only upon the Company's ability to identify and acquire businesses on a cost-effective basis, but also upon its ability to integrate acquired operations into its organization effectively, to retain and motivate key personnel and to retain clients of acquired businesses. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses into the Company without substantial expenses, delays or other operational or financial problems. Further, acquisitions may involve a number of special risks, including diversion of management's attention, failure to retain key acquired personnel, unanticipated events or circumstances and legal liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's business, operating results and financial condition. Client satisfaction or performance problems at a single acquired firm could have a material adverse impact on the reputation of the Company as a whole. In addition, there can be no assurance that acquired businesses, if any, will achieve anticipated revenues and earnings. Additionally, the Company experiences competition for business combinations. The failure of the Company to manage its acquisition strategy successfully could have a material adverse effect on the Company's business, operating results and financial condition. Intellectual Property Rights The Company's success depends in part upon certain methodologies and tools it uses in designing, developing and implementing applications systems and other proprietary intellectual property rights. The Company is also developing proprietary conversion tools, specifically tools tailored to address the Year 2000 problem. The Company relies upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. The Company enters into confidentiality agreements with its employees 12 and limits distribution of proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. Although the Company believes that its services do not infringe on the intellectual property rights of others and that it has all rights necessary to utilize the intellectual property employed in its business, the Company is subject to the risk of litigation alleging infringement of third-party intellectual property rights. Any such claims could require the Company to spend significant sums in litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the intellectual property which is the subject of asserted infringement. Risks Associated With Year 2000 Services The Company earned approximately 10%, 7% and 3% of its revenues from Year 2000 engagements in the years ended December 31, 1998, 1997 and 1996, respectively. During this period, 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 services related to the Y2K problem 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 demand for its services that may result from these Y2K related factors could have an adverse impact on its future financial performance. Fixed-Price Projects The Company undertakes certain projects billed on a fixed-price basis, which is distinguishable from the Company's principal method of billing on a time- and-materials basis. The failure of the Company to complete such projects within budget would expose the Company to risks associated with cost overruns, which could have a material adverse effect on the Company's business, operating results and financial condition. Potential Liability to Clients Many of the Company's engagements involve projects that are critical to the operations of its clients' businesses and provide benefits that may be difficult to quantify. Although the Company attempts to contractually limit its liability for damages arising from errors, mistakes, omissions or negligent acts in rendering its services, there can be no assurance that its attempts to limit liability will be successful. The Company's failure or inability to meet a clients' expectations in the performance of its services could result in a material adverse change to the client's operations and therefore could give rise to claims against the Company or damage the Company's reputation, adversely affecting its business, operating results and financial condition. Price Volatility The market price of the Company's Common Stock could be subject to significant fluctuations in response to variations in quarterly operating results, the Company's prospects, changes in earnings estimates by securities analysts and by economic, financial and other factors and market conditions that can effect the capital markets generally, the industry segment of which the Company is a part, the Nasdaq National Market, including the level of, and fluctuations in, the trading prices of stocks generally and sales of substantial amounts of the Company's Common Stock in the market, or the perception that such sales could occur, and by other events that are difficult to predict and beyond the Company's control. In addition, the securities markets have experienced significant price and volume fluctuations from time to time in recent years that have often been unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations may adversely affect the market price of the Company's Common Stock. 13 ITEM 2. PROPERTIES The Company leases 56,850 square feet of office space in the Pittsburgh suburb of Oakdale, Pennsylvania which serves as its corporate headquarters. The Company's senior management, administrative personnel, human resources and sales and marketing functions are housed in this facility. This lease expires on May 31, 2001 and provides for two additional options to extend the lease for consecutive five-year terms. During the fourth quarter of 1998, the High Value Services Division moved into its new offices located outside Pittsburgh, Pennsylvania. This facility provides an additional 25,000 square feet of office space. The lease term expires March 31, 2004. The Company is currently exploring leasing additional space at its headquarters and at other locations. The Company and its affiliates have sales offices located outside Dallas TX, San Francisco CA, Atlanta GA, Hartford CT, New York, NY, Philadelphia, PA and Raleigh, NC. The Company has sales offices in several countries in order to develop business internationally. The Company and its affiliates currently lease office space in the Netherlands, Canada, United Kingdom, Japan, Singapore, Switzerland, Australia, India, and South Africa. These locations allow the Company to respond quickly to the needs of its international clients and to recruit qualified IT professionals in these markets. Mascot Systems leases approximately 4,500 square feet of office space on one floor of an office building located in Bangalore, India. The lease has a ten- year term expiring in February 2008, with a rent revision clause every March. Mascot Systems also leases a 32,500-square-foot office building located in Bangalore. This lease has a ten-year term expiring in October 2006. Additionally, Mascot Systems leases approximately 9,000 square feet of space for its facilities located in Bangalore and Chennai, India. The lease agreement has a ten-year term expiring in February 2008, with a rent revision clause every March. Scott Systems leases, for its training facilities, approximately 2,100 square feet of office space on one floor of an office building located in Mumbai (Bombay, India). The leased space is divided into five separately owned suites owned individually by the controlling shareholders. The lease expires in March 2003. Scott Systems also leases 7,500 square feet of office space in Pune, India. This lease expires in August 2007. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party to any litigation that is expected to have a material adverse effect on the Company or its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of 1998. 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock has been traded on the Nasdaq National Market under the symbol MAST since December 17, 1996. The following table sets forth, for the periods indicated, the range of high and low closing sale prices for the Common Stock as reported on the Nasdaq National Market. The information provided below has been restated to reflect the two-for-one stock split (record date was close of business on Friday, March 27, 1998).
High Low ---- ---- 1998 - ---- First Quarter............................................... $29 1/2 $15 15/16 Second Quarter.............................................. $29 29/32 $17 13/16 Third Quarter............................................... $29 1/8 $20 1/4 Fourth Quarter.............................................. $28 3/4 $16 3/8 1997 - ---- First Quarter............................................... $10 15/16 $7 1/2 Second Quarter.............................................. $11 7/8 $5 3/4 Third Quarter............................................... $17 1/2 $11 3/16 Fourth Quarter.............................................. $17 7/16 $13 5/16
On February 26, 1999, the Company had 133 registered holders of record of the Common Stock. The Company intends to retain earnings to fund growth and the operation of its business, and therefore has not declared dividends during 1998 and 1997. Additionally, the Company does not anticipate paying any cash dividends in the foreseeable future. Future cash dividends, if any, will be at the discretion of the Company's Board of Directors and will depend upon, among other things, the Company's future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and such other factors as the Board of Directors may deem relevant. The Company's ability to pay dividends is subject to the requirement of its revolving credit facility with PNC Bank, National Association that the Company satisfy certain financial covenants. The Company distributed approximately $6.3 million of the proceeds from the initial public offering to the controlling shareholders as part of the S-corporation termination. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In December 1996, Mastech completed the initial public offering of its Common Stock (Registration Number 33-14169). The net proceeds to the Company from the sale of the 3,400,000 pre-split shares of Common Stock offered by the Company (after deducting underwriting discounts, commissions and offering expenses paid by the Company) were approximately $45.6 million. The Company submitted its initial Form SR for filing with the Securities and Exchange Commission on March 20, 1997 reporting for the period from December 16, 1996 (the effective date of the Company's registration statement for its initial public offering) through March 16, 1997. The following table reflects, as of December 31, 1998, and for each of the previous quarterly periods an estimate of the amount of net offering proceeds used by the Company and the purpose for which they were used: 15
(dollars in thousands) 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 Total -------- ------- ------- ------- -------- ------- ------- ------- -------- ------- Tax payments............ $ -- $3,000 $1,900 $2,800 $ 3,100 $2,300 $-- $-- $ -- $13,100 Other working capital item................... 820 2,180 950 -- 3,900 1,200 -- -- -- 9,050 ---- ------ ------ ------ ------- ------ --- --- ------ ------- Total working capital items.................. 820 5,180 2,850 2,800 7,000 3,500 -- -- -- 22,150 ==== ====== ====== ====== ======= ====== === === ====== ======= S-corporation dividend.. -- -- 6,300 -- -- -- -- -- -- 6,300 Subsidiary loans........ -- -- -- 4,050 -- 3,000 -- -- -- 7,050 Acquisitions............ -- -- -- -- 3,000 -- -- -- 7,100 10,100 ---- ------ ------ ------ ------- ------ --- --- ------ ------- $820 $5,180 $9,150 $6,850 $10,000 $6,500 $-- $-- $7,100 $45,600 ==== ====== ====== ====== ======= ====== === === ====== =======
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, --------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- (dollars in thousands, except per share data) Income Statement Data (1): Revenues.................. $390,871 $240,448 $162,939 $137,201 $97,531 Gross profit.............. 128,693 72,763 43,671 39,218 26,362 Income from operations (2)...................... 53,782 26,105 13,456 18,473 11,281 Interest (income) expense, net...................... (3,321) (1,193) 331 169 323 Merger-related expenses (3)...................... 3,212 -- -- -- -- Income before income taxes.................... 53,891 27,298 13,125 18,304 10,958 Provision for income taxes (4)...................... 20,459 11,231 4,136 -- -- --------- --------- --------- --------- -------- Net income................ $ 33,432 $ 16,067 $ 8,989 $ 18,304 $ 10,958 ========= ========= ========= ========= ======== Basic earnings per common share (5)................ $ 0.68 $ 0.36 ========= ========= Diluted earnings per common share (5)......... $ 0.67 $ 0.35 ========= ========= Pro forma income taxes (4)...................... 5,291 7,222 4,385 --------- --------- -------- Pro forma net income (4).. $ 3,698 $ 11,082 $ 6,573 ========= ========= ======== Pro forma basic and diluted earnings per share (4) (5)............ $ 0.09 $ 0.29 $ 0.17 ========= ========= ======== Basic average common shares (5)............... 48,997 45,251 39,194 38,130 38,130 Diluted average common shares (5)............... 49,830 45,720 39,200 38,130 38,130 December 31, --------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Balance Sheet Data: Cash and cash equivalents. $ 36,455 $ 82,924 $ 46,566 $ 3,026 $ 4,267 Investments............... 47,153 -- -- -- -- Working capital........... 130,191 110,928 48,625 14,068 13,524 Total assets.............. 215,781 162,060 89,038 36,143 31,648 Total shareholders' equity................... 158,207 119,426 49,588 14,613 13,896
- -------- (1) Amounts presented above have been restated to reflect the Company's acquisition of all of the shares of Quantum Information Resources ("Quantum") in a business combination that was accounted for under the pooling-of-interests method. 16 (2) Income from operations for the year ended December 31, 1996 reflects a non-recurring charge of $875,000 incurred pursuant to an agreement with an executive to pay, as compensation for past services, an amount equal to the value of 109,200 shares of Common Stock at the initial public offering price of $7.50 per share. The Company has reflected this payment along with the applicable tax withholdings as a non-recurring charge. For the years ended December 31, 1997 and 1998, income from operations reflect non-recurring charges of $518,000 and $258,000, respectively, relating to the amortization of deferred compensation for this same executive. (3) The Company incurred merger-related costs related to the acquisition of Quantum and charged these costs to expense during the second quarter of 1998. (4) The Company's S-corporation status terminated on December 16, 1996 in connection with the Company's initial public offering of Common Stock, thereby subjecting the Company's income to federal and state taxes at the corporate level. Pro forma net income and pro forma net income per share reflect federal and state taxes (assuming an approximate 40% effective tax rate) as if the Company had been taxed as a C-corporation for all periods presented. See Note 13 of Notes to Consolidated Financial Statements for information concerning the computation of pro forma net income per common share. In connection with the Company's conversion from S-corporation status to C-corporation status, the Company recorded a provision for income taxes of $3.9 million in the fourth quarter of 1996. (5) In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share." Earnings per share for the pro forma periods were not impacted by the adoption of this Statement. See Note 13 of Notes to Consolidated Financial Statements for information concerning the computation of basic and diluted earnings per common share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-K 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 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 this 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. In December 1996, Mastech completed the initial public offering of its Common Stock, and in December 1997, completed a secondary offering of its Common Stock. Subsequent to the initial public offering, Mascot Systems and Scott Systems, both of which are corporations organized under the laws of India, became wholly owned subsidiaries of Mastech Systems. 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 17 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, 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 of additional service offerings, including Year 2000 conversion services and ERP package implementation services; (ii) the establishment of a recruiting division to recruit IT professionals in the U.S. and worldwide; (iii) the opening of foreign sales offices to provide better access to the global market; (iv) the development of three offshore software development centers in India; (v) the hiring of additional managers to support a larger organization; (vi) the relocation of the Company's headquarters to larger, more efficient office space; and (vii) the establishment of a training center to improve the skill levels of new and current employees. While these expenses have increased the Company's selling, general and administrative expenses, the Company believes that the revenues expected to be derived as a result of these expenditures have not yet been fully realized. 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 U.S. Client Services group; (ii) the High Value Services group; and (iii) the International Client Services group. 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 EDS, 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 High Value Services group provides IT professionals trained in ERP implementations, E-business consulting, network services, and Year 2000 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 custom-interaction vendors, and systems integrators on teamed implementation efforts. The International Client Services group operates through offices in nine different countries. Each office is supervised by a Country Manager and supported by dedicated sales personnel who sell directly to new clients 18 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 years ended December 31, 1997 and 1996 have been restated to reflect the acquisition of Quantum in a business combination that was accounted for as a pooling of interests. Results of Operations The following table sets forth, for the periods indicated, selected statements of operations data as a percentage of revenues:
Year Ended December 31, ------------------- 1998 1997 1996 ----- ----- ----- Revenues................................................... 100.0% 100.0% 100.0% Cost of Revenues........................................... 67.1 69.7 73.2 ----- ----- ----- Gross Profit............................................... 32.9 30.3 26.8 Selling, general and administrative........................ 19.1 19.2 18.0 Non-recurring charges...................................... 0.1 0.2 0.5 ----- ----- ----- Income from operations..................................... 13.8 10.9 8.3 Interest (income) expense, net............................. (0.8) (0.5) 0.2 Merger-related expenses.................................... 0.8 -- -- ----- ----- ----- Income before income taxes................................. 13.8 11.4 8.1 ----- ----- ----- Provision for income taxes................................. 5.2 4.7 2.5 ----- ----- ----- Net income................................................. 8.6% 6.7% 5.5% ===== ===== =====
- -------- Note: Percentages may not add due to rounding. 1998 Compared to 1997 Revenues. The Company's revenues increased 62.6%, or $150.4 million, to $390.9 million in 1998 from $240.4 million in 1997. Of this growth in revenues, the U.S. Client Services group, High Value Services group, and the International Client Services group contributed $37.3 million, $81.1 million and $32.0 million, respectively, to this increase. The increases in U.S. Client Services group and High Value Services group can be attributed to additional services provided to existing clients and continued market penetration. The Company's client base grew to over 900 during 1998 from approximately 600 in 1997. The increase in the International Client Services group is primarily the result of increased market penetration in Australia and Europe. Gross Profit. Gross profit consists of revenues less cost of revenues. Cost of revenues consists primarily of salaries and employee benefits for billable IT professionals and the associated travel and relocation costs of these professionals, as well as the cost of the independent contractors used by the Company. Gross profit increased 76.9% to $128.7 million in 1998 from $72.8 million in 1997. Gross profit as a percentage of revenues increased to 32.9% in 1998 from 30.3% in 1997. The primary reason for the increase in gross profits as a percentage of revenues was higher margins in the High Value Services and U.S. Client Services groups. The number of IT professionals (including independent contractors) used by the Company increased to over 4,800 as of December 31, 1998 from approximately 3,500 as of December 31, 1997. Selling, General and Administrative Expenses. Selling, general and administrative 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. Selling, general and administrative expenses increased 61.8%, or $28.6 million, to $74.7 million in 1998 from $46.1 million in 1997. The increase in selling, general and administrative expenses reflects the Company's continued investment 19 in infrastructure and in the initiatives required to implement the Company's marketing strategies. These costs include the development of additional service offerings, the expansion of its global recruiting capabilities, the opening of additional international offices, the establishment of training centers and the continued expansion of its offshore software development centers. As a percentage of revenues, selling, general and administrative expenses remained relatively unchanged at 19.1% and 19.2% for 1998 and 1997, respectively. Interest and Other (Income) Expense, Net. Other income was $3.3 million in 1998 compared to other income of $1.2 million in 1997. The increase of $2.1 million in other income was the result of increased interest income from higher levels of interest bearing funds. Merger-related expenses. The Company incurred $3.2 million of merger-related costs and expenses in connection with the Quantum acquisition during the year ended December 31, 1998. Income taxes. Provision for income taxes was $20.5 million, or an effective tax rate of 38% for the year ended December 31, 1998 compared to $11.2 million, or an effective tax rate of 41% for the year ended December 31, 1997. The primary factors contributing to the reduction in the effective tax rate included a reduction in state income taxes and foreign income taxes, tax- exempt interest income generated by the Company's municipal bond portfolio and the tax holiday for the Company's Indian operations, offset by the effect of non-deductible one-time acquisition charges. Outlook. The Company believes that the IT services industry remains strong and growth oriented. Furthermore, the Company believes that the breadth of the services and solutions that it offers positions it to continue to increase its revenues and operating profits in 1999. The Company anticipates that it will experience a shift in the demand for certain of its services in 1999 as a result of Year 2000 (Y2K) related factors. Although Y2K related projects represented only 10% of Company revenues in 1998, the Company believes that as customers focus on completing their Y2K readiness efforts in 1999, the demand for other IT services may be affected. The Company believes that the percentage of revenues derived from Y2K, has peaked and will continue to decline, as a percentage of total revenues, in 1999. Reductions or shifts in the timing or demand for Company services could result in fluctuations in the Company's quarterly revenues or operating results and could result in differences between actual and expected results. 1997 Compared to 1996 Revenues. The Company's revenues increased 47.6%, or $77.5 million, to $240.4 million in 1997 from $162.9 million in 1996. The U.S. Client Services group, High Value Services group and the International Client Services group contributed $16.9 million, $48.0 million and $12.6 million, respectively, to this increase. The growth in U.S. Client Services and High Value Services was primarily attributable to successful market penetration and additional services provided to existing clients. International growth was primarily the result of successful market penetration in Europe. Furthermore, in the first eight months of 1996, the Company experienced a higher than normal rate of employee attrition because the Company was experiencing delays in securing the first stage approval for permanent residency status for some of its professionals. This attrition resulted in increased costs for IT professionals and reduced revenue growth during 1996. Gross Profit. Gross profit consists of revenues less cost of revenues. Cost of revenues consists primarily of salaries and employee benefits for billable IT professionals and the associated travel and relocation costs of these professionals, as well as the cost of the independent contractors used by the Company. Gross profit increased 66.6% to $72.8 million in 1997 from $43.7 million in 1996. Gross profit as a percentage of revenues increased to 30.3% in 1997 from 26.8% in 1996. The primary reasons for the increase in gross profits as a percentage of revenues were higher margins in the High Value Services and U.S. Client Services groups. Selling, General and Administrative Expenses. Selling, general and administrative 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. Selling, general 20 and administrative expenses increased 57.3%, or $16.8 million, to $46.1 million in 1997 from $29.3 million in 1996. As a percentage of revenues, selling, general and administrative expenses increased to 19.2% in 1997 from 18.0% in 1996. The increase in selling, general and administrative expenses reflects the Company's continued investment in infrastructure and in the initiatives required to implement the Company's marketing strategies. These costs include the development of additional service offerings, the expansion of its global recruiting capabilities, the opening of additional international offices, the establishment of training centers and the continued expansion of its offshore software development centers. Interest and Other (Income) Expense, Net. Other income was $1.2 million in 1997 compared to other expense of $331,000 in 1996. This increase in other income was the result of increased interest income from the investment of the net proceeds from the Company's public offerings of Common Stock. This increase in interest income was, however, partially offset by an increase in interest expense charged on borrowings outstanding under the Company's revolving credit facilities, principally to support the Company's Indian operations. These borrowings increased the Company's interest expense to $858,000 in 1997 from $511,000 in 1996. Income taxes. Provision for income taxes was $11.2 million, or an effective tax rate of 41% for the year ended December 31, 1997 compared to $4.1 million in 1996. Due to the S- to C-corporation conversion, a comparison of 1997 with 1996 is not meaningful. The tax provision for 1996 is composed primarily of the tax associated with the termination of the Company's Subchapter S- corporation status at the time of the initial public offering in December 1996. Liquidity and Capital Resources Effective December 3, 1998, the Company entered into a new $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 as of December 31, 1998. This Credit Facility replaced a previously existing $25.0 million revolving credit facility also with PNC Bank, National Association. Average outstanding borrowings under this arrangement were approximately $161,000 for the year ended December 31, 1998. In December 1997, the Company completed the registration of 3,000,000 (pre- split) shares of the Company's Common Stock for sale to the public. Of this total, 1,800,000 (pre-split) shares were newly issued by the Company, and 1,200,000 (pre-split) shares were sold by selling shareholders. The Company did not receive any part of the proceeds from the sale of shares by the selling shareholders. The net proceeds to the Company of the offering were approximately $51.3 million, after deducting underwriting discounts, commissions and offering expenses paid by the Company. In addition, the net proceeds to the Company, generated from Mastech's initial public offering in December 1996, were approximately $45.6 million, after deducting underwriting discounts and commissions and offering expenses paid by the Company. The Company has and will use these proceeds to develop new services, to expand existing operations, including offshore software development operations, for possible acquisitions of related businesses, and for general corporate purposes, including working capital. Management currently anticipates that the proceeds from these offerings together with the existing sources of liquidity and cash generated from operations will be sufficient to satisfy its existing cash needs at least through the next twelve months. During 1997, the Company used the initial public offering proceeds to pay approximately $900,000 of corporate income taxes related to the termination of its status as an S-corporation. In April 1997, the Company also paid a dividend of approximately $6.3 million of undistributed S-corporation earnings due the controlling shareholders for the periods prior to Mastech becoming a public company. 21 Historically, the Company has financed its working capital requirements through internally generated funds and with the proceeds from the aforementioned offerings. The Company's financial statements reflect cash flows provided by operations of approximately $35.1 million for 1998, cash flows used by operations of $3.5 million for 1997, and cash flows provided by operations of approximately $11.7 million for 1996. The Company's cash provided by operations prior to the initial public offering does not reflect any income tax expense due to the Company's prior status as an S-corporation. Prior to the initial public offering, the Company made S-corporation distributions to its shareholders and in 1997 made the final S-corporation distributions. Cash used from investing activities of $77.7 million for the year ended December 31, 1998 was primarily due to the net purchase of investments of $47.3 million. These investments are classified as available-for-sale and recorded at fair value. Additionally, the Company made several key acquisitions during 1998 totaling $19.2 million. Capital expenditures for 1998, 1997 and 1996 were approximately $11.1 million, $5.9 million and $3.1 million, respectively. During 1998 and 1997, the Company spent approximately $5.8 million and $2.8 million, respectively, on computer and related equipment to support its technical, consulting and administrative functions. The Company also spent approximately $3.4 million and $1.3 million in 1998 and 1997, respectively, in connection with the buildout and other development of the infrastructure for its offshore software development and training facilities in India. During the next twelve months, the Company expects to incur approximately $500,000 in remaining costs to license and implement its new management information system. Of this amount, a portion of the cost will be expensed. As of December 31, 1997, Mascot Systems had aggregate borrowings of approximately $1.7 million outstanding under revolving credit agreements with ICICI Banking Corporation Limited and IndusInd Bank Limited, both of India. Interest rates charged on these borrowings ranged from 18.75% to 19.25% per year. These borrowings were repaid in full by the Company in May 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 ensure that billing rates reflect increases in costs due to inflation. The Company invoices its clients in the local currency of the country in which the client is located. Gains and losses as a result of fluctuations in foreign currency exchange rates have not had a significant impact on results of operations. Recently Issued Accounting Standards Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits--an amendment of FASB Statements No. 87, 88, and 106," revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The Company currently has no pension benefit plans for its employees, and as such will not be subject to the disclosure requirements of this Statement. 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"), which establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 is effective for periods after June 15, 1999. Management does not anticipate that the adoption of this statement will have a significant effect on the Company's financial position. Other Matters Year 2000 The Year 2000 ("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 22 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 is currently evaluating the internal financial and operational systems of the companies recently acquired and expects to complete this evaluation by June 30, 1999. 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 $123,000 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. 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 23 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 is developing 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. It is expected that the contingency plan will be completed by April 30, 1999 and approved by the Board of Directors on June 1, 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 related Y2K problem 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 demand for its services that may result from these Y2K-related factors could have an adverse impact on its future performance. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 of September 30, 1998 and December 31, 1998 and was extended for an additional three months each time. The Company realized interim gains on the contract extensions at each of September 30 and December 31. Gains or losses are recognized under hedge accounting in Shareholder's Equity as 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. In December, the contract was extended to March 31, 1999. The outstanding contract is the far end of a swap for the sale by the Company of 7 million Canadian dollars at 1.54875 (US $4,519,774). 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 1.54875 on March 31, 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 1.54875 on March 31, 1999, the Company will record an interim loss upon extension of the contract. At December 31, 1998, the USD/CAD exchange rate was 1.5303. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data required by this item are filed as part of this Form 10-K. See Index to Consolidated Financial Statements on page 26 of this Form 10-K. 24 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Mastech Corporation have been prepared by management, who is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and necessarily include amounts based on management's best estimates and judgments. Management has established and maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded and that the Company's financial records reflect authorized transactions of the Company. The system of internal controls includes widely communicated statements of policies and business practices that are designed to require all employees to maintain high ethical standards in the conduct of Company affairs. The internal controls are augmented by organizational arrangements that provide for appropriate delegation of authority and division of responsibility. The Company's consolidated financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose report thereon appears on page 27 of this Form 10-K. As part of its audit of the Company's 1998 financial statements, Arthur Andersen LLP considered the Company's system of internal controls to the extent it deemed necessary to determine the nature, timing and extent of its audit tests. Management has made available to Arthur Andersen LLP the Company's financial records and related data. The Board of Directors pursues its responsibility for the Company's financial reporting and accounting practices through its Audit Committee, a majority of the members of which are independent directors. The Audit Committee's duties include recommending to the Board of Directors the independent public accountants to audit the Company's financial statements, reviewing the scope and results of the independent public accountants' activities and reporting the results of the committee's activities to the Board of Directors. The independent public accountants have met with the Audit Committee, with and without the presence of management representatives, to discuss the results of their audit work and their comments on the adequacy of internal accounting controls, and the quality of financial reporting. The independent public accountants have direct access to the Audit Committee. Sunil Wadhwani Co-Chairman, Chief Executive Officer and Director Jeffrey A. McCandless Vice President, Finance and Chief Financial Officer March 10, 1999 25 MASTECH CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants.................................. 27 Consolidated Balance Sheets as of December 31, 1998 and 1997.............. 28 Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996............................................................ 29 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996......................................... 30 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996...................................................... 31 Notes to Consolidated Financial Statements................................ 32
26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Mastech Corporation: We have audited the accompanying consolidated balance sheets of Mastech Corporation (a Pennsylvania corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mastech Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania, February 9, 1999 27 MASTECH CORPORATION CONSOLIDATED BALANCE SHEETS (dollars in thousands)
December 31, ------------------ 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents (cost approximates market value).................................................. $ 36,455 $ 82,924 Investments.............................................. 47,153 -- Accounts receivable, net of allowance for uncollectible accounts................................................ 71,108 60,366 Unbilled receivables..................................... 12,261 1,829 Employee advances and related party advances............. 3,568 2,578 Prepaid and other assets................................. 2,672 1,511 Prepaid income taxes..................................... 2,218 -- Deferred income taxes.................................... 2,312 2,154 -------- -------- Total current assets................................... 177,747 151,362 Equipment and leasehold improvements, at cost: Equipment................................................ 18,859 9,686 Leasehold improvements................................... 3,630 1,577 -------- -------- 22,489 11,263 Accumulated depreciation................................. (5,661) (2,488) -------- -------- Net equipment and leasehold improvements............... 16,828 8,775 -------- -------- Intangible assets, net..................................... 21,206 1,923 -------- -------- Total assets........................................... $215,781 $162,060 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Revolving credit facilities.............................. $ -- $ 6,905 Accounts payable......................................... 8,326 5,319 Accrued payroll and related costs........................ 28,483 17,949 Other accrued liabilities................................ 10,024 8,083 Deferred revenue......................................... 723 127 Deferred income taxes.................................... -- 46 Accrued income taxes..................................... -- 2,005 -------- -------- Total current liabilities.............................. 47,556 40,434 Other long term liabilities.............................. 4,563 490 Deferred income taxes.................................... 5,455 1,710 Shareholders' equity: Preferred Stock, without par value: 20,000,000 shares authorized, 1 share and 0 shares of Series A Preferred Stock issued and outstanding, respectively.............. -- -- Common Stock, par value $0.01 per share 100,000,000 shares authorized, 49,141,079 and 48,789,800 shares issued and outstanding, respectively.................... 491 252 Additional paid-in capital............................... 111,119 105,375 Retained earnings........................................ 47,168 14,722 Deferred compensation.................................... -- (258) Accumulated other comprehensive income................... (571) (665) -------- -------- Total shareholders' equity............................. 158,207 119,426 -------- -------- Total liabilities and shareholders' equity............. $215,781 $162,060 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 28 MASTECH CORPORATION CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
Year Ended December 31, ---------------------------- 1998 1997 1996 -------- -------- -------- Revenues.......................................... $390,871 $240,448 $162,939 Cost of revenues.................................. 262,178 167,685 119,268 -------- -------- -------- Gross profit...................................... 128,693 72,763 43,671 Selling, general and administrative............... 74,653 46,140 29,340 Non-recurring charges............................. 258 518 875 -------- -------- -------- Income from operations............................ 53,782 26,105 13,456 Interest (income) expenses, net................... (3,321) (1,193) 331 Merger-related expenses........................... 3,212 -- -- -------- -------- -------- Income before income taxes........................ 53,891 27,298 13,125 Provision (credit) for income taxes Current......................................... 17,911 12,140 253 Deferred........................................ 2,548 (909) (17) Termination of S-corporation status............. -- -- 3,900 -------- -------- -------- Provision for income taxes.................... $ 20,459 11,231 4,136 -------- -------- -------- Net income........................................ $ 33,432 $ 16,067 $ 8,989 ======== ======== ======== Basic earnings per common share................... $ 0.68 $ 0.36 ======== ======== Diluted earnings per common share................. $ 0.67 $ 0.35 ======== ========
Pro Forma Information (Unaudited) Net income....... $8,989 Pro forma income taxes........... 5,291 ------ Pro forma net income.......... $3,698 ====== Pro forma basic and diluted earnings per common share.... $ 0.09 ======
The accompanying notes are an integral part of these consolidated financial statements. 29 MASTECH CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (dollars in thousands)
Accumu- Series A lated Common Stock Preferred Other Total ---------------- ------------ Additional Deferred Compre- Share- Compre- Par Par Paid-In Retained Compen- hensive holders' hensive Shares Value Shares Value Capital Earnings sation Income Equity Income ---------- ----- ------ ----- ---------- -------- -------- ------- -------- ------- Balance, December 31, 1995................... 38,023,000 $198 -- $-- $ 91 $ 14,342 $ -- $ (18) $ 14,613 Amortization of deferred compensation........... -- -- -- -- -- -- 43 -- 43 Acquisition of minority interest in Scott Systems................ -- -- -- -- 28 -- -- -- 28 Issuance of common stock.................. 6,800,000 34 -- -- 50,216 (4,644) -- -- 45,606 Restricted stock award.. 109,200 1 -- -- 818 -- (819) -- -- Disproportionate dividend............... -- -- -- -- -- (190) -- -- (190) Dividends-paid by Quantum................ -- -- -- -- -- (363) -- -- (363) Dividends............... -- -- -- -- -- (19,045) -- -- (19,045) Comprehensive income: Currency translation adjustment........... -- -- -- -- -- -- -- (93) (93) $ (93) Net income............ -- -- -- -- -- 8,989 -- -- 8,989 8,989 ------- 8,896 ------------------------------------------------------------------------------------------------------- ======= Balance, December 31, 1996................... 44,932,200 233 -- -- 51,153 (911) (776) (111) 49,588 Amortization of deferred compensation........... -- -- -- -- -- -- 518 -- 518 Exercise of stock options, includes effect of tax benefit recognized............. 257,600 1 -- -- 2,814 -- -- -- 2,815 Reduction of previously authorized S- corporation dividend... -- -- -- -- 162 -- -- -- 162 Issuance of common stock.................. 3,600,000 18 -- -- 51,246 -- -- -- 51,264 Dividends-paid by Quantum................ -- -- -- -- -- (434) -- -- (434) Comprehensive income: Currency translation adjustment........... -- -- -- -- -- -- -- (554) (554) (554) Net income............ -- -- -- -- -- 16,067 -- -- 16,067 16,067 ------- 15,513 ------------------------------------------------------------------------------------------------------- ======= Balance, December 31, 1997................... 48,789,800 252 -- -- 105,375 14,722 (258) (665) 119,426 Amortization of deferred compensation........... -- -- -- -- -- -- 258 -- 258 Exercise of stock options, includes effect of tax benefit recognized............. 351,279 2 -- -- 5,482 -- -- -- 5,484 Two-for-one stock split effected in the form of a stock dividend paid on April 10, 1998...... -- 237 -- -- -- (237) -- -- -- Issuance of preferred stock.................. -- -- 1 -- -- -- -- -- -- Non-cash merger costs... -- -- -- -- 262 -- -- -- 262 Dividends-paid by Quantum................ -- -- -- -- -- (749) -- -- (749) Comprehensive income: Net unrealized gain on investments............ -- -- -- -- -- -- -- 368 368 368 Currency translation adjustment........... -- -- -- -- -- -- -- (274) (274) (274) Net income............ -- -- -- -- -- 33,432 -- -- 33,432 33,432 ------- $33,526 ------------------------------------------------------------------------------------------------------- ======= Balance, December 31, 1998....... 49,141,079 $491 1 $-- $111,119 $ 47,168 $ -- $(571) $158,207 =======================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 30 MASTECH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Year Ended December 31, -------------------------- 1998 1997 1996 -------- ------- ------- Cash Flows From Operating Activities Operations: Net income....................................... $ 33,432 $16,067 $ 8,989 Adjustments to reconcile net income to cash: Depreciation and amortization.................. 3,734 1,487 395 Allowance for uncollectible accounts........... 513 540 175 Minority interest.............................. -- -- (54) Deferred income taxes, net..................... 3,160 (2,061) 3,654 Non-cash merger costs, net..................... 262 -- -- Amortization of deferred compensation.......... 258 518 43 Amortization of bond premium................... 534 -- -- Working capital items: Accounts receivable and unbilled receivables... (15,559) (30,858) (4,536) Employee and related party advances............ (990) 694 (2,338) Prepaid and other assets....................... (1,027) (541) 280 Accounts payable............................... 2,420 356 2,940 Accrued and other current liabilities.......... 8,379 10,333 2,171 -------- ------- ------- Net cash flows from operating activities..... 35,116 (3,465) 11,719 -------- ------- ------- Cash Flows From Investing Activities Additions to equipment and leasehold improvements.................................... (11,147) (5,897) (3,102) Purchases of investments......................... (74,965) -- -- Sales of investments............................. 27,646 -- -- Acquisitions, net of cash acquired............... (19,218) (2,154) 28 -------- ------- ------- Net cash flows from investing activities..... (77,684) (8,051) (3,074) -------- ------- ------- Cash Flows From Financing Activities Net borrowings (payments) under revolving credit facilities...................................... (8,362) 1,121 2,480 Net proceeds from issuance of Common Stock....... -- 51,264 45,606 Proceeds from exercise of stock options.......... 5,484 2,815 -- Dividends paid................................... (749) (6,772) (13,098) -------- ------- ------- Net cash flows from financing activities..... (3,627) 48,428 34,988 -------- ------- ------- Effect of currency translation to cash............. (274) (554) (93) -------- ------- ------- Net change in cash and cash equivalents............ (46,469) 36,358 43,540 Cash and cash equivalents, beginning of period..... 82,924 46,566 3,026 -------- ------- ------- Cash and cash equivalents, end of period........... $ 36,455 $82,924 $46,566 ======== ======= ======= Non-Cash Investing and Financing Activities Unrealized gain on investments................... $ 368 $ -- $ -- ======== ======= ======= Supplemental Disclosure Cash payments for interest....................... $ 300 $ 757 $ 511 ======== ======= ======= Cash payments for income taxes................... $ 16,148 $ 9,170 $ 376 ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 31 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Operations In conjunction with the closing of its initial public offering on December 16, 1996, Mastech Systems Corporation, the entity through which the business of the Company had been conducted since its inception in July 1986, became an indirect, wholly owned subsidiary of Mastech Corporation ("Mastech" or the "Company"), which was incorporated in Pennsylvania on November 12, 1996. Mastech is a worldwide provider of information technology ("IT") services to large and medium-sized organizations. Mastech provides its clients with a single source for a broad range of applications solutions and services, including client/server design and development, software modernization services, enterprise resource planning ("ERP") package implementation services, E-Business solutions, customer interaction management, applications maintenance outsourcing and Year 2000 services. These services are provided in a variety of computing environments and use leading technologies, including client/server architectures, object-oriented programming languages and tools, distributed database management systems and the latest networking and communications technologies. To enhance its services, Mastech has formed business alliances with leading software companies such as Oracle, PeopleSoft, SAP, Siebel and Genesys. In addition, the Company has developed its own proprietary methodologies and tools, under the name SmartAPPS, that enhance the productivity of the Company's Year 2000 and other services. Mascot Systems Pvt, Ltd. ("Mascot"), a wholly owned foreign subsidiary, was acquired upon the closing of the Company's initial public offering. During 1997, Mascot operated one offshore software development center in Bangalore, India, and during 1998 opened two additional centers in the cities of Pune and Madras, India. Mascot's current operations serve as Mastech's single source for offshore software development. Scott provides IT professional recruiting and training services. As of December 31, 1997, all of Mascot, SWAT and Scott's revenues were derived from services provided to Mastech Systems. Financial results for the years ended December 31, 1997 and 1996 have been restated to reflect the acquisition of Quantum in a business combination that was accounted for as a pooling of interests. 2. Stock Split On March 17, 1998, the Company's Board of Directors declared a two-for-one stock split that was effected in the form of a stock dividend paid on April 10, 1998 to shareholders of record on March 27, 1998. All share and per share amounts included in the Company's consolidated financial statements have been restated to reflect the stock split for all periods presented except where otherwise noted. 3. Summary of Significant Accounting Policies The accompanying Consolidated Financial Statements reflect the application of the following significant accounting policies: (a) Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. (b) Cash and Cash Equivalents Cash and Cash Equivalents are defined as cash and short-term investments with maturities of three months or less at the time of acquisition. (c) Investments The Company's short-term investments are classified as available-for-sale as defined by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" 32 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued ("SFAS No. 115"). These investments consist of investment grade municipal bonds and are stated at estimated fair value based upon market quotes. (d) Accounts Receivable The Company extends credit to clients based upon management's assessment of their creditworthiness. Substantially all of the Company's revenues (and the resulting accounts receivable) are from large companies, major systems integrators and governmental agencies. The allowance for uncollectible accounts was approximately $1,728,000, $1,215,000 and $675,000 as of December 31, 1998, 1997 and 1996, respectively. Unbilled receivables represent amounts recognized as revenues for the periods presented based on services performed under the terms of client contracts that will be invoiced in subsequent periods. (e) Revenue Recognition The Company recognizes revenue on time-and-materials contracts as the services are performed for clients. Revenues on fixed-price contracts are recognized using the percentage of completion method. Percentage of completion is determined by relating the actual cost of work performed to date to the estimated total cost for each contract. If the estimate indicates a loss on a particular contract, a provision is made for the entire estimated loss without reference to the percentage of completion. Changes in job performance, conditions and estimated profitability may result in revisions to costs and revenues and are recognized in the period in which the changes are identified. (f) Hedging The Company selectively uses foreign exchange contracts to hedge foreign exchange exposure on certain intercompany debt. Gains and losses on the foreign exchange contracts are recognized under hedge accounting in Shareholders' Equity as Currency Translation Adjustment. Such gains and losses are essentially offset in Currency Translation Adjustment by gains or losses on translation of the related debt. (g) Depreciation and Amortization The Company provides for depreciation using the straight-line method in amounts which allocate the costs of equipment over their estimated useful lives of three to seven years, and leasehold improvements over the shorter of the life of the improvement or of the underlying lease term. Intangible assets, which include the excess of purchase price and related costs over the value of the net assets acquired, are amortized using the straight-line method over periods ranging from five to thirty years. The Company assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows. The Company believes that the carrying amount of these intangible assets will be realizable over their respective amortization periods. Accumulated amortization was approximately $258,000 and $11,000 for 1998 and 1997, respectively. Annual amortization expense for 1998 and 1997 was approximately $247,000 and $11,000, respectively. (h) Currency Translation Adjustment The financial statements of foreign subsidiaries are translated using the exchange rate in effect at year-end for balance sheet accounts and the average exchange rate in effect during the year for revenue and expense accounts. Translation gains and losses are excluded from the consolidated income statements and are instead reported as the currency translation adjustment component of shareholders' equity. 33 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued The functional currency of international offices and foreign subsidiaries is the currency of the country in which the office or subsidiary is located. Revenues of the Company are billed in the currency of the country in which the customer is located. Translation gains and losses arising from differences between the functional and billing currencies are recognized in the consolidated income statements. Mastech Systems has loans outstanding from Mascot Systems, which have been eliminated in the accompanying consolidated balance sheets as of December 31, 1998 and 1997. The terms of the loans provide for the scheduled repayment of principal and accrued interest in fiscal years 2001 through 2005. However, the Company considers these loans permanently reinvested, and therefore has recorded the related foreign transaction gains and losses in the currency translation adjustment as of December 31, 1998. (i) Income Taxes The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Prior to its initial public offering, the Company elected to be taxed under Subchapter S of the Internal Revenue Code of 1986, as amended ("S- corporation") for income tax purposes. Accordingly, the income of the Company was reported on the individual income tax returns of its shareholders. Therefore, the financial statements do not include a provision for income taxes related to income prior to the closing of the initial public offering. The Company's S-corporation status terminated in connection with the Company's initial public offering, thereby subjecting the Company's income to federal and state income taxes at the corporate level. Due to temporary differences in recognition of revenues and expenses at the time of the initial public offering, income for financial reporting purposes exceeded income for income tax purposes. Accordingly, the application of the provisions of SFAS No. 109 resulted in the recognition of deferred tax liabilities (and a corresponding one-time charge to expense) of $3.9 million as of the date the S-corporation was terminated. The majority of this tax provision will be paid through the year 2000. In the recent past, the government of India has provided incentives, in the form of tax holidays, to encourage foreign investment. The Company's operation in India was eligible for a tax holiday for a five-year period beginning in 1997. (j) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (k) Financial Instruments The fair values and carrying amounts of the Company's financial instruments, primarily accounts receivable and payable, are approximately equivalent. The financial instruments are classified as current and will be liquidated within the next operating cycle. (l) Pro Forma Information (Unaudited): The pro forma adjustments for income taxes included in the accompanying consolidated income statements are based upon the statutory rates in effect for C-corporations during the periods presented. 34 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (m) Reclassifications Certain reclassifications have been made to the Company's 1997 and 1996 financial statements to conform to current year presentation. 4. Investments Short-term investments, classified as available-for-sale, consist of investment grade municipal bonds at December 31, 1998 with an amortized cost of $46,785,000, unrealized gain of $368,000 and market value of $47,153,000. The value of securities with a contractual maturity within one year at December 31, 1998 was $28,271,000. The value of securities with a contractual maturity at December 31, 1998 over one year and less than three years was $18,882,000. Gross realized gains on sales of securities in 1998 was immaterial. 5. Hedging Activities The Company selectively uses foreign exchange contracts to hedge foreign exchange exposure on certain intercompany debt. At December 31, 1998, the Company held one foreign exchange contract, which was the far end of a Canadian dollar swap, maturing on March 31, 1999. The outstanding contract is for the sale by the Company of 7 million Canadian dollars at 1.54875 (US $4,519,774). 6. Income Taxes The components of the provision (benefit) for income taxes for the years ended December 31, 1998, 1997 and 1996 are as follows:
December 31, ----------------------- 1998 1997 1996 ------- ------- ------ (dollars in thousands) Current provision: Federal.............................................. $13,806 $ 9,312 $ 216 State................................................ 1,869 1,577 -- Foreign.............................................. 2,236 1,251 37 ------- ------- ------ Total current provision............................ 17,911 12,140 253 Deferred provision (benefit): Federal.............................................. 2,057 (700) (17) State................................................ 491 (155) -- Foreign.............................................. -- (54) -- Termination of S-corporation status.................. -- -- 3,900 ------- ------- ------ Total deferred provision (benefit)................. 2,548 (909) 3,883 ------- ------- ------ Total provision for income taxes....................... $20,459 $11,231 $4,136 ======= ======= ======
The reconciliation of income taxes computed using the statutory U.S. income tax rate and the provision for income taxes for the years ended December 31, 1998 and 1997 follows:
December 31, 1998 December 31, 1997 ------------------- ------------------- (dollars in thousands) Income taxes computed at the federal statutory rate........................ $ 18,862 35.0% $ 9,554 35.0% State income taxes, net of federal benefit............................... 1,534 2.8 924 3.4 Other, net............................. 63 0.2 753 2.7 ---------- ------- ---------- ------- Provision for income taxes............. $ 20,459 38.0% $ 11,231 41.1% ========== ======= ========== =======
35 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued The Company's S-corporation status terminated in connection with the Company's initial public offering, thereby subjecting the Company's income to federal and state income taxes at the corporate level. Prior to the initial public offering, the Company elected Subchapter S- corporation status for income tax purposes. Accordingly, the income of the Company was reported on the individual income tax returns of its shareholders. The financial statements, therefore, do not include a provision for income taxes prior to the closing of the initial public offering. The reconciliation of income taxes computed using the statutory U.S. income tax rate and the provision for income taxes for the 15-day C-corporation period ended December 31, 1996 follows. Due to the S- to C-corporation conversion, a reconciliation of the effective tax rate expressed in percentages is not meaningful for 1996.
December 31, 1996 ---------------------- (dollars in thousands) C-corporation income before taxes for the 15 day period ended December 31, 1996................................ $ 413 Net taxable temporary differences....................... 4 Current portion of S-corporation deferred revenue....... 123 ------ Book taxable income as a C-corporation.................. 540 Income taxes computed at the federal statutory rate..... 216 Provision for change in tax status to C-corporation..... 3,900 Other, net.............................................. 20 ------ Provision for income taxes.............................. $4,136 ======
The components of the deferred tax assets and liabilities are as follows:
December 31, ------------------------ 1998 1997 ----------- ----------- (dollars in thousands) Deferred tax assets Allowance for doubtful accounts and employee advances.......................................... $ (356) $ (304) Accrued vacation................................... (1,088) (418) Foreign tax credit carryforward.................... (31) (225) Reserve for contract costs......................... (653) (692) Reserve for Canadian employment taxes.............. (915) (979) Accrued pension costs.............................. (187) (196) Other.............................................. (660) (615) ----------- ----------- $ (3,890) $ (3,429) =========== =========== Deferred tax liabilities S-corporation deferred revenue..................... $ 1,200 $ 2,345 Compensation for IMIS employees.................... 3,372 -- Section 481(a) adjustments......................... 381 -- Other.............................................. 2,080 686 ----------- ----------- Total deferred tax liability......................... $ 7,033 $ 3,031 =========== =========== Net current (asset) liability........................ $ (2,312) $ (2,108) Net long-term liability.............................. 5,455 1,710 ----------- ----------- $ 3,143 $ (398) =========== ===========
36 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued The foreign tax credit carryforwards of $31,000 recognized as of December 31, 1998 expire during fiscal year 2002. 7. Revolving Credit Facility The Company had a revolving credit facility with PNC Bank, National Association. Borrowings under this arrangement were unsecured, were limited to $15.0 million, bore interest at LIBOR plus 1.0% or the prime rate and were payable upon demand. There were no borrowings outstanding under this arrangement as of December 31, 1996. Average outstanding borrowings under this arrangement were $535,000 and $1.4 million for the years ended December 31, 1997 and 1996, respectively. Effective May 30, 1997, the Company replaced the above mentioned revolving credit facility with a $25.0 million revolving credit facility with PNC Bank, National Association (the "Facility"). The Facility bears interest at a rate equal to LIBOR plus 1.0% or prime, at the Company's option, and borrowings are unsecured. The Facility contains certain restrictive covenants and financial ratio requirements which would limit distributions to shareholders and additional borrowings. There were no borrowings outstanding under this arrangement as of December 31, 1997. For the year ended December 31, 1997, average outstanding borrowings were approximately $489,000 and the maximum outstanding borrowings were $4.0 million. The weighted-average interest rate for the year ended December 31, 1997 was 8.5%. Effective December 3, 1998, the Company replaced the aforementioned Facility with 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 as of December 31, 1998. For the year ended December 31, 1998, average outstanding borrowings were approximately $161,000 and the maximum outstanding borrowings were $4.0 million. The weighted-average interest rate for the year ended December 31, 1998 was 8.5%. During the first quarter of 1998, Mascot Systems had aggregate borrowings of approximately $1.7 million outstanding under revolving credit agreements with ICICI Banking Corporation Limited and IndusInd Bank Limited, both of India. Interest rates charged on these borrowings ranged from 18.75% to 19.25% per year. These borrowings were repaid in full by the Company in May 1998. The Company assumed $6.9 million of borrowings outstanding under a revolving credit agreement with the Bank of Montreal related to the Quantum acquisition. This amount was repaid in full as of June 30, 1998. 8. Related Party Transactions As an S-corporation, the net income of the Company was attributed, for federal (and some state) income tax purposes, directly to the Company's shareholders rather than to the Company. During 1997 and 1996, the Company had from time to time paid the corresponding income taxes due on these amounts on behalf of the controlling shareholders in the form of interest-free advances which were later repaid. The highest aggregate amounts of advances outstanding to one of the controlling shareholders and his Qualified Subchapter S Trust during 1998, 1997 and 1996 were approximately $87,000, $96,000 and $1,682,000, respectively. The highest aggregate amounts of advances outstanding to the other controlling shareholder and his Qualified Subchapter S Trust during 1998, 1997 and 1996 were approximately $118,000, $158,000 and $1,682,000, respectively. 37 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued Mascot Systems leases from the controlling shareholders the office space for the offshore software development facilities in Bangalore, India. The acquisition of the real estate and the construction of this office building (but not the buildout of the office space) was financed entirely by the controlling shareholders out of personal funds. Specifically, Mascot Systems leases approximately 4,500 square feet of office space on one floor of an office building located in Bangalore, which is owned by the controlling shareholders. The lease has a ten-year term expiring in February 2008, with a rent revision clause every March. The rent is approximately $29,000 per year. Mascot Systems also leases a 32,500-square-foot office building located in Bangalore from the controlling shareholders. This lease has a ten-year term expiring in October 2006, and the annual rent is approximately $95,000. The Offshore Development Center at Chennai was partly functional during 1998 and fully functional beginning January 1, 1999. The lease agreement effective for a ten-year period effective March 1998 and expiring February 2008 has an annual rent of $449,000. The rental agreement may be revised each March. Since the facility was partly occupied during 1998, rent paid to the controlling shareholders was $118,000. Mascot Systems has also rented approximately 9,000 square feet of space for its facilities located in Bangalore and Chennai for which rent in the amount of $9,000 was paid during 1998. Scott Systems leases, for its training facilities, approximately 2,100 square feet of office space on one floor of an office building located in Mumbai (Bombay, India). The leased space is divided into five separately owned suites owned individually by the controlling shareholders. The lease expires in March 2003, and the aggregate rent is approximately $20,000 per year. Scott Systems also leases further office space of approximately 900 square feet on another floor in the same office building, which is owned by the controlling shareholders. This lease has a term that expires in August 2007, and the rent is $6,000 per year. Scott Systems also leases a portion of the Pune facility from the controlling shareholders. This lease covers 7,500 square feet of office space and expires in August 2007. The rent is approximately $18,000 per year. 9. Commitments and Contingencies The Company rents certain office facilities and equipment under noncancelable operating leases that provide for the following future minimum rental payments as of December 31, 1998:
Period ending December 31, Amount ------------- ---------------------- (dollars in thousands) 1999................................................. $4,010 2000................................................. 3,582 2001................................................. 2,471 2002................................................. 1,466 Thereafter........................................... 4,077
Rental expense was approximately $3,210,000, $1,984,000 and $1,448,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Company has employment agreements with its controlling shareholders and certain of its executive officers which provide generally for specified minimum salaries and bonuses based upon the Company's performance. The majority of the Company's projects with customers, including those related to Year 2000 conversion, generally provide that the Company will supply consultants to perform under the customer's supervision. At this time, the Company is unable to quantify the potential risk to the Company related to Year 2000 conversions from future claims. Nonetheless, management does not believe that claims that may arise as a result of the above will have a significant impact on either the financial position or the results of operations of the Company. 38 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued The Company is a party to several "preferred vendor" contracts and is seeking additional similar contracts in order to obtain new or additional business from large or medium-sized clients. While these contracts are expected to generate higher volumes, they generally result in lower margins. Although the Company attempts to lower costs to maintain margins, there can be no assurance that the Company will be able to sustain margins on such contracts. In addition, the failure to be designated a preferred vendor, or the loss of such status, may preclude the Company from providing services to existing or potential clients, except as a subcontractor. Nonetheless, management does not believe that claims that may arise as a result of the above will have a significant impact on either the financial position or the results of operations of the Company. 10. Employee Benefit Plans The Company sponsors a 401(k) benefit plan. Eligible employees, as defined in the plan, may contribute up to 15% of eligible compensation, as defined. The Company does not currently contribute to this plan. 11. Non-recurring Charges In October 1996, the Company entered into an agreement with an executive pursuant to which the Company agreed to pay this individual, as compensation for past services, an amount equal to the value of 218,400 shares of Common Stock at the initial public offering price of $7.50 per share. Both of these numbers have been adjusted to reflect the two-for-one stock split. One-half of this payment was made in cash, at the election of the executive, on December 16, 1996. The remaining half of this obligation was satisfied on December 16, 1996 via the issuance of 109,200 shares of restricted Common Stock, as described in Note 12. The Company has reflected the cash payment along with the applicable tax withholdings as a non-recurring charge in the accompanying consolidated statements of income for the year ended December 31, 1996. For the years ended December 31, 1997 and 1998, the Company has reflected the amortization of deferred compensation for this same executive as a non- recurring charge in the accompanying consolidated statements of income. In connection with the acquisition of Quantum, $3.2 million of merger- related costs and expenses (primarily severance, legal and accounting costs) were incurred and were charged to expense in the second quarter of 1998. As of December 31, 1998, $245,000 remains and will be paid during 1999. 12. Stock-Based Compensation and Restricted Stock Award Effective December 16, 1996, the Company adopted the 1996 Stock Incentive Plan (the "Plan") for directors, executive management and key personnel. Effective February 1, 1999, the Company adopted the Second Amended and Restated 1996 Stock Incentive Plan (the "Amended Plan") for directors, executive management and key personnel. The Amended Plan provides that up to 15% of the number of outstanding shares of the Company on each December 31 beginning on December 31, 1998 shall be available for issuance under the Amended Plan. As of December 31, 1998, there were 3,605,286 shares of Common Stock available for issuance under the Amended Plan. The Company accounts for the Plan under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Had compensation costs for the Plan been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), net income and basic and diluted earnings per share for the year ended December 31, 1998 would have been reduced by $3.5 million, or $0.07 per share. For the year ended December 31, 1997, net income and basic and diluted earnings per share would have been reduced by $1.3 million, or $0.03 per share. For the year ended December 31, 1996, net income would have been reduced by $24,000 and there would have been no impact on pro forma basic and diluted earnings per common share for the same period. 39 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued During 1998, 1997 and 1996, options covering a total of 1,703,873 shares, 820,100 shares and 1,691,100 shares, respectively, of Common Stock were granted under the Plan. Options expire ten years from the date of grant or earlier if an option holder ceases to be employed by the Company for any reason. A summary of stock option activity follows:
Weighted Average Options Exercise Price --------- ---------------- 1998 Options outstanding, beginning of period............. 2,134,600 $ 8.37 Granted.............................................. 1,703,873 19.47 Exercised............................................ 351,279 8.76 Lapsed and forfeited................................. 330,198 11.06 --------- Options outstanding, end of period................... 3,156,996 $14.25 ========= ====== Options exercisable, end of period................... 412,828 $ 9.11 ========= ====== Available for future grant........................... 3,605,286 ========= 1997 Options outstanding, beginning of period............. 1,691,100 $ 7.50 Granted.............................................. 820,100 9.76 Exercised............................................ 257,600 7.50 Lapsed and forfeited................................. 119,000 7.50 --------- Options outstanding, end of period................... 2,134,600 $ 8.37 ========= ====== Options exercisable, end of period................... 212,064 $ 7.50 ========= ====== Available for future grant........................... 4,978,961 ========= 1996 Options outstanding, beginning of period............. -- -- Granted.............................................. 1,691,100 $ 7.50 Exercised............................................ -- -- Lapsed and forfeited................................. -- -- --------- Options outstanding, end of period................... 1,691,100 $ 7.50 ========= ====== Options exercisable, end of period................... -- -- ========= ====== Available for future grant........................... 5,680,061 =========
40 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued Stock options outstanding at December 31, 1998
Options Outstanding Options Exercisable - ---------------------------------------------------- ------------------------------------------------- Weighted Average Weighted Average Weighted Average Remaining Weighted Average Remaining Exercise Price Options Contractual Life (Years) Exercise Price Options Contractual Life (Years) - ---------------- --------- ------------------------ ---------------- ------- ------------------------ $ 7.50 1,020,257 7.96 $ 7.50 292,258 7.96 9.56 370,000 7.33 9.98 64,834 7.33 15.80 619,166 8.96 15.26 42,736 8.86 19.26 598,573 9.17 19.72 13,000 9.46 22.37 490,000 9.80 -- -- -- 25.84 59,000 9.54 -- -- -- --------- ------- $14.25 3,156,996 8.63 $ 9.80 412,828 8.04 ========= ==== ======= ====
Stock options outstanding at December 31, 1997
Options Outstanding Options Exercisable - ---------------------------------------------------- ------------------------------------------------- Weighted Average Weighted Average Weighted Average Remaining Weighted Average Remaining Exercise Price Options Contractual Life (Years) Exercise Price Options Contractual Life (Years) - ---------------- --------- ------------------------ ---------------- ------- ------------------------ $ 7.50 1,407,600 9.24 $7.50 212,064 9.24 8.82 560,000 9.62 -- -- -- 14.21 167,000 9.91 -- -- -- --------- ------- $ 8.37 2,134,600 9.39 $7.50 212,064 9.24 ========= ==== ======= ====
Stock options outstanding at December 31, 1996
Options Outstanding Options Exercisable - ---------------------------------------------------- ------------------------------------------------- Weighted Average Weighted Average Weighted Average Remaining Weighted Average Remaining Exercise Price Options Contractual Life (Years) Exercise Price Options Contractual Life (Years) - ---------------- --------- ------------------------ ---------------- ------- ------------------------ $7.50 1,691,100 9.96 -- -- -- ========= ==== === ===
41 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Stock Option Summary of Stock Options Price - ------------------------ ------ Weighted average fair value of options granted during 1998*.............. $9.68 ===== Weighted average fair value of options granted during 1997*.............. $2.60 ===== Weighted average fair value of options granted during 1996*.............. $2.93 =====
- -------- *The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
1998 1997 1996 ------- ------- ------- Risk free interest rate................................. 5.6% 6.5% 6.2% Expected dividend yield................................. 0.0% 0.0% 0.0% Expected life of options................................ 5 years 5 years 6 years Expected volatility rate................................ 50.0% 33.0% 24.5%
Effective December 16, 1996, the Company entered into an employment agreement with an executive that included the granting of 109,200 shares of restricted Common Stock. During the restricted period (from December 16, 1996 to June 30, 1998), the restricted stock vested ratably and daily. The agreement provides for partial awards and forfeitures under various circumstances. At December 31, 1998 and 1997, the Company's consolidated balance sheet reflects deferred compensation of $0 and $258,000, respectively, related to this award, as an offset to shareholders' equity. Compensation expense of $258,000, $518,000 and $43,000 related to the vesting of restricted shares during 1998, 1997 and 1996, respectively, has been recorded in the Company's consolidated income statement. 13. Earnings per Common Share In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which establishes new standards for computing and presenting earnings per share. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company adopted SFAS No. 128 during 1997. Earnings per share for the pro forma periods were not impacted by the adoption of SFAS No. 128. Basic pro forma net income per common share and earnings per common share are calculated by dividing pro forma net income and net income, respectively, by the weighted average number of common shares outstanding during the year. Diluted pro forma net income per common share and earnings per common share are calculated by dividing pro forma net income and net income, respectively, by the weighted average number of shares of common stock outstanding adjusted for the assumed conversion of all dilutive securities. The 1996 diluted shares outstanding, as calculated below, also includes 393,462 (pre-split) common shares, which represents the number of shares, when multiplied by the initial public offering price, would have been sufficient to replace the capital in excess of earnings withdrawn as dividends during the period. 42 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Year Ended December 31, ----------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- (dollars in thousands, except per share data) Basic earnings per share Net income................... $33,432 $16,067 $3,698 Divided by: Weighted average common shares...................... 48,996,895 45,250,620 39,194,023 =============== =============== =============== Basic earnings per share....... $0.68 $0.36 $0.09 =============== =============== =============== Diluted earnings per share Net income................... $33,432 $16,067 $3,698 Divided by the sum of: Weighted average common shares...................... 48,996,895 45,250,620 39,194,023 Dilutive effect of common stock equivalents........... 833,539 469,506 6,400 --------------- --------------- --------------- Diluted average common shares...................... 49,830,434 45,720,126 39,200,423 =============== =============== =============== Diluted earnings per share..... $0.67 $0.35 $0.09 =============== =============== ===============
14. Business Acquisitions On October 26, 1998, the Company acquired International MIS, Inc. ("IMIS"), a business and information technology consulting firm based in San Francisco, California. IMIS provides the financial industry with high-level project management and business analysis consulting services. The acquisition was accounted for as a purchase. Operating results have been included in the Company's consolidated financial statements since the date of acquisition, but pro forma information has not been presented because it is immaterial. On July 1, 1998, the Company acquired privately held MC Computer Services Pty Limited ("MCCS"), a Canberra, Australia-based information technology services provider. MCCS provides a wide range of high-level information technology services such as applications development, consultant services, systems analysis and design, and project management. The acquisition has been accounted for as a purchase. Operating results have been included in the Company's consolidated financial statements since the date of acquisition, but pro forma information has not been presented because it is immaterial. Related to these acquisitions, an initial payment of $15.0 million was paid and $4.0 million was recorded as a long-term liability, which represents the unpaid purchase price. Future payments will be made based upon a calculation of earnings before interest, taxes, depreciation and amortization of goodwill for the years ending 1999, 2000 and 2001. Future payments will not exceed $8.0 million under the terms of one agreement. The maximum amount of future payments for the other agreement, will be established based upon the calculation described above. During 1998, the Company recorded approximately $19.5 million of goodwill related to the above acquisitions. The final amount of goodwill will be determined upon the finalization of fair value studies of the assets acquired. Additionally, this amount will be adjusted based upon future payments. These two acquisitions, accounted for under the purchase method of accounting, added $12.5 million in revenues and $9.5 million in assets for 1998. On June 1, 1998, the Company acquired all of the issued and outstanding capital stock of Quantum Information Resources Limited ("Quantum"), a Canadian corporation, pursuant to a business combination the terms of which were contained in that certain Combination and Exchange Agreement dated June 1, 1998 (the 43 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued "Exchange Agreement"). Pursuant to the Exchange Agreement, the shareholders of Quantum received 1,623,000 exchangeable non-voting shares of Quantum, which are convertible into the same number of shares of the Company's Common Stock (the "Exchangeable Shares"), and PNC Bank, National Association, received 1 share of Series A Preferred Stock, as trustee for the shareholders of Quantum, pursuant to which such shareholders were granted the right to vote the Company Common Stock underlying the Exchangeable Shares. Quantum provides IT services primarily in Canada and parts of the United States. The business combination was accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements have been restated to include results for Quantum for all periods presented. Separate revenues and net income, prior to the business combination, are presented in the following table:
Five Months Ended May 31, Year Ended December 31, ------------- ----------------------- 1998 1997 1996 -------- ----------- ----------- (dollars in thousands) Revenues Mastech................................. $121,298 $ 195,967 $ 123,400 Quantum................................. 20,181 44,481 39,539 -------- ----------- ----------- Total................................... $141,479 $ 240,448 $ 162,939 ======== =========== =========== Net income Mastech $ 11,093 $ 15,606 $ 8,692 Quantum................................. 928 461 297 -------- ----------- ----------- Total................................... $ 12,021 $ 16,067 $ 8,989 ======== =========== ===========
On December 2, 1997, the Company acquired Asia Pacific Computer Consultants Pty Limited ("Asia Pacific"), a Sydney, Australia-based information technology and telecommunications ("IT&T") services provider. Asia Pacific was merged with Mastech's existing Australia operations and became a Mastech subsidiary, Mastech Asia-Pacific. In addition to an initial payment, a contingent future payment, if required, will be made in accordance with a calculation involving the earnings before interest of Asia Pacific, as defined, for each of the years ended December 31, 1998 and 1999. 15. S-Corporation Dividend In December 1996, the Company's Board of Directors declared an S-corporation dividend to former S-corporation shareholders in an aggregate amount representing the estimated amount of all undistributed earnings of the Company taxed or taxable to its shareholders through December 16, 1996 (the "S- corporation Dividend"). The S-corporation Dividend was recorded in the consolidated balance sheets at December 31, 1996 in the amount of $6.5 million. The S-corporation Dividend was paid in the amount of $6.3 million in 1997, with the difference recognized as an increase in additional paid-in capital as shown in the accompanying consolidated statements of shareholders' equity. 16. Segment Reporting In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS No. 131"), which requires the use of the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure or any other manner in which management segregates a company. 44 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued Mastech Corporation's reportable segments are strategic business units that offer similar services to different target markets. They are managed separately because each business unit requires different marketing strategies. The Company has three reportable segments: U.S. Client Services group, the High Value Services group and the International Client Services group. 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 EDS, 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 High Value Services group provides IT professionals trained in ERP implementations, E-Business consulting, network services, Year 2000 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 custom-interaction vendors, and systems integrators on teamed implementation efforts. The International Client Services group operates through offices in nine different countries. Each office is supervised by a Country Manager and supported by dedicated sales personnel that sell directly to new clients using an approach similar to the Company's U.S. sales approach. Additionally, these offices focus on leveraging Mastech's existing relationships with its U.S.- based multinational clients. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates segment performance based on profit or loss from operations. The Company does not allocate income taxes, other income or expense and non-recurring charges to segments. In addition, the Company accounts for inter-segment sales and transfers at current market prices. Revenues by geographic area consisted of the following:
Year Ended December 31, -------------------------- 1998 1997 1996 (dollars in thousands) -------- -------- -------- Revenues United States...................................... $283,569 $175,364 $116,514 Canada............................................. 49,489 47,830 39,935 Europe............................................. 26,126 8,898 329 Pacific Rim........................................ 31,687 8,356 6,161 -------- -------- -------- Total Revenues..................................... $390,871 $240,448 $162,939 ======== ======== ========
Year Ended December 31, ----------------------- 1998 1997 ----------- ----------- Total Assets United States......................................... $168,276 $145,994 Canada................................................ 16,158 3,628 Europe................................................ 13,836 5,643 Pacific Rim........................................... 17,511 6,795 ----------- ----------- Total Assets.......................................... $215,781 $162,060 =========== ===========
45 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
U.S. International Client High Value Client Corporate Services Services Services(1) Activities(2) Total -------- ---------- ------------- ------------- -------- (dollars in thousands) 1998 Revenues (3)........... $159,679 $140,092 $91,100 $ -- $390,871 Income from operations. 40,344 33,804 6,407 (26,773) 53,782 Interest (income) expense............... -- -- -- (3,321) (3,321) Merger-related expenses.............. -- -- -- 3,212 3,212 Provision for income taxes................. -- -- -- 20,459 20,459 -------- Net income............................................................. $ 33,432 ======== U.S. International Client High Value Client Corporate Services Services Services(1) Activities(2) Total -------- ---------- ------------- ------------- -------- 1997 Revenues (3)........... $122,387 $58,961 $59,100 $ -- $240,448 Income from operations. 28,876 10,626 4,044 (17,441) 26,105 Interest (income) expense............... -- -- -- (1,193) (1,193) Provision for income taxes................. -- -- -- 11,231 11,231 -------- Net income............................................................. $ 16,067 ======== U.S. International Client High Value Client Corporate Services Services Services(1) Activities(2) Total -------- ---------- ------------- ------------- -------- 1996 Revenues (3)........... $105,488 $10,931 $46,520 $ -- $162,939 Income from operations. 25,129 (183) 2,295 (13,785) 13,456 Interest (income) expense............... -- -- -- 331 331 Provision for income taxes................. -- -- -- 4,136 4,136 -------- Net income............................................................. 8,989 Pro forma tax provision................................................ 5,291 -------- Pro forma net income................................................... $ 3,698 ========
- -------- (1) Income from operations for the International Client Services group includes certain international administrative and other operating expenses which are not allocated to the U.S. Client Services and High Value Services groups. (2) Corporate activities include general corporate expenses, eliminations of intersegment transactions, interest income and expense and other unallocated charges. The Company evaluates segments based on income from operations. Since certain administrative and other operating 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 it may not be comparable to other companies. Additionally, the Company does not allocate assets, depreciation expense and capital additions to the business segments. (3) A single customer, included in U.S. Client Services accounted for approximately 11%, 11%, and 7% of the Company's revenues for the years ended December 31, 1998, 1997 and 1996, respectively. 46 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued 17. Quarterly Financial Information (Unaudited) The following table sets forth certain unaudited financial information for each of the quarters indicated below and, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation thereof. All information has been restated for pooling of interests business combinations through December 31, 1998.
Three Months Ended ------------------------------------------------ Mar. 31, Jun. 30, Sept. 30, Dec. 31, ----------- ----------- ------------ ----------- (dollars in thousands, except per share data) 1998 Revenues..................... $ 81,586 $ 92,584 $ 103,405 $ 113,296 Gross Profit................. 26,303 30,745 34,649 36,996 Income from operations....... 10,939 12,861 14,964 15,018 Income before income taxes... 11,611 10,380 15,699 16,201 Provision for income taxes... 4,667 4,627 5,495 5,670 Net income................... $ 6,944 $ 5,753 $ 10,204 $ 10,531 ========== ========== =========== =========== Basic and diluted earnings per common share............ $ 0.14 $ 0.12 $ 0.20 $ 0.21 ========== ========== =========== =========== 1997 Revenues..................... $ 48,339 $ 55,905 $ 64,209 $ 71,995 Gross Profit................. 13,581 16,277 19,737 23,168 Income from operations....... 3,461 5,988 7,589 9,067 Income before income taxes... 3,867 6,349 7,703 9,379 Provision for income taxes... 1,698 2,508 3,148 3,877 Net income................... $ 2,169 $ 3,841 $ 4,555 $ 5,502 ========== ========== =========== =========== Basic and diluted earnings per common share............ $ 0.05 $ 0.08 $ 0.10 $ 0.12 ========== ========== =========== ===========
- -------- Note: The sum of the four quarters may not equal yearly totals due to rounding of quarterly results. 18. Comprehensive Income During 1998, the Company adopted FASB Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires companies to report all changes in equity during a period, except those resulting from investment by owners and distribution to owners. The adoption of SFAS No. 130 had no impact on the Company's net income or shareholders' equity. 19. Subsequent Events In January 1999, the Company made the following acquisitions: (1) the Amber Group ("Amber") an SAP services company that provides integrated consulting, development, implementation and training; (2) Direct Resources Scotland Limited ("Direct Resources") of Edinburgh, Scotland, an IT services firm focusing on the financial services industry; and (3) Global Resource Management ("GRM") of Jacksonville, Florida. GRM provides information technology consulting and support services to large companies for mission- critical projects. The acquisitions above had combined revenues of approximately $26.2 million for the year ended December 31, 1998. Additionally, the assets of the above companies as of December 31, 1998 were approximately $6.1 million. 47 MASTECH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued The Amber acquisition will be accounted for under the pooling-of-interests method of accounting. Direct Resources and GRM will be accounted for under the purchase method of accounting. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 48 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required by this item is incorporated by reference from the information under the caption "Management and Directors" in the Company's definitive proxy statement to be filed. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the information under the caption "Executive Compensation" in the Company's definitive proxy statement to be filed provided that the information in such proxy statement under the captions "Performance Graph" and "Compensation Committee Report on Executive Compensation" should not be incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the information under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement to be filed. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the information under the caption "Certain Transactions" in the Company's definitive proxy statement to be filed. 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. Financial Statements The following consolidated financial statements of the registrant and its subsidiaries are included on pages 28 to 48 and the report of independent public accountants is included on page 27 in this Form 10-K. Report of Independent Public Accountants. Consolidated Balance Sheets--December 31, 1998 and 1997. Consolidated Statements of Income--Years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Equity--Years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements 2. Consolidated Financial Statement Schedules The following consolidated financial statement schedules shown below should be read in conjunction with the consolidated financial statements on pages 28 to 48 in this Form 10-K. All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or Notes thereto. The following items appear immediately following the signature pages: Report of Independent Public Accountants on Consolidated Financial Statement Schedules. Financial Statement Schedules: Schedule II-Valuation and Qualifying Accounts for the three years ended December 31, 1998. Financial Data Schedules 3. Exhibits Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index, which is incorporated herein by reference. (b)Reports on Form 8-K: Not applicable. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 29th day of March, 1999. Mastech Corporation /s/ Sunil Wadhwani By: _________________________________ Sunil Wadhwani Chief Executive Officer POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of Mastech Corporation, hereby severally constitute and appoint Sunil Wadhwani, Ashok Trivedi and Jeffrey McCandless, and each of them singly, our true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, amendments to this report, and generally to do all things in our names and on our behalf in such capacities to enable Mastech Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Sunil Wadhwani Co-Chairman, Chief March 29, 1999 ______________________________________ Executive and Director Sunil Wadhwani (principal executive officer) /s/ Ashok Trivedi Co-Chairman, President and March 29, 1999 ______________________________________ Director Ashok Trivedi /s/ Jeffrey McCandless Vice President--Finance March 29, 1999 ______________________________________ (principal financial Jeffrey McCandless officer) /s/ Neil M. Ebner Corporate Controller March 29, 1999 ______________________________________ (principal accounting Neil M. Ebner officer) /s/ Ed Yourdon Director March 29, 1999 ______________________________________ Ed Yourdon /s/ J. Gordon Garrett Director March 29, 1999 ______________________________________ J. Gordon Garrett /s/ Michel Berty Director March 29, 1999 ______________________________________ Michel Berty
51 MASTECH CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 1998, 1997 and 1996
Balance at Balance at Allowance for beginning Charged end Doubtful Accounts of period to expense Deductions of period ----------------- ---------- ---------- ---------- ---------- (dollars in thousands) Year ended December 31, 1998........ $1,215 $1,413 $(900) $1,728 Year ended December 31, 1997........ 675 1,000 (460) 1,215 Year ended December 31, 1996........ 500 300 (125) 675
52
EXHIBIT INDEX DESCRIPTION OF EXHIBIT ------- ---------------------------- 3.1 Articles of Incorporation of the Company are incorporated by reference from Exhibit 3.1 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 3.2 Bylaws of the Company are incorporated by reference from Exhibit 3.2 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 4.1 Form of certificate representing the Common Stock of the Company is incorporated by reference from Exhibit 4.1 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.1 Form of Employment Agreement by and between the Company and Sunil Wadhwani and Ashok Trivedi is incorporated by reference from Exhibit 10.1 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996.* 10.2 1996 Stock Incentive Plan is incorporated by reference from Exhibit 10.2 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996.* 10.3 Amended and Restated 1996 Stock Incentive Plan is incorporated by reference from the Quarterly Report on Form 10-Q, File No. 000-21755 filed on November 16, 1998. 10.4 Second Amended and Restated 1996 Stock Incentive Plan is incorporated by reference from Exhibit 99.1 to Mastech Corporation's Definitive Proxy Statement, File No. 000-21755 filed on December 30, 1998. 10.5 Agreement dated October 14, 1996 between Mastech Systems Corporation (f/k/a Mastech Corporation) and Steven Shangold, as amended by Addendum dated as of November 18, 1996, is incorporated by reference from Exhibit 10.3 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996.* 10.6 Form of Employment Agreement by and between the Company and each of its Executive Officers is incorporated by reference from Exhibit 10.4 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on December 16, 1996.* 10.7 Shareholders Agreement by and among the Company, Sunil Wadhwani and Ashok Trivedi and the Joinder Agreement by Grantor Retained Annuity Trusts established by Messrs. Wadhwani and Trivedi are incorporated by reference from Exhibit 10.5 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on December 16, 1996. 10.10 Lease Agreement dated January 15, 1995 by and between Mascot Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Bangalore, India is incorporated by reference from Exhibit 10.10 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.11 Lease Agreement dated November 6, 1996 by and between Mascot Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Bangalore, India is incorporated by reference from Exhibit 10.11 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.12 Lease Agreement dated January 15, 1998 by and between Mascot Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Bangalore, India is filed herewith. 10.13 Lease Agreement dated March 26, 1997 by and between Mascot Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Bangalore, India is filed herewith.
53
EXHIBIT INDEX DESCRIPTION OF EXHIBIT ------- ---------------------------- 10.14 Lease Agreement dated January 13, 1998 by and between Mascot Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Chennai, India is filed herewith. 10.15 Lease Agreement dated April 1, 1996 by and between Scott Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Bombay, India is incorporated by reference from Exhibit 10.12 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-4169, filed on November 19, 1996. 10.16 Lease Agreement dated April 1, 1996 by and between Scott Systems Private Limited and Sunil Wadhwani for real estate in Bombay, India is incorporated by reference from Exhibit 10.13 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.17 Lease Agreement dated April 1, 1996 by and between Scott Systems Private Limited and Ashok Trivedi for real estate in Bombay, India is incorporated by reference from Exhibit 10.14 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.18 Lease Agreement dated April 18, 1998 by and between Scott Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Mumbai, India is filed herewith. 10.19 Lease Agreement dated April 18, 1998 by and between Scott Systems Private Limited and Messrs. Wadhwani and Trivedi for real estate in Mumbai, India is filed herewith. 10.20 Stock Purchase Agreement by and between the Company and Messrs. Wadhwani and Trivedi for their shares of Mascot Systems Private Limited (incorporated by reference to Exhibit 10.15 on Form S-1 of Mastech Corporation, Commission File No. 333-14169, filed on November 19, 1996). 10.21 Agreement and Plan of Merger by and between the Company and SWAT Systems is incorporated by reference from Exhibit 10.15 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.22 Form of S-corporation Revocation, Tax Allocation and Indemnification Agreement is incorporated by reference from Exhibit 10.17 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333- 14169, filed on November 19, 1996. 10.23 Credit Agreement dated December 3, 1998 between the Company and PNC Bank, National Association filed herewith. 10.24 Sublease Agreement dated February 10, 1995 by and between Westinghouse Electric Corporation and the Company for the Company's Oakdale, PA headquarters, as amended by amendment dated March 20, 1996 is incorporated by reference from Exhibit 10.19 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on November 19, 1996. 10.25 Lease Agreement dated October 14, 1998 by and between Park Ridge One Associates and the Company for office space located in Park Ridge Office Center near Pittsburgh, Pennsylvania is filed herewith. 10.26 Form of Capital Contribution Agreement by and among the Company, Sunil Wadhwani, Ashok Trivedi and their respective family trusts is incorporated by reference from Exhibit 10.21 to Mastech Corporation's Registration Statement on Form S-1, Commission File No. 333-14169, filed on December 16, 1996.
54
EXHIBIT INDEX DESCRIPTION OF EXHIBIT ------- ---------------------------- 23.0 Report of Independent Public Accountants on Financial Statement Schedule 23.1 Consent of Independent Public Accountants 24.1 Power of Attorney (included on signature page in this report) 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule 27.3 Restated Financial Data Schedule
- -------- * Management compensatory plan or arrangement 55 EX-10.12 2 LEASE AGREEMENT DATED JANUARY 15, 1998 EXHIBIT 10.12 ------------- MEMORANDUM OF LEAVE AND LICENCE ------------------------------- This Memorandum of Leave and Licence made at Bangalore on this 15th day of January, 1998 between: 1. Sunil Wadhwani residing at 930 Osage Road, Pittsburgh PA 15243, U.S.A. 2. Ashok Trivedi residing at 1446 Peterson Place, Pittsburgh PA 15241, U.S.A. (hereinafter referred to as "the Licensors" which expression shall unless repugnant to its context shall mean and include their heirs, successors and assigns) of the One Part; and Mascot Systems Private Limited a company incorporated under the Companies Act, 1956 and having Registered Office at No. 1, Main Road, Kalyana Mandapa Road, Jakkasandra Village, Begur Hobli, Sarjapur, Bangalore 560 034. (hereinafter referred to as "the Licensee" which expression shall include its successors and permitted assigns) of the Other Part. WHEREAS the Licensors are the owners of office premises at 401 to 410 in the `C' Wing of the building known as Mittal Towers' located at Mahatma Gandhi Road, Bangalore 560 001 WHEREAS the Licensee is desirous of taking a portion of the said premises on leave and licence basis for use as software development center, more particularly described in the Schedule appended hereto (hereinafter referred to as "the said premises"). NOW THIS MEMORANDUM WITNESSETH AS UNDER: 1. The Licensee has been given a licence to make use of the said premises and more particularly described in the Schedule appended hereto. 2. The said license has been and shall be regarded as operative from Jan. 16, 1998 to February 28, 2008. The Licensee has agreed to and shall continue to pay license fee in the sum of Rs. 1,00,000 (Rupees One lakh only) per month or such License fee as may be mutually agreed from time to time pursuant to the review as set out in clause 4 below. The said sum shall be paid in advance, by the Licensee to the Licensors regularly on 1st day of every English calendar month. 3. Both the Licensors are equal owners of the said premises and the Licensee shall pay the monthly licence fee of Rs. 1,00,000/- or such license fee as may be mutually agreed from time to time pursuant to clause 4 below in equal proportion to both the Licensors by drawing a cheque or demand draft of Rs. 50,000 (Rupees Fifty thousand only) or one half of the total license fee as determined pursuant to clause 4 in the name of each of the Licensor. 4. The License fees shall be reviewed in March each year beginning from March, 1999. Pursuant to such review, the license fee may be revised from time to time as mutually agreed in writing by the Licensor and the Licensee. The license fee as most recently agreed shall always be in force and the Licensee shall pay the Licensor such license fee as provided herein. 5. The Licensee shall pay all charges in respect of water, electricity, power, maintenance, sanitation, security and all other running and maintenance expenses in respect of the use of the said presmises. The property tax and other public dues in respect of the said premises shall be paid by the Licensors. 6. Upon execution of this Memorandum by the Licensor and the Licensee, the Licensee shall be entitled to commence work relating to interior office infrastructure such as furniture, fixtures, lighting, airconditioning etc. and for this purpose the Licensee can use the said premises from the date hereof. 7. The licence is personal to the Licensee and the Licensee shall have no right to sub-let, transfer or part with the possession or occupation of the said premises or any part thereof in any manner and shall not have any right to allow anyone else to make use of the licence given to it by the Licensors. 8. At all times during the continuance of the licence, the Licensee shall keep the premises in good and substantial and tenantable repair, and all charges for doing so shall be borne by the Licensee. If however, there are any major structural repairs or any reconstruction required by reason of any portion falling down, or being in danger of falling down, the Licensors shall effect such repairs or make reconstruction at their own cost. 9. The license is given only for carrying out bonafide business activities of the Licensee. The Licensee shall make use of the said premises carefully and always keep them neat and clean and all cost for doing so shall be borne by the Licensee. The Licensee shall not do or cause to be done any act or thing which may be unlawful or may amount to nuisance or annoyance, waste or damage to the said premises. If any such damage is, however, caused to the premises, the same shall be repaired by the Licensee at its cost. 10. If the Licensee is desirous of making at its own cost any alterations or constructions in temporary or permanent structure of constructions in the said premises to meet or suit its needs it may do so with prior written consent of the Licensors provided there is no permanent damage to the existing premises. Licensors shall not be required to spend any amount in respect of such alterations or reconstructions and the Licensee shall not be entitled to claim any compensation for such expenses incurred by the Licensee for such alterations or constructions. 11. The Licensors shall not be liable to the Licensee for any loss or damage caused to any goods or machinery of the Licensee or the life or property or invitees in or out of such premises or an the passage permitted to be used at any time by reason of theft, fire, riot, leakage of water or any act of God or by any reason whatsoever. 12. In case of any default by the Licensee to abide by terms and conditions of this lecence including failure to pay the Licence Fee, the Licensors shall be entitled to give the Licensee a notice of their intention to revoke the Licence on the expiry of fifteen days from the date of such notice. If the Licensee fails to remedy the default within the said period of fifteen days the licence shall be terminated forthwith on the expiry of the said fifteen days. 13. Nothing contained herein shall create or shall be construed to create any tenancy right or any interest, estate or rights in respect of the said premises and the said premises shall continue to be and shall be deemed to continue to remain in the possession of the Licensors. 14. The Licensee shall be terminated at the end of 28th day of February, 2008. However, the Licensors may terminate the licence earlier by giving notice of termination to the Licensee of not less than one hundred and twenty (120) days. 15. The Licensors or their authorised representatives shall at all times during continuance of the license be entitled to inspection of the said premises. 16. If at any time, the Licensee is ordered to be wound up under the orders of a competent court or authority or by passing a resolution for winding up or permanently closes its business or if any receiver is appointed to take possession of its properties, the licence shall come to an end forthwith automatically and the Licensors shall be entitled to forthwith receive the vacant and peaceful possession of the said premises. 17. In the event of determination or revocation of the licence for any reason whatsoever, the Licensee shall forthwith hand over to the Licensors the vacant and peaceful possession of the said premises and the Licensee shall not be entitled to continue to make use of the said premises and shall cease to make use of the said premises forthwith without raising any dispute and shall remove all its goods, machineries and other properties from the premises and no employee or servant or any agent or representative of the Licensee shall enter the said premises and the Licensors shall be free to restain the Licensee and its servants and employees, agents or representative from entering the said premises and making any use thereof and the Licensors shall also be entitled to remove from the said premises any goods or machineries of the Licensee lying in or upon the said premises if need be without resource to a court of law, and without incurring any liability whatsoever for any claim or compensation. Upon such determination or revocation the Licensee shall pay all outstanding charges for water, electricity etc as is referred to in clause 4 hereof and the Licensors shall be entitled to recover from the Licensee all such charges remaining unpaid by the Licensee. 18. This Memorandum of Leave and Licence shall supersede all earlier understandings, written or otherwise, between the Licensors and Licensee with respect to the license of the said premises. 19. The Licensors agree that they will give the Licensee the option to take additional space in the building known as "Mac Commerce Park" on leave and license any other party on terms which shall not be unfavourable the Licensors than those that could be acceptable to such other party. SCHEDULE Office premises on the fourth floor bearing numbers 401 to 410 admeasuring in all about 4,500 square feet of built up area out of a total of about 4750 square feet of built up area at Mittal Towers, `C' Wing, 47/6 Mahatma Gandhi Road, Bangalore 560 001 IN WITNESS WHEREOF the Licensors and Licensee have signed and sealed this Memorandum the day and year first written. SIGNED, SEALED AND DELIVERED ) By the Licensors (1) Sunil Wadhwani ) /s/ Sunil Wadhwani (2) Ashok Trivedi ) /s/ Ashok Trivedi SIGNED, SEALED AND DELIVERED ) By the Licensee ) Mascot Systems Private Limited By its Managing Director Mr. Shekar Sivasubramanian ) /s/ Shekar Sivasubramanian EX-10.13 3 LEASE AGREEMENT DATED MARCH 26, 1997 EXHIBIT 10.13 ------------- SUPPLEMENTARY AGREEMENT FOR LEAVE AND LICENSE --------------------------------------------- This Supplementary Agreement for Leave and License made on this 26th day of March, 1997 between: 1) Sunil Wadhwani residing at 930 Osage Road, Pittsburgh PA 15243, U.S.A. 2) Ashok Trivedi residing at 1446 Peterson Place, Pittsburgh PA 15241, U.S.A. (hereinafter collectively referred to as "the Licensors" which expression shall unless repugnant to its context mean and include their heirs, successors and assigns) of the One Part: and Mascot Systems Private Limited a company incorporated under the Companies Act, 1956 and having Registered Office at No. 1, Main Road, Kalyanamandapa Road, Jakkasandra Village, Begur Hobli, Sarjapur, Bangalore 560 034 (hereinafter referred to as "the Licensee" which expression shall include its successors and liquidators or assigns) of the Other Part. WHEREAS the Licensors are the owners of commercical premises bearing Corporation No. 1 Inward no 66 (previously known as property no. 99 of Jakkasandra Village and Survey no:49/43A) situated on Kalyanamandapa Road, Jakkasandra, Bangalore more particularly described in the Schedule appended hereto (hereinafter referred to as "the said premises"). /s/ Sunil Wadhwani /s/ Ashok Trivedi /s/ Shekar Sivasubramanian SCHEDULE Commercial premises being Corporation No. 1 in ward no. 66 (previously known as property no. 99 Jakkasandra Village and Survey No: 49/43A) situated on the Main Road also known as Kalyanamandapa Road, Jakkasandra, Bangalore consisting of building with basement, ground floor and four upper floors admeasuring about 32500 square feet of built up area. IN WITNESS WHEREOF the Licensors and Licensee have signed and sealed this Memorandum the day and year first written. SIGNED, SEALED AND DELIVERED ) By the Licensors (1) Sunil Wadhwani ) /s/ Sunil Wadhwani (2) Ashok Trivedi ) /s/ Ashok Trivedi SIGNED, SEALED AND DELIVERED ) By the Licensee ) Mascot Systems Private Limited By its Managing Director Mr. Shekar Sivasubramanian ) /s/ Shekar Sivasubramanian EX-10.14 4 LEASE AGREEMENT DATED JANUARY 13, 1998 EXHIBIT 10.14 ------------- MEMORANDUM OF LEAVE AND LICENCE ------------------------------- This Memorandum of Leave and Licence made at Chennai on this 13th day of January, 1998 between: 1. Sunil Wadhwani residing at 930 Osage Road, Pittsburgh PA 15243, U.S.A. 2. Ashok Trivedi residing at 1446 Peterson Place, Pittsburgh PA 15241, U.S.A. (hereinafter referred to as "the Licensors" which expression shall unless repugnant to its context shall mean and include their heirs, successors and assigns) of the One Part; and Mascot Systems Private Limited a company incorporated under the Companies Act, 1956 and having Registered Office at No. 1, Main Road, Kalyana Mandapa Road, Jakkasandra Village, Begur Hobli, Sarjapur, Bangalore 560 034. (hereinafter referred to as "the Licensee" which expression shall include its successors and permitted assigns) of the Other Part. WHEREAS the Licensors are the owners of commercical building known as "Mac Commerce Park" being the multistoreyed building located on land bearing Municipal numbers 106 to 109, Mount Road, Chennai 600 032. WHEREAS the Licensee is desirous of taking a portion of the said premises on leave and licence basis for use as software development center, more particularly described in the Schedule appended hereto (hereinafter referred to as "the said premises"). 5. The Licensee shall pay all charges in respect of water, electricity, power, maintenance, sanitation, security and all other running and maintenance expenses in respect of the use of the said presmises. The property tax and other public dues in respect of the said premises shall be paid by the Licensors. 6. Upon execution of this Memorandum by the Licensor and the Licensee, the Licensee shall be entitled to commence work relating to interior office infrastructure such as furniture, fixtures, lighting, airconditioning etc. and for this purpose the Licensee can use the said premises from the date hereof. 7. The licence is personal to the Licensee and the Licensee shall have no right to sub-let, transfer or part with the possession or occupation of the said premises or any part thereof in any manner and shall not have any right to allow anyone else to make use of the licence given to it by the Licensors. 8. At all times during the continuance of the licence, the Licensee shall keep the premises in good and substantial and tenantable repair, and all charges for doing so shall be borne by the Licensee. If however, there are any major structural repairs or any reconstruction required by reason of any portion falling down, or being in danger of falling down, the Licensors shall effect such repairs or make reconstruction at their own cost. 9. The license is given only for carrying out bonafide business activities of the Licensee. The Licensee shall make use of the said premises carefully and always keep them neat and clean and all cost for doing so shall be borne by the Licensee. The Licensee shall not do or cause to be done any act or thing which may be unlawful or may amount to nuisance or annoyance, waste or damage to the said premises. If any such damage is, however, caused to the premises, the same shall be repaired by the Licensee at its cost. 10. If the Licensee is desirous of making at its own cost any alterations or constructions in temporary or permanent structure of constructions in the said premises to meet or suit its needs it may do so with prior written consent of the Licensors provided there is no permanent damage to the existing premises. Licensors shall not be required to spend any amount in respect of such alterations or reconstructions and the Licensee shall not be entitled to claim any compensation for such expenses incurred by the Licensee for such alterations or constructions. 11. The Licensors shall not be liable to the Licensee for any loss or damage caused to any goods or machinery of the Licensee or the life or property or invitees in or out of such premises or an the passage permitted to be used at any time by reason of theft, fire, riot, leakage of water or any act of God or by any reason whatsoever. 12. In case of any default by the Licensee to abide by terms and conditions of this lecence including failure to pay the Licence Fee, the Licensors shall be entitled to give the Licensee a notice of their intention to revoke the Licence on the expiry of fifteen days from the date of such notice. If the Licensee fails to remedy the default within the said period of fifteen days the licence shall be terminated forthwith on the expiry of the said fifteen days. 13. Nothing contained herein shall create or shall be construed to create any tenancy right or any interest, estate or rights in respect of the said premises and the said premises shall continue to be and shall be deemed to continue to remain in the possession of the Licensors. 14. The Licensee shall be terminated at the end of 28th day of February, 2008. However, the Licensors may terminate the licence earlier by giving notice of termination to the Licensee of not less than one hundred and twenty (120) days. 15. The Licensors or their authorised representatives shall at all times during continuance of the license be entitled to inspection of the said premises. 16. If at any time, the Licensee is ordered to be wound up under the orders of a competent court or authority or by passing a resolution for winding up or permanently closes its business or if any receiver is appointed to take possession of its properties, the licence shall come to an end forthwith automatically and the Licensors shall be entitled to forthwith receive the vacant and peaceful possession of the said premises. 17. In the event of determination or revocation of the licence for any reason whatsoever, the Licensee shall forthwith hand over to the Licensors the vacant and peaceful possession of the said premises and the Licensee shall not be entitled to continue to make use of the said premises and shall cease to make use of the said premises forthwith without raising any dispute and shall remove all its goods, machineries and other properties from the premises and no employee or servant or any agent or representative of the Licensee shall enter the said premises and the Licensors shall be free to restain the Licensee and its servants and employees, agents or representative from entering the said premises and making any use thereof and the Licensors shall also be entitled to remove from the said premises any goods or machineries of the Licensee lying in or upon the said premises if need be without resource to a court of law, and without incurring any liability whatsoever for any claim or compensation. Upon such determination or revocation the Licensee shall pay all outstanding charges for water, electricity etc as is referred to in clause 4 hereof and the Licensors shall be entitled to recover from the Licensee all such charges remaining unpaid by the Licensee. 18. This Memorandum of Leave and Licence shall supersede all earlier understandings, written or otherwise, between the Licensors and Licensee with respect to the license of the said premises. 19. The Licensors agree that they will give the Licensee the option to take additional space in the building known as "Mac Commerce Park" on leave and license any other party on terms which shall not be unfavourable the Licensors than those that could be acceptable to such other party. SCHEDULE Office premise admeasuring about 13,000 square feet on the Third Floor and basement admeasuring about 10,000 square feet or thereabouts in the multistoreyed commercial building know as "Mac Commerce Park" admeasuring 55,000 square feet of built up area and basement area of 10,000 square feet or thereabouts situated on ten grounds and 1371 square feet of land situated in Adyar Village comprised in T.S. No.5, Block No.7 bearing municipal Door No. 106 to 109, Mount Road, Guindy, Chennai 600 032 bounded on the North by T.S. No.6 South by T.S. No.4 East by T.S. No.7 West by T.S. No.5/1 Within the Sub-registration District of Adyar in Registration District of South Chennai. IN WITNESS WHEREOF the Licensors and Licensee have signed and sealed this Memorandum the day and year first written. SIGNED, SEALED AND DELIVERED ) By the Licensors (1) Sunil Wadhwani ) /s/ Sunil Wadhwani (2) Ashok Trivedi ) /s/ Ashok Trivedi SIGNED, SEALED AND DELIVERED ) By the Licensee ) Mascot Systems Private Limited By its Managing Director Mr. Shekar Sivasubramanian ) /s/ Shekar Sivasubramanian EX-10.18 5 LEASE AGREEMENT DATED APRIL 18, 1998 EXHIBIT 10.18 ------------- MEMORANDUM OF LEAVE AND LICENCE ------------------------------- This Memorandum of Leave and Licence made at Mumbai on this 18th day of April, 1998 between Sunil Wadhwani residing at 930 Osage Road, Pittsburgh PA 15243,U.S.A., and Ashok Trivedi residing at 1446 Peterson Place, Pittsburgh PA 15241, U.S.A. (hereinafter referred to as "the Licensors" which expression shall unless repugnant to its context shall mean and include his heirs, successors and assigns) of the One Part; And Scott Systems Private Limited a company incorporated under the Companies Act, 1956 and having its Registered Office at Mastech Centre, 18 Viman Nagar, Pune 411 014, (hereinafter referred to as "the Lecensee" which expression shall include its successors and permitted assigns) of the Other Part. WHEREAS the Licensors are the owner of commercial premises at 207 & 208 Navkar Chambers, Andheri-Kurla Road, Andheri (E), Mumbai 400 069. WHEREAS the Licensee is desirous of taking a portion of the said commercial premises namely office no: 207 & 208 at "Navkar Chambers", Andheri-Kurla Road, Marol Village, Andheri (E), Mumbai 400 069 (hereinafter referred to as "the said premises") on leave and license basis. NOW THIS MEMORANDUM WITNESSETH AS UNDER: 1. The Licensee has been given by the Licensors a licence to make use of the said premises. 2. The said license has been and shall be regarded as operative from April 16, 1998 to March 31, 2003. The Licensee has agreed to and shall continue to pay license fee in the sum of Rs.20,000 (Rupees Twenty thousand only) per month for office no. 207, Rs.15,000 (Rupees Fifteen thousand only) per month for Office no. 208 aggregating to Rs.35,000 (Rupees Thirty five thousand only) per month for all offices or such license fee as may be mutually agreed from time to time pursuant to the review as set out in clause 3 below. The said sum shall be paid in advance, by the Licensee to the Licensors regularly on 1st day of every English calendar month. Both the Licensors are equal owners of the said premises and the Licensee shall pay the monthly license fee in equal proportion to both Licensors by drawing two cheques favouring each Licensor for one half of the licence fee payable pursuant to this Memorandum. 3. The license fee shall be reviewed in March each year beginning from March, 1999. Pursuant to such review, the license fee may be revised from time to time as mutually agreed in writing by the Licensors and the Licensee. The license fee as most recently agreed shall always be in force and the Licensee shall pay the Licensors such license fee as provided herein. 4. The Licensee shall pay all charges in respect of water, electricity, power, maintenance, sanitation, security and all other running and maintenance expenses in respect of the use of the said presmises. The property tax and other public dues in respect of the said premises shall be paid by the Licensors. 5. Upon execution of this Memorandum by the Licensors and the Licensee, the Licensee shall be entitled to commence work relating to interior office infrastructure such as furniture, fixtures, lighting, airconditioning etc. and for this purpose the Licensee can use the said premises from the date hereof. 6. The licence is personal to the Licensee and the Licensee shall have no right to sub-let, transfer or part with the possession or occupation of the said premises or any part thereof in any manner and shall not have any right to allow anyone else to make use of the licence given to it by the Licensors. 7. At all times during the continuance of the licence, the Licensee shall keep the premises in good and substantial and tenantable repair, and all charges for doing so shall be borne by the Licensee. If however, there are any major structural repairs or any reconstruction required by reason of any portion falling down, or being in danger of falling down, the Licensors shall effect such repairs or make reconstruction at their own cost. 8. The license is given only for carrying out bonafide business activities of the Licensee. The Licensee shall make use of the said premises carefully and always keep them neat and clean and all cost for doing so shall be borne by the Licensee. The Licensee shall not do or cause to be done any act or thing which may be unlawful or may amount to nuisance or annoyance, waste or damage to the said premises. If any such damage is, however, caused to the premises, the same shall be repaired by the Licensee at its cost. 9. If the Licensee is desirous of making at its own cost any alterations or constructions in temporary or permanent structure of constructions in the said premises to meet or suit its needs it may do so with prior written consent of the Licensors provided there is no permanent damage to the existing premises. Licensors shall not be required to spend any amount in respect of such alterations or reconstructions and the Licensee shall not be entitled to claim any compensation for such expenses incurred by the Licensee for such alterations or constructions. 10. The Licensors shall not be liable to the Licensee for any loss or damage caused to any goods or machinery of the Licensee or the life or property or invitees in or out of such premises or an the passage permitted to be used at any time by reason of theft, fire, riot, leakage of water or any act of God or by any reason whatsoever. 11. In case of any default by the Licensee to abide by terms and conditions of this lecence including failure to pay the Licence Fee, the Licensors shall be entitled to give the Licensee a notice of their intention to revoke the Licence on the expiry of fifteen days from the date of such notice. If the Licensee fails to remedy the default within the said period of fifteen days the licence shall be terminated forthwith on the expiry of the said fifteen days. 12. Nothing contained herein shall create or shall be construed to create any tenancy right or any interest, estate or rights in respect of the said premises and the said premises shall continue to be and shall be deemed to continue to remain in the possession of the Licensors. 13. The Licensee shall be terminated at the end of 31st day of March, 2003. However, the Licensors may terminate the licence earlier by giving notice of termination to the Licensee of not less than one hundred and twenty (120) days. 14. The Licensors or his authorised representatives shall at all times during continuance of the license be entitled to inspection of the said premises. 15. If at any time, the Licensee is ordered to be wound up under the orders of a competent court or authority or by passing a resolution for winding up or permanently closes its business or if any receiver is appointed to take possession of its properties, the licence shall come to an end forthwith automatically and the Licensors shall be entitled to forthwith receive the vacant and peaceful possession of the said premises. 16. In the event of determination or revocation of the licence for any reason whatsoever, the Licensee shall forthwith hand over to the Licensors the vacant and peaceful possession of the said premises and the Licensee shall not be entitled to continue to make use of the said premises and shall cease to make use of the said premises forthwith without raising any dispute and shall remove all its goods, machineries and other properties from the premises and no employee or servant or any agent or representative of the Licensee shall enter the said premises and the Licensor shall be free to restain the Licensee and its servants and employees, agents or representative from entering the said premises and making any use thereof and the Licensors shall also be entitled to remove from the said premises any goods or machineries of the Licensee lying in or upon the said premises if need be without resource to a court of law, and without incurring any liability whatsoever for any claim or compensation. Upon such determination or revocation the Licensee shall pay all outstanding charges for water, electricity etc as is referred to in clause 4 hereof and the Licensors shall be entitled to recover from the Licensee all such charges remaining unpaid by the Licensee. 17. This Memorandum of Leave and Licence shall supersede all earlier understandings, written or otherwise, between the Licensors and Licensee with respect to the license of the said premises. IN WITNESS WHEREOF the Licensors and Licensee have signed and delivered this Memorandum the day and year first above written. Signed and Delivered by the Licensors Mr. Sunil Wadhwani and Mr. Ashok Trivedi ) /s/ Sunil Wadhwani ) /s/ Ashok Trivedi Signed and Delivered by the Licensee Scott Systems Private Limited by its Managing Director Mr. Murali Sanathanam ) /s/ Murali Sanathanam EX-10.19 6 LEASE AGREEMENT DATED APRIL 18, 1998 EXHIBIT 10.19 ------------- MEMORANDUM OF LEAVE AND LICENCE ------------------------------- This Memorandum of Leave and Licence made at Mumbai on this 18th day of April, 1998 between Sunil Wadhwani residing at 930 Osage Road, Pittsburgh PA 15243,U.S.A. (hereinafter referred to as "the Licensor" which expression shall unless repugnant to its context shall mean and include his heirs, successors and assigns) of the One Part; And Scott Systems Private Limited a company incorporated under the Companies Act, 1956 and having its Registered Office at Mastech Centre, 18 Viman Nagar, Pune 411 014, (hereinafter referred to as "the Lecensee" which expression shall include its successors and permitted assigns) of the Other Part. WHEREAS the Licensor is the owner of commercial premises at 209, 306 and 309 at Navkar Chambers, Andheri-Kurla Road, Andheri (E), Mumbai 400 069. WHEREAS the Licensee is desirous of taking a portion of the said commercial premises namely office nos: 209, 306 and 309 at "Navkar Chambers", Andheri-Kurla Road, Marol Village, Andheri (E), Mumbai 400 069 (hereinafter referred to as "the said premises") on leave and license basis. NOW THIS MEMORANDUM WITNESSETH AS UNDER: 1. The Licensee has been given by the Licensor a licence to make use of the said premises. 2. The said license has been and shall be regarded as operative from April 16, 1998 to March 31, 2003. The Licensee has agreed to and shall continue to pay license fee in the sum of Rs.20,000 (Rupees Twenty thousand only) per month for office no. 209, Rs.20,000 (Rupees Twenty thousand only) per month for Office no. 306 and Rs.20,000 (Rupees Twenty thousand only) per month for Office no. 309 aggregating to Rs.60,000 (Rupees Sixty thousand only) per month for all offices or such license fee as may be mutually agreed from time to time pursuant to the review as set out in clause 3 below. The said sum shall be paid in advance, by the Licensee to the Licensor regularly on 1st day of every English calendar month. 3. The license fee shall be reviewed in March, 1999. Pursuant to such review, the license fee may be revised from time to time as mutually agreed in writing by the Licensor and the Licensee. The license fee as most recently agreed shall always be in force and the Licensee shall pay the Licensor such license fee as provided herein. 4. The Licensee shall pay all charges in respect of water, electricity, power, maintenance, sanitation, security and all other running and maintenance expenses in respect of the use of the said presmises. The property tax and other public dues in respect of the said premises shall be paid by the Licensor. 5. Upon execution of this Memorandum by the Licensor and the Licensee, the Licensee shall be entitled to commence work relating to interior office infrastructure such as furniture, fixtures, lighting, airconditioning etc. and for this purpose the Licensee can use the said premises from the date hereof. 6. The licence is personal to the Licensee and the Licensee shall have no right to sub-let, transfer or part with the possession or occupation of the said premises or any part thereof in any manner and shall not have any right to allow anyone else to make use of the licence given to it by the Licensor. 7. At all times during the continuance of the licence, the Licensee shall keep the premises in good and substantial and tenantable repair, and all charges for doing so shall be borne by the Licensee. If however, there are any major structural repairs or any reconstruction required by reason of any portion falling down, or being in danger of falling down, the Licensor shall effect such repairs or make reconstruction at their own cost. 8. The license is given only for carrying out bonafide business activities of the Licensee. The Licensee shall make use of the said premises carefully and always keep them neat and clean and all cost for doing so shall be borne by the Licensee. The Licensee shall not do or cause to be done any act or thing which may be unlawful or may amount to nuisance or annoyance, waste or damage to the said premises. If any such damage is, however, caused to the premises, the same shall be repaired by the Licensee at its cost. 9. If the Licensee is desirous of making at its own cost any alterations or constructions in temporary or permanent structure of constructions in the said premises to meet or suit its needs it may do so with prior written consent of the Licensors provided there is no permanent damage to the existing premises. Licensor shall not be required to spend any amount in respect of such alterations or reconstructions and the Licensee shall not be entitled to claim any compensation for such expenses incurred by the Licensee for such alterations or constructions. 10. The Licensor shall not be liable to the Licensee for any loss or damage caused to any goods or machinery of the Licensee or the life or property or invitees in or out of such premises or an the passage permitted to be used at any time by reason of theft, fire, riot, leakage of water or any act of God or by any reason whatsoever. 11. In case of any default by the Licensee to abide by terms and conditions of this lecence including failure to pay the Licence Fee, the Licensors shall be entitled to give the Licensee a notice of their intention to revoke the Licence on the expiry of fifteen days from the date of such notice. If the Licensee fails to remedy the default within the said period of fifteen days the licence shall be terminated forthwith on the expiry of the said fifteen days. 12. Nothing contained herein shall create or shall be construed to create any tenancy right or any interest, estate or rights in respect of the said premises and the said premises shall continue to be and shall be deemed to continue to remain in the possession of the Licensor. 13. The Licensee shall be terminated at the end of 31st day of March, 2003. However, the Licensor may terminate the licence earlier by giving notice of termination to the Licensee of not less than one hundred and twenty (120) days. 14. The Licensor or his authorised representatives shall at all times during continuance of the license be entitled to inspection of the said premises. 15. If at any time, the Licensee is ordered to be wound up under the orders of a competent court or authority or by passing a resolution for winding up or permanently closes its business or if any receiver is appointed to take possession of its properties, the licence shall come to an end forthwith automatically and the Licensors shall be entitled to forthwith receive the vacant and peaceful possession of the said premises. 16. In the event of determination or revocation of the licence for any reason whatsoever, the Licensee shall forthwith hand over to the Licensor the vacant and peaceful possession of the said premises and the Licensee shall not be entitled to continue to make use of the said premises and shall cease to make use of the said premises forthwith without raising any dispute and shall remove all its goods, machineries and other properties from the premises and no employee or servant or any agent or representative of the Licensee shall enter the said premises and the Licensor shall be free to restain the Licensee and its servants and employees, agents or representative from entering the said premises and making any use thereof and the Licensors shall also be entitled to remove from the said premises any goods or machineries of the Licensee lying in or upon the said premises if need be without resource to a court of law, and without incurring any liability whatsoever for any claim or compensation. Upon such determination or revocation the Licensee shall pay all outstanding charges for water, electricity etc as is referred to in clause 4 hereof and the Licensor shall be entitled to recover from the Licensee all such charges remaining unpaid by the Licensee. 17. This Memorandum of Leave and Licence shall supersede all earlier understandings, written or otherwise, between the Licensor and Licensee with respect to the license of the said premises. IN WITNESS WHEREOF the Licensor and Licensee have signed and sealed this Memorandum the day and year first written. Signed and Delivered by the Licensor Mr. Sunil Wadhwani ) /s/ Sunil Wadhwani Signed and Delivered by the Licensee Scott Systems Private Limited by its Managing Director Mr. Murali Sanathanam ) /s/ Murali Sanathanam EX-10.23 7 CREDIT AGREEMENT DATED DECEMBER 3, 1998 Exhibit 10.23 DRAFT DATED 12/1/98 CREDIT AGREEMENT By and Among MASTECH CORPORATION, as Borrower and THE FINANCIAL INSTITUTIONS PARTY HERETO, as Lenders and PNC BANK, NATIONAL ASSOCIATION, as Agent and as L/C Issuer Dated as of December 3, 1998 TABLE OF CONTENTS -------------------
SCHEDULES ........................................................................................ iv EXHIBITS ........................................................................................ v ARTICLE I CERTAIN DEFINITIONS; CONSTRUCTION....................................................... 1 1.01. Certain Definitions..................................................................... 1 1.02. Construction............................................................................ 18 1.03. Accounting Principles................................................................... 20 ARTICLE II REVOLVING CREDIT FACILITY............................................................... 20 2.01. Revolving Credit Commitments............................................................ 20 2.02. Nature of Lenders' Obligations with Respect to Loans.................................... 20 2.03. Commitment Fees......................................................................... 21 2.04. Reduction of Revolving Credit Commitment................................................ 21 2.05. Loan Requests........................................................................... 22 2.06. Making Loans............................................................................ 22 2.07. Notes................................................................................... 22 2.08. Interest Payments, Interest Rates and Certain Related Payments Pertaining to the Loans.. 23 2.09. Prepayments: Allocation of Repayments................................................... 26 2.10. Yield Protection........................................................................ 27 2.11. Special Provisions Relating to the Euro-Rate Option..................................... 28 2.12. Capital Adequacy........................................................................ 30 2.13. Utilization of Commitments in Optional Currencies....................................... 30 2.14. Interbank Market Presumption............................................................ 34 2.15. Loan Account............................................................................ 34 2.16. All Advances to Constitute One Loan..................................................... 34 2.17. Use of Proceeds......................................................................... 34 2.18. Letter of Credit Subfacility............................................................ 34 2.19. Taxes................................................................................... 42 2.20. Payments................................................................................ 43 2.21. Judgment Currency....................................................................... 44 ARTICLE III LOAN DISBURSEMENT ACCOUNT, GUARANTEES, ETC.............................................. 44 3.01. Loan Disbursement Account............................................................... 44 3.02. Designation of Subsidiary Guarantors.................................................... 44 3.03. Foreign Subsidiaries.................................................................... 45 3.04. Further Cooperation..................................................................... 45 ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................................................... 45 4.01. Organization and Qualification.......................................................... 45 4.02. Capitalization and Ownership............................................................ 45 4.03. Subsidiaries............................................................................ 46 4.04. Power and Authority..................................................................... 46 4.05. Validity and Binding Effect............................................................. 46 4.06. No Conflict............................................................................. 46 4.07. Litigation.............................................................................. 47 4.08. Financial Statements.................................................................... 47
i 4.09. Margin Stock; Section 20 Subsidiaries................................................... 47 4.10. Full Disclosure......................................................................... 47 4.11. Tax Returns and Payments................................................................ 48 4.12. Consents and Approvals.................................................................. 48 4.13. No Event of Default; Compliance with Instruments........................................ 48 4.14. Compliance with Laws.................................................................... 48 4.15. Investment Company; Public Utility Holding Company...................................... 48 4.16. Plans and Benefit Arrangements.......................................................... 49 4.17. Title to Properties..................................................................... 50 4.18. Insurance............................................................................... 50 4.19. Employment Matters...................................................................... 50 4.20. Environmental Matters................................................................... 50 4.21. Senior Debt Status...................................................................... 52 4.22. Solvency................................................................................ 52 4.23. Material Contracts; Burdensome Restrictions............................................. 52 4.24. Patents, Trademarks, Copyrights, Licenses, etc.......................................... 52 4.25. Year 2000 Problem....................................................................... 52 4.26. Brokers................................................................................. 53 4.27. No Material Adverse Change.............................................................. 53 ARTICLE V CONDITIONS OF LENDING OR ISSUANCE OF LETTER OF CREDIT................................... 53 5.01. Conditions to Initial Borrowings........................................................ 53 5.02. Each Additional Loan or Issuance of a Letter of Credit.................................. 55 5.03. Location of Closing..................................................................... 56 ARTICLE VI AFFIRMATIVE COVENANTS................................................................... 56 6.01. Preservation of Existence, Etc.......................................................... 56 6.02. Accounting System; Reporting Requirements............................................... 57 6.03. Notices Regarding Plans and Benefit Arrangements........................................ 58 6.04. Payment of Liabilities, Including Taxes, etc............................................ 60 6.05. Maintenance of Insurance................................................................ 60 6.06. Maintenance of Properties and Leases.................................................... 60 6.07. Maintenance of Permits and Franchises................................................... 60 6.08. Visitation Rights....................................................................... 60 6.09. Keeping of Records and Books of Account................................................. 61 6.10. Plans and Benefit Arrangements.......................................................... 61 6.11. Compliance with Laws.................................................................... 61 6.12. Use of Proceeds......................................................................... 61 6.13. Environmental Laws...................................................................... 61 6.14. Senior Debt Status...................................................................... 62 ARTICLE VII NEGATIVE COVENANTS...................................................................... 62 7.01. Indebtedness............................................................................ 62 7.02. Liens................................................................................... 63 7.03. Loans, Acquisitions and Investments..................................................... 63 7.04. Liquidations, Mergers and Consolidations................................................ 64 7.05. Dispositions of Assets or Subsidiaries.................................................. 65 7.06. Affiliate Transactions.................................................................. 65 7.07. Subsidiaries, Partnerships and Joint Ventures........................................... 66 7.08. Continuation of or Change in Business................................................... 66
ii 7.09. Plans and Benefit Arrangements.......................................................... 66 7.10. Fiscal Year............................................................................. 67 7.11. Changes in Organizational Documents..................................................... 67 7.12. Financial Covenants..................................................................... 67 ARTICLE VIII DEFAULT................................................................................. 67 8.01. Events of Default....................................................................... 67 8.02. Consequences of Event of Default........................................................ 70 ARTICLE IX THE AGENT............................................................................... 72 9.01. Appointment and Grant of Authority...................................................... 72 9.02. Delegation of Duties.................................................................... 72 9.03. Reliance by Agent on Lenders for Funding................................................ 73 9.04. Non-Reliance on Agent................................................................... 73 9.05. Responsibility of Agents and Other Matters.............................................. 73 9.06. Actions in Discretion of Agent; Instructions from the Lenders........................... 74 9.07. Indemnification......................................................................... 74 9.08. Agent's Rights as Lender................................................................ 75 9.09. Notice of Default....................................................................... 75 9.10. Payment to Lenders...................................................................... 75 9.11. Holders of Notes........................................................................ 76 9.12. Equalization of Lenders................................................................. 76 9.13. Successor Agent......................................................................... 76 9.14. Calculations............................................................................ 77 9.15. Beneficiaries........................................................................... 77 ARTICLE X GENERAL PROVISIONS...................................................................... 77 10.01. Amendments and Waivers.................................................................. 77 10.02. Taxes................................................................................... 78 10.03. Costs and Expenses, etc................................................................. 78 10.04. Notices................................................................................. 78 10.05. Participation and Assignment............................................................ 80 10.06. Successors and Assigns.................................................................. 82 10.07. No Implied Waivers; Cumulative Remedies; Writing Required............................... 82 10.08. Severability............................................................................ 83 10.09. Indemnity............................................................................... 83 10.10. Confidentiality......................................................................... 83 10.11. Survival................................................................................ 84 10.12. GOVERNING LAW........................................................................... 84 10.13. FORUM................................................................................... 84 10.14. Non-Business Days....................................................................... 85 10.15. Integration............................................................................. 85 10.16. Counterparts............................................................................ 85 10.17. Funding by Branch, Subsidiary or Affiliate.............................................. 85 10.18. WAIVER OF JURY TRIAL.................................................................... 86
iii SCHEDULES --------- Schedule 1.01(a) Lenders; Commitments Schedule 4.01 Jurisdictions of Incorporation and Qualification of Borrower and Subsidiaries Schedule 4.02 Capital Stock Options Schedule 4.03 Interests in Subsidiaries and Other Entities Schedule 4.07 Litigation Schedule 4.11 Agreements Concerning Tax Returns Schedule 4.12 Consents and Approvals Schedule 4.16 Plans and Benefit Arrangements Schedule 4.20 Environmental Matters Schedule 7.01 Permitted Indebtedness Schedule 7.03 Other Investments Schedule 7.06 Affiliate Transactions iv EXHIBITS -------- Exhibit "A" Form of Note Exhibit "B" Form of Loan Request Exhibit "C" Form of Subsidiary Guaranty Exhibit "D" Form of Pledge Agreement Exhibit "E" Form of Compliance Certificate Exhibit "F" Form of Opinion of Counsel Exhibit "G" Form of Assignment and Assumption Agreement v CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of December 3, 1998, is made by and among MASTECH CORPORATION, a Pennsylvania corporation (as more fully defined below, the "Borrower"), the Lenders (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as L/C Issuer (as hereinafter defined) and as agent for the L/C Issuer and the Lenders under this Agreement (in such capacity, as more fully defined below, the "Agent"). WITNESSETH: WHEREAS, the Borrower has requested the Lenders to make available to the Borrower Loans in an aggregate principal amount not exceeding Seventy-Five Million Dollars ($75,000,000) at any one time outstanding; and the Borrower has requested the Lenders to provide for the issuance for the account of the Borrower Letters of Credit with an aggregate Stated Amount not exceeding Ten Million Dollars ($10,000,000) at any one time outstanding; provided that at no time will Total Utilization exceed Seventy-Five Million Dollars ($75,000,000); and WHEREAS, the Lenders are willing to make the Loans available to the Borrower upon the terms and conditions hereinafter set forth; and the L/C Issuer is willing to issue Letters of Credit for the account of the Borrower and its Subsidiaries upon the terms and conditions hereinafter set forth; and the Lenders are willing to purchase risk participations with respect to each Letter of Credit issued by the L/C Issuer hereunder upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises (each of which is incorporated herein by reference) and the mutual covenants and agreements hereinafter set forth, and other valuable consideration, and intending to be legally bound hereby, the parties hereto hereby covenant and agree as follows: ARTICLE I CERTAIN DEFINITIONS; CONSTRUCTION --------------------------------- 1.01. Certain Definitions. In addition to words and terms defined ------------------- elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: Affiliate as to any Person shall mean any other Person (i) which --------- directly or indirectly Controls, is Controlled by, or is under common Control with such Person, (ii) which beneficially owns or holds 5 % or more of any class of the voting or other equity interests of such Person, or (iii) 5 % or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Agent shall mean PNC Bank, National Association, a national banking ----- association organized under the laws of the United States of America, in its capacity as agent for the L/C Issuer and the Lenders pursuant to this Agreement, and its successors and assigns in such capacity. Agent's Fee shall mean the annual fee payable to the Agent for acting ----------- as Agent hereunder, all as more fully set forth in the Agent's Letter. Agent's Letter shall mean the letter from the Agent to the Borrower -------------- dated December 3, 1998, as the same may be amended from time to time or otherwise modified or supplemented. Agreement shall mean this Credit Agreement, as the same may be --------- supplemented or amended from time to time, including all schedules and exhibits hereto. Applicable Commitment Fee shall have the meaning ascribed to it in ------------------------- Section 2.03 of this Agreement. Applicable Euro-Rate Margin shall have the meaning ascribed to it in --------------------------- Section 2.08(b)(ii) of this Agreement. Applicable Standby Letter of Credit Fee shall have the meaning --------------------------------------- ascribed to it in Section 2.18(b) of this Agreement. Application for Commercial Letter of Credit shall mean the then ------------------------------------------- current application for a commercial letter of credit used by the L/C Issuer. Application for Letter of Credit shall mean the then current -------------------------------- application for Standby Letter of Credit or Commercial Letter of Credit. Application for Standby Letter of Credit shall mean the then current ---------------------------------------- application for a standby letter of credit used by the L/C Issuer. Assignment and Assumption Agreement shall mean an Assignment and ----------------------------------- Assumption Agreement by and among a Purchasing Lender, a Transferor Lender and the Agent, as the Agent and on behalf of the remaining Lenders, substantially in the form of Exhibit "G" hereto. ----------- Arrangement Fee shall mean the arrangement fee set forth in the --------------- Agent's Letter. Assignment Fee shall mean the fee described in Section 10.05(b). -------------- Authorized Officer shall mean those persons designated initially in ------------------ the several incumbency certificates delivered pursuant to Section 5.01 hereof by the Borrower or a Subsidiary Guarantor, as the case may be. The Borrower, or a Subsidiary Guarantor, as the case may be, may amend such list of persons from time to time by giving written notice of such amendment to the Agent. Availability shall mean, as of any time of determination, the positive ------------ difference between the Revolving Credit Commitment and Total Utilization. Base Rate shall mean the greater of (i) the Prime Rate, or (ii) the --------- Federal Funds Effective Rate plus fifty basis points (1/2 of 1 %) per annum. Base Rate Option shall mean the interest rate option described in ---------------- Section 2.08(b)(i) hereof. Base Rate Portion shall mean the portion of the Loans which bears, ----------------- or is to bear, interest under the Base Rate Option. Benefit Arrangement shall mean at any time an "employee benefit plan", ------------------- within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to, by any member of the ERISA Group. Borrower shall mean Mastech Corporation, a corporation organized and -------- existing under the laws of the Commonwealth of Pennsylvania, and its successors and permitted assigns. Borrowing Date shall mean, with respect to any Loan, the date for the -------------- making thereof, or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day. Business Day shall mean, (a) when used in any context other than in ------------ reference to or in connection with Euro-Rate, any day, other than a Saturday or Sunday, on which the Lenders are open for business in Pittsburgh, Pennsylvania and New York, New York, (b) when used in the context of a Euro-Rate, any day, other than a Saturday or Sunday, on which (i) commercial banks are open for business in Pittsburgh, Pennsylvania and New York, New York and (ii) dealings in foreign currencies and exchange and eurodollar funding between banks may be carried on at the location at which each of the Lenders transacts its eurodollar funding, and (c) when used with respect to advances or payments of Loans or any other matters relating to Loans denominated in an Optional Currency, such day also shall be a day on which dealings in deposits in the relevant Optional Currency are carried on in the applicable interbank market or on which all applicable banks into which Loan proceeds may be deposited are open for business and foreign exchange markets are open for business in the principal financial center of the country of such currency. Capital Adequacy Event shall have the meaning ascribed to it in ---------------------- Section 2.12 hereof. Capital Compensation Amount shall have the meaning ascribed to it in --------------------------- Section 2.12 hereof. Cash Collateral Account shall have the meaning ascribed to it in ----------------------- Section 8.02(e). Cash Equivalents shall mean (i) securities issued or directly and ---------------- fully guaranteed or insured by the United States Government or any agency or instrumentality thereof, (ii) time deposits, certificates of deposit and eurodollar time deposits, bankers' acceptances and overnight bank deposits, in each case with any Lender or with any domestic commercial bank having capital and surplus in excess of $500,000,000 (iii) notes and bonds issued by domestic corporations, (iv) tax-exempt money market securities, (v) notes and bonds issued by state and municipal governments, and (vi) money market mutual funds; provided however, (x) at least one-third of the value of the Cash Equivalents - -------- ------- shall have a maximum weighted average to maturity of not more than six (6) months and the remaining value of the Cash Equivalents shall have a maximum weighted average to maturity of not more than eighteen (18) months and (y) the Cash Equivalents which are of a type customarily rated by S&P and Moody's, must have a rating of at least A-1 by S&P or P-1/VMG-1 by Moody's, if short term, or double "A" or higher by S&P and Moody's, if long term. Closing shall mean the execution and delivery of this Agreement and ------- the other Loan Documents by the parties hereto and thereto on the Closing Date. Closing Date shall mean December 3, 1998. ------------ Closing Fee shall mean a fee in the amount of $56,250 payable on the ----------- Closing Date in proportion to each Lender's Ratable Share. Commercial Letter of Credit shall mean a letter of credit directly --------------------------- related to the sale of goods or similar transaction in which it is intended by the account party and beneficiary that payment will be made, in the ordinary course, by a draw on the letter of credit in accordance with its terms. Commercial Letter of Credit Fee shall have the meaning ascribed to it ------------------------------- in Section 2.18(b) hereof. Commitment Fee shall mean the fee described in Section 2.03. -------------- Compliance Certificate shall mean a certificate executed by the chief ---------------------- financial officer, the treasurer or the controller of the Borrower, substantially in the form of Exhibit "E" hereto. ----------- Computation Date shall have the meaning ascribed to it in Section ---------------- 2.13(a). Consolidated Cash shall mean the Borrower's and its Subsidiaries ------------------ cash consolidated in accordance with GAAP. Consolidated Cash Equivalents shall mean the Borrower's and its ----------------------------- Subsidiaries Cash Equivalents consolidated in accordance with GAAP. Consolidated EBIT shall mean, for any period, the consolidated net ----------------- income (or net loss) of the Borrower and its Subsidiaries for such period as determined in accordance with GAAP, plus (a) the sum of (i) Consolidated ---- Interest Expense, (ii) total income tax expense, (iii) extraordinary or unusual losses (including after tax losses on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or unusual losses), (iv) other non-cash charges other than depreciation and amortization, and (v) the net loss of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower, less (b) the sum of (i) ---- extraordinary or unusual gains (including after tax gains on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or nonrecurring gains), (ii) other noncash credits, and (iii) the net income of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower; provided, that for purposes of calculating Consolidated -------- EBIT of the Borrower and its Subsidiaries for any period, (x) the Consolidated EBIT for any Person disposed of by the Borrower or its Subsidiaries during such period shall be excluded for such period and (y) the Consolidated EBIT of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (and assuming the consummation of --------- each such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and related consolidated statements of income and stockholders' equity and of cash flows for such period (i) have been previously provided to the Agent and the Lenders and (ii) either (A) have been reported on without qualification arising out of the scope of the audit by independent certified accountants of nationally recognized standing or (B) have been found acceptable by the Agent, and the Required Lenders. Consolidated EBITDA shall mean, for any period, the consolidated net ------------------- income (or net loss) of the Borrower and its Subsidiaries for such period as determined in accordance with GAAP, plus (a) the sum of (i) depreciation ---- expense, (ii) amortization expense, (iii) Consolidated Interest Expense, (iv) total income tax expense, (v) extraordinary or unusual losses (including after tax losses on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or unusual losses), (vi) other non-cash charges, and (vii) the net loss of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower, less (b) the sum of (i) extraordinary or ---- unusual gains (including after tax gains on sales of assets outside of the ordinary course of business and not otherwise included in GAAP extraordinary or nonrecurring gains), (ii) other noncash credits, and (iii) the net income of any Person that is accounted for by the equity method of accounting, except to the extent of the amount of dividends or distributions paid to the Borrower; provided, that for purposes of calculating Consolidated EBITDA of the Borrower - -------- and its Subsidiaries for any period, (x) the Consolidated EBITDA of any Person disposed of by the Borrower or its Subsidiaries during such period shall be excluded for such period and (y) the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (and assuming the consummation of each such - --------- acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and related consolidated statements of income and stockholders' equity and of cash flows for such period (i) have been previously provided to the Agent and the Lenders and (ii) either (A) have been reported on without qualification arising out of the scope of the audit by independent certified accountants of nationally recognized standing or (B) have been found acceptable by the Agent, and the Required Lenders. Consolidated Interest Expense shall mean any Person's interest ----------------------------- expense, as determined in accordance with GAAP, as appearing on the Borrower's financial statements. Consolidated Net Income shall mean the net income of the Borrower and ----------------------- its Subsidiaries determined on a consolidated basis, as determined in accordance with GAAP, consistently applied. Consolidated Net Worth shall mean stockholders' equity of any Person ---------------------- determined on a consolidated basis, as determined in accordance with GAAP consistently applied. Consolidated Receivables shall mean the Borrower's and its ------------------------ Subsidiaries Receivables consolidated in accordance with GAAP. Consolidated Senior Indebtedness shall mean Indebtedness of the -------------------------------- Borrower and its Subsidiaries consolidated in accordance with GAAP, which Indebtedness by its terms is not explicitly subordinated in a manner in form and substance satisfactory to the Agent and the Required Lenders to the payment in full of the Lender Obligations. Consolidated Senior Indebtedness to Consolidated EBITDA Ratio shall ------------------------------------------------------------- mean, as of any date of determination, the ratio of the Borrower's Consolidated Senior Indebtedness as of the end of the Borrower's most recently completed Fiscal Quarter to the Borrower's Consolidated EBITDA for the Borrower's four most recently completed Fiscal Quarters treated as a single accounting period. Control shall mean the possession, directly or indirectly, of the ------- power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be, and the terms "Controlled" and ------------ "Controlling" shall have correlative meanings. - ------------- December 1998 Delivery Date shall mean the date on which the annual --------------------------- financial statements described in Section 6.02(b) for the Fiscal Year ending December 31, 1998, are delivered to the Agent. Default shall mean any event or condition which with notice or passage ------- of time or both, would constitute an Event of Default. Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money ----------------------------- - of the United States of America. Dollar Equivalent shall mean, with respect to any amount of any ----------------- currency, the Equivalent Amount of such currency expressed in Dollars. Environmental Complaint shall mean any written complaint setting forth ----------------------- a cause of action for personal or property damage or equitable relief, or any order, notice of violation or citation issued pursuant to any Environmental Laws by an Official Body, subpoena or other written notice of any type relating to, arising out of, or issued pursuant to, any Environmental Laws or any Environmental Conditions. Environmental Conditions shall mean any conditions of the environment, ------------------------ including, without limitation, the work place, the ocean, natural resources (including flora or fauna), soil, surface water, ground water, any actual or potential drinking water supply sources, substrata or the ambient air, relating to or arising out of, or caused by the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, emptying, discharging, injecting, escaping, leaching, disposal, dumping, threatened release or other management or mismanagement of Regulated Substances resulting from the use of, or operations on, any of the Property. Environmental Laws shall mean all federal, state; local and foreign ------------------ Laws and regulations, including permits, licenses, authorizations, bonds, orders, judgments and consent decrees issued or entered into pursuant thereto, relating to pollution or protection of human health or the environment or employee safety in the work place. Equivalent Amount shall mean, at any time, as determined by the Agent ----------------- (which determination shall be conclusive absent manifest error), with respect to an amount of any currency (the "Reference Currency") which is to be computed as an equivalent amount of another currency (the "Equivalent Currency"): (i) if the Reference Currency and the Equivalent Currency are the same, the amount is such Reference Currency; or (ii) if the Reference Currency and the Equivalent Currency are not the same, the amount is such Equivalent Currency converted from such Reference Currency at the Agent's spot selling rate (based on the market rates then prevailing and available to the Agent) for the sale of such Equivalent Currency for such Reference Currency at a time determined by the Agent on the second Business Day immediately preceding the event for which such calculation is made. Equivalent Currency shall have the meaning assigned to such term in ------------------- the definition of Equivalent Amount. ERISA shall mean the Employee Retirement Income Security Act of 1974, ----- as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, in each case as from time to time in effect. ERISA Group shall mean, at any time, the Borrower and all members of a ----------- controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. Euro shall have the meaning ascribed to it in Section 2.13. ---- Euro-Rate shall mean: (A) with respect to any Loans denominated in --------- Dollars comprising any Portion to which the Euro-Rate Option applies for any Euro-Rate Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive and binding upon the Borrower, absent manifest error on the part of the Agent) to be equal to the offered rates for deposits in Dollars for the applicable Euro-Rate Interest Period quoted by the British Bankers Association ("BBA") which appear on Page 3750 of the Dow Jones Market Service display page (or, if such quotation is not available, an appropriate successor as determined by the Agent) reporting system as of approximately 11:00 a.m., Greenwich Mean Time, two (2) Business Days prior to the first day of such Euro-Rate Interest Period for an amount comparable to such Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. Such Euro-Rate may also be expressed by the following formula: Euro-Rate = Offered rate on Dow Jones Market Service ---------------------------------------- 1.00 - Euro-Rate Reserve Percentage If more than one offered rate appears on Page 3750 of the Dow Jones Market Service rate reporting system or similar system, the rate will be the arithmetic mean of such offered rates; and (B) with respect to any Loans denominated in Optional Currency comprising any Portion to which the Euro-Rate Option applies for any Euro-Rate Interest Period, the interest rate per annum determined by Agent by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% percent per annum) (i) the rate of interest per annum determined by Agent in accordance with its usual procedures (which determination shall be conclusive and binding upon the Borrower absent manifest error) to be the rate of interest per annum for deposits in the relevant Optional Currency quoted by BBA which appears on the relevant Dow Jones Market Service display page (or, if such quotation is not available, an appropriate successor as determined by the Agent) at approximately 9:00 a.m., Pittsburgh time, two (2) Business Days prior to the first day of such Interest Period for delivery on the first day of such Interest Period for a period, and in an amount, comparable to such Interest Period and principal amount of such disbursement ("LIBO Rate") by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. Such Euro-Rate may also be expressed by the following formula: Euro-Rate = LIBO Rate ---------------------------------- 1 - Euro-Rate Reserve Percentage The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrower of the Euro-Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. The Euro-Rate for any Loans shall be based upon the Euro-Rate for the currency in which such Loans are requested. Euro-Rate Interest Period shall mean any individual period equal to ------------------------- one (1), two (2), three (3), six (6) selected by the Borrower or twelve (12) months if requested by the Borrower and available to the Agent and the Lenders in each case commencing on the Borrowing Date, a conversion date or a renewal date of a Euro-Rate Portion to which such period shall apply; provided, however, that prior to the date which is the Business Day following the Syndication Date, only such periods as the Agent and the Borrower mutually agree upon, not to exceed a period of one month, shall be available. Euro-Rate Option shall mean the interest rate option described in ---------------- Section 2.08b(ii) hereof. Euro-Rate Portion shall mean each portion of the Loans which bears, or ----------------- is to bear, interest under the Euro-Rate Option; and the term Euro-Rate Portions shall mean collectively all such portions of the Loans which bear, or are to bear, interest under the Euro-Rate Option. Euro-Rate Reserve Percentage shall mean for any day the maximum ---------------------------- effective percentage as determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) as prescribed by the Federal Reserve Board (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in the Federal Reserve System. Event of Default shall have the meaning ascribed to it in Section 8.01 ---------------- hereof. Expiration Date shall mean November 30, 2003. --------------- Federal Funds Effective Rate shall mean for any day the rate per annum ---------------------------- (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1 %) announced by the Federal Reserve Bank of New York (or any successor) on such day (or if such day is not a Business Day, the previous Business Day) as being the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement. Federal Reserve Board shall mean the Board of Governors of the United --------------------- States Federal Reserve System as constituted from time to time. Fee shall mean any of the Agent's Fee, the Arrangement Fee, the --- Closing Fee, the Commitment Fee, the Letter of Credit Fee, the L/C Fronting Fee, any administration fee payable to the Agent, and any other fee payable under any of the other Loan Documents. Fiscal Quarter shall mean each three month fiscal period of the -------------- Borrower beginning respectively on each January 1, April 1, July 1 and October 1 during the term hereof and ending on the immediately succeeding March 31, June 30, September 30 and December 31. Fiscal Year shall mean each 12-month fiscal period of the Borrower ----------- beginning January 1 and ending on the immediately succeeding December 31. Founding Shareholders shall mean Ashok K. Trivedi and Sunil Wadhwani. --------------------- GAAP shall mean, subject to the provisions of Section 1.03 hereof, ---- generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be recognized by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. Guaranty or Guarantee shall mean any obligation, direct or indirect, --------------------- by which a Person undertakes to guaranty, assume or remain liable for the payment of another Person's obligations, including but not limited to (i) endorsements of negotiable instruments, (ii) discounts with recourse, (iii) agreements to pay upon a second Person's failure to pay, (iv) agreements to maintain the capital, working capital solvency or general financial condition of a second Person and (v) agreements for the purchase or other acquisition of products, materials, supplies or services, if in any case payment therefor is to be made regardless of the nondelivery of such products, materials or supplies or the non-furnishing of such services. Indebtedness shall mean as to any Person at any time, any and all ------------ indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent or joint and several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit, currency swap agreement, hedging contracts, Interest Hedge Agreement or other interest rate management device, raw materials management device or commodities management device (except raw materials or commodity management devices entered into in the ordinary course of business), (iv) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness), or (v) any Guaranty of any of the foregoing. Ineligible Security shall mean any security which may not be ------------------- underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. Interest Hedge Agreement shall mean any interest rate swap agreement, ------------------------ interest rate cap agreement, interest rate collar agreement, interest rate insurance or any other agreement or arrangement designed to provide protection against fluctuations in interest rates. Interest Rate Option shall mean the Euro-Rate Option or the Base Rate -------------------- Option. Internal Revenue Code shall mean the Internal Revenue Code of 1986, as --------------------- the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. L/C Fronting Fee shall have the meaning ascribed to it in Section ---------------- 2.18(b) of this Agreement. L/C Issuer shall mean PNC Bank, National Association, as the issuer of ---------- Letters of Credit pursuant to Section 2.18, and any successor to PNC Bank, National Association as the issuer of Letters of Credit hereunder. Labor Contracts shall have the meaning ascribed to it in Section 4.19 --------------- hereof. Law shall mean any law (including common law), constitution, statute, --- treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body. Lender Obligations shall mean collectively, (i) all unpaid principal ------------------ and accrued and unpaid interest under the Loans, (ii) all accrued and unpaid Fees hereunder or under any of the other Loan Documents, (iii) the face amount of all Letters of Credit then outstanding, together with all Unreimbursed L/C Draws and all accrued and unpaid interest on such Unreimbursed L/C Draws, (iv) the actual (as opposed to nominal) credit exposure determined in accordance with standard industry practices to any Lender or Affiliate of a Lender under an Interest Hedge Agreement between such Person and the Borrower, (v) any amounts due any Lender or an Affiliate of any Lender on any foreign exchange contract, (vi) any other amounts payable hereunder or under any of the other Loan Documents, including all reimbursements, indemnities, fees, costs, expenses, prepayment premiums and other obligations of the Borrower to a Lender (in any capacity hereunder) or any indemnified party hereunder, (vii) all out-of-pocket costs and expenses incurred by the Agent in connection with this Agreement or any other Loan Documents, including but not limited to the reasonable fees and expenses of the Agent's counsel, (viii) all out-of-pocket costs and expenses incurred by a Lender after an Event of Default in connection with any administration or enforcement of the Loan Documents, including but not limited to the reasonable fees and expenses of such Lender's counsel, and (ix) all other liabilities, obligations, covenants, duties and Indebtedness of the Borrower to the Agent, the L/C Issuer and the Lenders of any and every kind and nature, arising under this Agreement or the other Loan Documents, whether heretofore, now or hereafter owing, arising, due or payable from the Borrower to the Agent, the L/C Issuer or the Lenders. Lenders shall mean the financial institutions named on Schedule ------- -------- 1.01(a) hereto and their respective successors and assigns as permitted - ------- hereunder, each of which is referred to herein as a Lender. Letter of Credit shall mean any Standby Letter of Credit or Commercial ---------------- Letter of Credit issued by the L/C Issuer for the account of the Borrower upon the application of the Borrower pursuant to this Agreement and all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Letter of Credit Fee shall have the meaning ascribed to it in Section -------------------- 2.18(b) hereof. Lien shall mean any mortgage, deed of trust, pledge, lien, security ---- interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing). Loans shall mean collectively all advances and Loan shall mean ----- ---- separately any advance made by the Lenders pursuant to Section 2.01 hereof. Loan Account shall mean the loan account maintained by a Lender as ------------ more fully described in Section 2.15 hereof. Loan Disbursement Account shall have the meaning ascribed to it in ------------------------- Section 3.01 hereof. Loan Documents shall mean this Agreement, the Notes, any Application -------------- for Letter of Credit, the Subsidiary Guarantees, the Pledge Agreements, any Interest Rate Hedge Agreement executed by a Lender or an Affiliate of a Lender and the Borrower, any foreign exchange contract executed by a Lender or an Affiliate of a Lender and the Borrower, and any other agreements, instruments, certificates or documents contemplated thereby, as any of the same may be supplemented or amended from time to time in accordance herewith or therewith; and Loan Document shall mean any of the Loan Documents. Loan Parties shall mean the Borrower, each Subsidiary Guarantor and ------------ each pledgor party to a Pledge Agreement and Loan Party shall mean any of the ----------- Loan Parties. Loan Request shall mean a request for Loans made in accordance with ------------ Section 2.05 hereof which request shall be substantially in the form of Exhibit ------- "B" hereto. - --- Margin Regulations shall mean Regulations T, U and X as promulgated by ------------------ the Board of Governors of the Federal Reserve System, as amended from time to time. Material Adverse Change shall mean any set of circumstances or events ----------------------- which (a) has or could reasonably be expected to have any material adverse effect upon the validity or enforceability of this Agreement or any of the other Loan Documents, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition or results of operations of the Borrower and its Subsidiaries, taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of the Borrower and its Subsidiaries taken as a whole to duly and punctually pay their Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Agent or any of the Lenders to enforce their legal remedies pursuant to this Agreement or any other Loan Document. Moody's shall mean Moody's Investors Service, Inc., a corporation ------- organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Agent, with the approval of the Borrower, by notice to the Lenders. Multiemployer Plan shall mean any employee benefit plan which is a ------------------ "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions. Multiple Employer Plan shall mean a Plan which has two or more ---------------------- contributing sponsors (including the Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA. Notes shall mean collectively all of the promissory notes of the ----- Borrower substantially in the form of Exhibit "A" hereto and Note shall mean ----------- ---- separately each promissory note of the Borrower substantially in the form of Exhibit "A" hereto in each case evidencing Loans together with all renewals, - ----------- replacements, refinancings or refundings thereof or thereto in whole or in part. Official Body shall mean any national, federal, state, local or other ------------- government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Optional Currency shall mean any of the following currencies: (a) the ----------------- Australian dollar, (b) the British Pound Sterling, (c) the Canadian dollar, (d) the French Franc, (e) the Deutsche Mark, (f) the Italian Lira and (g) the Spanish Pesetas, and any other freely convertible foreign currency, as determined pursuant to the currency codes in effect from time to time under ISO International Standard 4217 or any successor thereto, and approved by Agent and the Required Lenders pursuant to Section 2.13(d). Original Currency shall have the meaning assigned to such term in ----------------- Section 2.21. Other Currency shall have the meaning assigned to such term in Section -------------- 2.21. Other Taxes shall have the meaning assigned to it in Section 2.19. ----------- Overnight Rate shall mean for any day with respect to any Loans in an -------------- Optional Currency, the rate of interest per annum as determined by the Agent at which overnight deposits in such currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day in the applicable offshore interbank market. Participant shall mean any bank or financial institution which ----------- acquires from any Lender an undivided interest in the Lender' s Ratable Share of the Revolving Credit Commitments, Loans, Letters of Credit and Unreimbursed L/C Draws, pursuant to Section 10.05. Participation shall mean the sale, made in accordance with the ------------- provisions of Section 10.05, by any Lender to any Participant of an undivided interest in such Lender's Ratable Share of the Revolving Credit Commitments, Loans, Letters of Credit and Unreimbursed L/C Draws. PBGC shall mean the Pension Benefit Guaranty Corporation established ---- pursuant to Subtitle A of Title IV of ERISA or any successor. Permitted Liens shall mean: --------------- (i) Liens for taxes, assessments, governmental levies or similar charges incurred in the ordinary course of business and which are not yet due and payable, or if due and payable, (aa) are being contested in good faith and by appropriate and lawful proceedings diligently conducted, but only so long as such proceedings could not subject the Agent, the Lenders or the L/C Issuer to any civil or criminal penalties or liabilities and (bb) for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made and (cc) which shall be paid in accordance with the terms of any final judgments or orders relating thereto within thirty (30) days after the entry of such judgments or orders; (ii) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions, other social security programs or similar program or to secure liability to insurance carriers under insurance or self insurance agreements or arrangement; (iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default, or if such Liens are due and payable, (aa) are being contested in good faith and by appropriate and lawful proceedings diligently conducted and (bb) for which such reserves or other appropriate provisions, if any, as required by GAAP shall have been made and (cc) which shall be paid in accordance with the terms of any final judgments or orders relating thereto within thirty (30) days after the entry of such judgments or orders; (iv) Pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amounts due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (v) (aa) Encumbrances consisting of zoning restrictions, easements, rights-of-way, or other restrictions on the use of real property, (bb) defects in title to real property, and (cc) Liens, encumbrances and title defects affecting real property not known by the Borrower or a Subsidiary, as applicable, and not discoverable by a search of the public records, none of which materially impairs the use of such property; (vi) (aa) Liens on assets of a Person which is merged into or acquired by the Borrower or a Subsidiary of the Borrower on or after the date of this Agreement, and (bb) Liens on assets acquired after the date of this Agreement, provided that (A) such Liens existed at the time of such merger or acquisition - -------- and were not created in anticipation thereof, (B) no such Lien is spread to cover any property or assets of the Borrower or any Subsidiary of the Borrower; and (C) the principal amount of Indebtedness secured thereby is not increased from the amount outstanding immediately prior to such merger or acquisition; (vii) Liens created by or resulting from any litigation or legal proceedings which are currently being contested in good faith by appropriate and lawful proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made and Liens arising out of judgments or orders for the payment of money which do not constitute an Event of Default hereunder; (viii) Liens placed upon fixed assets or equipment hereafter acquired to secure all or a portion of the purchase price thereof, provided that any such Lien shall not encumber any other property of the Borrower or any Subsidiary; (ix) Other Liens incidental to the conduct of the Borrower's or any Subsidiary's business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from the value of the Borrower's or any Subsidiary's property or assets or which do not materially impair the use thereof in the operation of the Borrower's business; (x) Leases or subleases not otherwise prohibited by this Agreement or other Loan Documents; provided, however, except as set forth in items (i) -------- ------- through (x) of this definition the Borrower shall not permit or authorize Liens on any of the Borrower's or any of its Subsidiaries' properties, except in favor of the Agent for the benefit of the Agent, the Lenders and the L/C Issuer; and (xi) Liens securing Indebtedness of a foreign Subsidiary which Indebtedness is permitted hereunder; provided such Lien encumbers only the -------- assets of the Subsidiary incurring such Indebtedness. Person or person shall mean any individual, corporation, partnership, ---------------- limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity. Plan shall mean at any time an employee pension benefit plan ---- (including a Multiple Employer Plan but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group. Pledge Agreement shall mean a pledge agreement executed by the ---------------- Borrower or another Loan Party substantially in the form of Exhibit "D" hereto, ------------ together in each case with all extensions, renewals, amendments, substitutions, and replacements thereto and thereof. Portions shall mean collectively the Base Rate Portions and the Euro- -------- Rate Portions; and the term Portion shall mean individually any of the Portions. ------- Prime Rate shall mean for any day, a fluctuating interest rate per ---------- annum equal to the rate of interest which the Agent announces from time to time as its prime lending rate, which rate may not be the lowest rate then being charged by the Agent to commercial borrowers. Principal Office shall mean the principal commercial banking office of ---------------- the Agent in Pittsburgh, Pennsylvania. Prohibited Transaction shall mean any prohibited transaction as ---------------------- defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor. Property shall mean, and refer to, each parcel of real property, -------- whether owned in fee or leased, of any Loan Party. Purchasing Lender shall mean a Lender which becomes a party to this ----------------- Agreement by executing an Assignment and Assumption Agreement. Ratable Share shall mean the proportion that a Lender's Revolving ------------- Credit Commitment bears to the Revolving Credit Commitments of all of the Lenders. Receivable shall mean, with respect to the Borrower or any Subsidiary, ---------- all accounts receivable, contract rights related to such account receivable, instruments, chattel paper, general intangibles related to such Receivables and all other rights to payments of moneys for any reason (whether or not evidenced by a contract, instrument, chattel paper or document), and all other rights, powers and privileges of the Borrower or any Subsidiary, as the case may be, arising thereunder or related thereto (including but not limited to all guarantees, collateral security, surety bonds, rights under letters of credit, insurance or other direct or indirect security), assertible against any Person whatever and all rebates, refunds, adjustments and returned, rejected, or repossessed goods relating thereto and all proceeds of any of the foregoing. Reference Currency shall have the meaning assigned to such term in the ------------------ definition of Equivalent Amount. Register shall have the meaning ascribed to it in Section 10.05(c). -------- Regulated Substances shall mean any substance, including without -------------------- limitation Solid Waste, the generation, manufacture, processing, distribution, treatment, storage, disposal, transport, recycling, reclamation, use, reuse or other management or mismanagement of which is regulated by the Environmental Laws. 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 Lenders shall mean Lenders whose Revolving Credit Commitments ---------------- aggregate at least 66-2/3% of the Revolving Credit Commitments of all of the Lenders. Revolving Credit Commitment shall mean, as to any Lender at any time, --------------------------- the aggregate amount initially set forth opposite its name on Schedule 1.01(a), ---------------- and thereafter on Schedule I to the most recent Assignment and Assumption Agreement, as the same may be reduced pursuant to Sections 2.04 or 2.10(a) hereof, and Revolving Credit Commitments shall mean the aggregate Revolving ---------------------------- Credit Commitments of all of the Lenders. S&P shall mean Standard & Poor's Ratings Group, a division of McGraw --- Hill Corporation, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Agent, with the approval of the Borrower, by notice to the Lenders. Section 20 Subsidiary shall mean the Subsidiary of the bank holding --------------------- company controlling any Lender, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Solid Waste shall mean any garbage, refuse or sludge from any waste ----------- treatment plant, water supply treatment plant or air pollution control facility generated by activities on the Property, and any unpermitted release into the environment or the work place of any material as a result of activities on the Property, including without limitation used Regulated Substances. Solvent shall mean, with respect to any Person on a particular date, ------- that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. Standby Letter of Credit shall mean a letter of credit which is not a ------------------------ Commercial Letter of Credit. Standby Letter of Credit Fee shall have the meaning ascribed to it in ---------------------------- Section 2.18(b) hereof. Stated Amount shall mean as to any Letter of Credit, the lesser of (i) ------------- the face amount thereof or (ii) the remaining available undrawn amount thereof (regardless of whether any conditions for drawing could then be met). Subsidiary of any Person at any time shall mean (i) any corporation or ---------- trust of which 50% or more (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, (ii) any partnership of which such Person is a general partner or of which 50% or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries, (iii) any limited liability company of which such Person is a member or of which 50% or more of the limited liability company interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries or (iv) any corporation, trust, partnership, limited liability company or other entity which is Controlled or capable of being Controlled by such Person or one or more of such Person's Subsidiaries. Subsidiary Guarantor shall mean each Subsidiary of the Borrower -------------------- incorporated or organized in the United States of America whether now existing or hereafter created or acquired. Subsidiary Guaranty shall mean a guaranty agreement executed by a ------------------- Subsidiary Guarantor substantially in the form of Exhibit "C" attached hereto, ----------- together in each case with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. Syndication Date shall mean the earlier of (i) the date of completion ---------------- of syndication hereunder, as determined by the Agent, or (ii) ninety (90) days after the Closing Date. Taxes shall have the meaning ascribed to it in Section 2.19. ----- Total Utilization shall mean as of the time of determination the sum ----------------- of Loans outstanding, the Unreimbursed L/C Draws outstanding and the aggregate Stated Amount of the Letters of Credit outstanding. Transfer Effective Date shall have the meaning ascribed to it in the ----------------------- applicable Assignment and Assumption Agreement. Transferor Lender shall mean the selling Lender pursuant to an ----------------- Assignment and Assumption Agreement. Unreimbursed L/C Draw shall have the meaning ascribed to it in Section --------------------- 2.18(f). Year 2000 Problem shall have the meaning ascribed to it in Section ----------------- 4.25. 1.02. Construction. ------------ (a) Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents: (i) Number: Inclusion. References to the plural include the singular, ----------------- the singular the plural and the part the whole, "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation". (ii) Determination. References to "determination" of or by the Agent, ------------- the L/C Issuer or the Lenders shall be deemed to include good faith estimates by the Agent, the L/C Issuer or the Lenders (in the case of quantitative determinations) and good faith beliefs by the Agent, the L/C Issuer or the Lenders (in the case of qualitative determinations) and such determination shall be conclusive absent manifest error. (iii) Discretion and Consent. Whenever the Agent, the L/C Issuer, PNC ---------------------- Bank or the Lenders are granted the right herein to act in its or their sole discretion or to grant or withhold consent such right shall be exercised in good faith. (iv) Documents Taken as a Whole. The words "hereof," "herein," -------------------------- "hereunder", "hereto" and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document. (v) Headings. The article, section and other headings contained in -------- this Agreement or such other Loan Documents and the Table of Contents (if any) preceding this Agreement or such other Loan Document are for reference purposes only and shall not control or affect the construction of this Agreement or such other Loan Document or the interpretation thereof in any respect. (vi) Implied References. Article, section, subsection, item, clause, ------------------ schedule and exhibit references are to this Agreement or to such other Loan Document, as the case may be, unless otherwise specified. (vii) Persons. Reference to any Person includes such Person's ------- successors and assigns, but, if applicable, only if such successors and assigns are permitted by this Agreement or such other Loan Document, as the case may be, and reference to a Person in a particular capacity excludes such Person in any other capacity. (viii) Laws and Agreements. Reference to any Law, agreement or ------------------- contract includes such Law, agreement or contract as the same may be amended, supplemented, modified, extended, waived, consolidated, replaced or renewed from time to time, but only to the extent permitted by, and effected in accordance with, the terms thereof and of this Agreement and the other Loan Documents. (ix) From, To and Through. Relative to the determination of any period -------------------- of time, "from" means "from and including", "to" means "to but excluding", and "through" means "through and including". (x) Shall; Will. References to "shall" and "will" are intended to have ----------- the same meaning. (xi) UCC Terms. All terms used in Article 9 of the Uniform Commercial --------- Code and not specifically defined in this Agreement or in any other Loan Document shall herein have the meanings assigned to such terms in the Uniform Commercial Code as from time to time in effect in the Commonwealth of Pennsylvania. (xii) Writing; Written. References to "writing" include printing, ---------------- typing, lithography and other means of reproducing words in a tangible visible form. References to "written" include "printed", "typed", "lithographed" and other adjectives relating to words reproduced in a tangible visible form consistent with the preceding sentence and also include electronic images and images stored on computer disks, magnetic tape and like media. 1.03. Accounting Principles . Except as otherwise provided in this --------------------- Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. ARTICLE II REVOLVING CREDIT FACILITY ------------------------- 2.01. Revolving Credit Commitments . Subject to the terms and ---------------------------- conditions hereof and relying upon the representations and warranties herein set forth, each Lender severally agrees to make Loans (the "Loans") in Dollars or Optional Currency to the Borrower at any time or from time to time on or after the date hereof to, but not including, the Expiration Date, provided that the aggregate principal Equivalent Amount in Dollars of each Lender's Loans outstanding hereunder to the Borrower shall not exceed at any one time such Lender's Ratable Share of the aggregate Revolving Credit Commitments minus such Lender's Ratable Share of the sum of (i) the aggregate Stated Amount of outstanding Letters of Credit and (ii) the aggregate amount of Unreimbursed L/C Draws. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.01. The aggregate amount of the Revolving Credit Commitments on the Closing Date is $75,000,000. All Revolving Credit Commitments shall expire on the Expiration Date; and all Loans outstanding on the Expiration Date shall become due and payable in full on such date. 2.02. Nature of Lenders' Obligations with Respect to Loans. Each ---------------------------------------------------- Lender shall be obligated to participate in each request for Loans pursuant to Section 2.05 hereof in accordance with its Ratable Share. The aggregate principal Equivalent Amount in Dollars of each Lender's Loans outstanding hereunder to the Borrower at any time shall never exceed such Lender's Ratable Share of the aggregate Revolving Credit Commitments minus such Lender's Ratable Share of the sum of (i) the aggregate Stated Amount of outstanding Letters of Credit and (ii) the aggregate amount of Unreimbursed L/C Draws. The obligations of each Lender hereunder are several. The failure of any Lender to perform its obligations hereunder shall not affect the obligations of the Borrower, or any other Lender, to any other party nor shall the Borrower, or any other Lender, be liable for the failure of such Lender to perform its obligations hereunder. The Lenders shall have no obligation to make Loans hereunder on or after the Expiration Date. 2.03. Commitment Fees --------------- (a) Commitment Fee. Accruing from the Closing Date until the -------------- Expiration Date, the Borrower agrees to pay to the Agent for the account of each Lender, as consideration for such Lender's Revolving Credit Commitment hereunder, a commitment fee (the "Commitment Fee") equal to the Applicable Commitment Fee per annum, as determined below, (all computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) on the average daily Equivalent Amount in Dollars equal to such Lender's Revolving Credit Commitment minus such Lender's Ratable Share of Total Utilization relating to its Revolving Credit Commitment. (b) Applicable Commitment Fee. For purposes of this Agreement, the ------------------------- term "Applicable Commitment Fee" shall mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the Borrower's Consolidated Senior Indebtedness to Consolidated EBITDA Ratio, as at the end of the preceding fiscal quarter, falls:
Consolidated Senior Indebtedness to Consolidated EBITDA Ratio Commitment Fee - ------------------------------------------------------------------------------------------------ Less than 0.5 to 1.0 .15% - ------------------------------------------------------------------------------------------------ Equal to or greater than 0.5 to 1.0, but less than 1.0 to 1.0 .175% - ------------------------------------------------------------------------------------------------ Equal to or greater than 1.0 to 1.0 but less than or equal to 1.5 to 1.0 .20% - ------------------------------------------------------------------------------------------------ Equal to or greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0 .225% - ------------------------------------------------------------------------------------------------ Equal to or greater than 2.0 to 1.0 .25% - ------------------------------------------------------------------------------------------------
All such adjustments shall be determined as of the date the Borrower's financial statements and Compliance Certificate are required to be delivered to the Lenders pursuant to items (a), (b) and (c) of Section 6.02. The foregoing notwithstanding, the Applicable Commitment Fee from the Closing Date to and including the December 1998 Delivery Date shall be .15%. All Commitment Fees shall be payable (i) quarterly in arrears beginning December 31, 1998, and continuing on the last Business Day of each Fiscal Quarter occurring during the term of the Revolving Credit Commitment, (ii) upon the Expiration Date and (iii) upon acceleration of the Notes. 2.04. Reduction of Revolving Credit Commitment. Subject to the ---------------------------------------- provisions of Section 2.09 hereof, at any time and from time to time upon at least five (5) Business Days' prior written notice to the Agent, the Borrower may terminate, in whole or in part, without penalty, the then unused portion of the Revolving Credit Commitments, thereby causing a corresponding abatement of the Commitment Fee. Each such reduction shall be in a minimum principal amount of $10,000,000 or, if in excess of $10,000,000, in integral multiples of $1,000,000. The Commitment Fee shall cease to accrue with respect to any unused portion of the Revolving Credit Commitments so terminated five (5) Business Days after receipt of such notice. Notice of termination once given shall be irrevocable and the portion of the Revolving Credit Commitments so terminated shall not be available for borrowing once such notice has been given under the terms hereof. The Agent shall promptly notify each Lender of its Ratable Share of such terminated unused portion and the date of each such termination. 2.05. Loan Requests . Each request for a disbursement shall be made ------------- to the Agent by an Authorized Officer of the Borrower orally or in writing pursuant to the execution and delivery by the Borrower to the Agent of a Loan Request, substantially in the form of Exhibit "B" hereto, (A) by 11:00 a.m. ----------- (Pittsburgh, Pennsylvania time) on the date of the proposed disbursement if the disbursement is initially to bear interest at the Base Rate Option, (B) by 11:00 a.m. (Pittsburgh, Pennsylvania time) at least three (3) Business Days prior to the proposed disbursement with respect to Loans made in Dollars if the disbursement or any part thereof is to initially bear interest at the Euro-Rate Option, or (C) by 11:00 a.m. (Pittsburgh, Pennsylvania time) at least four (4) Business Days prior to the proposed disbursement with respect to Loans funded in an Optional Currency (which Loans must bear interest at the Euro-Rate Option), in each case specifying the date and the Dollar or Dollar Equivalent (if applicable) amount thereof, selecting the Interest Rate Option therefor pursuant to Section 2.08(b) hereof, for Loans to be funded under the Euro-Rate Option, selecting the Euro-Rate Interest Period therefor and for Loans to be funded in an Optional Currency, the currency in which the disbursement is to be funded. Any oral request for a disbursement hereunder shall be followed immediately by the Borrower's written Loan Request. A request from the Borrower pursuant to this Section 2.05 with respect to a disbursement or any part thereof which is initially to bear interest at the Euro-Rate Option, shall irrevocably commit the Borrower to accept such disbursement on the date specified in such request. Promptly upon receipt of such notice, the Agent shall notify each Lender of the Borrower's request and the amount of such requested disbursement which is to be advanced by such Lenders. Each such Lender shall make its Ratable Share of such disbursement available at the Agent's principal office in immediately available funds no later than 3:00 p.m. (Pittsburgh, Pennsylvania time) on the date of the requested disbursement. 2.06. Making Loans . Subject to Section 9.03, the Agent shall, ------------ promptly after receipt by it of a Loan Request pursuant to Section 2.05 (but not later than noon (Pittsburgh, Pennsylvania time) on the Borrowing Date for same day funding, 2:00 p.m. (Pittsburgh, Pennsylvania time) on the third Business Day preceding any Borrowing Date for which any Portion of the Loans to be made on such Borrowing Date is to bear interest at the Euro-Rate Option and 2:00 p.m. (Pittsburgh, Pennsylvania time) on the fourth Business Day preceding any Borrowing Date of the Loans to be made in an Optional Currency), notify the Lenders of its receipt of such Loan Request specifying: (i) the proposed Borrowing Date and the time and method of disbursement of such Loan; (ii) the amount and type of such Loan and the applicable Euro-Rate Portions and Euro-Rate Interest Periods (if any) and the Optional Currency (if any); and (iii) the apportionment among the Lenders of the Loans as determined by the Agent in accordance with Section 2.02 hereof. Subject to Section 9.03, each Lender shall remit the principal amount of each Loan to the Agent such that the Agent is able to, and the Agent shall, to the extent the Lenders have made funds available to it for such purpose, fund such Loan to the Borrower in immediately available funds prior to 2:00 P.M. (Pittsburgh, Pennsylvania time) on the Borrowing Date, provided that if any Lender fails to remit such funds to the Agent in a timely manner, or any Lender fails to advise the Agent of its intention not to fund, then the Agent may elect in its sole discretion to fund with its own funds the Loan of such Lender on the Borrowing Date. 2.07. Notes. The obligation of the Borrower to repay the aggregate ----- unpaid principal amount of the Loans made to the Borrower by each Lender, together with interest thereon, shall be evidenced by a promissory note of the Borrower dated the Closing Date in substantially the form attached hereto as Exhibit "A" payable to ---------- the order of each Lender in a face amount equal to the Revolving Credit Commitment of such Lender. 2.08. Interest Payments, Interest Rates and Certain Related Payments -------------------------------------------------------------- Pertaining to the Loans. - ----------------------- (a) Interest. The Notes shall bear interest on the actual unpaid -------- principal amount thereof from time to time outstanding from the date thereof until payment in full at the rates of interest set forth in Section 2.08(b). The Borrower shall pay accrued interest on the unpaid principal balance of the Notes in arrears: (i) with respect to the Base Rate Portion, at the rate specified in the Base Rate Option, (A) on the last Business Day of each Fiscal Quarter during the term of the Revolving Credit Commitment, (B) at maturity, whether by acceleration or otherwise, of the Notes and (C) after maturity on demand until all amounts evidenced by the Notes are paid in full whether or not judgment has been entered on the Notes; and (ii) with respect to each Euro-Rate Portion, at the rate specified in the Euro-Rate Option, (A) on the last day of the Euro-Rate Interest Period applicable thereto; provided, however, if the Euro-Rate Interest Period chosen -------- ------- for any Euro-Rate Portion exceeds three (3) months, interest on that Euro-Rate Portion shall be due and payable at the end of every three (3) months during such Euro-Rate Interest Period and on the last day of such Euro-Rate Interest Period, (B) at the maturity, whether by acceleration or otherwise, of the Notes and (C) after maturity on demand until all amounts evidenced by the Notes are paid in full whether or not judgment has been entered on the Notes. (b) Interest Rate Options. During the term hereof, the Borrower shall --------------------- have the option of electing, from time to time, one or more of the Interest Rate Options set forth below to be applied to the Loans. (i) Base Rate Option. Interest under this Interest Rate Option ---------------- shall accrue, for the Base Rate Portion of the Loans outstanding, at a rate per annum equal to the Base Rate. The Base Rate shall be adjusted automatically from time to time upon each change in the Prime Rate or the Federal Funds Effective Rate, as the case may be, and in accordance with the provisions of Section 2.08(d). (ii) Euro-Rate Option. Interest under this Interest Rate Option ---------------- shall accrue, for each Euro-Rate Portion of the Loans outstanding, for any Euro- Rate Interest Period selected, at a rate per annum equal to the sum of (A) the Euro-Rate plus (B) the Applicable Euro-Rate Margin as determined below. The rate of interest established pursuant to the preceding sentence of this Section 2.08(b)(ii) for each Euro-Rate Portion shall be adjusted from time to time in accordance with the provisions of Section 2.08(d). For purposes of this Agreement, the term "Applicable Euro-Rate Margin" shall mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the Borrower's Consolidated Senior Indebtedness to Consolidated EBITDA Ratio as at the end of the preceding Fiscal Quarter falls:
Consolidated Senior Indebtedness Applicable Euro-Rate to Consolidated EBITDA Ratio Margin - ------------------------------------------------------------------------------------------------------------------ Less than 0.5 to 1.0 .50% - ------------------------------------------------------------------------------------------------------------------ Equal to or greater than 0.5 to 1.0 but less than 1.0 to 1.0 .625% - ------------------------------------------------------------------------------------------------------------------ Equal to or greater than 1.0 to 1.0 but less than 1.5 to 1.0 .75% - ------------------------------------------------------------------------------------------------------------------ Equal to or greater than 1.5 to 1.0 but less than 2.0 to 1.0 .875% - ------------------------------------------------------------------------------------------------------------------ Equal to or greater than 2.0 to 1.0 1.00% - ------------------------------------------------------------------------------------------------------------------
All adjustments shall be determined as of the date the Borrower's financial statements and Compliance Certificate are required to be delivered pursuant to items (a), (b) and (c) of Section 6.02. The foregoing notwithstanding, the Applicable Euro-Rate Margin from the Closing Date to and including the December 1998 Delivery Date shall be .50%. (c) Optional Currency Interest. Each Portion of each Optional -------------------------- Currency funded Loan shall bear interest at the Euro-Rate Option, subject, however, to the other provisions of this Agreement. (d) Interest After Maturity. After the occurrence of an Event of ----------------------- Default and during the continuation thereof, the Base Rate Portion shall bear interest at a rate per annum which shall be two hundred (200) basis points (2%) above the Base Rate otherwise in effect during such period. After the occurrence of an Event of Default and during the continuation thereof, all Euro-Rate Portions shall bear interest (i) until the end of the then current Euro-Rate Interest Period for each such Euro-Rate Portion, at a rate per annum which shall be two hundred (200) basis points (2%) above the sum of (A) the Euro-Rate and (B) the Applicable Euro-Rate Margin otherwise in effect during such period and (ii) at the end of the then current Euro-Rate Interest Period for each such Euro-Rate Portion, such Euro-Rate Portions shall automatically be converted to the Base Rate Portion, and thereafter the interest rate shall be calculated in accordance with the initial sentence of this Section 2.08(d). (e) Interest Periods; Limitations on Elections. At any time when the ------------------------------------------ Borrower shall select, convert to or renew the Euro-Rate Option to apply to all or any portion of the outstanding Loans, it shall elect one or more Euro-Rate Interest Periods as the case may be. All the foregoing, however, is subject to the following: (i) any Euro-Rate Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next Business Day unless such Business Day falls in the succeeding calendar month in which case such Euro-Rate Interest Period shall end on the next preceding Business Day; and (ii) any Euro-Rate Interest Period which begins on the last day of a calendar month or on a day for which there is no numerically corresponding day in the subsequent calendar month during which such Euro-Rate Interest Period is to end shall end on the last Business Day of such subsequent month. Elections by the Borrower of the Euro-Rate Option shall be subject to the following limitations: (i) The Euro-Rate Portion for each Euro-Rate Interest Period shall be in an aggregate principal Equivalent Amount of $1,000,000 or more; provided, -------- however, that each increment in excess of $1,000,000 shall be $1,000,000 or an - ------- integral multiple thereof; (ii) No Euro-Rate Interest Period may be elected at any time that a Default or an Event of Default shall have occurred and be continuing; (iii) No Euro-Rate Interest Period may be elected which would end later than the relevant Expiration Date; (iv) No Euro-Rate Interest Period may be elected with regard to amounts outstanding which would be in excess of the Revolving Credit Commitment; and (v) At no time may there be more than seven (7) separate Euro-Rate Interest Periods in effect. (f) Election, Renewal or Conversion of Interest Rate Options. -------------------------------------------------------- Elections or renewals of, or conversions to, the Base Rate Option shall continue in effect until converted or renewed as hereinafter provided. Elections or renewals of, or conversions to, the Euro-Rate Option shall expire as to each Euro-Rate Portion at the expiration of the applicable Euro-Rate Interest Period. At any time with respect to the Base Rate Portion or at the expiration of the applicable Euro-Rate Interest Period with respect to any Euro-Rate Portion, the Borrower may cause (subject to Subsection 2.08(e)) all or any part of the principal amount of such Portion to be converted to, or to be renewed under, the Euro-Rate Option by notice to the Agent as hereinafter provided. Such notice (i) shall be irrevocable, (ii) shall be given not later than noon (Pittsburgh, Pennsylvania time) in the case of a conversion to or renewal of, either in whole or in part, the Euro-Rate Option, not less than three (3) Business Days prior to the proposed effective date for such conversion or renewal, and (iii) shall set forth: (A) the effective date of such conversion or renewal, which shall be a Business Day; (B) the new Euro-Rate Interest Period(s) selected; and (C) with respect to each such Euro-Rate Interest Period, the aggregate principal amount of the corresponding Euro-Rate Portion. At the expiration of each Euro-Rate Interest Period, any part (including the whole) of the principal amount of the corresponding Euro-Rate Portion as to which no notice of conversion or renewal has been received shall automatically be converted to the Base Rate Option. The Agent shall promptly notify the Borrower and the Lenders of any such automatic conversion. (g) Notification of Election of an Interest Rate Option. The Borrower, --------------------------------------------------- by an Authorized Officer, shall notify the Agent of each election of an Interest Rate Option, each conversion from one Interest Rate Option to another, the amount of the Loans then outstanding to be allocated to each Interest Rate Option and, where relevant, the Euro-Rate Interest Periods as provided for in this Agreement. Any such communication may be oral or written and if oral it shall be followed promptly by written confirmation of such Interest Rate Option election executed by an Authorized Officer of the Borrower. (h) Calculation of Interest. Interest on the Base Rate Portion shall ----------------------- be calculated on the basis of a 365 or 366 day year, as the case may be, and the actual days elapsed. Interest on each Euro-Rate Portion shall be calculated on the basis of a 360-day year and the actual days elapsed. The calculation of the amount of interest due and owing to the Lenders shall be evidenced by posting the amount of interest due under the Revolving Credit Notes to the Loan Account established by the Agent pursuant to Section 2.15. (i) Lawful Interest Rates Intended. In no event whatsoever shall the ------------------------------ interest rates charged hereunder exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that any Lender has received interest hereunder in excess of the highest applicable rate, such Lender shall promptly refund such excess to the Borrower, or at such Lender's option, apply such excess in reduction of the principal balance of the Lender Obligations owing to the affected Lender. 2.09. Prepayments: Allocation of Repayments. ------------------------------------- (a) Prepayments of Base Rate Portion. The Borrower, upon oral or -------------------------------- written notice to the Agent by an Authorized Officer of Borrower given not later than 12:00 noon (Pittsburgh, Pennsylvania time) on the proposed date for prepayment, may prepay without penalty or premium any or all of the Base Rate Portion. Any oral notice of election hereunder shall be followed immediately by written confirmation of such prepayment election executed by an Authorized Officer of Borrower. (b) Prepayments of Euro-Rate Portions. Except as otherwise provided in --------------------------------- Section 2.10(c), the Borrower, upon oral or written notice to the Agent by an Authorized Officer of Borrower given at least three (3) Business Days prior to the proposed date for repayment, may prepay, all or any part of such Euro-Rate Portion. If such Euro-Rate Portion is prepaid on the last day of the Euro-Rate Interest Period applicable thereto, such prepayment shall be without premium or penalty. If the Borrower prepays a Euro-Rate Portion other than on the last day of the Euro-Rate Interest Period applicable thereto, the Borrower agrees to pay, in addition to the other amounts set forth in this Section 2.09(b), such additional amounts as may be necessary to compensate each Lender for any loss (including loss of profit on a pre-tax basis) and any direct or indirect costs, including the costs of reemployment of funds prepaid at rates lower than the cost to such Lender of such funds. Such losses and costs shall be specified in writing to the Borrower by the affected Lenders (and such specifications shall set forth in reasonable detail the calculation of such losses and costs) and such specifications shall, absent manifest error, be binding and conclusive on the Borrower. Such prepayment shall include the then outstanding principal Equivalent Amount in Dollars of the Euro-Rate Portion being prepaid together with accrued interest, fees and other amounts then due and payable on the amount prepaid, to the day of such prepayment. Except as provided in this Section 2.09(b), there shall be no voluntary prepayment of any Euro-Rate Portion. (c) Allocation of Repayments of Principal. Except as otherwise ------------------------------------- specified by the Borrower, any voluntary prepayment pursuant to this Section 2.09 hereof shall be applied first to the repayment of any Euro-Rate Portion of the Loans for which its associated Euro-Rate Interest Period expires on the date of such payment, second, to the reduction of the Base Rate Portion of the Loans, and third, to the reduction of such Euro-Rate Portions of the Loans as directed by the Borrower, and if the Borrower fails to give such directions, or if a Default or Event of Default has occurred and is continuing, to the reduction of such Euro-Rate Portions of the Loans as the Agent may select in its sole and absolute discretion. Any reduction in any Euro-Rate Portion on a date other than the date on which its associated Euro-Rate Interest Period expires may result in a funding loss for which the Borrower will owe the Lenders an indemnity payment pursuant to Section 2.10 hereof. 2.10. Yield Protection. ---------------- (a) If any change subsequent to the Closing Date in any Law or in the interpretation or application thereof by any Official Body or in the compliance with any guideline or request from any Official Body, shall make it unlawful for any Lender to maintain or give effect to its obligations as contemplated under the Revolving Credit Commitment, such Lender shall notify the Borrower and the Agent in writing of its determination of such unlawfulness and an explanation thereof. Thereafter, such Lender's obligation to make available any further Loans hereunder shall forthwith be cancelled and the Borrower, within thirty (30) days, or within such longer period as may be allowed by Law, if any, shall repay to such Lender so affected its pro rata share of the outstanding principal amount of all Loans, together with interest thereon to the date of repayment and fees, if any, due as of the date of termination; provided, however, that the affected Lender's obligations which are lawful, if severable from those which are unlawful, shall continue, and with respect to those obligations, this Agreement shall not terminate. (b) If any Law issued after the Closing Date (including, without limitation, Regulation D of the Federal Reserve Board), or if any change on or after the Closing Date in any Law (including, without limitation, Regulation D) or in the interpretation thereof by any Official Body charged with the administration thereof, shall (i) subject any Lender to any tax, levy, impost, charge, fee, duty, deduction or withholding or any kind hereunder (other than any tax imposed or based upon the income of such Lender and payable to any governmental or taxing authority in the United States of America, any state or any municipality thereof); or (ii) change the basis of taxation of any Lender with respect to payments of principal or interest or other amounts due hereunder (other than any change which affects, and only to the extent that it affects, the taxation by the United States, any state or any municipality thereof based upon the income of such Lender); or (iii) impose, modify or deem applicable any reserve, special deposit or similar requirements against assets held by any Lender (other than such requirements which result solely from a change in the credit quality of the Borrower or which are included in the determination of the applicable rate of interest hereunder); or (iv) impose upon any Lender any other obligation or condition with respect to this Agreement, and the result of any of the foregoing is to increase the cost to any Lender, to decrease the yield to any Lender with respect to the Loans or any Letters of Credit, to reduce the income receivable by any Lender or to impose any expenses upon any Lender with respect to the Loans or any Letters of Credit by an amount which any Lender reasonably deems material, then and in any such case: (A) the Lender so affected shall promptly notify the Borrower and the Agent of the happening of such event; (B) the Borrower shall pay to the affected Lender, within five (5) Business Days of written demand such amount as will compensate such Lender for such additional cost or reduced amount, calculated from the date of the notification by such Lender; and (C) the Borrower may pay to such affected Lender the affected Loan in full without the payment of any additional amount other than on account of such Lender's out-of-pocket losses (including funding losses, if any, as provided in paragraph (c) below) not otherwise provided for in subparagraph (B) immediately above. The Lender so affected shall present to the Borrower and the Agent a certificate setting forth such increased cost or reduced amount. Such certificate shall set forth in reasonable detail the calculation of the amount due and such Lender's reasons for invoking the provisions of this Section 2.10(b). Such certificate shall be conclusive evidence of the amount due thereunder except in the case of manifest error in computation. (c) The Borrower agrees to indemnify each Lender, on demand, against any loss or expense (including loss of profit) which such Lender may sustain or incur in liquidating or employing deposits from third parties acquired to effect, fund or maintain such Euro-Rate Portions or any part thereof as a consequence of (i) the failure of the Borrower to make a payment on the due date thereof, (ii) the failure of the Borrower to borrow under, convert to or renew under the Euro-Rate Option on the proposed effective date of such borrowing, conversion or renewal, or (iii) the payment, prepayment or conversion by the Borrower of any Euro-Rate Portions for any reason on a day other than the last day of the applicable Euro-Rate Interest Period. Any Lender's determination of an amount payable under this paragraph (c) shall be conclusive absent manifest error. (d) The foregoing notwithstanding, if the affected Lender can mitigate or eliminate such increased cost or reduced yield by transferring the Loans to another existing lending office of such Lender, such Lender agrees to so transfer the Loans; provided, such transfer would not subject such Lender to any -------- unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. 2.11. Special Provisions Relating to the Euro-Rate Option. - --------------------------------------------------- - (a) Euro-Rate Unascertainable. In the event that on any date on which ------------------------- a Euro-Rate Option would otherwise be set, the Agent shall have determined (which determination shall be final and conclusive) that, by reason of circumstances affecting the London interbank market, adequate, reasonable means do not exist for ascertaining the Euro-Rate, the Agent shall give prompt notice of such determination to the Borrower and the Lenders. Until the Agent notifies the Borrower and the Lenders that the circumstances giving rise to such determination no longer exist (which notice shall be given promptly following receipt of knowledge thereof by the Agent), the right of the Borrower to borrow under, convert to or renew the Euro-Rate Option shall be suspended. Any notice of borrowing under, conversion to or renewal of the Euro-Rate Option which was to become effective during the period of such suspension shall be treated as a request to borrow under, convert to or renew the Base Rate Option with respect to the principal amount therein specified. (b) Inability to Offer Euro-Rate. In the event that any Lender shall ---------------------------- determine, in its sole discretion, that it is unable to obtain deposits in the London interbank market in sufficient amounts and with maturities related to such Euro-Rate Portions which would enable such Lender to fund such Euro-Rate Portions, then such Lender shall notify the Borrower and the Agent that the right of the Borrower to borrow under, convert to or renew the Euro-Rate Option, shall be suspended with respect to such Lender. Such notice shall set forth in reasonable detail such Lender's reasons for invoking the provisions of this Section 2.11(b). Following notification of the suspension of the Euro-Rate Option with respect to such Lender, the Borrower agrees to negotiate with such Lender for a modified or alternative fixed rate of interest, which will allow such Lender to realize its anticipated and bargained-for yield. In the event that the Borrower and such Lender cannot agree on a modified or alternative fixed rate of interest, any notice of borrowing under, conversion to or renewal of the Euro-Rate Option which was to become effective during the period of suspension shall be treated as a request to borrow under, convert to or renew the Base Rate Option with respect to the principal amount specified therein attributable to such Lender. (c) Illegality. If any Lender shall determine in good faith (which ---------- determination shall be final and conclusive) that compliance with any Law (whether or not having the force of law) or the interpretation or application thereof by any Official Body, has made it unlawful or impractical for such Lender to make or maintain the Loans under the Euro-Rate Option, such Lender shall give notice of such determination to the Borrower and the Agent, which notice shall set forth in reasonable detail such Lender's reasons for invoking the provisions of this Section 2.11(c). Notwithstanding any provision of this Agreement to the contrary, unless and until such Lender shall have given notice to the Borrower and the Agent that the circumstances giving rise to such determination no longer apply (which notice shall be given promptly following receipt of knowledge thereof by such Lender): (i) with respect to any Euro-Rate Interest Periods thereafter commencing, interest in an amount equal to such Lender's Ratable Share of the corresponding Euro-Rate Portion shall be computed and payable under the Base Rate Option; and (ii) on such date, if any, as shall be required by law, an amount equal to such Lender's Ratable Share of any Euro-Rate Portion, as the case may be, then outstanding shall be automatically converted to the Base Rate Option and the Borrower shall pay to such Lender the accrued and unpaid interest on such amounts to (but not including) such conversion date. The Borrower shall pay any such Lender any additional amounts reasonably necessary to compensate such Lender for any costs incurred by such Lender as a result of any conversion pursuant to clause (ii) above which occurs on a day other than the last day of the relevant Euro-Rate Interest Period, including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by them to loan or maintain the lending of the Loans so converted. Such Lender shall furnish to the Borrower and the Agent a certificate as to the amount necessary to compensate it for such costs, which certificate shall set forth in reasonable detail the calculation of the amount due. Such certificate shall constitute conclusive evidence of the amount due thereunder absent any manifest error in computation. The Borrower shall pay such amount to such Lender, as additional consideration hereunder, within ten (10) days of the Borrower's receipt of such certificate. (d) The foregoing notwithstanding, if the affected Lender can continue to offer the Euro-Rate Option to the Borrower by transferring the Loans to another existing lending office of such Lender, such Lender agrees to so transfer the Loans; provided, such transfer would not subject such Lender to any -------- unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. 2.12. Capital Adequacy. If after the Closing Date (i) any adoption ---------------- of or any change in or in the interpretation by an Official Body of any Law or (ii) compliance with any Law, guideline or request of any Official Body exercising control over banks or financial institutions generally or any court (whether or not having the force of law), affects or would affect the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender other than those resulting solely from a change in the credit quality of the Borrower (a "Capital Adequacy Event"), and the result of such Capital Adequacy Event is to reduce the rate of return on capital of such Lender or any corporation controlling such Lender as a consequence thereof to a level below that which such Lender could have achieved but for such Capital Adequacy Event, taking into consideration such Lender's policies with respect to capital adequacy, by an amount which such Lender deems to be material, such Lender shall promptly deliver to the Borrower and the Agent a statement of the amount necessary to compensate such Lender for the reduction in the rate of return on its capital attributable to the commitments under this Agreement or any of the Loan Documents (the "Capital Compensation Amount"). Each Lender shall determine the Capital Compensation Amount in good faith, using reasonable attribution and averaging methods. Each Lender shall, from time to time, furnish to the Borrower and the Agent a certificate setting forth the amount so determined and the calculations of such amount. Such certificate shall constitute conclusive evidence of the amount due thereunder absent any manifest error in computation. Such amount shall be due and payable by the Borrower to such Lender ten (10) days after such notice is given. As soon as practicable after any Capital Adequacy Event, such Lender shall submit to the Borrower and the Agent estimates of the Capital Compensation Amounts that would be payable as a function of such Lender's Revolving Credit Commitment hereunder. 2.13. Utilization of Commitments in Optional Currencies. ------------------------------------------------- (a) Periodic Computations of Dollar Equivalent Amounts of Loans and --------------------------------------------------------------- Letters of Credit Outstanding. The Agent will determine the Dollar Equivalent - ----------------------------- amount of (i) proposed Loans or Letters of Credit to be denominated in an Optional Currency as of the date of the requested disbursement or date of issuance, as the case may be, (ii) outstanding Loans or Letters of Credit Outstanding denominated in an Optional Currency as of the last Business Day of each month, and (iii) outstanding Loans denominated in an Optional Currency as of the end of each Interest Period (each such date under clauses (i) through (iii), a "Computation Date"). (b) Notices From Lenders That Optional Currencies Are Unavailable To ---------------------------------------------------------------- Fund New Loans. The Lenders shall be under no obligation to make the Loans or - -------------- issue the Letters of Credit requested by the Borrower which are denominated in an Optional Currency if any Lender notifies the Agent by 5:00 p.m. (Pittsburgh, Pennsylvania time) four (4) Business Days prior to the borrowing or issuance date for such Loans or Letters of Credit that such Lender cannot provide its share of such Loans in such Optional Currency. In the event the Agent timely receives a notice from a Lender pursuant to the preceding sentence, the Agent will notify the Borrower no later than 12:00 Noon (Pittsburgh, Pennsylvania time) three (3) Business Days prior to the disbursement for such Loans or the issuance of such Letter of Credit that the Optional Currency is not then available for such Loans or such Letters of Credit, and the Agent shall promptly thereafter notify the Lenders of the same. If the Borrower receives a notice described in the preceding sentence, the Borrower may, by notice to the Agent not later than 5:00 p.m. (Pittsburgh, Pennsylvania time) three (3) Business Days prior to the borrowing or issuance date for such Loans or such Letters of Credit, withdraw the Loan Request for such Loans or the issuance of such Letters of Credit. If the Borrower withdraws such Loan Request, the Agent will promptly notify each Lender of the same and the Lenders shall not make such Loans or issue such Letters of Credit. If the Borrower does not withdraw such Loan Request before such time, (i) the Borrower shall be deemed to have requested that (a) the Loans referred to in its Loan Request shall be made in Dollars in an amount equal to the Dollar Equivalent amount of such Loans and (b) the Letters of Credit referred to in its Loan Request shall be issued in Dollars in an amount equal to the Dollar Equivalent amount of such Letters of Credit and shall bear interest under the Base Rate Option, and (ii) the Agent shall promptly deliver a notice to each Lender stating: (A) that such Loans or such Letters of Credit shall be made in Dollars and the Loans shall bear interest under the Base Rate Option, (B) the aggregate amount of such Loans or such Letters of Credit, and (C) such Lender's Ratable Share of such Loans or such Letters of Credit. (c) Notices from Lenders that Optional Currencies Are Unavailable to ---------------------------------------------------------------- Fund Renewals of Euro-Rate Option Loans. If the Borrower delivers a Loan - --------------------------------------- Request requesting that the Lenders renew the Euro-Rate Option with respect to an outstanding Portion of Loans or Letters of Credit denominated in an Optional Currency, the Lenders shall be under no obligation to renew such Euro-Rate Option if any Lender delivers to the Agent a notice by 5:00 p.m. (Pittsburgh, Pennsylvania time) four (4) Business Days prior to effective date of such renewal that such Lender cannot continue to provide Loans or Letters of Credit in such Optional Currency. In the event the Agent timely receives a notice from a Lender pursuant to the preceding sentence, the Agent will notify the Borrower no later than 12:00 Noon (Pittsburgh time) three (3) Business Days prior to the renewal date that the renewal of such Loans or such Letters of Credit in such Optional Currency is not then available, and the Agent shall promptly thereafter notify the Lenders of the same. If the Agent shall have so notified the Borrower that any such continuation of Loans denominated in an Optional Currency or Letters of Credit issued in an Optional Currency is not then available, any notice of renewal with respect thereto shall be deemed withdrawn, and such Loans denominated in an Optional Currency or Letters of Credit issued in an Optional Currency shall be re-denominated into Base Rate Loans or Letters of Credit in Dollars with effect from the last day of the Interest Period with respect to any such Loans denominated in an Optional Currency or Letters of Credit issued in an Optional Currency. The Agent will promptly notify the Borrower and the Lenders of any such re-denomination, and in such notice, the Agent will state the aggregate Dollar Equivalent amount of the re-denominated Loans denominated in an Optional Currency or Letters of Credit issued in an Optional Currency as of the Computation Date with respect thereto and such Lender's Ratable Share thereof. (d) Requests for Additional Optional Currencies. The Borrower may ------------------------------------------- deliver to the Agent a written request that Loans hereunder also be permitted to be made in any other lawful currency (other than Dollars), in addition to the currencies specifically identified in the definition of "Optional Currency"; provided that such currency must be freely traded in the offshore interbank foreign exchange markets, freely transferable, freely convertible into Dollars and available to the Lenders in the applicable interbank market. The Agent will promptly notify the Lenders of any such request promptly after the Agent receives such request. Each Lender may grant or deny such request in its sole discretion. The Agent will promptly notify the Borrower of the acceptance or rejection by each of the Lender of the Borrower's request. The requested currency shall be approved as an Optional Currency hereunder only if the Required Lenders approve of the Borrower's request. (e) Optional Currency Fee. The Borrower shall pay to the Agent in --------------------- Dollars for the Agent's sole account the Agent's then in effect customary fees and administrative expenses payable with respect to Loans denominated in an Optional Currency or Letters of Credit issued in an Optional Currency as the Agent may generally charge or incur in connection with the funding, maintenance, modification (if any), assignment or transfer (if any), negotiation, and administration of Loans denominated in an Optional Currency or Letters of Credit issued in an Optional Currency. (f) Currency Repayments. Notwithstanding anything contained herein to ------------------- the contrary, the entire amount of principal of and interest on any Loan made in an Optional Currency shall be repaid in the same Optional Currency in which such Loan was made, provided, however, that if it is impossible or illegal for the -------- ------- Borrower to effect payment of a Loan in the Optional Currency in which such Loan was made, or if the Borrower defaults in its obligation to do so, the Lenders may at their option permit such payment to be made (i) at and to a different location, subsidiary, affiliate or correspondent of the Agent, or (ii) in the Equivalent Amount of Dollars or (iii) in an Equivalent Amount of such other currency (freely convertible into Dollars) as the Lenders may solely at their option designate. Upon any events described in (i) through (iii) of the preceding sentence, the Borrower shall make such payment and the Borrower agrees to hold each Lender harmless from and against any loss incurred by any Lender arising from the cost to such Lender of any premium, any costs of exchange, the cost of hedging and covering the Optional Currency in which such Loan was originally made, and from any change in the value of Dollars, or such other currency, in relation to the Optional Currency that was due and owing. Such loss shall be calculated for the period commencing with the first day of the Interest Period for such Loan and continuing through the date of payment thereof. Without prejudice to the survival of any other agreement of the Borrower hereunder, the Borrower's obligations under this Section 2.13 shall survive termination of this Agreement. (g) Optional Currency Amounts. Notwithstanding anything contained ------------------------- herein to the contrary, the Agent may, with respect to notices by the Borrowers for Loans in an Optional Currency or voluntary prepayments of less than the full amount of an Optional Currency Disbursement, engage in reasonable rounding of the Optional Currency amounts requested to be loaned or repaid; and, in such event, the Agent shall promptly notify the Borrower and the Lenders of such rounded amounts and the Borrower's request or notice shall thereby be deemed to reflect such rounded amounts. (h) Currency Fluctuations. If on any Computation Date the sum of the --------------------- Dollar Equivalent of all Loans and all Letters of Credit Outstanding is greater than the sum of the Revolving Credit Commitments, as a result of a change in exchange rates between one (1) or more Optional Currencies and Dollars, then the Agent shall notify the Borrower of the same. Within one (1) Business Day after receiving such notice, the Borrower shall either (i) pay or prepay (subject to the Borrower's indemnity obligations under this Agreement) Loans denominated in an Optional Currency and Letters of Credit issued in an Optional Currency or (ii) pay or prepay Loans denominated in Dollars (subject to the Borrower's indemnity obligations under this Agreement), in either case in amounts such that the sum of the Dollar Equivalent of all Loans and all Letters of Credit Outstanding does not exceed the Revolving Credit Commitments, all after giving effect to such payments or prepayments. (i) European Monetary Union. ----------------------- (i) (A) If, as a result of the implementation of the European monetary union, any Optional Currency ceases to be lawful currency of the nation issuing the same and is replaced by a European common currency (the "Euro") or (B) any Optional Currency and the Euro are at the same time recognized by any governmental authority of the nation issuing such currency as lawful currency of such nation and the Required Lenders shall so request in a notice delivered to the Borrower, then any amount payable hereunder by any party hereto in such Optional Currency shall instead be payable in the Euro and the amount so payable shall be determined by translating the amount payable in such Optional Currency to the Euro at the exchange rate recognized by the European Central Bank for the purpose of implementing the European monetary union. Prior to the occurrence of the event or events described in clause (A) or (B) of the preceding sentence, each amount payable hereunder in any Optional Currency will, except as otherwise provided herein, continue to be payable only in that Optional Currency. (ii) The Borrower agrees, at the request of any Lender, to compensate such Lender for any loss, cost, expense or reduction in return that such Lender shall reasonably determine shall be incurred or sustained by such Lender as a result of the implementation of the European monetary union and that would not have been incurred or sustained but for the transactions provided for herein. A certificate of the Lender setting forth the Lender's determination of the amount or amounts necessary to compensate such Lender shall be delivered to the Borrower, and shall be conclusive absent manifest error so long as such determination is made on a reasonable basis. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof. (iii) The parties hereto agree, at the time of or at any time following the implementation of the European monetary union, to use reasonable efforts to enter into an agreement amending this Agreement in order to reflect the implementation of such monetary union, to permit (if feasible) the Euro to qualify as an Optional Currency under the terms and conditions of the definition of such term and to place the parties hereto in the position with respect to the settlement of payments of the Euro as they would have been with respect to the settlement of the Optional Currencies it replaced. 2.14. Interbank Market Presumption. For all purposes of this ---------------------------- Agreement and each Note with respect to any aspects of the Euro-Rate, any Loan under the Euro-Rate Option or any Optional Currency, each Lender and the Agent shall be presumed to have obtained rates, funding, currencies, deposits, and the like in the applicable interbank market regardless whether it did so or not; and, each Lender's and the Agent's determination of amounts payable under, and actions required or authorized by this Agreement shall be calculated, at each Lender's and the Agent's option, as though each Lender and the Agent funded each Portion of Loans under the Euro-Rate Option through the purchase of deposits of the types and maturities corresponding to the deposits used as a reference in accordance with the terms hereof in determining the Euro-Rate applicable to such Loans, whether in fact that is the case. 2.15 Loan Account. The Agent shall open and maintain on its books a ------------ Loan Account in the name of the Borrower, with respect to (i) Loans made, repayments and prepayments of the principal thereof, and the computation and payment of interest thereon, (ii) Letters of Credit issued, or participated in, as the case may be, and draws and reimbursements thereon or thereof, and (iii) the computation and payment of the Fees due hereunder to the Lenders, the L/C Issuer and the Agent, and the computation of other amounts due and sums paid to the Agent hereunder. Upon the request of the Borrower to the Agent, the Agent shall promptly furnish to the Borrower a statement of the Loan Account. The failure to record any such amount shall not limit or otherwise affect the obligations of the Borrower hereunder or under the Notes to repay all amounts owed hereunder and thereunder together with all interest accrued thereon and all other fees and charges provided herein. The Loan Account shall be conclusive evidence as to the amount at any time due to the Lenders, the L/C Issuer and the Agent from the Borrower except in the case of manifest error. 2.16. All Advances to Constitute One Loan. Notwithstanding the ----------------------------------- limitations set forth herein, all Loans and all other Lender Obligations shall constitute one loan and all Indebtedness and obligations of the Borrower to the Lenders under this Agreement and all other Loan Documents shall constitute a general obligation of the Borrower. The parties hereto agree that all of the rights of the Agent, the L/C Issuer, the Lenders and the Borrower set forth in this Agreement and the other Loan Documents shall apply to any amendment or modification of or supplement to this Agreement and the other Loan Documents. 2.17. Use of Proceeds. The proceeds of the Loans shall be used --------------- exclusively (i) to pay interest, Fees and other costs, and expenses hereunder and under the other Loan Documents, (ii) to repay any Unreimbursed L/C Draw and (iii) to fund capital expenditures, working capital, acquisitions and general corporate purposes of the Borrower and its Subsidiaries. No proceeds of any Loan may be used for any purpose which contravenes applicable law or any provision of any Loan Document. 2.18. Letter of Credit Subfacility. ---------------------------- (a) At the request of the Borrower, the L/C Issuer will issue for the account of the Borrower and its Subsidiaries, on the terms and conditions hereinafter set forth (including without limitation Article V hereof), one or more Letters of Credit in Dollars or Optional Currency; provided, however, no -------- ------- Letter of Credit shall have an expiry date later than the earlier of twelve (12) months from the date of issuance or fifteen (15) days prior to the Expiration Date; and provided, further, however, that in no event shall (i) the Dollar -------- ------- ------- Equivalent of the Stated Amount of the Letters of Credit issued pursuant to this Section 2.18 exceed, at any one time, $10,000,000 minus the unpaid balance of ----- any unreimbursed L/C Draws, or (ii) the Dollar Equivalent sum of aggregate outstanding principal balance of the Loans, the aggregate unpaid balance of any Unreimbursed L/C Draws and the aggregate Stated Amount of the Letters of Credit issued by the L/C Issuer under this Section 2.18 exceed, at any one time, the aggregate Revolving Credit Commitments. (b) (i) The Borrower shall pay (A) to the L/C Issuer for its own account a fronting fee in Dollars equal to 1/8 of 1% per annum (the "L/C Fronting Fee") on the aggregate daily (computed at the opening of business and on the basis of a year of 360 days and actual days elapsed) Stated Amount of the outstanding Standby Letters of Credit for the period in question, (B) to the Agent for the ratable account of the Lenders a fee (the "Standby Letter of Credit Fee") equal to the Applicable Standby Letter of Credit Fee per annum, as determined below, on the aggregate daily (computed at the opening of business and on the basis of a year of 360 days and actual days elapsed) Stated Amount of the outstanding Letters of Credit for the period in question, and (C) to the Agent for the ratable account of the Lenders a fee (the "Commercial Letter of Credit Fee") equal to the then current standard fee charged by the L/C Issuer for the issuance of Commercial Letters of Credit (the Standby Letter of Credit Fee and the Commercial Letter of Credit Fee shall be collectively referred to as the "Letter of Credit Fee"). The Letter of Credit Fee and the L/C Fronting Fee shall be payable (A) quarterly in arrears on the last Business Day of each Fiscal Quarter occurring during the term of this Agreement, (B) on the Expiration Date or (C) upon acceleration of the Notes. Any issuance of an amendment to extend the stated expiration date of a Letter of Credit or an amendment to increase the Stated Amount of a Letter of Credit shall be treated as an issuance of a new Letter of Credit for purposes of calculation of the Letter of Credit Fee and the L/C Fronting Fee due and payable hereunder. After the occurrence of an Event of Default and during the continuation thereof, the rate at which the Letter of Credit Fee is calculated shall be increased by two hundred (200) basis points (2%) above the pre-default rate. (ii) The Borrower shall also pay to the L/C Issuer for the L/C Issuer's own account the L/C Issuer's customary documentation fees payable with respect to the Letters of Credit as the L/C Issuer may generally charge from time to time. Without limitation, the foregoing shall include all charges and expenses paid or incurred by the L/C Issuer in connection with any Letter of Credit, including without limitation: (A) correspondents' charges, if any, (B) any and all reasonable out-of-pocket expenses and charges of the L/C Issuer in connection with the performance, administration, interpretation, collection and enforcement of this Agreement and any Letter of Credit, including all reasonable legal fees and expenses, and (C) any and all applicable reserve or similar requirements and any and all premiums, assessments, or levies imposed upon the L/C Issuer by any Official Body. (iii) If by reason of (A) any change in any Law or any change in the interpretation or application by any judicial or regulatory authority of any Law which occurs after the date hereof or (B) compliance by the L/C Issuer with any direction, request or requirement which occurs after the date hereof (whether or not having the force of law) of any Official Body: (1) the L/C issuer shall be subject to any tax, levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this Section 2.18, whether directly or by such being imposed on or suffered by the L/C Issuer; (2) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of the Letters of Credit; or (3) there shall be imposed on the L/C Issuer any other condition regarding this Section 2.18 or the Letters of Credit; and if the result of any of the foregoing is to directly or indirectly increase the cost to the L/C Issuer of issuing or maintaining any Letter of Credit, or to reduce the amount receivable in respect thereof by, the L/C Issuer, then and in any such case the L/C Issuer may, at any time after the additional cost is incurred or the amount receivable is reduced, notify the Borrower and the Agent, and the Borrower shall pay on demand such amounts as the L/C Issuer may specify to be necessary to compensate the L/C Issuer for such additional cost or reduced receipt, together with interest on such amount from the date of the notice of such event which results in such increased cost or reduction in amount receivable until payment in full thereof at a rate equal at all times to the Base Rate. The determination by the L/C Issuer of any amount due pursuant to this Subsection 2.18(b)(iii) as set forth in a certificate setting forth the calculation thereof, shall, in the absence of manifest error, be final and conclusive and binding on all of the parties hereto. For purposes of this Agreement, the term "Applicable Standby Letter of Credit Fee" shall mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the Borrower's Consolidated Senior Indebtedness to Consolidated EBITDA Ratio as at the end of the preceding Fiscal Quarter falls:
Consolidated Senior Indebtedness Applicable Letter of to Consolidated EBITDA Ratio Credit Fee - ----------------------------------------------------------------------------------------------------- Less than 0.5 to 1.0 .50% - ----------------------------------------------------------------------------------------------------- Equal to or greater than 0.5 to 1.0 but less than 1.0 to 1.0 .625% - ----------------------------------------------------------------------------------------------------- Equal to or greater than 1.0 to 1.0 but less than or equal to 1.5 to 1.0 .75% - ----------------------------------------------------------------------------------------------------- Equal to or greater than 1.5 to 1.0 but less than or equal to 2.0 to 1.0 .875% - ----------------------------------------------------------------------------------------------------- Equal to or greater than 2.0 to 1.0 1.00% - -----------------------------------------------------------------------------------------------------
All adjustments shall be determined as of the date the Borrower's financial statements and Compliance Certificate are required to be delivered pursuant to items (a), (b) and (c) of Section 6.02. The foregoing notwithstanding, the Applicable Letter of Credit Fee from the Closing Date to and including the December 1998 Delivery Date shall be .50%. (c) Immediately upon the issuance of each Letter of Credit and each increase in the Stated Amount thereof, each Lender hereby agrees to irrevocably purchase and shall be deemed to have irrevocably purchased from the L/C Issuer an undivided, full risk, non-recourse participation in such Letter of Credit and drawings thereunder in an amount equal to such Lender's Ratable Share of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that the L/C Issuer is required for any reason to refund or repay to the Borrower, any guarantor or any other Person all or any portion of any amount remitted to the L/C Issuer pursuant to this Agreement, the Lenders shall promptly remit to the L/C Issuer, upon three (3) Business Days' demand therefor, their respective Ratable Shares of the amount which is so refunded or repaid. (d) In the event any restrictions are imposed upon the L/C Issuer or any of the Lenders by any Law or any Official Body having jurisdiction over the banking activities of the L/C Issuer or any Lender which would prevent the L/C Issuer from issuing the Letters of Credit or amending the Letters of Credit or would prevent any Lender from honoring its obligations under this Section 2.18, the commitment of the L/C Issuer to issue the Letters of Credit or enter into any amendment with respect thereto shall be immediately suspended. If any Lender believes any such restriction would prevent such Lender from honoring its obligations under this Section 2.18, it shall promptly notify the Agent. The Agent shall promptly notify the Borrower, the L/C Issuer and the other Lenders of the existence and nature of (i) any restriction which would cause the suspension of the commitment of the L/C Issuer to issue the Letters of Credit or to enter into amendments with respect thereto and (ii) any restriction which would prevent any Lender from honoring its obligations under this Section 2.18. The Borrower will thereupon undertake reasonable efforts to obtain the cancellation of all outstanding Letters of Credit; provided, however, that -------- ------- the refusal of any beneficiary of a Letter of Credit to surrender such Letter of Credit will not be an Event of Default hereunder, provided that the Borrower shall undertake good faith efforts to obtain substitute letters of credit for the then existing and outstanding Letters of Credit. Nothing contained in this Section 2.18 shall be deemed a termination of the Revolving Credit Commitments and, in the event of a suspension of the commitment of the L/C Issuer to issue Letters of Credit as set forth above, the Borrower may continue to borrow under the Revolving Credit Commitments provided the requirements of Section 5.02 are complied with. (e) When the Borrower desires the issuance of a Letter of Credit, the Borrower shall deliver a duly completed Application for Letter of Credit to the L/C Issuer, with a copy to the Agent, no later than 11:00 A.M. (Pittsburgh, Pennsylvania time) at least three (3) Business Days, or such shorter period as may be agreed to by the L/C Issuer, in advance of the proposed date of issuance. Upon satisfaction of the conditions set forth in Section 5.01, if applicable, and Section 5.02, the L/C Issuer shall be obligated to issue the Letter of Credit and shall notify the Agent and each Lender of such issuance. In determining whether to pay under a Letter of Credit, the L/C Issuer shall be responsible only to determine that the documents and certificates required to be delivered under the Letter of Credit have been delivered and that they comply on their face with the requirements of the Letter of Credit. (f) In the event of any request for drawing under a Letter of Credit by the beneficiary thereof, the L/C Issuer shall immediately notify the Borrower and the Agent, and the Borrower shall reimburse, or cause the reimbursement of, the L/C Issuer on demand as set forth in the applicable Application for Letter of Credit in an amount in same day funds equal to the amount of such drawing; provided, however, that anything contained in this Agreement to the contrary notwithstanding, unless the Borrower shall have notified the Agent and the L/C Issuer prior to such time that the Borrower intends to reimburse the L/C Issuer for all or a portion of the amount of such drawing with funds other than the proceeds of Loans, the Borrower shall be deemed to have given a Loan Request to the Agent requesting the Lenders to make Loans on the first Business Day immediately following the date on which such drawing is honored in an aggregate amount equal to the excess of the amount of such drawing over the amount received by the L/C Issuer from such other funds in reimbursement thereof (the "Unreimbursed L/C Draw"), plus accrued interest on such amount at the rate set forth in Subsection 2.08. Any such Loan shall be deemed advanced to the Borrower. If the Borrower shall be deemed to have given a Loan Request, then, subject to satisfaction or waiver of the conditions specified in Section 5.02, the Lenders shall, all as set forth in Section 2.18(g) hereof, on the first Business Day immediately following the date of such drawing, make Loans in the aggregate amount of the Unreimbursed L/C Draw plus accrued interest on such amount at the applicable rate set forth in Section 2.08. The proceeds of any such Loans shall be applied directly by the Agent upon receipt from the Lenders to reimburse the L/C Issuer for the Unreimbursed L/C Draw plus accrued interest on such amount. The foregoing shall not limit or impair the obligation of the Borrower to reimburse the L/C Issuer on demand. (g) In the event that the Borrower shall fail to reimburse the L/C Issuer on demand as provided in the applicable Application for Letter of Credit and Section 2.18(f) above in an amount equal to the amount of any drawing honored by the L/C Issuer under a Letter of Credit plus accrued interest, the L/C Issuer shall promptly notify the Agent and each Lender of the Unreimbursed L/C Draw plus accrued interest on such amount of such drawing and of such Lender's respective participation therein. Each Lender shall make available to the L/C Issuer an amount equal to its respective participation in same day funds, at the office of the L/C Issuer specified in such notice, not later than 12:00 Noon (Pittsburgh, Pennsylvania time) on the Business Day after the date specified in such notice by the L/C Issuer. In the event that any Lender fails to make available to the L/C Issuer the amount of such Lender's participation in such Letter of Credit as provided in this Section 2.18(g), the L/C Issuer shall be entitled to recover such amount on demand from such Lender together with interest at the Federal Funds Effective Rate for three (3) Business Days and thereafter at the Base Rate. Nothing in this Section 2.18(g) shall be deemed to prejudice the right of any Lender to recover its Ratable Share of the Unreimbursed L/C Draw from the L/C Issuer pursuant to this Section 2.18(g) in the event that it is determined by a court of competent jurisdiction that payment with respect to a Letter of Credit by the L/C Issuer constituted gross negligence or willful misconduct on the part of the L/C Issuer. The L/C Issuer shall distribute to each Lender which has paid all amounts payable by it under this Section 2.18(g) with respect to a Letter of Credit such other Lender's Ratable Share of all payments received by the L/C Issuer from the Borrower in reimbursement of drawing honored by the L/C Issuer under the Letter of Credit when such payments are received. (h) The obligations of the Borrower under this Agreement to reimburse the L/C Issuer for all drawings upon the Letters of Credit shall be absolute, unconditional and irrevocable, and shall not be subject to any right of set-off or counterclaim and shall be paid or performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including the following circumstances: (i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the Loan Documents; (ii) any amendment or waiver of any provision of all or any of the Loan Documents; (iii) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the L/C Issuer, the Agent or any Lender (other than the defense of payment to the L/C Issuer in accordance with the terms of this Agreement) or any other Person, whether in connection with this Agreement, the Loan Documents or any transaction contemplated hereby or thereby or any unrelated transaction; (iv) any draft, demand, certificate, statement or document presented under any Letter of Credit, appearing on its face to be valid and sufficient, but proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (v) payment by the L/C Issuer under any Letter of Credit against presentation of any document which does not comply with the terms of the Letter of Credit, provided that such payment shall not have constituted gross negligence or willful misconduct of the L/C Issuer; (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, not resulting from gross negligence or willful misconduct of the L/C Issuer; and (vii) the fact that a Default or Event of Default shall have occurred and be continuing. (i) This Agreement is intended to supplement each Application for Letter of Credit executed by the Borrower and delivered to the L/C Issuer. Whenever possible this Agreement is to be construed as consistent with each Application for Letter of Credit but, to the extent that the provisions of this Agreement and each Application for Letter of Credit conflict, the terms of this Agreement shall control. (j) Obligations Absolute. Notwithstanding any other provision of this -------------------- Agreement, each Lender hereby agrees that its obligation to participate in each Letter of Credit issued in accordance herewith and its obligation to make the payments to be made by it under this Section 2.18 is absolute, irrevocable and unconditional and shall not be affected by any event, condition or circumstance whatever. The failure of any Lender to make any such payment shall not relieve any other Lender of its funding obligation hereunder on the date due, but no Lender shall be responsible for the failure of any other Lender to meet its funding obligations hereunder. (k) In addition to amounts payable as elsewhere provided in this Section 2.18, the Borrower hereby agrees to protect, indemnify, pay and save the Agent or the L/C Issuer harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which the Agent or the L/C Issuer may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of the Letters of Credit or any amendment thereto, other than as a result of the gross negligence or willful misconduct of the Agent or the L/C Issuer as determined by a court of competent jurisdiction, (ii) the failure of the L/C Issuer to honor a draw under any Letter of Credit if the L/C Issuer in good faith and upon advice of counsel believes that it is prohibited from making such payment as a result of any requirement of Law or of any Official Body, or (iii) any material breach by the Borrower of any representation, warranty, covenant, term or condition in, or the occurrence of any default under, any document related to the issuance or any amendment of the Letters of Credit. If any proceeding shall be brought or threatened against the Agent or the L/C Issuer by reason of or in connection with any event described in clauses (i) through (iii) above, the Agent shall promptly notify the Borrower in writing, and the Borrower shall assume the defense thereof, including the employment of counsel and payment of all costs of litigation. Notwithstanding the preceding sentence, the Agent and the L/C Issuer shall have the right to employ its own counsel and to determine its own defense of such action in any such case, but the fees and expenses of such counsel shall be at the expense of the Agent or the L/C Issuer, as the case may be, unless (x) the employment of such counsel shall have been authorized in writing by the Borrower, (y) the Borrower, after the aforementioned notice of the action, shall not have employed counsel to have charge of such defense or (z) if the position of the Borrower is adverse or contrary to the position advocated by the Agent or the L/C Issuer, as the case may be. In each case described in clauses (x), (y) and (z) immediately above the reasonable fees and expenses of counsel for the Agent or the L/C Issuer, as the case may be shall be borne by the Borrower. The Borrower shall not be liable for any settlement of any such action affected without its consent. (l) The L/C Issuer is hereby expressly authorized and directed to honor any request for payment which is made under and in compliance with the terms of any Letter of Credit without regard to, and without any duty on the L/C Issuer's part to inquire into, the existence of any disputes or controversies between the Borrower, the beneficiary of any Letter of Credit or any other Person, or the respective rights, duties or liabilities of any of them or whether any facts or occurrences represented in any of the documents presented under any Letter of Credit are true or correct. Furthermore, the Borrower fully understands and agrees that the L/C Issuer's sole obligation to the Borrower shall be limited to honoring requests for payment made under and in compliance with the terms of any Letter of Credit, the Application for Letter of Credit therefor and this Agreement and the L/C Issuer's obligation remains so limited even if the L/C Issuer may have assisted the Borrower in the preparation of the wording of any Letter of Credit or any documents required to be presented thereunder or that the L/C Issuer may otherwise be aware of the underlying transaction giving rise to any Letter of Credit and this Agreement. (m) As between the Borrower and the L/C Issuer, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the beneficiaries of the Letters of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer shall not be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for or the issuance or amendment of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign the Letters of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of a beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telecopy, telex or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a draw under the Letters of Credit or of the proceeds thereof; (vii) for the misapplication by a beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; (viii) for any consequences arising from causes beyond the control of the L/C Issuer, including, without limitation, any Law; and (ix) for any other circumstances whatsoever in making or failing to make payment under a Letter of Credit; except that the Borrower shall have a claim against the L/C Issuer, and the L/C Issuer shall be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Borrower by a court of competent jurisdiction to be the result of (i) the L/C Issuer's willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of the Letter of Credit, (ii) the L/C Issuer's willful misconduct or gross negligence in paying a draw under a Letter of Credit to any Person other than the beneficiary of such Letter of Credit or its lawful successor, representative or assign (or as otherwise directed in writing by the beneficiary of such Letter of Credit) or (iii) the L/C Issuer's willful failure to pay under a Letter of Credit after the presentation to it by the beneficiary of such Letter of Credit or its lawful successor, representative or assign of a sight draft and certificate or other documents strictly complying with the terms and conditions of such Letter of Credit, unless the L/C Issuer in good faith and upon advice of counsel believes that it is prohibited by law or other legal authority from making such payment. None of the above shall affect, impair, or prevent the vesting of any of the L/C Issuer's rights or powers hereunder. (n) Except for the L/C Issuer's obligations to issue Letters of Credit hereunder and its obligations under such Letters of Credit, the L/C Issuer shall have no liability to the Borrower from a reduction of the L/C Issuer's credit rating or any deterioration in its financial condition. (o) The Borrower shall bear and pay all reasonable expenses of every kind (including all reasonable attorneys' fees) of the enforcement of any of the L/C Issuer's rights under this Agreement or the Letters of Credit, or of any claim or demand by the L/C Issuer against the Borrower, or of any actual or attempted sale, exchange, enforcement, collection, maintenance, retention, insurance, compromise, settlement, release, delivery on trust receipt, or other security agreement, or delivery of any such security, and of the receipt of proceeds thereof, and will repay to the L/C Issuer any such expenses incurred by the L/C Issuer. (p) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the L/C Issuer under or in connection with the Letters of Credit or the related sight drafts or certificates or documents, if taken or omitted in good faith, shall not put the L/C Issuer under any resulting liability to the Borrower. (q) Whenever appropriate to prevent unjust enrichment and to the end that the Borrower shall bear substantially all of the risks relative to any Letter of Credit and the underlying transactions, the L/C Issuer shall be subrogated (for purposes of defending against the Borrower's claims and proceeding against others to the extent of the L/C Issuer's liability to the Borrower) to the Borrower's rights against any Person who may be liable to the Borrower on any underlying transaction, to the rights of any holder in due course or Person with similar status against the Borrower, and to the rights of the beneficiary or its assignee or person with similar status against the Borrower. (r) Except and to the extent inconsistent with the specific provisions hereof, this Agreement, each Letter of Credit hereunder and all transactions in connection therewith shall be interpreted, construed and enforced according to: (i) the "Uniform Customs and Practice for Documentary Credits" (1993 Revision), International Chamber of Commerce Publication No. 500 and subsequent revisions thereof which shall supersede inconsistent provisions of applicable law to the extent not prohibited by applicable law and (ii) the laws of the Commonwealth of Pennsylvania, including, without limitation, the Uniform Commercial Code, and excluding conflict of laws rules. 2.19. Taxes. ----- (a) No Deductions. All payments made by the Borrower hereunder and ------------- under each Note shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, excluding taxes imposed on the net income of any Lender and all income and franchise taxes applicable to any Lender of the United States (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by Law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note, (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 2.19(a) each Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant tax authority or other authority in accordance with applicable law. (b) Stamp Taxes. In addition, the Borrower agrees to pay any present ----------- or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made hereunder or from the execution, delivery, or registration of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) Indemnification for Taxes Paid by a Lender. The Borrower shall ------------------------------------------ indemnify each Lender for the full amount of Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.19(c)) paid by any Lender 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 a Lender makes written demand therefor. (d) Certificate. Within 30 days after the date of any payment of any ----------- Taxes or Other Taxes by the Borrower on behalf of a Lender, the Borrower shall furnish to each Lender, at its address referred to herein, the original or a certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment by the Borrower, the Borrower shall, if so requested by a Lender, provide a certificate of an officer of the Borrower to that effect. (e) Withholding. Each Lender that is not incorporated under the laws ----------- of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be (assuming that it is entitled to do so), and (ii) two duly completed copies of Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such Lender also agrees to deliver to the Borrower and the Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower or the Agent, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrower and the Agent. Such Lender shall certify (i) in the case of Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (assuming that it is entitled to do so) and (ii) in the case of Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. (f) Survival. Without prejudice to the survival of any other agreement -------- of the Borrowers hereunder, the agreements and obligations of the Borrower contained in this Section 2.19 shall survive the payment in full of principal and interest hereunder and under any instrument delivered hereunder. 2.20. Payments. All payments and prepayments to be made in -------- respect of principal, interest, Unreimbursed L/C Draws, Fees, or other amounts due from the Borrower hereunder (except those Optional Currency payments and prepayments made pursuant to Section 2.13(f) hereof) shall be payable prior to 11:00 A.M. (Pittsburgh, Pennsylvania time) on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower, and without setoff, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Agent at the Principal Office for the ratable account of the Lenders or L/C Issuer, as the case may be, in Dollars and in immediately available funds, and the Agent shall promptly distribute such amounts to the Lenders or L/C Issuer, as the case may be, in immediately available funds in accordance with the terms and provisions of Section 9.10 of this Agreement. The Agent's, the L/C Issuer's and each Lender's statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans, the Unreimbursed L/C Draws, Fees and other amounts owing under this Agreement and shall be deemed an "account stated." Notwithstanding anything herein to the contrary, (i) any administration or underwriting fee paid by the Borrower to the Agent shall be solely for the account of the Agent, (ii) any L/C Fronting Fees paid by the Borrower shall be solely for the account of the L/C Issuer and (iii) any interest paid on any Unreimbursed L/C Draw to the extent a Lender has not been required to honor or has not honored its funding obligations pursuant to Section 2.18(g) hereof shall be solely for the account of the L/C Issuer. 2.21. Judgment Currency. ----------------- (a) Currency Conversion Procedures for Judgments. If for the purposes -------------------------------------------- of obtaining judgment in any court it is necessary to convert a sum due hereunder or under a Note in any currency (the "Original Currency") into another currency (the "Other Currency"), the parties hereby agree, to the fullest extent permitted by Law, that the rate of exchange used shall be that at which in accordance with normal banking procedures each Lender could purchase the Original Currency with the Other Currency after any premium and costs of exchange on the Business Day preceding that on which final judgment is given. (b) Indemnity in Certain Events. The obligation of the Borrower in --------------------------- respect of any sum due from the Borrower to any Lender hereunder shall, notwithstanding any judgment in an Other Currency, whether pursuant to a judgment or otherwise, be discharged only to the extent that, on the Business Day following receipt by any Lender of any sum adjudged to be so due in such Other Currency, such Lender may in accordance with normal banking procedures purchase the Original Currency with such Other Currency. If the amount of the Original Currency so purchased is less than the sum originally due to such Lender in the Original Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment or payment, to indemnify such Lender against such loss. ARTICLE III LOAN DISBURSEMENT ACCOUNT, GUARANTEES, ETC. ------------------------------------------ 3.01. Loan Disbursement Account. The Borrower shall maintain at all ------------------------- times during this Agreement with the Agent, at the Agent's office in Pittsburgh, Pennsylvania, a demand deposit account (the "Loan Disbursement Account"), into which proceeds of Loans and other monies transferred to the Borrower hereunder shall be deposited from time to time. The Loan Disbursement Account shall be in the name of the Borrower and, subject to the other provisions of this Agreement and the other Loan Documents, monies therein shall be disbursed as directed by the Borrower, from time to time. To secure the payment and performance of Lender Obligations, the Borrower hereby pledges and assigns, and grants to the Agent for the benefit of the Agent, the L/C Issuer and the Lenders, a lien on and security interest in the Loan Disbursement Account, all funds from time to time deposited or held therein, all interest and other income derived therefrom, and all proceeds of all the foregoing. 3.02. Designation of Subsidiary Guarantors. Each Subsidiary of the ------------------------------------ Borrower incorporated or organized in the United States of America or in a state thereof, whether now in existence or hereafter acquired shall be automatically designated as a Subsidiary Guarantor by the Lenders. Any Subsidiary designated as a Subsidiary Guarantor shall continue as a Subsidiary Guarantor until released in writing by all of the Lenders. 3.03. Foreign Subsidiaries. The Borrower shall, and shall cause -------------------- each of its domestic Subsidiaries, to pledge to the Agent for the benefit of the Lenders 65% of its ownership interest in each Subsidiary not incorporated or organized in the United States of America or a state thereof. 3.04. Further Cooperation. The Borrower shall perform, or cause each ------------------- other Loan Party to perform, on the reasonable request of the Agent and at the Borrower's expense, such reasonable acts as may be necessary or reasonably advisable to carry out the intent of this Agreement and the other Loan Documents. Without limiting the generality of the preceding sentence, the Borrower shall cause each newly-created or acquired Subsidiary Guarantor to execute and deliver a Subsidiary Guaranty to the Agent with a reasonable period of time following the creation or acquisition of such Subsidiary Guarantor and shall execute and deliver or cause the relevant Loan Party to execute and deliver a Pledge Agreement relating to the equity interest in any hereafter acquired or created foreign Subsidiary. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ Representations and Warranties. The Borrower represents and warrants to the ------------------------------ Agent, each of the Lenders and the L/C Issuer as follows: 4.01. Organization and Qualification. ------------------------------ (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, the Borrower has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct; and the Borrower is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 4.01 hereto and in all other jurisdictions where ------------- the property owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except for those jurisdictions where the Borrower's non-qualification would not cause there to be a Material Adverse Change. (b) Each Subsidiary of the Borrower is a corporation, business trust, limited liability company or limited partnership, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be, shown on Schedule 4.01; each Subsidiary of the Borrower has the lawful power to own or - ------------- lease its properties and to engage in the business it presently conducts or proposes to conduct; and each Subsidiary of the Borrower is duly licensed or qualified and in good standing in each jurisdiction listed on Schedule 4.01 ------------- hereto and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except for those jurisdictions where such Subsidiary's non-qualification would not cause there to be a Material Adverse Change. 4.02. Capitalization and Ownership. As of September 30, 1998, the ---------------------------- authorized capital stock of the Borrower consists of 200,000,000 shares of common stock of which 49,041,861 shares were issued and outstanding, and 20,000,000 shares of preferred stock, of which one (1) share is issued and outstanding. All of the capital stock of the Borrower has been validly issued and is fully paid and non- assessable. Except as set forth in Schedule 4.02, there are no options, warrants ------------- or other rights outstanding to purchase any such capital stock. 4.03. Subsidiaries. Except for the Subsidiaries and investments in ------------ other Persons set forth in Schedule 4.03, the Borrower does not own directly or ------------- indirectly any capital stock of any other Person, is not a partner (general or limited) of any partnership, is not a party to any joint venture and does not own (beneficially or of record) any equity interest or similar interest in any other Person. 4.04. Power and Authority. The Borrower and each other Loan ------------------- Party has full power to enter into, execute, deliver, carry out and perform this Agreement and the Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its obligations under the Loan Documents to which it is a party and all such actions have been duly authorized by all necessary corporate proceedings on its part. 4.05. Validity and Binding Effect. This Agreement has been, --------------------------- and each Loan Document, when executed and delivered by the Borrower and each other Loan Party, will have been, duly and validly executed and delivered by the Borrower or such Loan Party. This Agreement and each of the other Loan Documents executed and delivered by the Borrower and each Loan Party will constitute legal, valid and binding obligations of the Borrower or such Loan Party, enforceable against the Borrower or such Loan Party in accordance with their respective terms, except to the extent that enforceability of any of the Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. 4.06. No Conflict. ----------- (a) Neither the execution and delivery by the Borrower of this Agreement or the Loan Documents to which the Borrower is a party, nor the consummation of the transactions herein or therein contemplated, nor compliance with the terms and provisions hereof or thereof by the Borrower will (i) conflict with, constitute a default under or result in any breach of (A) the terms and conditions of the articles of incorporation, by-laws or other organizational documents of the Borrower or (B) any Law or any agreement or instrument or order, writ, judgment, injunction or decree to which the Borrower is a party or by which it is bound or to which it is subject, which conflict, default or breach would cause a Material Adverse Change, or (ii) result in the creation or enforcement of any Lien upon any property (now or hereafter acquired) of the Borrower (other than the Permitted Liens). (b) Neither the execution and delivery by a Loan Party of a Subsidiary Guaranty or Pledge Agreement to which such Loan Party is a party, nor the consummation of the transactions contemplated by this Agreement or the other Loan Documents, nor compliance with the terms and provisions hereof or thereof by such Loan Party will (i) conflict with, constitute a default under or result in any breach of (A) the terms and conditions of the articles of incorporation, by-laws or other organizational documents of such Subsidiary or (B) any Law or any agreement or instrument or order, writ, judgment, injunction or decree to which such Loan Party is a party or by which it is bound or to which it is subject, which conflict, default or breach would cause a Material Adverse Change, or (ii) result in the creation or enforcement of any Lien upon any property (now or hereafter acquired) of such Loan Party (other than the Permitted Liens). 4.07. Litigation. Except for the litigation set forth on Schedule ---------- -------- 4.07, there are no actions, suits, proceedings or investigations pending or, to - ---- the knowledge of the Borrower, threatened against the Borrower or any Subsidiary of the Borrower, at law or in equity, before any Official Body which individually or in the aggregate, if adversely determined, would be likely to result in any Material Adverse Change. Neither the Borrower nor any Subsidiary of the Borrower is in violation of any order, writ, injunction or decree of any Official Body which could be expected to result in any Material Adverse Change. 4.08. Financial Statements. -------------------- (a) Financial Statements. The Borrower has delivered to the -------------------- Agent the consolidated annual financial statements of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 1997, and the consolidated quarterly financial statements of the Borrower and its Subsidiaries for the Fiscal Quarter ended September 30, 1998. All such financial statements are complete and correct in all material respects and fairly present the consolidated financial condition of the Borrower and its Subsidiaries in all material respects and the results of their operations as of the dates and for the periods referred to, and have been prepared in accordance with GAAP throughout the period included. (b) Accuracy of Financial Statements. The Borrower and its -------------------------------- Subsidiaries have no material liabilities, contingent or otherwise, that are not disclosed in the financial statements referred to in clause (a) above and that would be required to be disclosed in accordance with GAAP, except for those incurred since the date of such financial statements in the ordinary course of business and, in the case of quarterly financial statements, subject to year end audit adjustments. 4.09. Margin Stock; Section 20 Subsidiaries. Neither the Borrower nor ------------------------------------- any of its Subsidiaries engage or intend to engage principally, or as one of its important activities, in the business of incurring Indebtedness or extending credit to others (including, without limitation, any of the Subsidiaries of the Borrower) for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of any Margin Regulation). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others (including, without limitation, any of its Subsidiaries) for the purpose of purchasing or carrying any margin stock or to refund or retire Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the Margin Regulations. The Borrower does not intend to hold, and shall not permit its Subsidiaries to hold, margin stock. Neither the Borrower not any of its Subsidiaries intends to use any portion of the proceeds of the Loans, directly or indirectly, to purchase during the underwriting period, or for thirty (30) days thereafter, Ineligible Securities being underwritten by a Section 20 Subsidiary. 4.10. Full Disclosure. Neither this Agreement nor any Loan --------------- Document, nor any certificate, statement, agreement or other document furnished to the Agent, the L/C Issuer or any Lender in connection herewith or therewith, contains any misstatement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Borrower which materially adversely affects the business, property, assets, financial condition, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, which has not been set forth in this Agreement or the Loan Documents or in the certificates, statements, agreements or other documents furnished in writing to the Agent, the Lenders or the L/C Issuer prior to or at the date hereof in connection with the transactions contemplated hereby and thereby. 4.11. Tax Returns and Payments. The Borrower is a member of ------------------------ an affiliated group of companies which files consolidated federal tax returns. All such federal tax returns that are required by law to be filed have been filed or properly extended. All taxes, assessments and other governmental charges levied upon members of such affiliated group or any of their respective properties, assets, income or franchises which are due and payable have been paid in full other than (i) those presently payable without penalty or interest, (ii) those which are being contested in good faith by appropriate proceedings and (iii) those which, if not paid, would not, in the aggregate, constitute a Material Adverse Change; and as to each of items (i), (ii) and (iii) the affiliated group has established reserves for such claim as have been determined to be adequate by application of GAAP consistently applied. There are no agreements or waivers extending the statutory period of limitations applicable to any consolidated federal income tax return of the Borrower and its consolidated Subsidiaries for any period, except as set forth on Schedule 4.11. ------------- 4.12. Consents and Approvals. No consent, approval, exemption, order ---------------------- or authorization of, or a registration or filing with any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the Loan Documents to which the Borrower or any Loan Party is a party, except as listed on Schedule -------- 4.12 attached hereto, all of which items set forth on Schedule 4.12 shall have - ---- ------------- been obtained or made on or prior to the Closing Date. 4.13. No Event of Default; Compliance with Instruments. No ------------------------------------------------ event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings to be made on the Closing Date under the Loan Documents which constitutes an Event of Default or a Default. Neither the Borrower nor any of its Subsidiaries is in violation of (i) any term of its certificate of incorporation, by-laws or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound where such violation would constitute a Material Adverse Change. 4.14. Compliance with Laws. The Borrower and its Subsidiaries are in -------------------- compliance in all material respects with all applicable Laws (other than Environmental Laws, which are addressed in Section 4.20) in all jurisdictions in which the Borrower, and its Subsidiaries, are presently or will be doing business except where the failure to do so would not, individually or in the aggregate, constitute a Material Adverse Change. 4.15. Investment Company; Public Utility Holding Company. Neither the -------------------------------------------------- Borrower nor any Loan Party is an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended from time to time, and shall not become such an "investment company" or under such "control. " Neither the Borrower nor any Loan Party is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning the Public Utility Holding Company Act of 1935, as amended from time to time. The Borrower is not subject to any Law of any Official Body (in each case whether United States federal, state or local, or other) having jurisdiction over the Borrower, which purports to restrict or regulate its ability to borrow money, or to extend or obtain credit, or to pledge its interests in the Loan Disbursement Account. No other Loan Party is subject to any Law of any Official Body (in each case whether United States federal, state or local, or other) having jurisdiction over such Loan Party which purports to restrict or regulate its ability to borrow money or to extend or obtain credit. 4.16. Plans and Benefit Arrangements. Except as set forth on Schedule ------------------------------ -------- 4.16 hereto: - ---- (a) The Borrower and each member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan (other than a Multiemployer Plan) or, to the knowledge of the Borrower, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability of the Borrower or any other member of the ERISA Group. The Borrower and all members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan and, to the knowledge of Borrower, each Multiemployer Plan, the Borrower and each member of the ERISA Group (i) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC (other than for premiums not yet due) and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (b) To the best of the Borrower's knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due. (c) Neither the Borrower nor any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan. (d) No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan. (e) Neither the Borrower nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the knowledge of the Borrower, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA. (f) To the extent that any Benefit Arrangement is insured, the Borrower and all members of the ERISA Group have paid when due all premiums required to be paid for all periods ending through and including the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, the Borrower and all members of the ERISA Group have made when due all contributions, to the extent required by applicable Law or the terms of such Benefit Arrangement to be paid for all periods ending through and including the Closing Date. 4.17. Title to Properties. The Borrower and each of its Subsidiaries ------------------- have good title to, or a valid leasehold interest in, all their respective real and personal property, except to the extent the failure to have such title or leasehold interests is not reasonably likely, individually or in the aggregate, to result in a Material Adverse Change, and none of such property is subject to any Lien except Permitted Liens. 4.18. Insurance. There are in full force and effect for the benefit of --------- the Borrower 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 the Borrower and its Subsidiaries in accordance with prudent business practice in the industry of the Borrower and its Subsidiaries. No notice has been given or claim made and to the knowledge of the Borrower, no grounds exist, to cancel or void any of such policies or bonds or to reduce the coverage provided thereby. 4.19. Employment Matters. The Borrower and each Subsidiary of the ------------------ Borrower are in compliance with all employee benefit plans, employment agreements, collective bargaining agreements and labor contracts (the "Labor Contracts") and all applicable federal, state and local labor and employment Laws including, but not limited to, those related to equal employment opportunity and affirmative action, labor relations, minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, except where the failure to comply would not constitute a Material Adverse Change. There are no outstanding grievances, arbitration awards or appeals therefrom arising out of the Labor Contracts or current or, to the knowledge of the Borrower, threatened strikes, picketing, handbilling or other work stoppages or slowdowns at facilities of the Borrower or any Subsidiary of the Borrower which in any case would constitute a Material Adverse Change. All payments due from Borrower or any of its Subsidiaries on account of employee health and welfare insurance which could reasonably be expected to have a Material Adverse Change if not paid have been paid or accrued as a liability on the books of Borrower or such Subsidiary. 4.20. Environmental Matters. Except as disclosed on Schedule --------------------- -------- 4.20 hereto: - ---- (a) The Borrower has not received any Environmental Complaint from any Official Body or private Person alleging that the Borrower, any Subsidiary of the Borrower or any prior or subsequent owner of any of the Property is a potentially responsible party under the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. (S)9601, et seq., in connection with the Property which Environmental Complaint is reasonably expected to result in any Material Adverse Change, and the Borrower has no reason to believe that such an Environmental Complaint is reasonably likely to be received. There are no pending or, to the knowledge of the Borrower, threatened Environmental Complaints relating to the Borrower, any Subsidiary of the Borrower or, to the Borrower's knowledge, without any inquiry, any prior or subsequent owner of the Property pertaining to, or arising out of, any Environmental Conditions in connection with the Property, which Environmental Complaints are reasonably expected to result in any Material Adverse Change. (b) Except for conditions, violations or failures which individually and in the aggregate are not reasonably likely to result in a Material Adverse Change, there are no circumstances at, on or under the Property that constitute a breach of or non-compliance with any of the Environmental Laws, and there are no past or present Environmental Conditions at, on or under the Property or, to the knowledge of the Borrower, without any inquiry at, on or under adjacent property, that prevent compliance with the Environmental Laws at the Property. (c) Neither the Property nor any structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder contain or use Regulated Substances except in compliance with Environmental Laws, other than such containment or use which individually and in the aggregate is not reasonably likely to result in any Material Adverse Change. There are no processes, facilities, operations, equipment or any other activities at, on or under the Property, or, to the Borrower's knowledge, without any inquiry, at, on or under adjacent property, that currently result in the release or threatened release of Regulated Substances on to the Property in violation of the Environmental Laws, except to the extent that such releases or threatened releases are not likely to result in a Material Adverse Change. (d) There are no underground storage tanks, or underground piping associated with such tanks, used for the management of Regulated Substances at, on or under the Property that are not in compliance with all Environmental Laws, other than those with respect to which the failure to comply with Environmental Laws is not reasonably likely, either individually or in the aggregate, to result in a Material Adverse Change, and there are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Regulated Substances at, on or under the Property that have not been either abandoned in place, or removed, in accordance with the Environmental Laws, other than those with respect to which the failure to comply with Environmental Laws is not reasonably likely, either individually or in the aggregate, to result in a Material Adverse Change. (e) The Borrower and each Subsidiary of the Borrower have all material permits, licenses, authorizations and approvals necessary under the Environmental Laws for the conduct of the respective businesses of the Borrower and each Subsidiary of the Borrower as presently conducted, other than those with respect to which the failure to comply with Environmental Laws is not reasonably likely, either individually or in the aggregate, to result in a Material Adverse Change. The Borrower and each Subsidiary of the Borrower have submitted all notices, reports and other filings required by the Environmental Laws to be submitted to an Official Body which pertain to past and current operations on the Property, except for any failure to submit which would not be reasonably likely to result in a Material Adverse Change. (f) Except for violations which individually and in the aggregate are not likely to result in a Material Adverse Change during the Borrower's and each Loan Party's ownership or lease of the Property, all past and present on-site generation, storage, processing, treatment, recycling, reclamation or disposal of Solid Waste at, on, or under the Property and all off-site transportation, storage, processing, treatment, recycling, reclamation or disposal of Solid Waste has been done in accordance with the Environmental Laws. 4.21. Senior Debt Status. The obligations of the Borrower ------------------ under this Agreement and the Notes rank at least pari passu in priority of ---- ----- payment with all other Indebtedness of the Borrower, except Indebtedness of the Borrower to the extent secured by Permitted Liens. The obligations of a Subsidiary Guarantor under a Subsidiary Guaranty executed by such Subsidiary Guarantor rank at least pari passu in priority of payment with all other ---- ----- Indebtedness of such Subsidiary Guarantor except Indebtedness of such Subsidiary Guarantor to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of the Borrower or any of its Subsidiaries which secures Indebtedness or other obligations of any Person except for Permitted Liens. 4.22. Solvency. On the date hereof, and as of the date of -------- each advance of the Loan and issuance or renewal of any Letter of Credit, as the case may be, and after giving effect to such advance or the issuance or renewal of a Letter of Credit, each of the Borrower and each Loan Party is, and will be, Solvent. 4.23. Material Contracts; Burdensome Restrictions. All ------------------------------------------- material contracts relating to the business operations of each Loan Party, including all employee benefit plans and Labor Contracts, are valid, binding and enforceable upon such Loan Party and each of the other parties thereto in accordance with their respective terms, and there is no material default thereunder with respect to such Loan Party, and there is no material default thereunder, to the Loan Parties' knowledge, with respect to parties other than such Loan Party. No contract, lease, agreement or other instrument to which Borrower or any of its Subsidiaries is a party or is bound and no provision of any applicable Law or governmental regulation would reasonably be expected to have a Material Adverse Change. 4.24 Patents, Trademarks, Copyrights, Licenses, Etc. The ----------------------------------------------- Borrower and each of its Subsidiaries owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by the Borrower or such Subsidiary, without known possible, alleged or actual conflict with the rights of others. 4.25 Year 2000 Problem. The Borrower and its Subsidiaries ----------------- have reviewed areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the risk that certain computer applications used by the Borrower or its Subsidiaries (or any of their respective material suppliers, customers or vendors) may be unable to recognize and perform properly date- sensitive functions involving dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not result in any Material Adverse Change. 4.26. Brokers. No broker or finder acting on behalf of Borrower ------- brought about the obtaining, making or closing of the loans made pursuant to this Agreement, and Borrower has no obligation to any other Person in respect of any finder's or brokerage fees in connection with the loans contemplated by this Agreement. 4.27. No Material Adverse Change. No event has occurred since -------------------------- September 30, 1998, and is continuing which has had or would reasonably be expected to have a Material Adverse Change. ARTICLE V CONDITIONS OF LENDING OR ISSUANCE OF LETTER OF CREDIT ----------------------------------------------------- The obligation of each Lender to make the Loans hereunder, or of the L/C Issuer to issue Letters of Credit hereunder is subject to the performance by the Borrower of its obligations to be performed hereunder at or prior to the making of any such Loans or the issuance of any such Letter of Credit, as the case may be, and to the satisfaction of the following further conditions. 5.01. Conditions to Initial Borrowings. On the Closing Date -------------------------------- the following actions shall be completed or satisfied to the sole satisfaction of the Agent: (a) The representations and warranties of the Borrower or the other Loan Parties contained in Article IV and in the other Loan Documents executed and delivered by the Borrower or any of the other Loan Parties in connection with the Closing shall be true and accurate in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific date or times referred to therein), and the Borrower, and each other Loan Party, shall have performed, observed and complied with all covenants and conditions hereof and contained in the other Loan Documents; no Event of Default or Default under this Agreement shall have occurred and be continuing or shall exist; no Material Adverse Change shall have occurred; and there shall be delivered to the Agent, for the benefit of each Lender, the L/C Issuer and the Agent, a certificate of the Borrower, dated the Closing Date and signed by the Chief Executive Officer, President, Chief Financial Officer or Vice President Finance of the Borrower, to each such effect. (b) There shall be delivered to the Agent for the benefit of each Lender and the L/C Issuer a certificate dated the Closing Date and signed by the secretary or an assistant secretary of the Borrower, certifying as appropriate as to: (i) all corporate action taken by the Borrower in connection with this Agreement and the other Loan Documents; (ii) the names, offices and titles of the Borrower's officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and the identities of the Authorized Officers permitted to act on behalf of the Borrower for purposes of this Agreement and the other Loan Documents and the true signatures of such officers, on which the Agent, each Lender and the L/C Issuer may conclusively rely; (iii) (A) copies of the Borrower's organizational documents, including its articles of incorporation as in effect on the Closing Date certified by the Secretary of the Commonwealth of Pennsylvania as well as a copy of the Borrower's by-laws and (B) a certificate as to the continued existence and good standing of the Borrower issued by the Secretary of the Commonwealth of Pennsylvania; (iv) all corporate or partnership action taken by each other Loan Party in connection with each Subsidiary Guaranty or Pledge Agreement executed by such Loan Party ; (v) the names, offices and titles of each Loan Party's officer or officers authorized to sign each Subsidiary Guaranty or Pledge Agreement and the true signatures of such officer or officers and the identities of the Authorized Officers permitted to act on behalf of each Loan Party for purposes of each Subsidiary Guaranty or Pledge Agreement and the true signatures of such officers, on which the Agent, each Lender and the L/C Issuer may conclusively rely; and (vi) (A) copies of each Loan Party's organizational documents, as in effect on the Closing Date, certified, by the Secretary of State of the state of its organization and (B) a certificate as to the continued existence and good standing of each Loan Party issued by the Secretary of State of the state of its organization. (c) This Agreement and the other Loan Documents required by the Agent to be executed and delivered by the Borrower or another Loan Party at the Closing shall have been duly executed and delivered by the Borrower to the Agent for the benefit of the Lenders, the L/C Issuer and the Agent. (d) There shall be delivered to the Agent for the benefit of each Lender a written opinion of Buchanan Ingersoll Professional Corporation for the Borrower and the other Loan Parties, dated the Closing Date and in form and substance reasonably satisfactory to the Agent and its counsel as to the matters set forth on Exhibit "F". ----------- (e) All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be in form and substance satisfactory to the Agent and its counsel, and the Agent shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance reasonably satisfactory to the Agent and said counsel, as the Agent or said counsel may reasonably request. (f) No Material Adverse Change shall have occurred since September 30, 1998, and no material litigation shall have been instituted by or against the Borrower or any Subsidiary or any of their respective material properties or assets; and there shall be delivered to the Agent for the benefit of each Lender, the L/C Issuer and the Agent a certificate of the Borrower dated the Closing Date and signed by the Chief Executive Officer, President, Chief Financial Officer or Vice President Finance of the Borrower to each such effect. (g) The Borrower shall deliver evidence acceptable to the Agent that adequate insurance in compliance with Section 6.05 hereof is in full force and effect. (h) All material consents required to effectuate the transactions contemplated hereby as set forth on Schedule 4.12 shall have been obtained. ------------- (i) The making and/or assumption of any Loan or the issuance of a Letter of Credit or assumption of any reimbursement liability with regard thereto, shall not contravene any Law applicable to the Borrower, any other Loan Party, the Agent, the Lenders or the L/C Issuer. (j) Except as set forth on Schedule 4.07, no action, suit, proceeding, ------------- investigation, regulation or legislation shall have been instituted, threatened or proposed before any court or other Official Body (i) with respect to the Borrower or its Subsidiaries or this Agreement, the other Loan Documents or the consummation of the transactions contemplated hereby or thereby to enjoin, restrain or prohibit, or to obtain damages in respect of, their performance under this Agreement or any other Loan Documents or the consummation of the transactions contemplated hereby or thereby or (ii) which in the reasonable opinion of Agent would have a Material Adverse Change. (k) The Agent on its own behalf and on behalf of the Lenders and the L/C Issuer shall be in receipt of all Fees due and payable on or prior to the Closing Date and all reimbursable expenses incurred on or prior to the Closing Date. (l) The Credit Agreement dated May 30, 1997, as amended, by and among Mastech Systems Corporation, the lenders party thereto and PNC Bank, National Association as agent, shall be terminated and all amounts due thereunder shall have been paid in full. (m) All matters and circumstances set forth as qualifications, limitations, exceptions, additional matters or other materials set forth in the Schedules hereto provided by or on behalf of the Borrower or its Subsidiaries shall be acceptable to the Agent, the L/C Issuer and the Lenders in their reasonable discretion. 5.02. Each Additional Loan or Issuance of a Letter of Credit. At the ------------------------------------------------------ time of making any Loans or the issuance of, or renewal of, a Letter of Credit and after giving effect to the proposed borrowings or issuance: (a) the representations and warranties of the Borrower contained in Article IV hereof and in the other Loan Documents shall be true and correct in all material respects on and as of the earlier of: (x) the date of such additional Loan or issuance of a Letter of Credit or (y) the specific dates or times referred to therein, with the same effect as though such representations and warranties have been made on and as of such date; (b) the Borrower shall have performed and complied in all material respects with all covenants and conditions hereof; (c) no Default or Event of Default shall have occurred and be continuing or shall exist; (d) no Material Adverse Change shall have occurred; (e) the making of any Loan or the issuance of any Letter of Credit shall not contravene any Law applicable to the Borrower, any of the Lenders or the L/C Issuer; (f) the Borrower shall have delivered to the Agent, as regards a Loan, a duly executed and completed Loan Request and with respect to the issuance of a Letter of Credit, the Borrower shall have delivered a duly executed Application for Letter of Credit therefor and otherwise complied with the reasonable requirements of the L/C Issuer not inconsistent with the terms hereof; and (g) Total Utilization shall not exceed the aggregate Revolving Credit Commitments; provided, however, that prior to the advance of any Loan on -------- ------- a Borrowing Date the proceeds of which will repay any Unreimbursed L/C Draw, for the purpose of calculating Total Utilization and compliance with this Subsection 5.02(f) on such date, the existing Total Utilization immediately prior to such advance shall be reduced pro tanto by the dollar amount of the Loans to --------- be advanced on such Borrowing Date which will be used to repay any outstanding Unreimbursed L/C Draws. 5.03. Location of Closing. The Closing shall take place at ------------------- 10:00 A.M., Pittsburgh, Pennsylvania time, on the Closing Date at the offices of Tucker Arensberg, P.C., 1500 One PPG Place, Pittsburgh, Pennsylvania 15222, or at such other time and place as the parties agree. ARTICLE VI AFFIRMATIVE COVENANTS --------------------- The Borrower covenants and agrees that, until payment in full of the Loans and interest thereon, payment in full of all Letter of Credit reimbursement obligations and interest thereon, satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitments, and the expiration and cancellation of all Letters of Credit issued hereunder, the Borrower shall comply, or cause compliance, at all times with the affirmative covenants set forth in Sections 6.01 through and including Section 6.14. 6.01. Preservation of Existence, Etc. ------------------------------- (a) The Borrower 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 Change). (b) Each Subsidiary of the Borrower shall maintain its corporate existence and its license or qualification and its good standing in the jurisdiction 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 as otherwise permitted under Section 7.04 and 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 Change). 6.02. Accounting System; Reporting Requirements. The Borrower will ----------------------------------------- maintain, and will cause its Subsidiaries to maintain, a system of accounting established and administered in accordance with GAAP, and will and will cause its Subsidiaries to set aside on its books all such proper reserves as shall be required by GAAP. Further, the Borrower will: (a) deliver to the Agent, for redelivery to the Lenders, within forty-five (45) days after the end of each of the first three (3) Fiscal Quarters in each Fiscal Year of the Borrower, (A) consolidated balance sheet as at the end of such period for the Borrower and its Subsidiaries, (B) consolidated statements of income for such period for the Borrower 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 (C) consolidated statements of cash flow for such period for the Borrower 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 the Borrower; (b) deliver to the Agent, for redelivery to the Lenders, within 90 days after the end of each Fiscal Year of the Borrower, (A) consolidated balance sheets as at the end of such year for the Borrower and its Subsidiaries, (B) consolidated statements of income for such year for the Borrower and its Subsidiaries, (C) consolidated statements of cash flow for such year for the Borrower and its Subsidiaries, and (D) consolidated statements of shareholders equity for such year for the Borrower 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 the Borrower and its consolidated Subsidiaries, as at the dates indicated and the results of its operations and its cash flow for the periods indicated, in conformity with GAAP; and the Borrower shall cause each of the consolidated financial statements described in clauses (A) through (D) of this Section 6.02(b) 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 Lenders; (c) deliver to the Agent, together with each delivery of financial statements pursuant to items (a) and (b) above for redelivery to the Lenders, a Compliance Certificate of the Borrower substantially in the form of Exhibit ------- "E" hereto, properly completed and signed by the chief financial officer, - --- treasurer or controller of the Borrower, (A) stating (1) that such officer has reviewed the terms of the Loan Documents and has made, or caused to be made under his supervision, a review of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during such accounting period, and (2) that the Borrower does not have knowledge of the existence, as at the date of such Compliance Certificate, of any condition or event which constitutes an Event of Default or a Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken or is taking or proposes to take with respect thereto, and (B) demonstrating in reasonable detail compliance as at the end of such accounting period with the restrictions contained in Section 7.12 hereof; (d) promptly give written notice to the Agent, for redelivery to the Lenders, of the happening of any event (which is known to the Borrower) 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 the Borrower knows or should have known of such event; (e) promptly give written notice to the Agent, for redelivery to the Lenders, of any pending or, to the knowledge of the Borrower, overtly threatened claim in writing, litigation or threat of litigation which arises between the Borrower, or any of its Subsidiaries, and any other party or parties (including, without limitation, any Official Body) which claim, litigation or threat of litigation, individually or in the aggregate, is reasonably likely to cause a Material Adverse Change, any such notice to be given not later than five (5) Business Days after any of the Borrower becomes aware of the occurrence of any such claim, litigation or threat of litigation; (f) promptly deliver to the Agent, but in no event later than twenty (20) days after the mailing or filing thereof, for redelivery to the Lenders, copies of (A) all reports, notices and proxy statements sent by the Borrower to its shareholders, and (B) all regular and periodic reports and definitive proxy materials (including but not limited to Forms 10-K, 10-Q and 8- K) filed by the Borrower with any securities exchange or the Federal Securities and Exchange Commission; (g) promptly deliver to the Agent, but in no event later than twenty (20) days after Borrower receives the same, for redelivery to the Lenders, copies of any management letters addressed to the Borrower by its independent certified public accountant; and (h) such other reports and information as the Agent or the Required Lenders may from time to time reasonably request. 6.03. Notices Regarding Plans and Benefit Arrangements. ------------------------------------------------ (a) 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 Internal Revenue Service or the PBGC with respect thereto) shall be given to the Agent, for redelivery to the Lenders, by the Borrower of: (i) any Reportable Event with respect to the Borrower or any member of the ERISA Group, (ii) any Prohibited Transaction which could subject the Borrower or any member of the ERISA Group to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in connection with any Plan, Benefit Arrangement or any trust created thereunder, if such tax and/or penalty is reasonably likely to result in a Material Adverse Change, (iii) any assertion of material withdrawal liability with respect to any Multiemployer Plan, (iv) any partial or complete withdrawal from a Multiemployer Plan by the Borrower or any member of the ERISA Group under Title IV of ERISA (or assertion thereof), where such withdrawal is likely to result in material withdrawal liability, (v) any cessation of operations (by the Borrower of any member or the ERISA Group) at a facility in the circumstances described in Section 4062(e) of ERISA, (vi) withdrawal by the Borrower or any member of the ERISA Group from a Multiple Employer Plan, (vii) a failure by the Borrower or any member of the ERISA Group to make a payment to a Plan required to avoid imposition of a lien under Section 302(f) of ERISA, (viii) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA, or (ix) 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. (b) Promptly after receipt thereof, copies of (i) all notices received by the Borrower or any member of the ERISA Group of the PBGC's intent to terminate any Plan administered or maintained by the Borrower or any member of the ERISA Group, or to have a trustee appointed to administer any such Plan; and (ii) at the request of the Agent or any Lender 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 the Borrower or any member of the ERISA Group, and schedules showing the amounts contributed to each such Plan by or on behalf of the Borrower or any member of the ERISA Group 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 Borrower or any member of the ERISA Group with the Internal Revenue Service with respect to each such Plan shall be given to the Agent by the Borrower, for redelivery to the Lenders. (c) 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, for redelivery to the Lenders. 6.04. Payment of Liabilities, Including Taxes, etc. The -------------------------------------------- Borrower 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 $500,000 to which they are subject or which are asserted against them, including all taxes, assessments and governmental charges upon them or any of their properties, assets, income or profits, prior to the date on which penalties attach thereto; provided, however, -------- ------- the Borrower may choose not to pay any such liabilities, including taxes, assessments 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. 6.05. Maintenance of Insurance. The Borrower 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. The Borrower will furnish to the Agent for redelivery to the Lenders on the Closing Date and thereafter simultaneously with the delivery of the annual financial information delivered pursuant to Section 6.02(b) a certificate of the Borrower executed by an Authorized Officer of the Borrower certifying that such insurance is in force, is adequate in nature and amount and complies with the Borrower's obligations under this Section 6.05. 6.06. Maintenance of Properties and Leases. The Borrower 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, the Borrower will make or cause to be made all appropriate repairs, renewals or replacements thereof. 6.07. Maintenance of Permits and Franchises. The Borrower ------------------------------------- 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 Change. 6.08. Visitation Rights. The Borrower shall permit, and ----------------- shall cause its Subsidiaries to permit, any of the officers or authorized employees or representatives of the Agent or any of the Lenders to visit and inspect any of the properties of the Borrower, or a Subsidiary of the Borrower, and to examine and make excerpts from its books and records and discuss its respective business affairs, finances and accounts with its officers, all in such detail and at such times and as often as any of the Lenders may reasonably request, provided that each Lender shall provide the Borrower, or the Subsidiary of the Borrower, as the case may be, and the Agent with reasonable notice prior to any visit or inspection and that only the Agent and its authorized employees or representatives are permitted to conduct audits. After the occurrence of an Event of Default and during the continuance thereof the Agent and the Lenders shall have the right of visitation and inspection without prior notice. 6.09. Keeping of Records and Books of Account. The Borrower, --------------------------------------- and its Subsidiaries, shall maintain and keep proper books of record and account which enable the Borrower to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower 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. 6.10. Plans and Benefit Arrangements. The Borrower shall, ------------------------------ and shall cause each member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrower shall cause all of its Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements and Multiemployer Plans. 6.11. Compliance with Laws. The Borrower and its Subsidiaries shall -------------------- comply with all applicable Laws (other than Environmental Laws) in all respects, provided that they shall not be deemed to be a violation of this Section 6.11 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 constitute a Material Adverse Change. 6.12. Use of Proceeds. The Borrower will use the proceeds of --------------- the Loans only for lawful purposes in accordance with Section 2.17 hereof as applicable and such uses shall not contravene any applicable Law or any other provision hereof. The Borrower will permit the use of the Letters of Credit only for lawful purposes in accordance with Section 2.18 hereof as applicable, and such uses shall not contravene any applicable Law or any other provision hereof. The Borrower and its Subsidiaries shall not use any portion of the proceeds of the Loans, directly or indirectly, to purchase during the underwriting period, or for thirty (30) days thereafter, Ineligible Securities being underwritten by a Section 20 Subsidiary. 6.13. Environmental Laws. ------------------ (i) The Borrower and its Subsidiaries shall comply in all material respects, subject to the disclosure set forth in Schedule 4.20, with all ------------- Environmental Laws and shall obtain and comply in all material respects with and maintain any and all licenses, approvals, registrations or permits required by Environmental Laws; (ii) The Borrower and its Subsidiaries shall conduct and complete in all material respects all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Official Bodies 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 (iii) The Borrower shall defend, indemnify and hold harmless the Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws applicable to the real property owned or operated by the Borrower or any of its Subsidiaries, or any orders, requirements or demands of any Official Bodies related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. 6.14. Senior Debt Status. The obligations of the Borrower ------------------ under this Agreement and the Notes will rank at least pari passu in priority of payment with all other Indebtedness of the Borrower except Indebtedness of the Borrower to the extent secured by Permitted Liens. The obligations of each other Loan Party under a Subsidiary Guaranty executed by it will rank at least pari passu in priority of payment with all other Indebtedness of such Loan Party except Indebtedness of such Loan Party to the extent secured by Permitted Liens. ARTICLE VII NEGATIVE COVENANTS ------------------ The Borrower covenants and agrees that, until payment in full of the Loans and interest thereon, payment in full of all Letter of Credit reimbursement obligations and interest thereon, satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitments, and the expiration and cancellation of all Letters of Credit issued hereunder, the Borrower shall comply, or cause the compliance, with the negative covenants set forth in this Article VII. 7.01. Indebtedness. The Borrower and its Subsidiaries shall ------------ not on a consolidated basis at any time, create, incur, assume or suffer to exist any Indebtedness (including Indebtedness secured by Permitted Liens), except: (a) Indebtedness under the Loan Documents; (b) Existing Indebtedness as set forth on Schedule 7.01 hereto ------------- (including any extensions or renewals thereof provided there is no increase in the amount thereof or other significant adverse change in the terms thereof); (c) Indebtedness of a Subsidiary of the Borrower to the Borrower or to another Subsidiary of the Borrower or the Indebtedness of the Borrower to a Subsidiary of the Borrower; (d) Indebtedness with respect to foreign exchange hedging transactions entered into in the ordinary course of business to manage foreign currency risk for the Borrower and/or one or more of its Subsidiaries; (e) Indebtedness incurred pursuant to Interest Hedge Agreements; (f) Indebtedness due sellers of Persons or assets acquired pursuant to Sections 7.03 or 7.04 hereof, including without limitation notes the principal amount of which may vary as a function of the performance of the Person or assets acquired; and (g) Other Indebtedness not covered by items (a) through (f) above, provided that the aggregate amount of such Indebtedness permitted by this item (g) shall not exceed $10,000,000 at any one time outstanding. 7.02. Liens. The Borrower 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. Further, neither the Borrower nor any of its Subsidiaries shall enter into any agreement with any Person (other than the Lenders pursuant hereto) which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien in favor of the Agent for the benefit of the Lenders upon any of its property, assets or revenues, whether now owned or hereafter acquired. 7.03. Loans, Acquisitions and Investments. The Borrower and ----------------------------------- its Subsidiaries 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, except for: (a) trade credit extended on usual and customary terms in the ordinary course of business; (b) fixed assets, equipment or Inventory acquired in the ordinary course of business; (c) loans and advances to employees to meet expenses incurred by such employees in the ordinary course of business, including without limitation relocation expenses; (d) Cash Equivalents; (e) investments, capital contributions and advances by the Borrower in existence as of the date hereof, which investments, capital contributions and advances are set forth on Schedule 7.03 hereof; ------------- (f) investments and capital contributions by the Borrower in, and loans and advances by Borrower to, a third Person so long as after giving effect to each such investment or capital contribution the Borrower shall not have caused a violation of the Loan Documents; (g) loans, advances and capital contributions by a Subsidiary of the Borrower to the Borrower or any of the Borrower's other Subsidiaries or loans, advances and capital contributions by the Borrower to any of its Subsidiaries; and (h) the Borrower or any Subsidiary may acquire the assets or securities of any other Person provided that (A) at the time of such acquisition no Default or Event of Default shall have occurred and be continuing or be caused by such acquisition, (B) the acquired Person, if a domestic Person, shall become a Subsidiary Guarantor simultaneously with such acquisition and shall execute all Loan Documents required of a Subsidiary Guarantor, (C) the Borrower's or the relevant Subsidiary's equity ownership interest in the acquired Person, if a foreign Person owned by a domestic Subsidiary, shall be pledged to the Agent for the benefit of the Lenders; provided, however, the ----------------- maximum amount of such acquired Person's equity pledged to the Agent shall not exceed 65% of the acquired Person's equity capitalization or such lesser amount as is the maximum amount allowed to be pledged pursuant to the laws of the jurisdiction of such Subsidiary's organization, (D) the board of directors or other equivalent governing body of such acquired Person shall have approved such acquisition, (E) the acquired Person is engaged in the information technology business or a business related thereto, and (F) the Borrower shall have provided the Agent, for redelivery to the Lenders, at least three (3) Business Days prior to such acquisition, with a certificate stating that (i) such acquisition will not violate any covenants of this Agreement and (ii) establishing that, on a pro forma basis after taking into account the acquisition, the Borrower is in compliance with the financial covenants set forth in Section 7.12; provided, -------- however, for the purposes of this Section 7.03, the ratio of the Borrower's pro - ------- forma Consolidated Senior Indebtedness to pro forma Consolidated EBITDA for the four (4) most recently completed Fiscal Quarters shall not exceed 1.75:1.00. 7.04. Liquidations, Mergers and Consolidations. The Borrower ---------------------------------------- shall not, and shall not permit any Subsidiary of Borrower to, dissolve, liquidate or wind-up its affairs, or become a party to any merger, consolidation or other business combination, whether accounted for under GAAP 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, provided that: -------- (a) any Subsidiary of Borrower may consolidate or merge into the Borrower or another Subsidiary of the Borrower; (b) any Subsidiary of the Borrower may sell, lease, transfer or otherwise dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or another Subsidiary of the Borrower; and (c) the Borrower or any Subsidiary may consolidate or merge with any Person, provided that (A) such Person must be engaged in the information technology business or a business related thereto, (B) if the Borrower is a party to such merger or consolidation, the Borrower is the surviving Person, (C) at the time of the consolidation or merger no Default or Event of Default shall have occurred and be continuing or be caused by such consolidation or merger, (D) the surviving Person, if a domestic Person and if not the Borrower, shall become a Subsidiary Guarantor, (E) the consolidation or merger shall not be contested by such Person and shall be approved by such Person's board of directors or other governing body, and (F) the Borrower shall have provided the Agent, for redelivery to the Lenders, at least three (3) Business Days prior to such merger or consolidation, with a certificate stating that (i) such merger or consolidation will not violate any covenants of this Agreement and (ii) establishing that, on a pro forma basis after taking into account such merger or consolidation, the Borrower is in compliance with the financial covenants set forth in Section 7.12; provided, -------- however, for the purposes of this Section 7.04, the ratio of the Borrower's pro - ------- forma Consolidated Senior Indebtedness to pro forma Consolidated EBITDA for the four (4) most recently completed Fiscal Quarters shall not exceed 1.75:1.00. 7.05. Dispositions of Assets or Subsidiaries. Excluding the -------------------------------------- payment of cash as consideration for assets purchased by, or services rendered to, the Borrower or any Subsidiary, neither the Borrower 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 of 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), except: (a) any sale, transfer or disposition of surplus, obsolete or worn out assets of the Borrower or a Subsidiary; (b) any sale, transfer or lease of inventory by the Borrower or any Subsidiary of the Borrower in the ordinary course of business; (c) any sale, transfer or lease of assets by any Subsidiary of the Borrower to the Borrower or any other Subsidiary of the Borrower or by the Borrower to any Subsidiary of the Borrower; or (d) any sale, transfer or lease of assets, other than those specifically excepted pursuant to clauses (a) through (c) above, which in any one sale, transfer or lease of assets, or in any number of sales, transfers or leases of assets occurring in any consecutive twelve month period, involves the sale, transfer or lease of assets resulting in net proceeds of not more than $1,000,000 (measured with respect to a series of sales, transfers or leases of assets on the day of the first sale). 7.06. Affiliate Transactions. Except as set forth on Schedule 4.02 and ---------------------- ------------- as set forth on Schedule 7.06, neither the Borrower nor any Subsidiary of the ------------- Borrower shall enter into or carry out any material transaction (including, without limitation, 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 or the other Loan Documents, is entered into in the ordinary course of business upon fair and reasonable arm's- length terms and conditions which are fully disclosed to the Agent and is in accordance with all applicable Law. 7.07. Subsidiaries, Partnerships and Joint Ventures. Except --------------------------------------------- as permitted by Sections 7.03 and 7.04, (i) neither the Borrower nor any Subsidiary of the Borrower shall own or create any Subsidiaries other than those listed in Schedule 4.03 or 7.03; and (ii) neither the Borrower nor any --------------------- Subsidiary of the Borrower shall become or agree to become a general partner in any general or limited partnership or a joint venturer in any joint venture, without the consent of the Required Lenders, such consent not to be unreasonably withheld. 7.08. Continuation of or Change in Business. Neither the ------------------------------------- Borrower nor any Subsidiary of the Borrower shall engage in any business other than the information technology business or a business related thereto, and the Borrower shall not permit any material change in such business. 7.09. Plans and Benefit Arrangements. The Borrower shall not, and shall ------------------------------ not permit any member of the ERISA Group to: (a) fail to satisfy the minimum funding requirements of ERISA and the Internal Revenue Code with respect to any Plan; (b) request a minimum funding waiver from the Internal Revenue Service with respect to any Plan; (c) engage in a Prohibited Transaction with any Plan, Benefit Arrangement 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 Change; (d) fail to make when due any contribution to any Multiemployer Plan that the Borrower or any member of the ERISA Group may be required to make under any agreement relating to such Multiemployer Plan, or any Law pertaining thereto; (e) withdraw (completely or partially) from any Multiemployer Plan or be deemed under Section 4062(e) of ERISA to withdraw from any Multiple --------------- Employer Plan, where any such withdrawal is likely to result in a material liability of the Borrower or any member of the ERISA Group; (f) terminate, or institute proceedings to terminate, any Plan, where such termination is likely to result in a material liability to the Borrower or any member of the ERISA Group; (g) make any amendment to any Plan with respect to which security is required under Section 307 of ERISA; or (h) fail to give any and all notices and make all disclosures and governmental filings required under ERISA or the Internal Revenue Code, where such failure is likely to result in a Material Adverse Change. 7.10. Fiscal Year. Neither the Borrower nor any Subsidiary ----------- of the Borrower shall change its Fiscal Year from a period beginning January 1 and ending on the immediately succeeding December 31. 7.11. Changes in Organizational Documents. The Borrower ----------------------------------- shall not, and shall not permit any other Loan Party to, amend in any respect its certificate or articles of incorporation without providing at least ten (10) calendar days' prior written notice to the Agent and the Lenders and, in the event such change would be materially adverse to the Lenders as determined by the Agent in its sole but reasonable discretion, obtaining the prior written consent of the Required Lenders. 7.12. Financial Covenants. ------------------- (a) Minimum Consolidated Net Worth. The Borrower will not at any ------------------------------ time permit its Consolidated Net Worth to be less than an amount equal to the sum of (i) $123,940,000 plus (ii) 50% of the positive Consolidated Net Income for the Fiscal Quarter ending December 31, 1998, plus (iii) 50% of the positive Consolidated Net Income for each Fiscal Year ending after December 31, 1998, plus (iv) an amount equal to 100% of net cash proceeds from the issuance by the Borrower after September 30, 1998, of additional equity securities or other equity capital investments. (b) Interest Coverage. As of the last day of each Fiscal Quarter, ----------------- the Borrower shall not permit its ratio, measured on a rolling four Fiscal Quarter basis, of Consolidated EBIT to Consolidated Interest Expense to be less than 5.0:1.0. (c) Consolidated Senior Indebtedness to Consolidated EBITDA Ratio. ------------------------------------------------------------- As of the last day of each Fiscal Quarter, the Borrower shall not permit its Consolidated Senior Indebtedness to Consolidated EBITDA Ratio to exceed 2.5 to 1.0. (d) Liquidity Ratio. As of the last day of each Fiscal Quarter, --------------- the Borrower shall not permit the ratio of the (A) the sum of its (1) Consolidated Cash, (2) Consolidated Cash Equivalents, and (3) Consolidated Receivables to (B) its Consolidated Senior Indebtedness to be less than 1.25:1.00. ARTICLE VIII DEFAULT ------- 8.01. Events of Default. An "Event of Default" shall mean ----------------- the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law): (a) (i) The Borrower shall fail to pay any principal of any Loan (including scheduled installments, mandatory prepayments or the payment due at maturity, whether by acceleration or otherwise) when due, or (ii) the Borrower shall fail to pay any Unreimbursed L/C Draw when due, or (iii) the Borrower shall fail to pay any interest on any Loan, any Unreimbursed L/C Draw, any Fee, or any other amount owing hereunder or under any other Loan Documents after such interest, Fee or other amount becomes due in accordance with the terms hereof or thereof and such failure shall continue for a period of five (5) days; (b) Any representation or warranty made at any time by the Borrower herein or in any other Loan Document or by any other Loan Party in any Loan Document executed by such Loan Party, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished; (c) The Borrower shall default in the observance or performance of any covenant contained in Section 6.14 or Article VII hereof; (d) The Borrower shall default in the observance or performance of any other covenant, condition or provision hereof, or of any other Loan Document and, if remediable, such default shall continue unremedied for a period of thirty (30) days after any officer of the Borrower becomes aware of the occurrence thereof; or any other Loan Party shall default in the observance or performance of any other covenant, condition or provision contained in any other Loan Document executed by such Loan Party, and such default shall continue unremedied for a period of thirty (30) days after any officer of such Loan Party becomes aware of the occurrence thereof; (e) A default or event of default shall occur at any time under the terms of any agreements involving Indebtedness under which the Borrower or any Subsidiary of the Borrower may be obligated as borrower, guarantor or otherwise in excess of One Million Dollars ($1,000,000) in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any Indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default causes the acceleration of any such Indebtedness or such breach or default permits the acceleration of any Indebtedness; (f) Any judgments or orders for the payment of money in excess of One Million Dollars ($1,000,000) in the aggregate shall be entered against the Borrower or any of its Subsidiaries, by a court having jurisdiction in the premises which judgments are not satisfied, discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the respective date of entry; (g) Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof (except to the extent that enforceability of any of the Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance) or shall in any way be terminated (except in accordance with terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective rights, titles, interests, remedies, powers or privileges intended to be created thereby in all material respects; (h) A notice of lien, levy or assessment in excess of One Million Dollars ($1,000,000) in the aggregate is filed of record with respect to all or any part of the assets of the Borrower or a Subsidiary Guarantor by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including, without limitation, the PBGC, or if any taxes or debts in excess of One Million Dollars ($1,000,000) owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable, or if such notice is filed or such payment is not so made, unless the Borrower or such Subsidiary Guarantor (i) contests such lien, assessment, tax or debt in good faith by appropriate and lawful proceedings diligently conducted but only so long as such proceedings could not subject the Agent, the Lenders or the L/C Issuer to any criminal penalties, (ii) establishes such reserves or other appropriate provisions, if any, as shall be required by GAAP and (iii) pays such Lien, assessment, tax or debt in accordance with the terms of any final judgments or orders relating thereto within thirty (30) days after the entry of such judgments or orders; (i) The Borrower or any other Loan Party ceases to be Solvent or admits in writing its inability to pay debts as they mature; (j) Any of the following occurs: (i) any Reportable Event, which constitutes grounds for the termination of any Plan by the PBGC or the appointment of a trustee to administer or liquidate any Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Plan, or a termination notice shall have been filed with respect to any Plan; (iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer or liquidate any Plan and, in the case of the occurrence of (i), (ii), (iii) or (iv) of this Section 8.01(j), the amount of Borrower's liability or the liability of the other members of the ERISA Group is likely to exceed five percent (5%) of the Consolidated Net Worth; (v) the Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any member of the ERISA Group shall make any amendment to a Plan with respect to which security is required under Section 307 of ERISA; (vii) the Borrower or any member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; (viii) the Borrower or any member of the ERISA Group shall withdraw (or shall be treated under Section 4062(e) of ERISA as having withdrawn) from a Multiple Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by any Official Body with respect to or otherwise affecting one or more Plans, Multiemployer Plans or Benefit Arrangements and, with respect to any of the events specified in (v), (vi), (vii), (viii) or (ix), any such occurrence would be reasonably likely to materially and adversely affect the total enterprise represented by the Borrower and the other members of the ERISA Group; (k) The Borrower or any other Loan Party is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not stayed or dismissed within thirty (30) days after the entry thereof; (l) (i) except for the Founding Shareholders and their Affiliates, any Person or group of Persons (within the meaning of Sections 13(g) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) 20% or more of the voting capital stock of the Borrower; provided, however, so long as the Founding Shareholders or their ----------------- Affiliates own at least 40% of the voting capital stock of the Borrower, another Person or group of Persons may acquire beneficial ownership of not more than 30% of the voting capital stock of the Borrower; (ii) within a period of twelve (12) consecutive months, individuals who were directors of the Borrower on the first day of such period and/or individuals who become directors of the Borrower pursuant to a nomination or election that was recommended or approved by the individuals who were directors on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; or (iii) the Borrower or a Subsidiary shall own less than 80% of the voting capital stock or voting partnership or other equity interest of any Loan Party other than the Borrower; (m) A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of the Borrower, or another Loan Party, in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of the Borrower, or another Loan Party, for any substantial part of such Person's property, or for the winding-up or liquidation of such Person's affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of sixty (60) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; (n) The Borrower, or another Loan Party, shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of property or shall make a general assignment for the benefit of creditors, or shall fail generally to pay debts as they become due, or shall take any action in furtherance of any of the foregoing; (o) any of the Loan Documents shall cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction; or (p) any garnishment proceeding concerning a sum in excess of One Million Dollars ($1,000,000) shall be instituted by attachment, levy or otherwise, against any deposit account maintained by the Borrower or another Loan Party with any Lender. 8.02. Consequences of Event of Default. -------------------------------- (a) If an Event of Default specified in any of items (a) through (l) or item (o) or (p) of Section 8.01 hereof shall occur and be continuing, the Lenders shall be under no further obligation to make Loans hereunder, the L/C Issuer shall be under no further obligation to issue or amend Letters of Credit hereunder and the Agent may, and upon the request of the Required Lenders shall, by written notice to the Borrower, terminate the Revolving Credit Commitment and declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lenders, the Agent and the L/C Issuer hereunder and under the other Loan Documents to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Agent for the benefit of each Lender, the Agent and the L/C Issuer without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived; and (b) If any Event of Default specified in item (m) or (n) of Section 8.01 hereof shall occur, the Lenders shall be under no further obligations to make Loans hereunder, the L/C Issuer shall be under no further obligation to issue or amend Letters of Credit hereunder, the Revolving Credit Commitment shall be terminated and the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lenders, the Agent and the L/C Issuer hereunder and under the other Loan Documents shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; further, during the sixty (60) day period referred to in item (m) the Lenders shall be under no further obligation to make Loans and the L/C Issuer shall be under no further obligation to issue or amend Letters of Credit hereunder; and (c) If an Event of Default shall occur and be continuing, any Lender, the Agent or the L/C Issuer to whom any obligation is owed by the Borrower hereunder or under any other Loan Document, of such Lender, Agent or L/C Issuer and any branch, subsidiary or affiliate of such Lender, Agent or L/C Issuer anywhere in the world shall each have the right, in addition to all other rights and remedies available to it, without notice to the Borrower, to set-off against and apply to the then unpaid balance of all the Loans and all other obligations of the Borrower hereunder or under any other Loan Document, any debt owing to, and any other funds held in any manner for the account of, the Borrower by such Lender, the Agent or the L/C Issuer or by such branch, subsidiary or affiliate, including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrower for its own account (but not including funds held in custodian or trust accounts) with such Lender, the Agent or the L/C Issuer or such branch, subsidiary or affiliate. Such right shall exist in each case whether or not any Lender, the Agent or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of the Borrower is or are matured or unmatured and regardless of the existence or adequacy of any other security, right or remedy available to any Lender, the Agent or the L/C Issuer; and (d) In addition to all of the rights and remedies contained in this Agreement or in any of the other Loan Documents, the Agent, the L/C Issuer and the Lenders shall have all of the rights and remedies of a creditor under applicable Law, all of which rights and remedies shall be cumulative and non- exclusive, to the extent permitted by Law. The Agent may, and upon the request of the Required Lenders shall, exercise all post-default rights granted to the Agent, the L/C Issuer and the Lenders under the Loan Documents or applicable Law; and (e) Upon the occurrence of any Event of Default described in the foregoing Sections 8.01(m) or (n) or upon the declaration by the Required Lenders of any other Event of Default and the termination of the Revolving Credit Commitments, the obligation of the L/C Issuer to issue or amend Letters of Credit shall terminate, the L/C Issuer or the Agent may provide written demand to any beneficiary of a Letter of Credit to present a draft against such Letter of Credit, and an amount equal to the maximum amount which may at any time be drawn under the Letters of Credit then outstanding (whether or not any beneficiary of such Letters of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under the Letters of Credit) shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Borrower; provided that the foregoing shall not affect in any way the obligations of the Lenders to purchase from the L/C Issuer participations in the unreimbursed amount of any drawings under the Letters of Credit as provided in Section 2.18(c). So long as the Letters of Credit shall remain outstanding, any amounts declared due pursuant to this Section 8.02(e) with respect to the outstanding Letters of Credit when received by the Agent shall be deposited and held by the Agent in an interest bearing account denominated in the name of the Agent for the benefit of the Agent, the Lenders and the L/C Issuer over which the Agent shall have sole dominion and control of withdrawals (the "Cash Collateral Account") as cash collateral for the obligation of the Borrower to reimburse the L/C Issuer in the event of any drawing under the Letters of Credit and upon any drawing under such Letters of Credit in respect of which the Agent has deposited in the Cash Collateral Account any amounts declared due pursuant to this Section 8.02(e), the Agent shall apply such amounts held by the Agent to reimburse the L/C Issuer for the amount of such drawing. In the event that any Letter of Credit in respect of which the Agent has deposited in the Cash Collateral Account any amounts described above is cancelled or expires or in the event of any reduction in the maximum amount available at any time for drawing under the Letters of Credit outstanding, the Agent shall apply the amount then in the Cash Collateral Account designated to reimburse the L/C Issuer for any drawings under the Letters of Credit less the maximum amount available at any time for drawing under the Letters of Credit outstanding immediately after such cancellation, expiration or reduction, if any, to the payment in full of the outstanding Lender Obligations, and second, to the payment of any excess, to the Borrower. ARTICLE IX THE AGENT --------- 9.01. Appointment and Grant of Authority. Each of the ---------------------------------- Lenders and the L/C Issuer hereby appoints PNC Bank, National Association, and PNC Bank, National Association, hereby agrees to act, as the Agent under this Agreement and the other Loan Documents. The Agent shall have and may exercise such powers under this Agreement and the other Loan Documents as are specifically delegated to it by the terms hereof or thereof, together with such other powers as are incidental thereto. Without limiting the foregoing, the Agent, on behalf of the Lenders and the L/C Issuer, is authorized to execute all of the Loan Documents (other than this Agreement) and to accept all of the Loan Documents and all other agreements, documents or instruments reasonably required to carry out the intent of the parties to this Agreement. 9.02. Delegation of Duties. The Agent may perform any of its -------------------- duties hereunder by or through agents or employees (provided such delegation does not constitute a relinquishment of duties as the Agent hereunder) and, subject to Sections 9.07 and 10.03 hereof, shall be entitled to engage and pay for the advice or services of any attorneys, accountants, or other experts concerning all matters pertaining to duties hereunder and to rely upon any advice so obtained. 9.03. Reliance by Agent on Lenders for Funding. Unless the ---------------------------------------- Agent shall have received notice from a Lender prior to any Borrowing Date that such Lender will not make available to the Agent such Lender's portion of net disbursements of Loans, the Agent may assume that such Lender has made such portion available to the Agent and the Agent may, in reliance upon such assumption, make Loans to the Borrower. If and to the extent that such Lender has not made such portion available to the Agent on or prior to any Borrowing Date, such Lender and the Borrower severally agree to repay to the Agent immediately upon demand, in immediately available funds, such unpaid amount, together with interest thereon for each day from the applicable Borrowing Date until such amount is repaid to the Agent, at (i) in the case of the Borrower, at the rate of interest then in effect for such Loan and (ii) in the case of such Lender, at the Federal Funds Effective Rate. If such Lender shall repay to the Agent such corresponding amount, such amount shall constitute a Loan made by such Lender for purposes of this Agreement. The failure by any Lender to pay its portion of a Loan made by the Agent shall not relieve any other Lender of the obligation to pay its portion of net disbursements of Loans on any Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make its net share of Loans to be made by such other Lender on such Borrowing Date. 9.04. Non-Reliance on Agent. Each Lender and the L/C Issuer --------------------- agree that (i) it has, independently and without reliance on the Agent, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and decision to enter into this Agreement and (ii) that it will, independently and without reliance upon the Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. Except as otherwise provided herein or under any other Loan Document, the Agent shall not have any duty to keep the Lenders or the L/C Issuer informed as to the performance or observance by the Borrower of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Borrower or any of its Subsidiaries. The Agent, in the absence of gross negligence or willful misconduct, shall not be liable to any Lender or the L/C Issuer for their failure to relay or furnish to the Lender any information. 9.05. Responsibility of Agent and Other Matters. ----------------------------------------- (a) Ministerial Nature of Duties. As between the Lenders, the L/C ---------------------------- Issuer and itself, the Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents, and those duties and responsibilities shall be subject to the limitations and qualifications set forth in this Article IX. The duties of the Agent shall be ministerial and administrative in nature. (b) Limitation of Liability. As between the Lenders, the L/C ----------------------- Issuer and the Agent, neither the Agent nor any of its directors, officers, employees or agents shall be liable, in the absence of gross negligence or willful misconduct, for any action taken or omitted (whether or not such action taken or omitted is within or without the Agent's responsibilities and duties expressly set forth in this Agreement) under or in connection with this Agreement or any other instrument or document in connection herewith. Without limiting the foregoing, neither the Agent nor any of its directors, officers, employees or its agents, shall be responsible for, or have any duty to examine (i) the genuineness, execution, validity, effectiveness, enforceability, value or sufficiency of (A) this Agreement or any of the other Loan Documents or (B) any other document or instrument furnished pursuant to or in connection with this Agreement, (ii) the collectability of any amounts owed by the Borrower to the Agent, the Lenders or the L/C Issuer, (iii) the truthfulness of any recitals or statements or representations or warranties made to the Agent or the Lenders in connection with this Agreement, (iv) any failure of any party to this Agreement to receive any communication sent, including any telegram, telex, teletype, telecopy, bank wire, cable, or telephone message or any writing, application, notice, report, statement, certificate, resolution, request, order, consent letter or other instrument or paper or communication entrusted to the mails or to a delivery service, or (v) the assets or liabilities or financial condition or results of operations or business or creditworthiness of the Borrower or any of its Subsidiaries. (c) Reliance. The Agent shall be entitled to act, and shall be -------- fully protected in acting upon, any telegram, telex, teletype, telecopy, bank wire or cable or any writing, application, notice, report, statement, certificate, resolution, request, order, consent, letter or other instrument or paper or communication believed by the Agent in good faith to be genuine and correct and to have been signed or sent or made by a proper Person. The Agent may consult counsel and shall be entitled to act, and shall be fully protected in any action taken in good faith, in accordance with advice given by counsel. The Agent may employee agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower. 9.06. Actions in Discretion of Agent; Instructions from the ----------------------------------------------------- Lenders. The Agent agrees, upon the written request of the Required Lenders, - ------- to take or refrain from taking any action of the type specified as being within the Agent's rights, powers or discretion herein or under any Loan Documents, provided that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable Law. In the absence of a request by the Required Lenders, the Agent shall have authority, in its sole discretion, to take or not to take any such action, unless this Agreement specifically requires the consent of the Required Lenders or all of the Lenders. Any action taken or failure to act pursuant to such instructions or discretion shall be binding on the Lenders and the L/C Issuer, subject to Section 9.05(b) hereof. Subject to the provisions of Section 9.05(b), no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders. 9.07. Indemnification. To the extent the Borrower does not --------------- reimburse and save harmless the Agent according to the terms hereof for and from all costs, expenses and disbursements in connection herewith, such costs, expenses and disbursements, shall be borne by the Lenders ratably in accordance with respective Lender's Ratable Share. Each Lender hereby agrees on such basis (i) to reimburse the Agent for such Lender's Ratable Share of all such reasonable costs, expenses and disbursements on request and (ii) to the extent of each such Lender's Ratable Share, to indemnify and save harmless the Agent against and from any and all losses, obligations, penalties, actions, judgments and suits and other costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, other than as a consequence of gross negligence or willful misconduct on the part of the Agent, arising out of or in connection with this Agreement, the other Loan Documents or any other agreement, instrument or document in connection herewith or therewith, or any request of the Required Lenders, including without limitation the reasonable costs, expenses and disbursements in connection with defending itself against any claim or liability related to the exercise or performance of any of its powers or duties under this Agreement, the other Loan Documents, or any of the other agreements, instruments or documents delivered in connection herewith or the taking of any action under or in connection with any of the foregoing. 9.08. Agent's Rights as Lender. With respect to the Revolving Credit ------------------------ Commitment of the Agent as Lender hereunder, any Loans of the Agent under this Agreement, the Agent's Ratable Share of any Unreimbursed L/C Draws, the participation as a Lender, and as to PNC Bank, as the L/C Issuer under this Agreement the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto, and the issuance of any Letter of Credit under the terms hereof, the Agent shall have the same rights and powers, duties and obligations under this Agreement, the other Loan Documents or any other agreement, instrument or document as any Lender and may exercise such rights and powers and shall perform such duties and fulfill such obligations as though it were not the Agent. The Agent may accept deposits from, lend money to, and generally engage, and continue to engage, in any kind of business with the Borrower or any of its Subsidiaries. 9.09. Notice of Default. The Agent shall not be deemed to ----------------- have knowledge or notice of the occurrence of an Event of Default unless the Agent has received written notice from a Lender or the Borrower referring to this Agreement, describing such Event of Default and stating that such notice is a "notice of default". 9.10. Payment to Lenders. Except as otherwise set forth in ------------------ Section 9.03 hereof, promptly after receipt from the Borrower of any principal repayment of the Loans or any Unreimbursed L/C Draw, interest due on the Loans or any Unreimbursed L/C Draws, and any Fees (other than the underwriting fee and the administration fee paid to the Agent and the L/C Fronting Fee paid to the L/C Issuer) or other amounts due under any of the Loan Documents, the Agent shall distribute to each Lender that Lender's Ratable Share of the funds so received except that funds received from the Borrower or another Loan Party to reimburse the L/C Issuer for drawings on Letters of Credit (other than a Lender's Ratable Share of such reimbursement payment to the extent such Lender has complied fully with any funding obligations under Section 2.18(g) hereof) or to fund any risk participant in the Letters of Credit or to pay the L/C Fronting Fee shall be paid solely for the account of L/C Issuer. If the Agent fails to distribute collected funds received by 2:00 P.M. on any Business Day by 3:00 P.M. of such Business Day or collected funds received after 2:00 P.M. on any Business Day by 3:00 P.M. the next Business Day the funds shall bear interest until distributed at the Federal Funds Effective Rate. The Agent agrees to make its best efforts to provide telephonic notice to each Lender that it is in receipt of funds from the Borrower and the day on which it will commence a wire transfer of such Lender's share of such funds. 9.11. Holders of Notes. The Agent may deem and treat any ---------------- payee of any Note as the owner thereof for all purposes hereof unless and until written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 9.12. Equalization of Lenders. Each borrowing and each ----------------------- payment or prepayment by, or for the account of, the Borrower with respect to principal, interest, Fees, or other amounts due from the Borrower hereunder to the Lenders with respect to the Loans, shall (except as provided in Section 2.10, 2.12, 2.18(b) or 9.03 hereof) be made in proportion to the Loans outstanding from each Lender or, if no such Loans are then outstanding, in proportion to the Ratable Share of each Lender. Each payment of Unreimbursed L/C Draws shall be made for the account of the L/C Issuer. The Lenders agree among themselves that, with respect to all amounts received by any Lender (in its capacity solely as a Lender) or any such holder for application on any obligation hereunder or under any Note or under any such participation, whether received by voluntary payment, by realization upon security, by the exercise of the right of set-off or banker's lien, by counterclaim or by any other non-pro rata source, equitable adjustment will be made in the manner stated in the following sentence so that, in effect, all such excess amounts will be shared ratably among the Lenders and such holders in proportion to their interest in payments under the Notes, except as otherwise expressly provided herein. The Lenders or any such holder receiving any such amount shall purchase for cash, from each of the other Lenders, an interest in such Lender's Loans in such amount as shall result in a ratable participation by the Lenders and each such holder in the aggregate unpaid amount under the Notes, provided that if all or any portion of such excess amount is thereafter recovered from the Lender or the holder making such purchase, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by Law (including court order) to be paid by the Lender or the holder making such purchase. 9.13. Successor Agent. The Agent may resign as the Agent --------------- upon sixty (60) days' written notice to the Lenders and the Borrower. If such notice shall be given, the Lenders shall appoint from among the Lenders a successor agent for the Lenders, during such 60-day period, which successor agent shall be reasonably satisfactory to the Borrower, to serve as agent hereunder and under the several documents, the forms of which are attached hereto as exhibits, or which are referred to herein. If at the end of such 60- day period the Lenders have not appointed such a successor, the Agent shall procure a successor reasonably satisfactory to the Lenders and the Borrower, to serve as agent for the Lenders hereunder and under the several documents, the forms of which are attached hereto as exhibits, or which are referred to herein. Any such successor agent shall succeed to the rights, powers and duties of the Agent. Upon the appointment of such successor agent or upon the expiration of such 60-day period (or any longer period to which the Agent has agreed), the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After any retiring Agent's resignation hereunder as the Agent, the provisions of this Article IX shall inure to the benefit of such retiring Agent as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. 9.14. Calculations. In the absence of gross negligence or ------------ willful misconduct, the Agent shall not be liable for any error in computing the amount payable to any Lender whether in respect of the Loans, fees or any other amounts due to the Lenders or the L/C Issuer under this Agreement. In the event an error in computing any amount payable to any Lender or the L/C Issuer is made, the Agent, the Borrower and each affected Person shall, forthwith upon discovery of such error, make such adjustments as shall be required to correct such error, and any compensation therefor will be calculated at the Federal Funds Effective Rate. 9.15. Beneficiaries. Except as expressly provided herein, ------------- the provisions of this Article IX are solely for the benefit of the Agent, the Lenders and the L/C Issuer, and the Borrower shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower. ARTICLE X GENERAL PROVISIONS ------------------ 10.01. Amendments and Waivers. The Required Lenders, or the ---------------------- Agent with the consent in writing of the Required Lenders, and the Borrower may, subject to the provisions of this Section 10.01, from time to time enter into written supplemental agreements to this Agreement and the other Loan Documents for the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any manner the rights of the Lenders, the Agent or the obligor thereunder or the conditions, provisions or terms thereof or waiving any Event of Default thereunder or consenting to an action of any of the Borrower or any of its Subsidiaries, but only to the extent specified in such written agreements; provided, however, that no such supplemental agreement shall, without the consent of all the Lenders: (a) waive an Event of Default by the Borrower in any payment of principal, interest, Fees or other amounts due hereunder and under any of the other Loan Documents, or otherwise postpone any scheduled payment date of any of the foregoing; (b) reduce the interest rate relating to the Loans or change the definition of the terms Base Rate, Prime Rate, Applicable Euro-Rate Margin, Euro-Rate, Euro-Rate Interest Period, Euro-Rate Reserve Percentage or Federal Funds Effective Rate so as to decrease the interest rate relating to the Loans; (c) change the Expiration Date; (d) reduce any Fee due the Lenders; (e) increase the maximum principal amount of either Revolving Credit Commitment of any Lender, or increase the maximum Stated Amount of Letters of Credit which may be issued and outstanding under the terms hereof; (f) change the definition of the term Required Lenders; (g) release any Subsidiary Guarantor or any collateral; or (h) amend or waive the provisions of this Section 10.01. Any such supplemental agreement shall apply equally to each of the Lenders and the L/C Issuer and shall be binding upon the Borrower, the Lenders, the Agent, all future holders of the Notes and all Participants. In the case of any waiver, the Borrower, the Lenders, the L/C Issuer, the Agent shall be restored to its former position and rights, and any Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. 10.02. Taxes. The Borrower shall pay any and all stamp, ----- document, transfer and recording taxes, filing fees and similar impositions payable or hereafter determined by the Agent, the Lenders or the L/C Issuer to be payable in connection with this Agreement, the other Loan Documents and any other documents, instruments and transactions pursuant to or in connection with any of the Loan Documents. The Borrower agrees to save the Agent, the Lenders and the L/C Issuer harmless from and against any and all present and future claims or liabilities with respect to, or resulting from, any delay in paying or failure to pay any such taxes or similar impositions other than resulting from the gross negligence or willful misconduct of the Agent, the Lenders or the L/C Issuer. 10.03. Costs and Expenses, etc. ----------------------- (a) The Borrower shall: (i) pay or reimburse the Agent for all reasonable out-of- pocket costs and expenses incurred by the Agent in connection with (A) the preparation, negotiation and execution of this Agreement, any other Loan Documents or any instrument or document prepared in connection herewith or therewith; (B) the completion of the Agent's "due diligence" permitted as a condition of the closing; (C) the syndication efforts of the Agent with respect to this Agreement and the commitments hereunder; and (D) the consummation of the transactions contemplated hereby and thereby (including, without limitation, in each case the reasonable fees and out-of-pocket expenses of the counsel to the Agent as agreed in the Agent's Letter); and (ii) reimburse the Agent, the L/C Issuer and each Lender on demand for all reasonable out-of-pocket costs and expenses incurred by the Agent, the L/C Issuer or such Lender in connection with the enforcement of or preservation of any of its Liens, rights, powers, interests or remedies under this Agreement or any other Loan Document (including, without limitation, in each case the reasonable fees and out-of-pocket expenses of the respective counsel to the Agent, the L/C Issuer and each Lender). (b) All of such costs, expenses and indemnities shall be payable by the Borrower to the Agent, the Lenders or the L/C Issuer as appropriate upon demand or as otherwise agreed upon by the Agent, the Lenders or the L/C Issuer as appropriate and the Borrower, and shall constitute Lender Obligations under this Agreement. 10.04. Notices. ------- (a) Notice to the Borrower. All notices required to be delivered ---------------------- to the Borrower pursuant to this Agreement shall be in writing and shall be sent to the following address, by hand delivery, recognized national overnight courier service with all charges prepaid, telex, telegram, telecopier or by United States certified mail, postage prepaid: Mastech Corporation 1004 McKee Road Oakdale, Pennsylvania 15071 Attention: Vice President Finance Telephone: (412) 490-9349 Telecopier: (412) 787-9225 (b) Notice to the Agent. All notices required to be delivered to ------------------- the Agent pursuant to this Agreement shall be in writing and shall be sent to the following address, by hand delivery, recognized national overnight courier service with all charges prepaid, telex, telegram, telecopier or by United States certified mail, postage prepaid: PNC Bank, National Association Vice President Telephone: 412-762-3627 Telecopier: 412-762-8672 (c) Notice to L/C Issuer. All notices required to be sent to the -------------------- L/C Issuer pursuant to this Agreement shall be in writing and shall be sent to the following address by hand delivery, recognized national overnight courier service with all charges prepaid, telex, telegram, telecopier or by United States certified mail, postage prepaid: PNC Bank, National Association Multibank Loan Administration One PNC Plaza, 22nd Floor 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: Arlene M. Ohler Vice President Telephone: 412-762-3627 Telecopier: 412-762-8672 (d) Notice to Lenders. All notices required to be sent to the ----------------- Lenders pursuant to this Agreement shall be in writing and shall be sent to the notice address of each Lender as set forth on Schedule 1.01 (a) hereto or such ----------------- Lender's signature page to the Assignment and Assumption Agreement executed by it as a Purchasing Lender, as the case may be, by hand delivery, overnight courier service with all charges prepaid, telex, telegram, telecopier or other means of electronic data communication or by the United States mail, first class postage prepaid. All such notices shall be effective three days after mailing, the date of telecopy transmission or when received, whichever is earlier. The Borrower, the Lenders, the L/C Issuer and the Agent may each change the address for service of notice upon it by a notice in writing to the other parties hereto. 10.05. Participation and Assignment. ---------------------------- (a) Sale of Participation. --------------------- (i) Any Lender may, in the ordinary course of its commercial lending business and in accordance with applicable law, and without the consent of the Borrower, at any time sell to one or more Participants (which Participants may be Affiliates of such Lender) Participations in the Revolving Credit Commitment of such Lender or any Loan, the Note, or other interest of such Lender hereunder. In the event of any such sale of a Participation, such Lender's obligations under this Agreement to the Borrower shall remain unchanged, such Lender shall remain solely responsible for its performance under this Agreement, such Lender shall remain the holder of the Note made payable to it for all purposes under this Agreement (including all voting rights hereunder) and the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. (ii) As between a Participant and that Participant's selling Lender only, the sole issues on which the Participant shall have a contractual right to vote are: (A) an increase in such Lender's Revolving Credit Commitment, (B) any change of the term Base Rate, Euro-Rate, Euro-Rate Reserve Percentage, or Applicable Euro-Rate Margin so as to decrease the interest rate relating to the Loans, (C) extension of the term of either Revolving Credit Commitment, or (D) postponement of the scheduled payment of principal, interest or Fees due under any of the Loan Documents. (b) Assignments. Subject to the remaining provisions of this ------------ Section 10.05(b), any Lender may at any time, in the ordinary course of its commercial lending business, in accordance with applicable law, sell to one or more Purchasing Lenders (which Purchasing Lender may be affiliates of the Transferor Lender), all or a portion of its rights and obligations under this Agreement and the Note then held by it, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit "G" and satisfactory to ----------- the Agent, executed by the Transferor Lender, such Purchasing Lender, the Agent and the Borrower; subject, however to the following requirements: (i) The Agent and the Borrower must each give its prior consent to any such assignment which consent shall not be unreasonably withheld; it being agreed that it shall not be deemed unreasonable for the Borrower to decline to consent to such assignment if (A) such assignment would result in incurrence of additional costs to the Borrower under Section 2.10, 2.11 or 2.12, or (B) the proposed assignee has not provided to the Borrower any tax forms received under Section 10.05(d); provided, however, no consent is required for -------- ------- the transfer by a Lender to its Affiliate so long as the conditions in clauses (A) and (B) immediately above are satisfied; (ii) Each such assignment must be in a minimum amount of $5,000,000, or, if in excess of $5,000,000, in integral multiples of $1,000,000; (iii) each such assignment shall be of a constant, and not a varying, percentage of the Transferor Lender's Revolving Credit Commitment, outstanding Loans and all other rights and obligations under this Agreement and the other Loan Documents; and (iv) The Transferor Lender shall pay to the Agent, for its own Account, a fee of $3,500 for each such assignment (the "Assignment Fee"). Upon the execution, delivery, acceptance and recording of any such Assignment and Assumption Agreement, from and after the Transfer Effective Date determined pursuant to such Assignment and Assumption Agreement, (i) the Purchasing Lender thereunder shall be a party hereto as a Lender and, to the extent provided in such Assignment and Assumption Agreement, shall have the rights and obligations of a Lender hereunder with a Revolving Credit Commitment as set forth therein, and (ii) the Transferor Lender thereunder shall, to the extent provided in such Assignment and Assumption Agreement, be released from its obligations under this Agreement as a Lender. Such Assignment and Assumption Agreement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender as a Lender and the resulting adjustment of Ratable Share arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such Transferor Lender under this Agreement and the Notes. On or prior to the Transfer Effective Date, the Borrower shall execute and deliver to the Agent, in exchange for the surrendered Note held by the Transferor Lender, a new Note to the order of such Purchasing Lender in an amount equal to the Revolving Credit Commitment assumed by it and purchased by it pursuant to such Assignment and Assumption Agreement, and a Note to the order of the Transferor Lender in an amount equal to the Revolving Credit Commitment retained by it hereunder. (c) Assignment Register. The Agent shall maintain at its address ------------------- referred to in Section 10.04(b) a copy of each Assignment and Assumption Agreement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the amount of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent, the Lender and the L/C Issuer may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all purposes of this Agreement. The Register shall be available at the office of the Agent for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Withholding of Income Taxes. At least five (5) Business Days --------------------------- prior to the first date on which interest or fees are payable hereunder for the account of any Purchasing Lender or Participant, each Purchasing Lender or Participant that is not incorporated under the laws of the United States or a state thereof shall deliver to the Borrower and the Transferor Lender two duly completed copies of United States Internal Revenue Service Form W-9, 4224 or 1001 or other applicable form prescribed by the Internal Revenue Service. Such form shall certify that such Purchasing Lender or Participant is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States Federal income taxes, or is subject to such tax at a reduced rate under an applicable tax treaty or under United States Internal Revenue Service Form W-8, or another applicable form or a certificate of such Purchasing Lender or Participant indicating that no such exemption or reduced rate is allowable with respect to such payments. Each Purchasing Lender or Participant which delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to the Borrower and its Transferor Lender two additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably required by the Borrower or its Transferor Lender, either certifying that such Purchasing Lender or Participant is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States Federal income taxes or is subject to such tax at a reduced rate under an applicable tax treaty or stating that no such exemption or reduced rate is allowable. The Borrower, in the case of a Purchasing Lender or Transferor Lender in the case of a Participant shall be entitled to withhold United States Federal income taxes at the full withholding rate, unless the Purchasing Lender or Participant as the case may be establishes an exemption, or at the applicable reduced rate, as established pursuant to this provisions of this Section 10.05(d). (e) Assignments to Federal Reserve Bank. In addition to the ----------------------------------- assignments permitted above, any Lender may assign and pledge all or any portion of its Loans and Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations and duties hereunder or under the other Loan Documents. 10.06. Successors and Assigns. This Agreement shall be ---------------------- binding upon the Borrower and the Agent, the Lenders, the L/C Issuer and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent, the Lenders, the L/C Issuer and respective successors and assigns; provided, however, that the Borrower shall not assign its rights or -------- ------- duties hereunder or under any of the other Loan Documents without the prior written consent of the Lenders. 10.07. No Implied Waivers; Cumulative Remedies; Writing Required. No --------------------------------------------------------- course of dealing and no delay or failure of the Agent or any Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Agent and the Lenders under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of any Lender of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 10.08. Severability. Any provision of this Agreement which ------------ is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or enforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 10.09. Indemnity. The Borrower hereby agrees to indemnify --------- the Agent, the Lenders, the L/C Issuer, and the directors, officers, employees, attorneys, agents and Affiliates or all of the foregoing (each of the foregoing an "Indemnified Person") against, and hold each of them harmless from, any loss, liabilities, damages, claims, costs and expenses (including reasonable attorneys' fees and disbursements) suffered or incurred by any Indemnified Person (except those caused by such Indemnified Person's gross negligence or willful misconduct, ) arising out of, resulting from or in any manner connected with, the execution, delivery and performance of each of the Loan Documents, the Lender Obligations and any and all transactions related to or consummated in connection with the Lender Obligations, including, without limitation, losses, liabilities, damages, claims, costs and expenses suffered or incurred by any Indemnified Person arising out of or related to investigating, preparing for, defending against, or providing evidence, producing documents or taking any other action in respect of any commenced or threatened litigation, administrative proceeding or investigation under any Federal securities law or by any Official Body of any jurisdiction, or at common law or otherwise, that is alleged to arise out of or is based on (i) any untrue statement or alleged untrue statement of any material fact of the Borrower or any Affiliate of the Borrower in any document or schedule filed with the Securities and Exchange Commission or any other Official Body, (ii) any omission or alleged omission to state any material fact required to be stated in such document or schedule, or necessary to make the statements made therein, in light of the circumstances under which made, not misleading; (iii) any actual or alleged acts, practices or omissions of the Borrower, any other Loan Party, or any of their respective directors, officers, partners, employees, attorneys, agents or Affiliates, related to the making of any acquisition, purchase of shares or assets pursuant thereto, financing of such purchases or the consummation of any other transactions contemplated by any such acquisitions that are alleged to be in violation of any Federal securities law or of any other statute, regulation or other law of any jurisdiction applicable to the making of any such acquisition, the purchase of shares or assets pursuant thereto, the financing of such purchases or the consummation of the other transactions contemplated by any such acquisition; or (iv) any withdrawals, termination or cancellation of any such proposed acquisition for any reason whatsoever. The indemnity set forth in this Section 10.09 shall be in addition to any other obligations or liabilities of the Borrower to the Agent, the Lenders or the L/C Issuer, or at common law or otherwise. The provisions of this Section 10.09 shall survive the payment of the Lender Obligations and the termination of this Agreement and the other Loan Documents. 10.10 Confidentiality. The Agent, the Lenders and the L/C --------------- Issuer shall keep confidential and not disclose to any Person, other than to their respective directors, officers, employees, Affiliates and agents, and to actual and potential Purchasing Lenders and Participants, all non-public information concerning the Borrower and the Borrower's Affiliates which comes into the possession of the Agent, the Lenders or the L/C Issuer during the term hereof. Notwithstanding the foregoing, the Agent, the Lenders and the L/C Issuer may disclose information concerning the Borrower (i) in accordance-with normal banking practices and the Agent's, such Lender's or the L/C Issuer's policies concerning disclosure of such information in connection with syndication or sales of Participations, subject to informing the recipient of such information of the duties of confidentiality hereunder, (ii) pursuant to what the Agent, such Lender or the L/C Issuer believes to be the lawful requirements or request of any Official Body regulating banks or banking, (iii) as required by governmental regulation or rule, judicial process or subpoena; provided however, if permitted by law, the Agent, or such Lender shall notify the Borrower and permit the Borrower, at the Borrower's cost, to contest such subpoena; and (iv) to their respective attorneys, accountants and auditors who have been informed of the confidentiality hereunder. 10.11. Survival. All representations, warranties, covenants -------- and agreements of the Borrower contained herein or in the other Loan Documents or made in writing in connection herewith shall survive the issuance of the Notes and the Letters of Credit and shall continue in full force and effect so long as the Borrower may borrow hereunder and so long thereafter until payment in full of all the Notes and the Lender Obligations is made. The obligations of the Borrower under Sections 2.13, 2.19, 2.21, 6.13, 10.02, 10.03 and 10.09 shall survive the termination of this Agreement and the discharge of the other obligations of the Borrower hereunder, and any other Loan Documents, and shall also survive the payment in full of all Lender Obligations, the termination of the Revolving Credit Commitment in accordance with the provisions of this Agreement and the termination or expiration of all Letters of Credit in accordance with their respective terms. 10.12. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL ------------- BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, EXCEPTING APPLICABLE FEDERAL LAW AND EXCEPT ONLY TO THE EXTENT PRECLUDED BY THE MANDATORY APPLICATION OF THE LAW OF ANOTHER JURISDICTION. 10.13. FORUM. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING ----- ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER IS A PARTY MAY BE COMMENCED IN THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA OR IN THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND THE PARTIES HERETO AGREE THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN EITHER OF SUCH COURTS SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL TO THE PARTIES AT THEIR ADDRESSES SET FORTH IN SECTION 10.04, OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. FURTHER, THE BORROWER HEREBY SPECIFICALLY CONSENTS TO THE PERSONAL JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND WAIVES AND HEREBY ACKNOWLEDGES THAT IT IS ESTOPPED FROM RAISING ANY OBJECTION BASED ON FORUM NON CONVENIENS, ANY CLAIM THAT EITHER SUCH COURT LACKS -------------------- PROPER VENUE OR ANY OBJECTION THAT EITHER SUCH COURT LACKS PERSONAL JURISDICTION OVER THE BORROWER SO AS TO PROHIBIT EITHER SUCH COURT FROM ADJUDICATING ANY ISSUES RAISED IN A COMPLAINT FILED WITH EITHER SUCH COURT AGAINST THE BORROWER BY THE AGENT, THE LENDERS OR THE L/C ISSUER CONCERNING THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR PAYMENT TO THE LENDERS. THE BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THE CHOICE OF FORUM CONTAINED IN THIS SECTION 10.13 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE TAKING OF ANY ACTION UNDER THE LOAN DOCUMENTS TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. 10.14. Non-Business Days. Whenever any payment hereunder or ----------------- under the Notes is due and payable on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in each such case be included in computing interest in connection with such payment. 10.15. Integration. This Agreement and the other Loan ----------- Documents constitute the entire agreement between the parties relating to this financing transaction and they supersede all prior understandings and agreements, whether written or oral, between the parties hereto relating to the transactions provided for herein. 10.16. Counterparts. This Agreement and any amendment hereto ------------ may be executed in several counterparts and by each party on a separate counterpart, each of which, when so executed and delivered, shall be an original, but all of which together shall constitute but one and the same instrument. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the other party against whom enforcement is sought. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. 10.17. Funding by Branch, Subsidiary or Affiliate. ------------------------------------------ (a) Notional Funding. Each Lender shall have the right from time ---------------- to time, without notice to the Borrower, to deem any branch, subsidiary or affiliate (which for the purposes of this Section 10.17 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls such Lender) of such Lender to have made, maintained or funded any Loan in Dollars or in any Optional Currency to which the Euro-Rate Option applies at any time, provided that immediately following (on the assumption that a payment were then due from the Borrower to such other office) and as a result of such change the Borrower would not be under any greater financial obligation to such Lender hereunder, pursuant to Section 2.08, 2.10, 2.11 or 2.12 hereof than it would have been in the absence of such change. Notional funding offices may be selected by each Lender without regard to a Lender's actual methods of making, maintaining or funding the Loans or any sources of funding actually used by or available to such Lender. (b) Actual Funding. Each Lender shall have the right from time to -------------- time to make or maintain any Loan by arranging for a branch, subsidiary or affiliate of such Lender to make or maintain such Loan subject to the last sentence of this Section 10.17(b). If any Lender causes a branch, subsidiary or affiliate to make or maintain any part of the Loans hereunder, all terms and conditions of this Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Loans to the same extent as if such Loans were made or maintained by such Lender but in no event shall any Lender's use of such a branch, subsidiary or affiliate to make or maintain any part of the Loans hereunder cause such Lender or such branch, subsidiary or affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrower to pay any other compensation to any such Lender (including, without limitation, any expenses incurred or payable pursuant to Section 2.08, 2.10, 2.11 or 2.12 hereof) which would otherwise not be incurred. 10.18 WAIVER OF JURY TRIAL. THE BORROWER, EACH LENDER, THE AGENT AND THE -------------------- L/C ISSUER EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN WHICH THE BORROWER, THE LENDERS, THE AGENT, THE L/C ISSUER OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A PARTY, AS TO ALL MATTERS AND THINGS ARISING OUT OF THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Credit Agreement to be executed by their respective duly authorized officers as of the date first written above. MASTECH CORPORATION, a Pennsylvania corporation By: (SEAL) ---------------------------- Name: Title: PNC BANK, NATIONAL ASSOCIATION, in its capacities as Agent and L/C Issuer and as a Lender By: (SEAL) ---------------------------- Name: Title: FLEET NATIONAL BANK By: (SEAL) ---------------------------- Name: Title: FIRST UNION NATIONAL BANK By: (SEAL) ---------------------------- Name: Title: CHASE MANHATTAN BANK By: (SEAL) ---------------------------- Name: Title: EX-10.25 8 LEASE AGREEMENT DATED OCTOBER 14, 1998 Exhibit 10.25 PARKRIDGE OFFICE CENTER BUILDING ONE OFFICE LEASE LANDLORD: PARK RIDGE ONE ASSOCIATES TENANT: MASTECH SYSTEMS CORPORATION Dated for reference purposes as of : October 14, 1998 PARK RIDGE ONE ASSOCIATES Basic Lease Information Lease Date: October 14, 1998 ---------------- Tenant: Mastech Systems Corporation --------------------------- Address: Suite 500 --------- Park Ridge One, Pittsburgh, PA 15275 ------------------------------------ Contact Person: Jeff McCandless, Vice President of Finance ------------------------------------------ with a copy to: Daniel Daugherty, Manager of Contracts and Legal Affairs -------------------------------------------------------- Phone: ------------------------------------------------------------------ Landlord: Park Ridge One Associates ------------------------- Address: C/O Grubb & Ellis Management Services, Inc. ------------------------------------------- 600 Six PPG Place ----------------- Pittsburgh, PA 15222 -------------------- Phone: (412) 281-0100 -------------- Building: As described in Paragraph 1.1 of the Lease. ------------------------------------------- Total Rentable Area of Building Office Space: 99,066 Rentable Square Feet --------------------------- Suite: 500 and 130 ----------- Floor(s): 1st and 5th ----------- Rentable Area: 25,599 ------ Term: 5 years ------- Proposed Commencement Date: This lease shall commence sixty (60) days after CNG Energy Services Corporation vacates the property in full and based on a walkthrough and written signoff by Tenant, but not later than December 15, 1998. Expiration Date (subject to Lease Provisions): December 14, 2003 ----------------- Annual Base Rental: $20.50 per rentable square feet. Five Hundred ---------------------------------------------- Twenty-Four Thousand Seven Hundred Seventy-Nine ----------------------------------------------- and 50/100 ($524,779.50) Dollars -------------------------------- Tenant's Share of Excess Expenses (Subject to Lease Provisions): 25.8% ----- Tenant's Share of Excess Taxes (Subject to Lease Provisions): 25.8% ----- Excess Taxes Base: Base Year is 1999 ----------------- Excess Expenses Base: Base Year is 1999 ----------------- Use: General office -------------- Security Deposit: None ---- Date Prior to Which Tenant Shall Deliver Plans: None ---- Other: ----------------------------------------------------------------------- Broker: Grubb & Ellis Company, 600 PPG Place, Pittsburgh, PA 15222 ----------------------------------------------------------- Oxford Development Company, One Oxford Center, Pgh., PA 15219 ------------------------------------------------------------- The foregoing Basic Lease Information is hereby incorporated into and made a part of this Lease. Park Ridge One Associates, a Delaware limited partnership Mastech Systems Corporation By: ________________________________ ______________________________________ a Delaware corporation General Partner By: ________________________________ By: ___________________________________ Its: ________________________________ Its: ___________________________________ AUTHORIZED AGENT FOR PARK RIDGE ONE ASSOCIATES a Pennsylvania limited partnership TABLE OF CONTENTS ARTICLE PAGE 1. PREMISES.............................................................1 2. TERM.................................................................1 3. ANNUAL BASE RENTAL; ADDITIONAL RENT..................................2 4. ADDITIONAL RENT FOR EXCESS OPERATING EXPENSES AND TAXES..............3 5. TERMS OF PAYMENT.....................................................7 6. CONSTRUCTION OF THE PREMISES.........................................7 7. COMMON AREA MAINTENANCE..............................................8 8. CONDUCT OF BUSINESS BY TENANT........................................8 9. ALTERATIONS AND TENANT'S PROPERTY....................................8 10. REPAIRS..............................................................9 11. LIENS...............................................................10 12. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS.....................11 (i) 13. SUBORDINATION.......................................................11 14. INABILITY TO PERFORM................................................12 15. DESTRUCTION.........................................................12 16. EMINENT DOMAIN......................................................14 17. ASSIGNMENT..........................................................15 18. SUBLETTING..........................................................17 19. UTILITIES...........................................................18 20. DEFAULT.............................................................20 21. INDEMNITY...........................................................23 22. TENANT'S INSURANCE..................................................24 23. LIMITATION OF LANDLORD'S LIABILITY..................................24 24. ACCESS TO PREMISES..................................................25 25. NOTICES.............................................................25 (ii) 26. NO WAIVER...........................................................26 27. TENANT'S CERTIFICATES...............................................26 28. RULES AND REGULATIONS...............................................27 29. SECURITY DEPOSIT....................................................27 30. AUTHORITY...........................................................27 31. MISCELLANEOUS.......................................................28 (iii) EXHIBIT A - FLOOR PLAN EXHIBIT B - DESCRIPTION OF LAND EXHIBIT C - WORK AGREEMENT EXHIBIT D - FORM OF SUBORDINATION OF MORTGAGE AGREEMENT EXHIBIT E - RULES AND REGULATIONS EXHIBIT F - LICENSE AGREEMENT (iv) OFFICE LEASE THIS LEASE is made and entered into this 14th day of October, 1998, by and between PARK RIDGE ONE ASSOCIATES L.P., a Pennsylvania limited partnership, (herein called "Landlord"), and MASTECH SYSTEMS CORPORATION (herein called "Tenant"). WITNESSETH: Landlord and Tenant hereby covenant and agree as follows: 1. PREMISES 1.1 Upon and subject to the terms, covenants and conditions hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord those premises (herein called the "Premises") in the building known as Park Ridge Office Center, Building One, in Findlay Township, Pennsylvania (herein called the "Building") , comprising the area substantially as shown on the floor plan or plans attached hereto as Exhibit A. The Premises are located on the floors of the Building that are specified in the Basic Lease information. The term "Building" includes the LAND upon which the Building stands and which is described in Exhibit B attached hereto (the "Land"), all easements and rights appurtenant to the Land and Building, all parking facilities located on the Land, and all improvements serving the Building and designated from time-to-time by Landlord as Land or common areas appurtenant to the Building, together with utilities, facilities, drives, walkways and other amenities appurtenant to or servicing the Building. 2. TERM 2.1 The Premises are leased for a term (herein called the "Term") to commence and end on the dates respectively specified in the Basic Lease Information, unless the Term shall sooner terminate as hereinafter provided. If, on or prior to the date set forth in the Basic Lease Information for the commencement of the Term (the "Proposed Commencement Date") , Landlord fails to deliver possession of the Premises, either (a) because Landlord's Work (as hereinafter defined in Article 6 hereof) shall not have been substantially completed, or (b) because a previous occupant is holding over, or (c) because of any other cause or reason beyond the reasonable control of Landlord, then the following provisions shall apply; (i) the Term shall not commence on the Proposed Commencement Date but shall, instead, commence on the date fixed by Landlord in a notice to Tenant, which notice shall state that the Premises are, or prior to the commencement date fixed in such notice will be, substantially completed and ready for occupancy by Tenant; (ii) neither the validity of this Lease nor the obligations of Tenant under this Lease shall be affected by such failure to deliver possession, except that the Term shall begin as provided in clause (i) above; (iii) Tenant shall have no claim against Landlord failure to deliver possession of the Premises on the date originally fixed therefor; (iv) in no event shall the expiration date of the Term be extended beyond the date specified in the Basic Lease Information. 2.2 The dates upon which the Term shall commence and terminate pursuant to this Article 2 are herein called the "Commencement Date" and the "Expiration Date" respectively. 2.3 Notwithstanding anything to the contrary herein contained, in the event that the Term shall not have commenced on or before such date as shall be three (3) months from the Commencement Date set forth in the Basic Lease Information and such delay in commencement shall not have been caused by the Tenant or any event included in Section 31.16 hereof, then this Lease shall be automatically terminated without any further act of either party hereto and both parties hereto shall be released from all obligations hereunder. If such delay shall have been caused by the Tenant or an event included in Section 31.16 then this Lease may only be terminated at the option of the Landlord. 2.4 Tenant shall have a five (5) year renewal option at a rate consistent with the then current Base Rental Rates for Class A suburban office properties in Pittsburgh, Pennsylvania. 3. ANNUAL BASE RENTAL; ADDITIONAL RENT 3.1 Tenant shall pay to Landlord during the Term the Annual Base Rental specified in the Basic Lease Information (herein called the "Annual Base Rental"), which sum shall be payable by Tenant in equal consecutive monthly installments on or before the first day of each month, in advance, at the address specified for Landlord in the Basic Lease Information, or such other place as Landlord shall designate, without any prior demand therefor and without any deductions, counterclaims or setoffs whatsoever. If the Commencement Date should occur on a day other than the first day of a calendar month, or the Expiration Date should occur on a day other than the last day of a calendar month, then the monthly installment of Annual Base Rental for such fractional month shall be prorated upon a daily basis based upon a thirty (30) day month. Tenant shall have the right to audit all operating expense and real estate tax reports once per year. All such statements shall be prepared in accordance with GAAP. If such reports are over-stated by five percent or more, Landlord shall be responsible for the cost of the audit and Tenant shall have the right to conduct additional audits. 3.2 Tenant shall pay to Landlord all charges and other amounts required under this Lease and the same shall constitute additional rent hereunder (herein called "Additional Rent"), including, without limitation, any sums due resulting from the provisions of Articles 4 and 19 hereof. All such amounts and charges shall be payable to Landlord at the place where the Annual Base Rental is payable. Landlord shall have the same remedies for a default in the payment of Additional Rent as for a default in the payment of Annual Base Rental. 3.3 Tenant shall have a free rent period of three and one-half (3 1/2) months beginning on the Commencement Date. 4. ADDITIONAL RENT FOR EXCESS OPERATING EXPENSES AND TAXES 4.1 For purposes of this Article 4, the following terms shall have the meanings hereinafter set forth; (a) "Tenant's Share of Excess Expenses" for any Expense Year (as hereinafter defined) shall be calculated by multiplying the amount of Excess Expenses (as hereinafter defined) by the fraction which is derived by dividing the Rentable Area of the Premises by the Total Rentable Area of Building Office Space. (b) "Tenant's Share of Excess Taxes" for any Tax Year (as hereinafter defined) shall be calculated by multiplying the amount of Excess Taxes (as hereinafter defined) by the fraction which is derived by dividing the Rentable Area of the Premises by the total Rentable Area of the Building. (c) "Tax Year" shall mean each twelve (12) consecutive month period commencing January 1st of each year during the Term, provided that Landlord, upon notice to Tenant, may change the Tax Year from time-to-time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's share of Excess Taxes (as hereinafter defined) shall be equitably adjusted for the Tax Years involved in any such change. (d) "Real Estate Taxes" shall mean all taxes, assessments and charges levied upon or with respect to the Building or any improvements, fixtures and equipment of Landlord used in the operation thereof, or Landlord's interest in the Building or such other property. Real Estate Taxes shall include, without limitation, all general real property taxes and general and special assessments, charges, fees or assessments for all governmental services or purported benefits to the Building, service payments in lieu of taxes, all business privilege taxes, and any tax, fee or excise on the act of entering into this Lease or any other lease of space in the Building, or on the use or occupancy of the Building or any part thereof, or on the rent payable under any Lease or in connection with the business of renting space under any lease or in connection with the business of renting space in the Building, that are now or hereafter levied or assessed against Landlord by the United States of America, the Commonwealth of Pennsylvania, or any political subdivision, public corporation, district or other political or public entity, and shall also include any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Real Estate Taxes (including, without limitation, any municipal income tax) and any license fees, tax measured or imposed upon rents, or other tax or charge upon Landlord's business of leasing the Building, whether or not now customary or in the contemplation of the parties on the date of this Lease. Real Estate Taxes shall not include transfer, inheritance or capital stock taxes or income taxes measured by the net income of Landlord from all sources, unless, due to a change in the method of taxation or any of such taxes is levied or assessed against Landlord as a substitute for, or as an addition to, in whole or in part, any other tax that would otherwise constitute a Real Estate Tax. Real Estate Taxes shall also include reasonable legal fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce Real Estate Taxes. If Real Estate taxes are reduced for any reason (i.e., successful proceedings to contest taxes, etc.), then the reduction should be passed on to Tenant. Provided that no reduction shall result in an amount that would be less than the Base Year amount. However, in the event that Real Estate Taxes are replaced with a tax on Tenant's income, operations or other element that may be described as a Tenant based tax, then Landlord will reduce Tenant's rent by the taxed amount even if such action shall reduce Tenant's share of Real Estate Taxes below the Base Year amount. (e) "Excess Taxes" with respect to any Tax Year shall mean the amount, if any, by which Real Estate Taxes for such Tax Year exceed the product obtained by multiplying the number of square feet of Total Rentable Area of Building by the Excess Taxes Base set forth in the Basic Lease Information. (f) "Expense Year" shall mean each twelve (12) consecutive month period commencing January 1st of each year during the Term, provided that Landlord, upon notice to Tenant, may change the Expense Year from time-to-time to any other twelve (12) consecutive month period, and, in the event of any such change, Tenant's Share of Excess Expenses (as hereinafter defined) shall be equitably adjusted for the Expense Years involved in any such change. (g) "Expenses" shall mean the total cost and expenses paid or incurred by Landlord in connection with the management, operation, maintenance and repair of the Total Rentable Area of Building Office space, including, without limitation, (i) building supplies and equipment, the cost of air conditioning, electricity, steam, water, sewer rental and charges, heating, mechanical, ventilating and elevator systems. and all other utilities, and the cost of supplies and equipment and maintenance and service contracts in connection therewith, and all taxes on such utilities; (ii) the cost of repairs, general maintenance, cleaning and janitorial services; (iii) the cost of fire, extended coverage, boiler, machinery, sprinkler, public liability, property damage, earthquake, flood and other insurance and bonds; (iv) wages, salaries and other labor costs, including taxes, insurance, retirement, medical, workers' compensation, and other employee benefits; (v) fees, charges and other costs, including management fees, consulting fees, legal fees and accounting fees, of all independent contractors engaged by Landlord or reasonably charged by Landlord if Landlord performs management services; (vi) the cost of supplying, maintaining and operating security systems and service for the Building; (vii) the cost of supplying, replacing and cleaning employee uniforms; (viii) the cost of any capital improvements made to the Building and substantially benefiting the Total Rentable Area of Building Office Space after completion of construction such capital improvements as a labor-saving device or to effect other economics in the operation or maintenance of the Building, or made to the Building after the date of this Lease, that are required under any governmental law or regulation that was not applicable to the Building at the time that permits for the construction thereof were obtained, such cost to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the rate of fifteen percent (15%) per annum or such higher rate as may have been paid by Landlord on funds borrowed for the purpose of constructing such capital improvements; (ix) costs incurred in the preparation of Landlord's Tax Statement (as defined hereafter) and Landlord's Expense Statement (as defined hereafter); and (x) any other expenses of any other kind whatsoever reasonably incurred in managing, operating, maintaining, and repairing all or any part of the Total Rentable Area of Building Office Space. Notwithstanding the foregoing, "Expenses" shall not include above- standard use of utilities by other tenants within the Building, costs associated with renovation to the common areas of the Building, if any, necessary to bring such areas into compliance with the Americans with Disabilities Act, 42 U.S.C. (S) 1201 et. seq. ("ADA") and "capital expenditures" to the Building, as such term may be defined by the United States tax code, or any court of competent jurisdiction interpreting the same. The total cost and expenses paid or incurred by Landlord in connection with the following items shall not be included as "Expenses": (i) utilities expenses which are separately metered for any individual tenant in the Building; (ii) any expense for which Landlord in reimbursed by a specific tenant by reason of a special agreement or requirement of the occupancy of the Building by such tenant; (iii) expenses for services provided by Landlord for the exclusive benefit of a given tenant or tenants for which Landlord is directly reimbursed by such tenant or tenants; and (iv) costs incurred by Landlord in the leasing of space in the Building or procuring now tenants. For purposes of such calculations, expenses shall be increased to what they would have been if the Total Rentable Area of Building Office Space was ninety-five (95%) occupied and Landlord paid such expenses during any period in which the Total Rentable Area of Building Office Space is less than ninety-five percent (95%) occupied. Tenant shall have the right to review a detailed breakdown of Expenses and Real Estate Taxes. (h) "Excess Expenses" with respect to any Expense Year shall mean the amount, if any, by which Expenses for such Expense Year exceed the product obtained by multiplying the number of square feet of Total Rentable Area of Building Office Space by the Excess Expenses Base set forth in the Basic Lease Information. 4.2 Tenant shall pay to Landlord on account of Tenant's Share of Excess Taxes and as Additional Rent one twelfth (1/12th) of the amount of Tenant's Share of Excess Taxes for each Tax Year on or before the first day of each month during such Tax Year, in advance, in an amount estimated by Landlord and billed by Landlord to Tenant; provided that Landlord shall have the right initially to determine such monthly estimates and to revise such estimates from time-to-time. With reasonable promptness after Landlord has received the tax bills for any Tax Year, Landlord shall furnish Tenant with a statement (herein called "Landlord's Tax Statement") setting forth the amount of Real Estate Taxes for such Tax Year and the amount of Tenant's Share of Excess Taxes, if any. If the actual amount of Tenant's Share of Excess Taxes for such Tax Year exceeds the estimated amount of Tenant's Share of Excess Taxes paid by Tenant for such difference between the amount paid by Tenant and the actual Tax Year and the amount of Tenant's Share of actual amount of Tenant's Share of Excess Taxes estimated amount of Tenant's Share of Excess Tax Year, then Tenant shall pay to Landlord the difference between the amount of estimated Tenant's Share of Excess Taxes paid by Tenant and the actual amount of Tenant's Share of Excess Taxes within thirty (30) days after receipt of Landlord's Tax Statement, and if the total amount of estimated Tenant's Share of Excess Taxes paid by Tenant for any such Tax Year shall exceed the actual amount of Tenant's Share of Excess Taxes for such Tax Year, then such excess shall be credited against the next installment of the estimated amount of Tenant's Share of Excess Taxes due from Tenant to Landlord hereunder. 4.3 Tenant shall pay to Landlord on account of Tenant's Share of Excess Expenses and an Additional Rent one twelfth (1/12th) of the amount of Tenant's Share of Excess Expenses for each Expense Year on or before the first day of each month of such Expense Year, in advance, in an amount estimated by Landlord and billed by Landlord to Tenant; provided that Landlord shall have the right initially to determine such monthly estimates and to revise such estimates from time-to-time. With reasonable promptness after the expiration of each Expense Year, Landlord shall furnish Tenant with a statement (herein called "Landlord's Expense Statement"), certified by an officer of the managing agent of Landlord, setting forth in reasonable detail the Expenses for the Expense Year, and the amount of Tenant's Share of Excess Expenses, if any. If the actual amount of Tenant's Share of Excess Expenses for such Expense Year exceeds the estimated amount of Tenant's Share of Excess Expenses paid by Tenant for such Expense Year, then Tenant shall pay to Landlord the difference between the amount of estimated Tenant's Share of Excess Expenses paid by Tenant and the actual Amount of Tenant's Share of Excess Expenses within fifteen (15) days after the receipt of Landlord's Expense Statement, and if the total amount of estimated Tenant's Share of Excess Expenses paid by Tenant for any such Expense Year shall exceed the actual amount of Tenant's Share of Excess Expenses for such Expense Year, then such excess shall be credited against the next installment of the estimated amount of Tenant's Share of Excess Expenses due from Tenant to Landlord hereunder. 4.4 If the Commencement Date or Expiration Date of this Lease shall occur on a date other than the beginning or end of a Tax Year or Expense Year, the amount of Tenant's Share of Excess Taxes, if any, and the amount of Tenant's Share of Excess Expenses, if any, for the Tax Year and the Expense Year in which the Commencement Date or Expiration Date falls shall be in the proportion that the number of days in such partial year in which the Commencement Date or Expiration Date occurs bears to 365; provided, however, Landlord may, pending the determination of the amount, if any, of Excess Taxes and Excess Expenses for such partial Tax Year and Expense Year, furnish Tenant with statements of estimated Excess Taxes, estimated Excess Expenses, and the amount of Tenant's Share of each for such partial Tax Year and Expense Year. Within fifteen (15) days after receipt of such estimated statement, Tenant shall remit to Landlord, as Additional Rent, the amount of Tenant's Share of such Excess Taxes and Tenant's Share of such Excess Expenses. After such Excess Taxes and such Excess Expenses have been finally determined and Landlord's Tax Statement and Landlord's Expense Statement have been furnished to Tenant pursuant to Sections 4.2 and 4.3 hereof, then, if there shall have been an underpayment of the amount of either Tenant's Share of Excess Taxes or Tenant's Share of Excess Expenses, Tenant shall remit the amount of such underpayment to Landlord within fifteen (15) days of receipt of such statements, and, if there shall have been an overpayment, Landlord shall remit the amount of any such overpayment to Tenant within fifteen (15) days of the issuance of such statements. 5. TERMS OF PAYMENT 5.1 Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of bills or statements therefor; (a) sums equal to all expenditures made and monetary obligations incurred by Landlord including, without limitation, expenditures made and obligations incurred for reasonable counsel fees, in connection with the remedying by Landlord for Tenant's account pursuant to the provisions of Article 20 hereof; (b) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 20 hereof; (c) sums equal to all expenditures made and monetary obligations incurred by Landlord, including, without limitation, expenditures made and obligations incurred for reasonable counsel fees, in collecting or attempting to collect the Annual Base Rental, any Additional Rent or any other sum of money accruing under this Lease or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law; and (d) all other sums of money (other than Annual Base Rental and Additional Rent which are to be due and payable) accruing from Tenant to Landlord under the provisions of this Lease. Any sum of money (other than Annual Base Rental) accruing from Tenant to Landlord pursuant to any provision of this Lease, including, without limitation, the provisions of Exhibit C attached hereto, whether prior to or after the Commencement Date, may, at Landlord's option, be deemed Additional Rent. All obligations of the Tenant under this Lease, including without limitation the Tenant's obligations under this Section 5.1, shall survive the expiration or sooner termination of the Term. 5.2 If Tenant shall fail to pay any Annual Base Rental or Additional Rent after the date same in due and payable, such unpaid amounts shall be subject to a late payment charge equal to two percent (2%) per month of such unpaid amounts (the "Default Rate") in each instance to cover Landlord's additional administrative costs and cost of funds resulting from Tenant's failure. Such late payment charge shall be paid to Landlord together with such unpaid amounts. Such late payment charge shall not diminish or impair any other remedies available to Landlord. 6. CONSTRUCTION OF THE PREMISES 6.1 Prior to the Commencement Date, Tenant will perform the work and make the installations in the Premises substantially as set forth as Building Standard Work in Exhibit C annexed hereto and made a part hereof (such work and installations being herein called "Tenant's Work"). Tenant, through the services of LV Construction Corporation, whom the Landlord approves, shall, when construction progress so permits, notify Landlord in advance of the approximate date on which Tenant's Work will be substantially completed in accordance with Exhibit C and will notify Landlord when Tenant's Work is in fact so completed. Commencement of Tenant's Work shall constitute delivery of possession of the Premises to Tenant and notice to Tenant of the Commencement Date pursuant to construction of the Building or the Premises shall not affect or change this Lease or invalidate same. It is agreed that by occupying the Premises, Tenant formally accepts same and acknowledges that the Premises are in the condition called for hereunder. Failure of Landlord to deliver possession of the Premises within the time and in the condition provided for in this Lease will not give rise to any claim for damages by Tenant against Landlord or Landlord's contractor. Landlord shall disburse to Tenant an Allowance ("Tenant's Allowance") of $15 per square foot of Rentable Area based upon invoices received. Payment shall be made within fifteen (15) days of receipt. Any final balance will be paid thirty (30) days after construction has been completed (including punch list items) and after the parties approve of the construction finish. In the event Tenant incurs less than $15.00 per square foot, Landlord shall credit the balance to Tenant in the form of rent credits. 7. COMMON AREA MAINTENANCE 7.1 The manner in which the common areas are maintained and operated and the expenditures therefor shall be in accordance with Class A suburban office buildings in the Pittsburgh, Pennsylvania area, and the use of such areas and facilities shall be subject to such reasonable rules and regulations as Landlord shall make from time-to-time. The term "common areas' an used herein shall mean the pedestrian sidewalks, hallways, lobby, corridors, delivery areas, elevators and stairs not contained in the leased areas, public bathrooms and all other areas or improvements that may be provided by Landlord for the convenience and use of the tenants of the Building and their respective sub-tenants, agents, employees, customers, invitees and any other licensees of Landlord. 7.2 The purpose of attached Exhibit A is to show the location of the Premises in the Building and Landlord hereby reserves the right, at any time and from time-to-time, to make alterations or additions to the Building and the common areas. Landlord also reserves the right at any time and from time-to- time to construct other improvements in the Building (including within the common areas) and to enlarge same and make alterations therein or additions thereto. 8. CONDUCT OF BUSINESS BY TENANT 8.1 Tenant shall use and occupy the Premises during the Term of this Lease solely for the uses specified in the Basic Lease Information and for no other use or uses without the prior written consent of Landlord. 8.2 Tenant and all sublessees or assignees of Tenant shall not use or occupy, or permit the use or occupancy of, the Premises or any part thereof for any use other than the sole uses specifically set forth in the Basic Lease Information or in any illegal manner, or in any manner that, in Landlord's judgment, would adversely affect or interfere with any services required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Building, or with the proper and economical rendition of any such service, or with the use or enjoyment of any part of the Building by any other tenant or occupant. 9. ALTERATIONS AND TENANT'S PROPERTY 9.1 Tenant shall not make or permit any additions or alterations to the mechanical, plumbing, HVAC or electrical systems in the Building and shall not make or permit any alterations which affect the Building, installations, additions or improvements, structural or otherwise (herein collectively called "Alterations"), in or to the Premises without Landlord's prior written consent. All Alterations permitted by Landlord and made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (a) at Tenant's cost and expense and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord, (c) so that same shall be at least equal in quality, value, and utility to the original work or installation, (d) in accordance with the Rules and Regulations for the Building adopted by Landlord from time-to-time and in accordance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises, (e) pursuant to plans, drawings and specifications which have been reviewed and approved by Landlord prior to the commencement of the Alterations, and (f) subject to all other terms and conditions of this Lease including but not limited to Article 11. 9.2 All appurtenances, fixtures, improvements, additions and other property attached to or installed in the Premises by Landlord or on behalf of Tenant, at Landlord's expense, shall be and remain the property of Landlord. However, Landlord may require at Landlord's discretion the removal by Tenant of property which has been attached to or installed in the Premises. Tenant shall pay to Landlord or its designees the cost of repairs of any damages to the Premises or Building and/or losses caused by the removal of such property. All appurtenances, fixtures, improvements, additions and other property, whether permanent or temporary, attached to or installed in the Premises by Tenant, at Tenant's expense, or at the joint expense of Landlord and Tenant, shall be and remain the property of Tenant, except if located above the ceiling or below the floor, as long as Tenant removes the property without damage to the Building or the Premises. 9.3 Any furnishings and personal property placed in the Premises that are removable without damage to the Building or the Premises, whether the property of Tenant or leased by Tenant, are herein called "Tenant's Property". Any replacements of any property of Landlord, whether made at Tenant's expense or otherwise, shall be and remain the property of Landlord. Any of Tenant's Property remaining on the Premises at the expiration of the Term shall be removed by Tenant at Tenant's cost and expense, and Tenant shall, at its cost and expense, repair any damage to the Premises or the Building caused by such removal. Any of Tenant's Property not removed from the Premises prior to the Expiration Date shall, after written notice to Tenant to remove Tenant's Property and Tenant's failure thereafter to remove same within ten (10) days, at Landlord's option, become the property of Landlord or Landlord may remove such Tenant's Property, and Tenant shall pay to Landlord Landlord's cost of removal and of any repairs in connection therewith within ten (10) days after Tenant's receipt of a bill therefor. Tenant's obligation to pay any such costs shall survive any termination of this Lease. 10. REPAIRS 10.1 Tenant shall take good care of the Premises and, at Tenant's cost and expense, shall make all repairs and replacements, as and when Landlord deems reasonably necessary, to preserve the Premises in good working order and in a clean, safe and sanitary condition. Landlord shall not be liable for and, except as provided in Article 15 hereof, there shall be no abatement of Annual Base Rental with respect to any injury to or interference with Tenant's business arising from any repairs, maintenance, alteration or improvement in or to any portion of the Building, including the Premises, or in or to the fixtures, appurtenances and equipment therein. 10.2 All repairs and replacements made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (a) at Tenant's cost and expense and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord, (c) so that same shall be at least equal in quality, value, and utility to the original work or installation, (d) in accordance with the Rules and Regulations for the Building adopted by Landlord from time-to-time and in accordance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises, (e) pursuant to plans, drawings and specifications which have been reviewed and approved by Landlord prior to the commencement of the repairs or replacements and subject to all other terms and conditions of this Lease, including, but not limited to, Article 11. If Landlord gives Tenant notice of the necessity of any repairs or replacements required to be made under Section 10.1 and Tenant fails to commence diligently to effect the same within ten (10) days thereafter, Landlord may proceed to make such repairs or replacements and the expenses incurred by Landlord in connection therewith shall be due and payable from Tenant upon demand as Additional Rent; provided, that Landlord's making any such repairs or replacements shall not be deemed a waiver of Tenant's default in failing to make the same. In addition, should Landlord determine that emergency repairs or replacements of the Premises are necessitated, then Landlord may proceed to make such repairs or replacements without prior notice to the Tenant and the reasonable expenses incurred by Landlord in connection therewith shall be due and payable from Tenant upon demand as Additional Rent. 11. LIENS 11.1 Tenant shall keep the Premises and Building free from any liens arising out of any work performed, material furnished or obligations incurred by or for Tenant or any person or entity claiming through or under Tenant. Prior to Tenant performing any construction or other work on or about the Premises for which a lien could be filed against the Premises or the Building, Tenant shall enter into a written "no lien' agreement with the contractor who is to perform such work, and such agreement shall be filed and recorded in accordance with the Mechanics' Lien Law of Pennsylvania, prior to the commencement of such work. Notwithstanding the foregoing, if any mechanics' or other lien shall be filed against the Premises or the Building purporting to be for labor or material furnished or to be furnished at the request of the Tenant, then Tenant shall at its expense cause such lien to be discharged of record by payment, bond or otherwise, within ten (10) days after the filing thereof. If Tenant shall fail to cause such lien to be discharged of record within such ten-day period, in addition to any other remedy available to it for such a default, Landlord may cause such lien to be discharged by payment, bond or otherwise, without investigation as to the validity thereof or as to any offsets or defenses thereto, and Tenant shall, upon demand, reimburse Landlord for all amounts paid and costs incurred including attorneys' fees, in having such lien discharged of record. 12. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS 12.1 Tenant, at Tenant's cost and expense, shall comply with all laws, orders and regulations of federal, state, county and municipal authorities, and with all directions, pursuant to law, of all public officers, that shall impose any duty upon Landlord or Tenant with respect to the Premises or the use or occupancy thereof, except that Tenant shall not be required to make any structural Alterations in order to comply unless such Alterations shall be necessitated or occasioned, in whole or in part, by the acts, omissions or negligence of Tenant or any person claiming through or under Tenant, or any of their servants, employees, contractors, agents, visitors or licensees, or by the use or occupancy or manner of use or occupancy of the Premises by Tenant or any such person. Any work or installations made or performed by or on behalf of Tenant or any person claiming through or under Tenant pursuant to the provisions of this Article shall be made in conformity with, and subject to the provisions of, Sections 9.1 and 10.2 and Article 11 hereof. 12.2 Tenant shall not do anything, or permit anything to be done in or about the Premises which shall (a) invalidate or be in conflict with the provisions of any fire or other insurance policies covering the Building or any property or any property located therein, or (b) result in a refusal by fire insurance companies of good standing to insure the Building or any such property in amounts required by Landlord's Mortgage (as hereinafter defined) or reasonably satisfactory to Landlord, or (c) subject Landlord to any liability or responsibility for injury to any person or property by reason of any business operation being conducted in the Premises, or (d) cause any increase in the fire insurance rates applicable to the Building or property located therein at the beginning of the Term or at any time thereafter. Landlord shall carry "All Risk" Insurance at replacement value for the Building. Said policy shall name Tenant as an additional insured. For the purpose of this Article, the term "insurance" shall include, without limitation, Fire, Extended Coverage, Vandalism and Malicious Mischief, Boiler, Rent and Business Interruption, Liability and Sprinkler Leakage, all of which shall be provided for the Building by Landlord in reasonable amounts. Landlord covenants to use its best efforts to keep such insurance premiums as low as reasonably possible, giving allowance to the protection of Landlord and Tenant contemplated under this Lease. 13. SUBORDINATION 13.1 Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, Tenant agrees that this Lease and Tenant's tenancy hereunder are and shall be automatically subject and subordinate at all times to (a) the lien of a first mortgage that may now exist or hereafter be executed in any amount for which the Building, or Landlord's interest or estate in any of said items is specified as security; and (b) renewals, modifications, consolidations, replacements, and extensions of any of the foregoing. Notwithstanding the foregoing, Landlord and the holder of such first mortgage lien on the Building (the "Landlord's Mortgagee") shall have the right to partially subordinate or cause to be subordinated such lien to this Lease and Tenant agrees to promptly execute the form of agreement set forth in Exhibit D upon request of Landlord's Mortgagee. In the event that any such first mortgage is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, at the option of Landlord's Mortgagee or the grantee or purchaser in foreclosure, notwithstanding any subordination of any such lien to this Lease, attorn to and become the Tenant of the successor in interest to Landlord at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord, Landlord's Mortgagee, or by Landlord's successor in interest and in the form requested by Landlord, Landlord's Mortgagee, or by Landlord's successor in interest, any additional documents evidencing the priority or subordination of this Lease with respect to the lien of any such first mortgage including a Subordination, Non-Disturbance and Attachment Agreement satisfactory to Landlord, Landlord's Mortgagee, and Landlord's successors in interest. 14. INABILITY TO PERFORM 14.1 If, by reason of the occurrence of any of the events of delay specified in Section 31.16 hereof, Landlord is unable to furnish or is delayed in furnishing any utility or service required to be furnished by Landlord under the provision of Article 19 or of any other Article of this Lease or of any collateral instrument, or is unable to perform or make or is delayed in performing or making any installations, decorations, repairs, alterations, additions or improvements, whether required to be performed or made under this Lease or under any collateral instrument or is unable to fulfill or is delayed in fulfilling any of Landlord's other obligations under this Lease or any collateral instrument, no such inability or delay shall constitute an actual or constructive eviction, in whole or in part, but shall entitle Tenant to an abatement or diminution of Annual Base Rental for the portion of the Premises rendered unusable. However, the same shall not impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant or by reason by injury to or interruption of Tenant's business, or otherwise. If Landlord's inability or delay in fulfilling its obligations, as described in this Section, renders fifty percent (50%) or more of Tenant's space unusable by Tenant for ninety (90) days or longer, then Tenant may terminate this Lease. 15. DESTRUCTION 15.1 If the Premises shall be damaged by fire or other casualty insured against by Landlord's insurance policy covering the Building, and if Tenant shall give prompt notice to Landlord of such damage, Landlord, at Landlord's expense, shall repair such damage; provided, however, that Landlord shall have no obligation to repair any damage to or to replace Tenant's Property, Alterations or any other property or effects of Tenant. Except an otherwise provided in this Article 15, if the entire Premises shall be rendered untenantable by reason of any such damage, the Annual Base Rental and Additional Rent shall abate for the period from the date of such damage to the date when such damage to the Premises shall have been repaired, and if only a part of the Premises shall be rendered untenantable, the Annual Base Rental and Additional Rent shall abate for such period in the proportion that the portion of the Rentable Area of the Premises so rendered untenantable bears to the total Rentable Area of the Premises; provided, however, if, prior to the date when all of such damage shall have been repaired, any part of the Premises so damaged shall be rendered tenantable or shall be used or occupied by Tenant or any person or persons claiming through or under Tenant, then the amount by which the Annual Base Rental and Additional Rent shall abate shall be equitably apportioned for the period from the date of such use or occupancy to the date when all such damage shall have been repaired. 15.2 Notwithstanding the provisions of Section 15.1 hereof, if, prior to or during the Term (a) the Premises shall be so damaged by fire or other casualty that, in Landlord's opinion, substantial alteration, demolition or restoration of the Premises shall be required, or (b) the Building shall be so damaged by fire or other casualty that, in Landlord's opinion, substantial alteration, demolition or reconstruction of the Building shall be required (whether or not the Premises shall have been damaged or rendered untenantable), then, in any of such events, either party at their option, and with the written consent of Landlord's Mortgagee, may give to the other party, within ninety (90) days after such fire or other casualty, a thirty (30) days' notice of Expiration Date of this Lease and, in the event such notice is given, this Lease and the Term shall terminate upon the expiration of such thirty (30) days with the same effect as if the date of expiration of such thirty (30) days were the Expiration Date; and the Annual Base Rental and Additional Rent shall be apportioned as of such date and any prepaid portion of Annual Base Rental or Additional Rent for any period after such date shall be refunded by Landlord to Tenant. Tenant shall be entitled to an abatement of Rent for the portion of Premises rendered unusable during the thirty (30) day notice period. 15.3 Landlord shall attempt to obtain and maintain, throughout the Term, in Landlord's casualty insurance policies, provisions to the effect that such policies shall not be invalidated should the insured waive, in writing, prior to loss, any or all right of recovery against any party for loss occurring to the Building. In the event that at any time Landlord's casualty insurance carriers shall exact an additional premium for the inclusion of such or similar provisions, Landlord shall give Tenant notice thereof. In such event, if Tenant agrees, in writing, to reimburse Landlord for such additional premium for the remainder of the Term, Landlord shall require the inclusion of such or similar provisions by Landlord's casualty insurance carriers. As long as such or similar provisions are included in and to the extent that such a waiver is permitted under Landlord's casualty insurance policies then in force, Landlord hereby waives any right of recovery against Tenant, any other permitted occupant of the Premises, and any of their servants, employees, or agents, for any lose or damage to property occasioned by fire or other casualty that is an insured risk under such policies. In the event that at any time Landlord's casualty insurance carriers shall not permit such waivers in Landlord's casualty insurance policies, the waivers set forth in the foregoing sentence shall be deemed of no further force or effect. 15.4 Landlord or Tenant, acting for itself or for anyone claiming through or under either Landlord or Tenant by way of subrogation or otherwise, hereby waives any right of recovery against the other party for any loss or damage to the Premises, Tenant's Property, Landlord's Property, or other property. 15.5 Nothing contained in this Lease shall relieve Landlord or Tenant of any liability to the other party or to its insurance carriers which Landlord or Tenant may have under law or under the provisions of this Lease in connection with any damage to the Premises or the Building by fire or other casualty. 15.6 Notwithstanding the provisions of this Article 15, if any such damage is due to the fault or neglect of Tenant, any person claiming through or under Tenant, or any of their servants, employees, agents, contractors, visitors or licensees, then there shall be no abatement of Annual Base Rental or Additional Rent; an election by Landlord to carry rental interruption insurance shall in no way affect the provisions of this Article 15 or a lack of rental abatement in such a case. 16. EMINENT DOMAIN 16.1 If all of the Premises are condemned or taken in any manner for public or quasi-public use, including, but not limited to, a conveyance or assignment in lieu of a condemnation or taking, this Lease shall automatically terminate as of the earlier of the date of the vesting of title or the date of dispossession of Tenant as a result of such condemnation or other taking. If a part of the Premises is so condemned or taken, this Lease shall automatically terminate as to the portion of the Premises so taken as of the earlier of the date of the vesting of title or the date of dispossession of Tenant as a result of such condemnation or taking. If such portion of the Building is condemned or otherwise taken so as to require, in the opinion of Landlord, a substantial alteration or reconstruction of the remaining portions thereof, then this Lease may be terminated by Landlord, as of the earlier of (a) the date of the vesting of title, or the date of dispossession as a result of such condemnation or taking, or (b) by written notice from Landlord to Tenant that the termination shall occur on the sixtieth (60th) day following Landlord's receipt of notice of the date on which said vesting or dispossession will occur. Tenant shall have the right to terminate this Lease if a part of the Premises is condemned or taken in any manner for public or quasi-public use, including, but not limited to, a conveyance or assignment in lieu of a condemnation or taking. 16.2 This Lease shall not be affected if the taking authority by the exercise of its power of eminent domain shall take the use or occupancy of the Premises or any part thereof for a temporary period (hereinafter, "Temporary Taking"). A Temporary Taking is a period of less than thirty (30) days. The Tenant shall continue to pay, in the manner and at the times specified in this Lease, the full amount of Annual Base, Additional Rent and other charges payable by the Tenant under this Lease. Except only to the extent that the Tenant may be prevented from so doing pursuant to the terms of the order of the taking authority, Tenant shall continue to perform and observe all its other obligations under this Lease, as though the Temporary Taking had not occurred. Tenant shall be entitled to receive the entire Amount of any award made for the "Temporary Taking" whether paid by way of damages, rent, or otherwise, unless the period of temporary use or occupancy shall extend to or beyond the Expiration Date of this Lease, in which case the award shall be apportioned between Landlord and Tenant as of the Expiration Date, but Landlord shall in that circumstance receive the entire portion of the award that is attributable to physical damage to the Premises and the restoration thereof to the condition immediately prior to the taking. The Tenant covenants that, upon the termination of any Temporary Taking, prior to the Expiration Date, it will, at its sole cost and expense, restore the Premises, as nearly as may be reasonably possible, to the condition in which the same ware immediately prior to the Temporary Taking. 16.3 Except as provided in the preceding Section 16.2 Landlord shall be entitled to the entire award in any condemnation proceeding or other proceeding for taking for public or quasi-public use, including, without limitation, any award made for the value of the leasehold estate created by this Lease. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award that may be made in such condemnation or other taking, together with any and all rights of Tenant now or hereafter arising in or to same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Tenant specifically for its relocation expenses or the taking of personal property and fixtures belonging to Tenant; provided that such award does not diminish or reduce the amount of the award payable to Landlord. 16.4 In the event of a partial condemnation or other taking that does not result in a termination of this Lease as to the entire Premises, then the Annual Base Rental shall be adjusted in proportion to the portion of the Premises taken by such condemnation or other taking. 17. ASSIGNMENT 17.1 Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer the Premises or Tenant's leasehold estate hereunder (collectively, "Assignment"), without Landlord's prior written consent in each instance. 17.2 If Tenant desires at any time to enter into an Assignment of this Lease, it shall first give written notice to Landlord of its desire to do so, which notice shall contain (a) the name of the proposed assignee, (b) the nature of the proposed assignee's business to be carried on in the Premises, (c) the terms and provisions of the proposed Assignment including any sum(s) payable to Tenant as consideration for entering into the Assignment, (d) such financial and other information as Landlord may reasonably request concerning the proposed assignee. 17.3 At any time within thirty (30) days after Landlord's receipt of the notice specified in Section 17.2 hereof, Landlord may by written notice to Tenant elect to (a) take an Assignment of Tenant's leasehold estate specified in Tenant's notice hereunder, (b) terminate this Lease, (c) consent to the Assignment, or (d) disapprove the Assignment. In the event Landlord elects to take an Assignment from Tenant an described in subsection (a) above, the rent payable by Landlord as tenant thereunder shall be the lower of that not forth in Tenant's notice or the Annual Base Rental payable by Tenant under this Lease at the time of the Assignment. In the event Landlord elects the option not forth in subsection (a) above, then Landlord shall have the right to use the Premises for any legal purpose in its sole discretion and the right to further assign or sublease the Premises without the consent of Tenant. If Landlord consents to the Assignment within said sixty (60) day period, Tenant may thereafter within ninety (90) days, enter into such Assignment, upon the terms and conditions set forth in the notice furnished by Tenant to Landlord pursuant to Section 17.2 hereof; provided, that if any sum is payable to Tenant in consideration of Tenant's entering into such Assignment, then Tenant shall pay such sum to Landlord as Additional Rent prior to the execution of the Assignment. In addition, if any amounts are payable to Tenant as rent under the Assignment, then Tenant shall pay to Landlord monthly during the term of such Assignment as Additional Rent an amount equal to any amount by which the total of all such rent payable to Tenant exceeds the monthly Annual Base Rental as escalated then payable by Tenant under the Lease. 17.4 No consent by Landlord to any Assignment by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment. The consent by Landlord to any Assignment shall not relieve Tenant from the obligations to obtain Landlord's express written consent to any other or subsequent Assignment. Any Assignment that is not in compliance with this Article 17 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Annual Base Rental or Additional Rent by Landlord from a proposed assignee shall not constitute the consent to such Assignment by Landlord. 17.5 Any sale or other transfer, including by consolidation, merger or reorganization, of a majority of the voting stock of Tenant, if Tenant in a corporation, or any sale or other transfer of a majority of the partnership interests in Tenant, if Tenant is a partnership, shall be an Assignment for purposes of this Article 17. As used in this Section 17.5, the term "Tenant" shall also mean any entity which has guaranteed Tenant's obligations under this Lease, and the prohibition hereof shall be applicable to any sales or transfers of the stock or partnership interests of said guarantor. 17.6 Each assignee shall assume, as provided in this Section 17.6, all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Annual Base Rental and Additional Rent, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term. No Assignment otherwise permitted hereunder shall be binding on Landlord unless the assignee or Tenant shall deliver to Landlord within ten (10) days of execution a counterpart of the Assignment and an instrument in recordable form that contains a covenant of assumption by the assignee satisfactory in substance and form to Landlord, consistent with the requirements of this Section 17.6, but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability an set forth above. 17.7 In no event shall this Lease be assigned or assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise, and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, reorganization or other debtor relief proceedings. 17.8 Anything contained in the foregoing provisions of this Article 17 to the contrary notwithstanding, neither Tenant nor any other person having an interest in the possession, use, occupancy or utilization of space in the Premises shall enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space on the Premises which provides for rental or other payment for such use, occupancy or utilization based, in whole or in part, on the net income or profits derived by any person from the premises leased, used, occupied or utilized, and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy or utilization of any part of the Premises. 18. SUBLETTING 18.1 Tenant shall not directly or indirectly, permit the Premises to be occupied by anyone other than Tenant or sublet the Premises (collectively, "Sublease") or any portion thereof without Landlord's prior written consent in each instance. 18.2 If Tenant desires at any time to enter into a Sublease of the Premises or any portion thereof, it shall first give written notice to Landlord of its desire to do so, which notice shall contain (a) the name of the proposed subtenant or occupant, (b) the nature of the proposed subtenant's or occupant's business to be carried on in the Premises, (c) the portion(s) of the Premises to be subject to Sublease and the square feet thereof and the other terms and provisions of the proposed Sublease including any sum(s) payable to Tenant an consideration for entering into the Sublease, and (d) such financial and other information as Landlord may reasonably request concerning the proposed subtenant or occupant. 18.3 At any time within sixty (60) days after Landlord's receipt of the notice specified in Section 18.2 hereof, Landlord may by written notice to Tenant elect to (a) Sublease itself the portion of the Premises specified in Tenant's notice or any portion thereof, (b) terminate this Lease as to the portion of the Premises that is specified in Tenant's notice or any portion thereof, with a proportionate abatement in the Annual Base Rental, (c) consent to the Sublease, or (d) withhold consent to the Sublease. In the event Landlord elects to sublease from Tenant as described in subsection (a) above, the subrent payable by Landlord to Tenant shall be the lower of that set forth in Tenant's notice or the Annual Base Rental payable by Tenant under this Lease at the time of the Sublease (or a proportionate amount thereof representing the portion of the Premises subject to the Sublease if less than the entire Premises is subject to the Sublease). In the event Landlord elects the option set forth in subsection (a) above with respect to a portion of the Premises, then (i) Tenant shall at all times provide reasonable and appropriate access to such portion of the Premises and use of any common facilities, and (ii) Landlord shall have the right to use such portion of the Premises for any legal purpose in its sole discretion and the right to further sublease the portion of the Premises subject to Landlord's election without the consent of Tenant. If Landlord consents to the Sublease within said sixty (60) day period, Tenant may thereafter within ninety (90) days, enter into such Sublease of the Premises or portion thereof, upon the terms and conditions set forth in the notice furnished by Tenant to Landlord pursuant to Section 18.2 hereof; provided, that if any sum is payable to Tenant in consideration of Tenant's entering into such sublease, then Tenant shall pay such sum to Landlord prior to the execution of the Sublease. In addition, if any amounts are payable to Tenant as subrent under the Sublease, Tenant shall pay to Landlord monthly during the term of such Sublease on account as Additional Rent the amount by which such monthly subrent exceeds the product of (i) the monthly Annual Base Rental then payable by Tenant under the Lease, and (ii) the fraction derived by dividing the square feet of the portion of the Premises subject to the Sublease by the Total Rentable Area of the Premises. 18.4 No consent by Landlord to any Sublease by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Sublease. The consent by Landlord to any Sublease shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other or subsequent Sublease. Any Sublease that is not in compliance with this Article 18 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Annual Base Rental or Additional Rent by Landlord from a proposed sublessee shall not constitute the consent to such Sublease by Landlord. 18.5 Each sublessee shall assume, as provided in this Section 18.5, all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Annual Base Rental and Additional Rent, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term. No Sublease otherwise permitted hereunder shall be binding on Landlord unless the sublessee or Tenant shall deliver to Landlord within ten (10) days of execution a counterpart of the Sublease and an instrument in recordable form that contains a covenant of assumption by the sublessee satisfactory in substance and form to Landlord, consistent with the requirements of this Section 18.5, but the failure or refusal of the sublessee to execute such instrument of assumption shall not release or discharge the sublessee from its liability as set forth above. 18.6 Anything contained in the foregoing provisions of this section to the contrary notwithstanding, neither Tenant nor any other person having an interest in the possession, use, occupancy or utilization of space in the Premises shall enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space on the Premises which provides for rental or other payment for such use, occupancy or utilization based, in whole or in part, on the net income or profits derived by any person from the premises leased, used, occupied or utilized and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective an a conveyance of any right or interest in the possession, use, occupancy or utilization of any part of the Premises. 19. UTILITIES 19.1 As long as Tenant is not in default in the performance of its obligations under this Lease, Landlord shall furnish to the Premises during the period from 8:00 a.m. to 6:00 p.m., Monday through Friday, and from 9:00 a.m. to 1:00 p.m. on Saturdays, except for New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas and such other holidays as are generally recognized in the Pittsburgh area and subject to rules and regulations from time-to-time established by Landlord: (a) heating, air conditioning and ventilation, (b) passenger elevator service, (c) electric current in amounts required for normal lighting by building standard overhead fluorescent fixtures and for normal fractional horsepower office machines, and (d) water for lavatory and drinking purposes. It is understood that such passenger elevator service, electric current and water will be available twenty-four (24) hours a day, subject to Sections 19.2, 19.3, 19.4 hereof. Landlord shall provide janitorial service five days per week generally consistent with that furnished in other first-class office buildings in the central business district of Pittsburgh and shall provide window washing as determined by Landlord. 19.2 Landlord may impose reasonable charges and establish reasonable rules and regulations for the use of any heating, air conditioning, ventilation or electric current by Tenant at any time other than during the hours set forth in Section 19.1, and for the usage of any additional or unusual janitorial services required because of any nonbuilding standard improvements in the Premises, the carelessness of Tenant, the nature of Tenant's business (including the operation of Tenant's business other than from 8:00 a.m. to 6:00 p.m., Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays) and the removal of any refuse and rubbish from the Premises except for discarded material placed in wastepaper baskets and left for emptying as an incident to Landlord's normal cleaning of the Premises. Landlord shall not be required to provide janitorial services for portions of the Premises used for preparing or consuming food or beverages, for storage or as a mail room or storage room or for similar purposes or as a lavatory other than the lavatory rooms shown an Exhibit A attached hereto. 19.3 Landlord shall not be liable for any interruption in or failure to furnish any services or utilities when such interruption or failure is caused by acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, the making of repairs, alterations or improvements to the Premises or the Building, the inability to obtain an adequate supply of fuel, steam, water, electricity, labor or other supplies, any event included in Section 31.6, or by any other condition beyond Landlord's reasonable control, including, without limitation, any governmental energy conservation program, and Tenant shall not be entitled to any damages resulting from such failure nor shall such failure relieve Tenant of the obligation to pay the Annual Base Rental and Additional Rent reserved hereunder or constitute or be construed as a constructive or other eviction of Tenant unless the damages are due to the gross negligence or wilful misconduct by Landlord, its agents or its employees. In the event any governmental entity promulgates or revises any statute, ordinance or building, fire or other code or imposes mandatory or voluntary controls or guidelines on Landlord or the Building or any part thereof, relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions or the provision of any other utility or service provided with respect to this Lease or in the event Landlord is required or elects to make alterations to any part of the Building in order to comply with such mandatory or voluntary controls or guidelines, Landlord may, in its sole discretion, comply with such mandatory or voluntary controls or guidelines or make such alterations to the Building. Such compliance and the making of such alterations shall in no event entitle Tenant to any damages, relieve Tenant of the obligation to pay the full Annual Base Rental and Additional Rent reserved hereunder or constitute or be construed as a constructive or other eviction of Tenant. 19.4 Without the prior written consent of Landlord, which Landlord may refuse in its sole discretion, Tenant shall not use any apparatus or device in the Premises, including, without limitation, electronic data processing machines, punch card machines and machines using, in the aggregate, current in excess of 3 watts per square foot in area within the Premises (current in excess of 3 watts per square foot of the Premises hereinafter called "Excessive Current") or that will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space; nor connect any apparatus, machine or device with water pipes or electric current (except through existing electrical outlets in the Premises), for the purpose of using electric current or water. If Tenant shall utilize such Excessive Current, Landlord shall have the right to install an electric current meter in the Premises to measure the unit of electric current consumed on the Premises. The cost of any such meter and separate conduit, wiring or panel requirements and the installation, maintenance and repair thereof shall be paid for by Tenant, and Tenant agrees to reimburse Landlord promptly upon demand therefor by Landlord for all such Excessive Current as shown by said meter, at the rates charged for such services by the local public utility furnishing the same, plus any additional expense incurred in keeping the account of the electric current so consumed. If the temperature otherwise maintained in any portion of the Premises by the heating, air conditioning or ventilation systems is affected as a result of (a) any lights, machines or equipment (including without limitation electronic data processing machines) used by Tenant in the Premises, (b) the occupancy of the Premises by more than one person per one hundred seventy-five (175) square feet of rentable area therein, or (c) an aggregate electrical load in excess of three (3) watts per square foot in any room or area of the Premises, Landlord shall have the right to install any machinery and equipment that Landlord reasonably deems necessary to restore temperature balance, including, without limitation, modifications to the standard air conditioning equipment, and the cost thereof, including the cost of installation and any additional coat of operation and maintenance incurred thereby, shall be paid by Tenant to Landlord as Additional Rent hereunder upon demand by Landlord. 20. DEFAULT 20.1 Events of Default. The occurrence of any of the following shall constitute an Event of Default on the part of Tenant: (a) Nonpayment of Annual Base Rental or Additional Rent. Failure to pay any installment of Annual Base Rental or Additional Rent due and payable hereunder, upon the date when said payment is due, such failure continuing for a period of five (5) business days after the due date thereof. (b) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraph (a) of this Section 20.1, such failure continuing for ten (10) business days after written notice by Landlord to Tenant of such failure. (c) Abandonment. Vacation or abandonment of the Premises for a continuous period in excess of ten (10) business days. (d) Removal. Any removal or attempted removal, without the prior approval of Landlord, of any of Tenant's equipment, appliances, or personal property from the Premises for any reason other than the normal and usual operation of Tenant's business. (e) General Assignment. A general assignment by Tenant or Tenant's guarantor (if any) for the benefit of creditors. (f) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant or Tenant's guarantor (if any), or the filing of an involuntary petition by Tenant's creditors or any of guarantor's creditors, which involuntary petition remains undischarged for a period of ten (10) business days; (g) Receivership. The employment of a receiver to take possession of substantially all of Tenant's assets or any guarantor's assets or the Premises, if such receivership remains undissolved for a period of ten (10) business days after creation thereof; (h) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or any guarantor's assets or the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of ten (10) business days after the levy thereof; (i) Insolvency. The admission by Tenant or Tenant's guarantor (if any) in writing of its inability to pay its debts as they become due, the filing by Tenant or Tenant's guarantor (if any) of a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, the filing by Tenant or Tenant's guarantor (if any) of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant or Tenant's guarantor (if any) in any such proceeding or, if within ten (10) days after the commencement of any proceeding against Tenant or Tenant's guarantor (if any) seeking any reorganization, or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed. 20.2 Upon the occurrence of any Event of Default by Tenant which is not cured by Tenant within the grace periods, if any, specified in Section 20.1 hereof, Landlord shall have the following rights and remedies, in addition to all other rights or remedies available to Landlord in law or equity: (a) Landlord may cure or perform for the account of Tenant any such matter or obligation in default by Tenant and Tenant shall immediately pay on account as Additional Rent any expenditures made and the amount of any obligations incurred in connection therewith, plus interest, from the date of any such expenditure, at the Default Rate set forth in Section 5.2; (b) Landlord may accelerate all Annual Base Rental and Additional Rent due for the balance of the Term of this Lease and declare the same to be immediately due and payable. In determining the amount of any future payments payable to Landlord on account of Tenant's Share of Excess Taxes and Tenant's Share of Excess Expenses, Landlord may make such determination based upon the amount of Tenant's Share of Excess Expenses and Tenant's Share of Excess Taxes paid or payable by Tenant for the full year immediately prior to such default; (c) Landlord, at its option, may serve notice upon Tenant that this Lease and the then unexpired Term hereof shall cease and expire and terminate on the date specified in such notice, to be not less than five (5) days after the date of such notice without any right on the part of the Tenant to save the forfeiture by payment of any sum due or by the performance of any term, provision, covenant, agreement or condition broken; and, thereupon and at the expiration of the time limit in such notice, this Lease and the Term hereof granted, as well as the right, title and interest of the Tenant hereunder, shall wholly cease and expire and terminate in the same manner and with the same force and effect (except as to Tenant's liability) as if the date fixed in such notice were the date herein granted for expiration of the Term of this Lease. Thereupon, Tenant shall immediately quit and surrender to Landlord the Premises by summary proceedings, detainer, ejectment or otherwise and remove all occupants thereof and, at Landlord's option, any property thereon without being liable to indictment, prosecution or damages therefor. No such expiration or termination of this Lease shall relieve Tenant of its liability and obligations under this Lease, whether or not the Premises shall be relet. Applicable Landlord/Tenant statutes of the Commonwealth of Pennsylvania shall control as to any rights or remedies of the parties not otherwise set forth herein. As to any conflict, the Lease shall be deemed controlling; (d) Landlord may, at any time after the occurrence of any Event of Default and after Landlord gives ten (10) days notice and an opportunity to cure, re-enter and repossess the Premises and any part thereof and attempt in its own name, as agent for Tenant, if this Lease not be terminated or in its own behalf if this Lease be terminated, to relet all or any part of such Premises for and upon such terms and to such person or firms or corporations and for such period or periods as Landlord, in its sole discretion, shall determine, including the term beyond the termination of this Lease; and Landlord shall not be required to accept any tenant offered by Tenant or observe any instruction given by Tenant about such reletting or do any act or exercise any care or diligence with respect to such reletting or to the mitigation of damages. For the purpose of such reletting, Landlord may decorate or make repairs, changes, alterations or additions in or to the Premises as may be reasonably required in order for Landlord to relet the Premises, but not to exceed fifteen (15) dollars per square foot without Tenant's consent, provided however, that if Tenant delays or withholds consent, the Landlord shall be relieved of any duty to relet the Premises; and the cost of such decoration, repairs, changes, alterations or additions shall be charged to and be payable by Tenant as: (a) Additional Rent hereunder, or (b) in the event the Lease has been terminated, as damages. Tenant shall also pay to Landlord any reasonable brokerage and legal fees expended by Landlord. Any sums collected by Landlord from any new tenant- obtained on account of the Tenant shall be credited against the balance of the Annual Base Rental and Additional Rent due hereunder as aforesaid. Tenant shall pay to Landlord monthly, on the days when the Annual Base Rental due would have been payable under this Lease, the amount due hereunder less the amount obtained by Landlord from such new tenant; (e) Landlord shall have the right of injunction, in the event of a breach or threatened breach by Tenant of any of the agreements, conditions, covenants or terms hereof, to restrain the same and the right to invoke any remedy allowed by law or in equity, whether or not other remedies, indemnity or reimbursements are herein provided. The rights and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies; and no one of them, whether or not exercised by Landlord, shall be deemed exclusive of any of the others. (f) When this Lease shall be terminated by reason of the breach of any provision hereof, either during the original Term of this Lease or any renewal thereof, and also as soon as the Term hereby created or any renewal thereof shall have expired, it shall be lawful for any attorney as attorney for Tenant to file an agreement for entering in any court of competent jurisdiction an amicable action and confession of judgment in ejectment against Tenant and all persons claiming under Tenant for the recovery by Landlord of possession of the Premises, for which this Lease or a true and correct copy thereof, shall be his sufficient warrant; whereupon, if Landlord so desires, a writ of possession may issue forthwith, without any prior writ or proceedings whatsoever, and provided that if for any reason after such action shall have been commenced the same shall be terminated and possession remain in or be restored to Tenant, Landlord shall have the right upon any subsequent default or defaults, or upon the termination of this Lease an hereinbefore set forth, to bring one or more amicable action or actions as hereinbefore set forth to recover possession as aforesaid. 21. INDEMNITY 21.1 Except as provided in Article 21.2, Tenant agrees to indemnify Landlord against and save Landlord harmless from any and all loss, cost, liability, damage and expense including, without limitation, penalties, fines and reasonable counsel fees, incurred in connection with or arising from any cause whatsoever in, on or about the Premises, including, without limiting the generality of the foregoing (a) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, or (b) the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person claiming through or under Tenant, or (c) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever, or (d) any acts, omissions or negligence of Tenant or any person claiming through or under Tenant, or of the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person, in, on or about the Premises or the Building, either prior to, during, or after the expiration of, the Term including, without limitation, any acts, omissions or negligence in the making or performing of any Alterations. Tenant further agrees to indemnify and save harmless Landlord, Landlord's agents, and the lessor or lessors under all ground or underlying leases, from and against any and all loss, cost, liability, damage and expense including, without limitation, reasonable counsel fees, incurred in connection with or arising from any claims by any persons by reason of injury to persons or damage to property occasioned by any use, occupancy, condition, occurrence, happening, act, omission or negligence referred to in the preceding sentence. 21.2 Except as provided in Article 21.1, Landlord agrees to indemnify Tenant against and save Tenant harmless from any loss, cost, liability, damage and expense that is caused by the negligence of Landlord, its agents or its employees. 22. TENANT'S INSURANCE 22.1 Tenant shall procure at its cost and expense and keep in effect during the Term (a) comprehensive general liability insurance including contractual liability with a minimum combined single limit of liability of two million dollars ($2,000,000); (b) reasonable and customary property insurance in amounts sufficient to repair or replace Tenant's personal property and any improvements or betterments in which the Tenant has an insurable property interest; and (c) any other insurance reasonably required by Landlord. Such insurance shall name Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant (provided that the amount of such insurance shall not be construed to limit the liability of Tenant hereunder), and shall provide that Landlord shall receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. Tenant shall deliver policies of such insurance or certificates thereof to Landlord on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies; and, in the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, procure same for the account of Tenant, and the cost thereof shall be paid to Landlord an Additional Rent within five (5) days after delivery to Tenant of bills therefor. Tenant's compliance with the provisions-of this Article 22 shall in no way limit Tenant's liability under any of the other provisions of this Lease. 22.2 Neither party hereto shall be liable to the other party hereunder nor to any insurer or other party claiming by way of subrogation through or under such other party with respect to any loss or damage to the extent that such other party shall be reimbursed or has the right to be reimbursed out of insurance (without regard to any deductible provision in any policy) carried for such other party's protection with respect to such loss or damage. 23. LIMITATION OF LANDLORD'S LIABILITY 23.1 Landlord represents and warrants it will enforce the standards of the Building on tenants in the Building. However, Landlord shall not be responsible for or liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connected with the Premises or any part of the Building or for any loss or damage resulting to Tenant or its property from burst, stopped or leaking water including sprinkler systems, gas or smoke, vapor or other airborne contaminants, sewer or steam pipes or for any damage or loss of property within the Premises from any causes whatsoever, including theft, unless the same shall be the result of the negligence of Landlord, its agents or it's employees. Landlord shall provide reasonable assistance to Tenant pursuing a claim against a third party as long as there is no cost to Landlord. 24. ACCESS TO PREMISES 24.1 Landlord reserves and shall at all times have the right to enter the Premises at all reasonable times to inspect same, to supply any service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers, mortgagees or tenants, and to alter, improve or repair the Premises and any portion of the Building, without abatement of Annual Base Rental or Additional Rent, and may for that purpose erect, use and maintain scaffolding, pipes, conduits and other necessary structures in and through the Premises where reasonably required by the character of the work to be performed, provided that the entrance to the Premises shall not be blocked thereby, and further provided that the business of Tenant shall not be interfered with unreasonably. Landlord reserves and shall at all times during the six (6) month period prior to the expiration of the Lease to have the right to enter the Premises to show the Premises to prospective purchasers, mortgagees or tenants. Landlord shall also at all times and after reasonable notice to Tenant, and written approval by Tenant, have the right to enter the Premises to show third parties the Premises for the purpose of letting other space in the Building. Access to the Premises by Landlord shall be front door access and Tenant is not required to provide access to safes or vaults. Tenant shall be entitled to a prorata abatement of the rent if Landlord affirmatively or intentionally shuts down the Building, but Tenant shall not be entitled to a prorata abatement if the Building is shut down due to an act of God, an act of war or any other act not controlled by Landlord. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned thereby. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes, or special security areas (designated in advance), and Landlord shall have the right to use any and all means that Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Landlord shall also have the right at any time, without same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets and other public parts of the Building. 25. NOTICES 25.1 Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by registered or certified mail or delivered personally, (a) to Tenant (i) at Tenant's address set forth in the Basic Lease Information, if sent prior to Tenant's taking possession of the Premises, or (ii) at the Building if sent subsequent to Tenant's taking possession of the Premises, or (iii) at any place where Tenant or any agent or employee of Tenant may be found if sent subsequent to Tenant's vacating, deserting, abandoning or surrendering the Premises, or (b) to Landlord at Landlord's address set forth in the Basic Lease Information, or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Section 25.1. Any such bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given two (2) business days after the date when it shall have been mailed as provided in this Section 25.1 if sent by registered or certified mail, or upon the date personal delivery is made. If Tenant is notified of the identity and address of: (i) the Landlord's Mortgagee, or (ii) the holder(s) of any subordinate mortgage lien(s) on the Building ("Other Mortgagee(s)"), or (iii) ground or other lessor ("Lessor(s)"), then Tenant shall give to such Landlord's Mortgagee, Other Mortgagee(a), and Lessor(s) notice of any default by Landlord under the terms of this Lease in writing sent by registered or certified mail, and such Landlord's Mortgagee, Other Mortgagee(s), and Lessor(s) shall be given a reasonable opportunity to cure such default prior to Tenant exercising any remedy available to it. 26. NO WAIVER 26.1 No failure by Landlord to insist upon the strict performance of any obligation of Tenant under this Lease or to exercise any right, power or remedy consequent upon a breach thereof, no acceptance of full or partial Annual Base Rental or Additional Rent during the continuance of any such breach, and no acceptance of the keys to or possession of the Premises prior to the termination of the Term by any employee of Landlord shall constitute a waiver of any such breach or of such term, covenant or condition or operate as a surrender of this Lease. No payment by Tenant or receipt by Landlord of a lesser amount than the aggregate of all Annual Base Rental and Additional Rent then due under this Lease shall be deemed to be other than on account of the first items of such Annual Base Rental and Additional Rent then accruing or becoming due, unless Landlord elects otherwise; and no endorsement or statement on any check and no letter accompanying any check or other payment of Annual Base Rental or Additional Rent in any such lesser amount and no acceptance of any such check or other such payment by Landlord shall constitute an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Annual Base Rental or Additional Rent or to pursue any other legal remedy. 27. TENANT'S CERTIFICATES 27.1 Tenant, at any time, and from time-to-time upon not less than ten (10) days' prior written notice from Landlord, will execute, acknowledge and deliver to Landlord and, at Landlord's request, to any prospective purchaser, Lessor, or Landlord's Mortgagee, or other Mortgagee of any part of the Building, a certificate of Tenant certifying: (a) that Tenant has accepted the Premises (or, if Tenant has not done so, that Tenant has not accepted the Premises and specifying the reasons therefor), (b) the Tenant has entered into possession of the Premises (c) the Commencement and Expiration Dates of this Lease, (d) the amount of Annual Base Rental payable under the Lease (e) that this Lease is the entire agreement between the parties and is unmodified and in full force and effect (or, if there have been modifications, that same is in full force and effect as modified and stating the modifications), and has not been assigned (f) whether or not there are then existing any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so, specifying same), (g) whether or not there are then any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same), (h) that Tenant has received all required contributions from Landlord on account of Tenant's improvements, (i) the dates, if any, to which the Annual Base Rental and Additional Rent and other charges under this Lease have been paid and the amounts of said Annual Base Rental and Additional Rent, and that no Annual Base Rental, Additional Rent, or security deposit has been paid in advance of its due date, and (j) any other information that may reasonably be required by any of such persons. It is intended that any such certificate of Tenant delivered pursuant to this Section 27.1 may be relied upon by Landlord and any prospective purchaser, Lessor, Landlord's Mortgagee, or other Mortgagee(s) of any part of the Building. Tenant's failure to deliver such Certificate within said ten day period shall be a default hereunder and shall be conclusive upon Tenant that this Lease is in full force and effect and unmodified, and that there are no uncured defaults in Landlord's performance hereunder. 28. RULES AND REGULATIONS 28.1 Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as Exhibit E and all modifications thereof and additions thereto from time-to-time put into effect by Landlord. Subject to its obligations as set forth in Section 23 hereof, Landlord shall not be responsible for the nonperformance by any other tenant or occupant of the Building of any said rules and regulations. In the event of an express and direct conflict between the terms, covenants, agreements and conditions of this Lease and the terms, covenants, agreements and conditions of such rules and regulations, an modified and amended from time-to-time by Landlord, this Lease shall control. 29. SECURITY DEPOSIT [This space left intentionally blank] 30. AUTHORITY 30.1 If Landlord or Tenant signs as a corporation or a partnership, each of the persons executing this Lease on behalf of either Landlord or Tenant does hereby covenant and warrant that the party on whose behalf such person is executing this Lease is a duly authorized and existing entity, that such party has and is qualified to do business in Pennsylvania, has full right and authority to enter into this Lease and that the persons signing on behalf of Landlord or Tenant (as the case may be) are authorized to do so. Upon either party's request, the other party shall provide the requesting party with evidence reasonably satisfactory to the requesting party confirming the foregoing covenants and warranties. 31. MISCELLANEOUS 31.1 The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The words used in neuter gender include the masculine and feminine. If there is more than one Tenant, the obligations under this Lease imposed on Tenant shall be joint and several. The captions preceding the articles of this Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease. 31.2 The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided herein, their respective personal representatives, successors and assigns; provided, however, upon the sale, assignment or transfer by the Landlord named herein (or by any subsequent landlord) of its interest in the Building, as owner or lessor, including any transfer by operation of law, the Landlord (or any subsequent landlord) shall be relieved from all subsequent obligations or liabilities under this Lease, and all obligations subsequent to such sale, assignment or transfer (but not any obligations or liabilities that have accrued prior to the date of such sale, assignment or transfer) shall be binding upon the grantee, assignee or other transferee; any such grantee, assignee, or other transferee shall, by accepting such interest, shall be deemed to have assumed such subsequent obligations and liabilities. Notwithstanding anything to the contrary set forth herein, if Landlord's Mortgagee or Other Mortgagee(s) shall succeed to Landlord's interests hereunder, then Landlord's Mortgagee or Other Mortgagee(s) shall not be deemed to have assumed any obligations or liabilities under this Lease which arose prior to the date any such Mortgagee shall have requested Tenant to attorn to such Mortgagee. A lease of the entire Building to a person other than for occupancy thereof shall be deemed a transfer within the meaning of this Section 31.2. 31.3 If any provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the full extent permitted by law. 31.4 This Lease and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 31.5 Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. 31.6 This instrument, including the Exhibits hereto, which are made a part of this Lease, contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises, the Building or this Lease except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. 31.7 The review, approval, inspection or examination by Landlord of any item to be reviewed, approved, inspected or examined by Landlord under the terms of this Lease or the Exhibits attached hereto shall not constitute the assumption of any responsibility by Landlord for either the accuracy or sufficiency of any such item or the quality or suitability of such item for its intended use. Any such review approval, inspection or examination by Landlord is for the sole purpose of protecting Landlord's interests in the Building and under this Lease, and no third parties, including, without limitation, Tenant or any person or entity claiming through or under Tenant, or the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person or entity, shall have rights hereunder. 31.8 Upon the expiration or sooner termination of the Term, Tenant will quietly and peacefully surrender to Landlord the Premises in the condition in which they are required to be kept as provided in Article 9 hereof, ordinary wear and tear excepted. Tenant shall surrender the Premises to Landlord at the end of the Term hereof, without-notice of any kind. 31.9 Upon Tenant paying the Annual Base Rental and Additional Rent and performing all of Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy the Premises during the Term as against all persons or entities lawfully claiming by or through Landlord; subject, however, to the provisions of this Lease. 31.10 Tenant covenants and agrees that no diminution of light, air or view by any structure that may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of Annual Base Rental or Additional Rent under this Lease, result in any liability of Landlord or Tenant, or in any other way affect this Lease or Tenant's obligations hereunder. 31.11 Any holding over after the expiration of the Term with the written consent of Landlord shall be construed to be a tenancy from month-to-month at one hundred twenty-five percent (125%) of the Annual Base Rental herein specified (prorated on a monthly basis), unless Landlord shall specify a different rent in its sole discretion, together with an amount estimated by Landlord for the monthly Additional Rent payable under this Lease, and shall otherwise be on the terms and conditions herein specified so far as applicable. Any holding over without Landlord's consent shall constitute a default by Tenant and entitle Landlord to exercise any remedies provided in Article 20 hereof or otherwise. Notwithstanding the foregoing, in the event Landlord consents to Tenant's holding over and there is a resulting month-to-month tenancy under the terms provided herein, then either Tenant or Landlord may terminate said month- to-month tenancy upon thirty (30) days prior written notice. 31.12 Neither this Lease nor any term or provision hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought. Any right to change, waive, discharge, alter or modify, or terminate this Lease shall be subject to the prior express written consent of Landlord's Mortgagee. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant and condition of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. 31.13 Tenant is hereby granted non-exclusive use of the parking areas and facilities ("Common Area") in common with other tenants, Landlord and their respective licensees and invitees. Landlord shall provide to Tenant, at no additional charge, four (4) parking spaces per 1,000 square feet Rentable Area that Tenant leases from Landlord. Landlord reserves the right to relocate or substitute parking areas and facilities from time to time and Landlord further reserves the right to alter, modify and construct buildings and other improvements within the Land or Common Areas and/or sever or subdivide the Land or Common Areas; provided that in Landlord's reasonable judgment, the ingress and egress to the Building and the use of the Building by Tenant shall not be materially and substantial interfered with. Landlord reserves the right to close off the Common Areas at such time and in such manner as to prevent the public dedication thereof. Tenant shall not park in other parking areas. 31.14 Notwithstanding anything contained herein to the contrary, Tenant agrees that Landlord shall have no personal liability with respect to any of the provisions of this Lease and Tenant shall look solely to the estate and property of Landlord in the Land and the Building of which the Premises form a part for the satisfaction of Tenant's remedies, including without limitation, the collection of any judgment or the enforcement of any other judicial process requiring the payment or expenditure of money by Landlord with respect to any of Landlord's obligations under this Lease. Tenant's rights under this Article 31.14 shall, however, be subject to the prior rights of the Landlord's Mortgagee and Other Mortgagee(s) with liens covering all or part of the Land or Building. Other than as provided in this Article 31.4, no other assets of Landlord or any principal of Landlord shall be subject to levy, execution or other judicial process for the satisfaction of Tenant's claim and in the event Tenant obtains a judgment against Landlord, the judgment docket shall be so noted. This Section shall inure to the benefit of Landlord's successors and assigns and their respective principals. 31.15 Landlord shall not hold any employee, officer or director of Tenant liable for claims or damages to the Premises under this Lease unless the claims or damages resulted form the gross negligence or willful misconduct of the employees, officers or directors. 31.16 Anything in this Agreement to the contrary notwithstanding, providing such cause is not due to the willful act or gross neglect of Landlord or Tenant, either party shall not be deemed in default with respect to the performance of any of the terms, covenants and conditions of this Lease, except payment of rent, additional rent or any other payments required under this Lease, if the same shall be due to any strike, lock-out, civil action, war-like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, through act of God or other cause beyond the control of Landlord or Tenant. 31.17 Neither Landlord nor Tenant shall record this Lease without the written consent of the other party, and any attempt on either party's part to record either the Lease or a memorandum thereof without the other party's consent first obtained in writing shall constitute an immediate Event of Default by Tenant or Landlord (as the case may be) hereunder, entitling the other party to pursue any and all the remedies available to it in such event. 31.18 No reference to any specific right or remedy shall preclude Landlord from exercising any other right or from having any other remedy or from maintaining any action to which it may otherwise be entitled at law or in equity. No failure by Landlord to insist upon the strict performance of any agreement, term, covenant or condition hereof, or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach, agreement, term, covenant or condition. No waiver by Landlord of any breach by Tenant under this lease or of any breach by any other tenant under any other lease of any portion of Building shall affect or alter this Lease in any way whatsoever. 31.19 Tenant, at its sole cost and expense, shall comply with and shall cause the Premises to comply with (a) all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations and ordinances affecting the Premises or any part thereof, or the use thereof, whether or not any such statutes, laws, rules, orders, regulations or ordinances which may be hereafter enacted involve a change of policy on the part of the governmental body enacting the same, and (b) all rules, orders and regulations of the National Board of Fire Underwriters or Landlord's fire insurance rating organization or other bodies exercising similar functions in connection with the prevention of fire or the correction of hazardous conditions, which apply to the Premises except Landlord, at its sole cost and expense, shall cause the base Building specifications of the Premises to comply with all federal, state, county, municipal, and other governmental statutes, laws, rules, orders, regulations and ordinances. 31.20 If two or more individuals, corporations, partnerships or other business associations (or any combination of two or more thereof) shall sign this Lease as Tenant, the liability of each such individual, corporation, partnership or other business association to pay Annual Base Rental and Additional Rent and perform all other obligations hereunder shall be deemed to be joint and several, and all notices, payments and agreements given or made by, with or to any one of such individuals, corporations, partnerships or other business associations shall be deemed to have been given or made by, with or to all of them. In like manner, if Tenant shall be a partnership or other business association, the members of which are, by virtue of statute or federal law, subject to personal liability, the liability of each such member shall be joint and several. 31.21 Each party warrants and represents to the other that no broker, agent, or finder, except that shown in the Basic Lease Information, has been involved in the transactions contemplated hereby. Both parties hereto agree to indemnify and hold harmless the other against any and all claims, actions, damages, liabilities (including attorney's fees and expenses) with respect to any commission, fee, or charge made by any broker, agent, or finder, not so listed, which is made by reason of any action or agreement by such party. 31.22 No payment by Tenant or receipt by Landlord of a lesser amount than the Annual Base Rental and Additional Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Annual Base Rental or Additional Rent, nor shall any endorsement or statement or any check or any letter accompanying any check or payment as Annual Base Rental and/or Additional Rent be deemed an accord and satisfaction of Landlord's right to recover the balance of such Annual Base Rental and/or Additional Rent or preclude any remedy provided by this Lease. 31.23 Any intention to create a joint venture or partnership relation between the parties hereto is hereby expressly disclaimed. 31.24 All agreements, covenants and indemnifications contained herein or made in writing pursuant to the terms of this Lease by or on behalf of the Landlord or Tenant shall be deemed material and shall survive the expiration or sooner termination of this Lease. 31.25 Except in the case of USAirways, Tenant shall have a right of first refusal to lease the space contained in the Building. The right of refusal shall be exercised within thirty (30) days of Landlord's written notice to Tenant of Landlord's receipt of notice of interest by a financially qualified third party to lease such space. Tenant shall have no right of first offer and Landlord need not provide Tenant with notice if an Event of Default has occurred pursuant to Article 20. 31.26 Disputes relating to issues regarding Landlord's performance of its obligations hereunder shall be submitted to arbitration in accordance with the rules of the American Arbitration Association. The decision of the panel shall be final and nonappealable. No submission or right of submission of any such matter to arbitration shall affect any other rights of the parties to judicial determination or confession of judgment or otherwise preclude the Court of Common Pleas of Allegheny County from exercising its jurisdiction over any other matter including, but not limited to Tenant's obligations hereunder. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first above written. WITNESS: PARK RIDGE ONE ASSOCIATES, a Delaware limited partnership By: ___________________________________ a Delaware corporation General Partner By: __________________________________ Its: __________________________________ AUTHORIZED AGENT FOR PARK RIDGE ONE ASSOCIATES, a Pennsylvania limited partnership ATTEST: MASTECH SYSTEMS CORPORATION _________________________________ By: ___________________________________ Its: ___________________________________ EX-23.0 9 REPORT OF ARTHUR ANDERSEN LLP EXHIBIT 23.0 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of Mastech Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Mastech Corporation and subsidiaries included in this Form 10-K, and have issued our report thereon dated February 9, 1999. Our audits were made for the purpose of forming an opinion on those basic financial statements taken as a whole. The schedule listed in the index in Item 14(a) 2 of the Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania, February 9, 1999 EX-23.1 10 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports, included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 333-20033 and 333-71057) and on Form S-3 (File Nos. 333-58217 and 333-73365). /s/ ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania, March 26, 1999 EX-27.1 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-K AND IS QUALIFIED IN ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 36,455 47,153 85,097 1,728 0 177,747 22,489 5,661 215,781 47,556 0 0 0 491 157,716 215,781 0 390,871 262,178 336,831 3,470 1,413 (3,321) 53,891 20,459 33,432 0 0 0 33,432 0.68 0.67
EX-27.2 12 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-K AND IS QUALIFIED IN ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS BELOW HAVE BEEN RESTATED TO REFLECT A BUSINESS COMBINATION ACCOUNTED FOR BY A POOLING OF INTERESTS 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 46,566 0 32,552 675 0 84,905 5,654 1,520 89,038 36,280 0 0 0 233 49,355 89,038 0 162,939 119,268 148,608 875 300 331 13,125 4,136 8,989 0 0 0 3,698 0.09 0.09
EX-27.3 13 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q AND IS QUALIFIED IN ENTIRETY TO REFERENCE TO SUCH FINANCIAL STATEMENTS. THE AMOUNTS BELOW HAVE BEEN RESTATED TO REFLECT A BUSINESS COMBINATION ACCOUNTED FOR BY A POOLING OF INTERESTS 1,000 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 MAR-31-1998 MAR-31-1997 83,412 43,830 0 0 70,663 40,047 1,311 869 0 0 166,031 90,357 13,495 7,365 3,161 1,790 178,292 95,932 47,696 40,854 0 0 0 0 0 0 490 233 128,250 51,722 178,292 49,588 0 0 81,586 48,339 55,283 34,758 70,647 55,090 0 0 353 250 0 0 11,611 3,867 4,667 1,698 6,944 2,169 0 0 0 0 0 0 6,944 2,169 0.14 0.05 0.14 0.05
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