Item 1.01.
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Entry into a Material Definitive Agreement.
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On July 13, 2017 (the Closing Date),
Mastech Digital, Inc. (the Company) and certain of its subsidiaries (collectively with the Company, the Company Entities) entered into a Credit Agreement (the Credit Agreement) with PNC Bank, National Association,
as administrative agent, swing loan lender and issuing lender (PNC Bank), PNC Capital Markets LLC, as sole lead arranger and sole bookrunner, and certain financial institutions party thereto as lenders (the Lenders). The
Credit Agreement provides for a total aggregate commitment of $65 million, consisting of (i) a revolving credit facility to the Company Entities (the Revolving Credit Facility) in an aggregate principal amount not to exceed
$27.5 million, subject to increase to an aggregate amount not exceeding $37.5 million upon satisfaction of certain conditions, including the approval by one or more Lenders to increase their revolving credit commitments or one or more new
lenders providing a revolving credit commitment; (ii) a $30.5 million term loan facility to certain Company Entities (the Term Loan); and (iii) a $7.0 million delayed draw term loan facility to certain Company
Entities (the Delayed Draw Term Loan Facility).
Borrowings under the Revolving Credit Facility, the Term Loan and the Delayed Draw Term Loan
Facility each generally bear interest at either a Base Rate or Euro-Rate specified in the Credit Agreement, plus, in either case, a margin specified in the Credit Agreement based on the Companys leverage ratio (as
defined under the Credit Agreement). Under the terms of the Credit Agreement, the Company is also required to pay a commitment fee for the unused portion of the Revolving Credit Facility and the unused portion of the Delayed Draw Term Loan Facility
during the Availability Period (as defined below), which will range from 0.20% to 0.30% per annum, depending on the Companys leverage ratio. Borrowings under the Credit Agreement are subject to mandatory prepayments in certain circumstances,
as further described in the Credit Agreement.
Revolving Credit Facility
The Revolving Credit Facility expires in five years and includes swing loan and letter of credit subfacilities in aggregate amounts not to exceed
$3.0 million for swing loans and $5.0 million for letters of credit. Pursuant to the terms of the Credit Agreement, borrowings under the Revolving Credit Facility may be denominated in U.S. dollars or Canadian dollars. The maximum
borrowings in U.S. dollars may not exceed the sum of 85% of eligible receivables of certain designated Company Entities organized in the United States, plus 60% of eligible unbilled receivables of such Company Entities, less a reserve amount, each
of which is subject to adjustment by the administrative agent. The maximum borrowings in Canadian dollars may not exceed the lesser of (i) $10 million; and (ii) the sum of 85% of eligible receivables of certain designated Company Entities
organized in Canada, plus 60% of eligible unbilled receivables of such Company Entities, less a reserve amount, each of which is subject to adjustment by the administrative agent.
On the Closing Date, the Company borrowed approximately $9.0 million under the Revolving Credit Facility which, when combined with other proceeds, was
used to repay in full all advances made under and pursuant to that certain Second Amended and Restated Loan Agreement, dated July 11, 2014, by and among the Company, certain other Company Entities and PNC Bank (the Prior Loan
Agreement). The Prior Loan Agreement and the Second Amended and Restated Stock Pledge Agreement, dated June 15, 2015, made by the Company in favor of PNC were each terminated on the Closing Date.
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Term Loan
Amounts borrowed under the Term Loan are required to be repaid in consecutive quarterly installments (each a Payment Date) commencing on
October 1, 2017 through and including July 1, 2022 and on the maturity date of July 13, 2022 (the Maturity Date). The principal amount of each quarterly installment of the Term Loan equals the product of
$30.5 million, multiplied by (i) 3.125% with respect to the quarterly installments payable on October 1, 2017 and the first day of each calendar quarter thereafter through and including July 1, 2018, (ii) 3.75% with respect to the
quarterly installments payable on October 1, 2018 and the first day of each calendar quarter thereafter through and including July 1, 2021 and (iii) 5.00% with respect to the quarterly installments payable on October 1, 2021 and the
first day of each calendar quarter thereafter through the Maturity Date, other than the final principal repayment installment of the Term Loan, which must be repaid on the Maturity Date and will equal the aggregate principal amount of the Term Loan
that is outstanding on that date.
On the Closing Date, the Company borrowed $30.5 million under the Term Loan to pay a portion of the Acquisition
Consideration and Expenses.
Delayed Draw Term Loan Facility
At any time between the Closing Date and the date the final Deferred Amount Payment described in Item 2.01 below becomes due and payable (the
Availability Period), the Company may on no more than two separate occasions borrow in integral multiples of $1.0 million (each, a Delayed Draw Term Loan) up to an aggregate of $7.0 million in advances under the
Delayed Draw Term Loan Facility. Amounts borrowed under each Delayed Draw Term Loan will be payable in consecutive quarterly installments commencing on the first Payment Date after disbursement of such Delayed Draw Term Loan through and including
July 1, 2022 and on the Maturity Date. The principal amount of each quarterly installment of each Delayed Draw Term Loan equals the product of the original balance of such Delayed Draw Term Loan, multiplied by (i) 3.75% with respect to any
quarterly installments payable on October 1, 2018 and the first day of each calendar quarter thereafter through and including July 1, 2021, and (ii) 5.00% with respect to any quarterly installments payable on October 1, 2021 and the
first day of each calendar quarter thereafter through the Maturity Date, other than the final principal repayment installment of such Delayed Draw Term Loan, which must be repaid on the Maturity Date and will equal the aggregate principal amount of
the Delayed Draw Term Loan that is outstanding on that date.
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Any amounts borrowed under the Delayed Draw Term Loans must be used to pay any Deferred Amount Payments described
in Item 2.01 below.
The Credit Agreement contains standard financial covenants, including but not limited to, covenants related to the Companys
leverage ratio (as defined under the Credit Agreement) and fixed charge ratio (as defined under the Credit Agreement), and limitations on liens, indebtedness, guarantees and contingent liabilities, loans and investments, distributions, leases, asset
sales, stock repurchases and mergers and acquisitions.
In connection with the Credit Agreement, on the Closing Date, the Company entered into a Pledge
Agreement in favor of PNC Bank (the Pledge Agreement). Pursuant to the Pledge Agreement, the Company and certain other Company Entities pledged all or a portion of their respective membership interests, limited liability company
interests, limited partnership interests and capital stock of certain designated Company Entities as collateral for borrowings under the Credit Agreement.
The foregoing summary of the Credit Agreement and the Pledge Agreement does not purport to be complete and is qualified in its entirety by reference to the
Credit Agreement and the Pledge Agreement filed herewith as Exhibits 10.1 and 10.2, each of which is incorporated herein by reference.