5. Commitments and Contingencies
Lease Commitments
The Company rents certain office space and equipment under
non-cancelable
leases which provide for
future minimum rental payments. In August 2018, the Company entered into a five-year office lease in Noida, India to replace a previous lease commitment scheduled to expire in 2019. The aggregate lease commitment on the new Noida facility is
$3.4 million. In May 2018, the Company entered into a three-year office lease in Chennai, India to replace a previous lease commitment which expired. The aggregate remaining lease commitment on the Chennai facility totals $0.7 million.
Except for the Noida and Chennai leases, total lease commitments have not materially changed from the amounts disclosed in the Companys Annual Report on Form
10-K
for the year ended December 31,
2017.
Contingencies
In the ordinary course of our business, the Company is involved in a number of lawsuits and administrative proceedings. While uncertainties are
inherent in the final outcome of these matters, the Companys management believes, after consultation with legal counsel, that the disposition of these proceedings should not have a material adverse effect on our financial position, results of
operations or cash flows.
6. Employee Benefit Plan
The Company provides an Employee Retirement Savings Plan (the Retirement Plan) under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the Code), that covers substantially all U.S. based salaried employees. Concurrent with the acquisition of Hudson IT, the Company expanded employee eligibility under the Retirement Plan to include all U.S. based
W-2
hourly employees. Employees may contribute a percentage of eligible compensation to the Retirement Plan, subject to certain limits under the Code. For Hudson IT employees enrolled in the Hudson Employee
Retirement Savings Plan under the Code at the acquisition date, the Company provides a matching contribution of 50% of the first 6% of the participants contributed pay, subject to vesting based on the combined tenure with Hudson and Mastech
Digital. For all other employees, the Company did not provide for any matching contributions for the nine months ended September 30, 2018 and 2017. Mastech Digitals total contributions to the Retirement Plan for the three and nine months
ended September 30, 2018 related to the former Hudson IT employees totaled approximately $19,000 and $62,000, respectively. Mastech Digitals total contributions to the Retirement Plan for the three and nine months ended September 30,
2017 related to the former Hudson IT employees totaled approximately $21,000 and $75,000, respectively.
7. Stock-Based Compensation
In 2008, the Company adopted a Stock Incentive Plan (the Plan) which, as amended, provides that up to 3,600,000 shares of the
Companys Common Stock (adjusted for the 2018
two-for-one
stock split) shall be allocated for issuance to directors, officers and key personnel. Grants under the
Plan can be made in the form of stock options, stock appreciation rights, performance shares or stock awards. During the three months ended September 30, 2018, the Company granted no shares under the Plan. During the nine months ended
September 30, 2018, the Company granted 25,380 restricted share units and 180,000 stock options at a strike price of $7.46. During the three and nine months ended September 30, 2017, the Company granted no shares under the Plan. As of
September 30, 2018 and December 31, 2017, there were 864,000 shares and 264,000, respectively available for future grant under the Plan.
Stock-based compensation expense for the three months ended September 30, 2018 and 2017 was $116,000 and $70,000, respectively, and for
the nine months ended September 30, 2018 and 2017 was $341,000 and $285,000, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
During the three and nine months ended September 30, 2018, the Company issued 56,636 shares and 65,112 shares, respectively, related to
the vesting of restricted stock and the exercise of stock options. During the three and nine months ended September 30, 2017, the Company issued 12,500 and 200,776 shares, respectively, related to the vesting of restricted stock and the
exercise of stock options.
8. Credit Facility
On July 13, 2017, the Company entered into a Credit Agreement (the Credit Agreement) with PNC Bank, as administrative agent,
swing loan lender and issuing lender, PNC Capital Markets LLC, as sole lead arranger and sole book-runner, and certain financial institution parties thereto as lenders (the Lenders). Prior to the Company entering into the April 20,
2018 amendment described below, the Credit Agreement provided for a total aggregate commitment of $65 million, consisting of (i) a revolving credit facility (the Revolver) in an aggregate principal amount not to exceed
$27.5 million (subject to increase by up to an additional $10 million upon satisfaction of certain conditions); (ii) a $30.5 million term loan facility (the Term Loan); and a (iii) $7.0 million delayed draw term loan
facility (the Delayed Draw Term Loan), as more fully described in Exhibit 10.1 to the Companys Form
8-K,
filed with the SEC on July 19, 2017.
The Revolver expires in July 2022 and includes a letter of credit sublimit in the aggregate amount not to exceed $5.0 million and, prior
to giving effect to the April 20, 2018 amendment described below, included a swing loan sublimit in the aggregate amount not to exceed $3.0 million. Borrowings under the Revolver 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 U.S. accounts receivable and 60% of eligible U.S. unbilled receivables, less a reserve amount established by the administrative agent. The maximum borrowings in Canadian
dollars may not exceed the lesser of (i) $10.0 million; and (ii) the sum of 85% of eligible Canadian receivables, plus 60% of eligible Canadian unbilled receivables, less a reserve amount established by the administrative agent.
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