UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2015
o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from to
Commission File Number 001-33625
VIRTUSA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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7371 |
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04-3512883 |
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(State or Other Jurisdiction of |
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(Primary Standard Industrial |
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(I.R.S. Employer |
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Incorporation or Organization) |
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Classification Code Number) |
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Identification Number) |
2000 West Park Drive
Westborough, Massachusetts 01581
(508) 389-7300
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x |
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Accelerated filer o |
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|
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of July 27, 2015:
|
Class |
|
Number of Shares |
|
Common Stock, par value $.01 per share |
|
29,681,175 |
Virtusa Corporation and Subsidiaries
Item 1. Consolidated Financial Statements (Unaudited)
Virtusa Corporation and Subsidiaries
(Unaudited)
(In thousands, except share
and per share amounts)
|
|
|
June 30, 2015 |
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March 31, 2015 |
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||
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|
|
|
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|
|
||
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Assets |
|
|
|
|
|
||
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Current assets: |
|
|
|
|
|
||
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Cash and cash equivalents |
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$ |
103,848 |
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$ |
124,802 |
|
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Short-term investments |
|
76,747 |
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90,414 |
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||
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Accounts receivable, net of allowance of $1,054 and $881 at June 30, 2015 and March 31, 2015, respectively |
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91,994 |
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75,431 |
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||
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Unbilled accounts receivable |
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23,812 |
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27,914 |
|
||
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Prepaid expenses |
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9,697 |
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7,428 |
|
||
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Deferred income taxes |
|
7,793 |
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7,639 |
|
||
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Restricted cash |
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2,905 |
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45 |
|
||
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Other current assets |
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15,461 |
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13,565 |
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||
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Total current assets |
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332,257 |
|
347,238 |
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||
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Property and equipment, net of accumulated depreciation of $37,671 and $36,203 at June 30, 2014 and March 31, 2015, respectively |
|
39,075 |
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37,988 |
|
||
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Long-term investments |
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20,100 |
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20,732 |
|
||
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Deferred income taxes |
|
4,698 |
|
4,764 |
|
||
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Goodwill |
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70,718 |
|
50,360 |
|
||
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Intangible assets, net |
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34,445 |
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21,909 |
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||
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Other long-term assets |
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5,747 |
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6,746 |
|
||
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Total assets |
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$ |
507,040 |
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$ |
489,737 |
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Liabilities and stockholders’ equity |
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|
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|
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Current liabilities: |
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|
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|
|
||
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Accounts payable |
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$ |
10,210 |
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$ |
8,693 |
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Accrued employee compensation and benefits |
|
25,075 |
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26,915 |
|
||
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Accrued expenses and other current liabilities |
|
33,206 |
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23,762 |
|
||
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Income taxes payable |
|
2,289 |
|
1,834 |
|
||
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Total current liabilities |
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70,780 |
|
61,204 |
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||
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Deferred income taxes |
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1,807 |
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1,996 |
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Long-term liabilities |
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3,434 |
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2,762 |
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||
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Total liabilities |
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76,021 |
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65,962 |
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Commitments and guarantees |
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— |
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— |
|
||
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Stockholders’ equity: |
|
|
|
|
|
||
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Undesignated preferred stock, $0.01 par value: Authorized 5,000,000 shares at June 30, 2015 and March 31, 2015; zero shares issued and outstanding at June 30, 2015 and March 31, 2015 |
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— |
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— |
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||
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Common stock, $0.01 par value: Authorized 120,000,000 shares at June 30, 2015 and March 31, 2015; issued 31,046,485 and 30,854,979 shares at June 30, 2015 and March 31, 2015, respectively; outstanding 29,189,782 and 28,998,276 shares at June 30, 2015 and March 31, 2015, respectively |
|
310 |
|
309 |
|
||
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Treasury stock, 1,856,703 common shares, at cost, at June 30, 2015 and March 31, 2015, respectively |
|
(9,652 |
) |
(9,652 |
) |
||
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Additional paid-in capital |
|
285,278 |
|
283,178 |
|
||
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Retained earnings |
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194,181 |
|
184,068 |
|
||
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Accumulated other comprehensive loss |
|
(39,098 |
) |
(34,128 |
) |
||
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Total stockholders’ equity |
|
431,019 |
|
423,775 |
|
||
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Total liabilities, undesignated preferred stock and stockholders’ equity |
|
$ |
507,040 |
|
$ |
489,737 |
|
See accompanying notes to unaudited consolidated financial statements
Virtusa Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
|
|
|
Three Months Ended
|
|
||||
|
|
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2015 |
|
2014 |
|
||
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Revenue |
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$ |
134,844 |
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$ |
112,274 |
|
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Costs of revenue |
|
87,362 |
|
72,588 |
|
||
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Gross profit |
|
47,482 |
|
39,686 |
|
||
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Operating expenses: |
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|
|
|
|
||
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Selling, general and administrative expenses |
|
35,072 |
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28,456 |
|
||
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Income from operations |
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12,410 |
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11,230 |
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||
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Other income (expense): |
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|
|
|
|
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Interest income |
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1,425 |
|
1,159 |
|
||
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Foreign currency transaction losses |
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(25 |
) |
(155 |
) |
||
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Other, net |
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(10 |
) |
(10 |
) |
||
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Total other income |
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1,390 |
|
994 |
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Income before income tax expense |
|
13,800 |
|
12,224 |
|
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Income tax expense |
|
3,687 |
|
3,221 |
|
||
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Net income |
|
$ |
10,113 |
|
$ |
9,003 |
|
|
|
|
|
|
|
|
||
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Basic earnings per share |
|
$ |
0.35 |
|
$ |
0.32 |
|
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Diluted earnings per share |
|
$ |
0.34 |
|
$ |
0.31 |
|
See accompanying notes to unaudited consolidated financial statements
Virtusa Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands, except per share amounts)
|
|
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Three Months Ended
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||||
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|
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2015 |
|
2014 |
|
||
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|
|
|
|
|
|
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Net income |
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$ |
10,113 |
|
$ |
9,003 |
|
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Other comprehensive income (loss): |
|
|
|
|
|
||
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Foreign currency translation adjustments |
|
$ |
(1,614 |
) |
$ |
(201 |
) |
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Pension plan adjustment |
|
56 |
|
(13 |
) |
||
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Unrealized (loss) gain on available-for-sale securities, net of tax |
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(15 |
) |
50 |
|
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Unrealized (loss) gain on effective cash flow hedges, net of tax |
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(3,397 |
) |
661 |
|
||
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Other comprehensive (loss) income |
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$ |
(4,970 |
) |
$ |
497 |
|
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Comprehensive income |
|
$ |
5,143 |
|
$ |
9,500 |
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See accompanying notes to unaudited consolidated financial statements
Virtusa Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
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Three Months Ended
|
|
||||
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|
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2015 |
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2014 |
|
||
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Cash flows from operating activities: |
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|
|
|
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Net income |
|
$ |
10,113 |
|
$ |
9,003 |
|
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Adjustments to reconcile net income to net cash used in provided by operating activities: |
|
|
|
|
|
||
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Depreciation and amortization |
|
3,640 |
|
3,641 |
|
||
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Share-based compensation expense |
|
3,529 |
|
2,471 |
|
||
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Reversal of contingent consideration |
|
— |
|
(1,833 |
) |
||
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Provision for doubtful accounts |
|
137 |
|
34 |
|
||
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Loss on sale of property and equipment |
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2 |
|
— |
|
||
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Deferred income taxes |
|
— |
|
350 |
|
||
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Foreign currency losses, net |
|
25 |
|
155 |
|
||
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Amortization of discounts and premiums on investments |
|
193 |
|
316 |
|
||
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Excess tax benefits from stock option exercises |
|
(1,673 |
) |
(1,461 |
) |
||
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Net change in operating assets and liabilities: |
|
|
|
|
|
||
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Accounts receivable and unbilled receivable |
|
(7,820 |
) |
(8,012 |
) |
||
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Prepaid expenses and other current assets |
|
(5,969 |
) |
(919 |
) |
||
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Other long-term assets |
|
(55 |
) |
(453 |
) |
||
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Accounts payable |
|
(180 |
) |
189 |
|
||
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Accrued employee compensation and benefits |
|
(5,382 |
) |
(10,032 |
) |
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Accrued expenses and other current liabilities |
|
2,675 |
|
2,774 |
|
||
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Income taxes payable |
|
2,107 |
|
874 |
|
||
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Other long-term liabilities |
|
103 |
|
403 |
|
||
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Net cash provided (used) by operating activities |
|
1,445 |
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(2,500 |
) |
||
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Cash flows from investing activities: |
|
|
|
|
|
||
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Proceeds from sale of property and equipment |
|
2 |
|
— |
|
||
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Purchase of short-term investments |
|
(2,761 |
) |
— |
|
||
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Proceeds from sale or maturity of short-term investments |
|
15,954 |
|
4,298 |
|
||
|
Purchase of long-term investments |
|
(3,419 |
) |
(5,579 |
) |
||
|
Proceeds from sale or maturity of long-term investments |
|
3,100 |
|
1,000 |
|
||
|
Increase in restricted cash |
|
(2,860 |
) |
(63 |
) |
||
|
Business acquisition, net of cash acquired |
|
(30,877 |
) |
— |
|
||
|
Purchase of property and equipment |
|
(2,138 |
) |
(4, 448 |
) |
||
|
Net cash used in investing activities |
|
(22,999 |
) |
(4,792 |
) |
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Proceeds from exercise of common stock options |
|
414 |
|
441 |
|
||
|
Payment of contingent consideration related to acquisitions |
|
— |
|
(441 |
) |
||
|
Principal payments on capital lease obligation |
|
(29 |
) |
(3 |
) |
||
|
Excess tax benefits from stock option exercises |
|
1,673 |
|
1,461 |
|
||
|
Net cash provided by financing activities |
|
2,058 |
|
1,458 |
|
||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(1,458 |
) |
(1 |
) |
||
|
Net decrease in cash and cash equivalents |
|
(20,954 |
) |
(5,835 |
) |
||
|
Cash and cash equivalents, beginning of period |
|
124,802 |
|
82,761 |
|
||
|
Cash and cash equivalents, end of period |
|
$ |
103,848 |
|
$ |
76,926 |
|
See accompanying notes to unaudited consolidated financial statements
Virtusa Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share amounts)
(1) Nature of Business
Virtusa Corporation (the “Company” or “Virtusa”) is a global information technology services company. The Company uses an enhanced global delivery model to provide end to end information technology (“IT”) services to Global 2000 companies. These services include IT and business consulting, user experience (“UX”) design, development of IT applications, maintenance and support services, systems integration, infrastructure and managed services. Using its enhanced global delivery model, innovative platforming approach and industry expertise, the Company provides cost effective services that enable its clients to accelerate time to market, improve service and enhance productivity. Headquartered in Massachusetts, Virtusa has offices in the United States, the United Kingdom, Sweden, Germany, Netherlands and Austria and global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as a near shore center in the United States.
(2) Unaudited Interim Financial Information
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, and should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the fiscal year ended March 31, 2015 included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or SEC, on May 20, 2015. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included, and all material adjustments are of a normal and recurring nature. Operating results for the interim periods are not necessarily indicative of results that may be expected to occur for the entire fiscal year.
Principles of Consolidation
The consolidated financial statements reflect the accounts of the Company and its direct and indirect subsidiaries, Virtusa Consulting Services Private Limited, Virtusa Software Services Private Limited and Virtusa Technologies (India) Private Limited, each organized and located in India, Virtusa (Private) Limited, organized and located in Sri Lanka, Virtusa UK Limited, organized and located in the United Kingdom, Virtusa Securities Corporation, a Massachusetts securities corporation, Apparatus Inc. incorporated and located in Indiana, Virtusa International, B.V., organized and located in the Netherlands, Virtusa Hungary Kft., incorporated and located in Hungary, Virtusa Germany GmbH, organized and located in Germany, Virtusa Switzerland GmbH, organized and located in Switzerland, Virtusa Singapore Private Limited, organized and located in Singapore, Virtusa Malaysia Private Limited Company located in Malayisa, Virtusa Austria GmbH, organized and located in Austria, Virtusa Philippines Inc. located in the Philippines, TradeTech Consulting Scandinavia AB organized and located in Sweden and Virtusa Canada, Inc., a corporation organized under the laws of British Columbia, Canada. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Management reevaluates these estimates on an ongoing basis. The most significant estimates relate to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed price contracts, share based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, intangible assets, contingent consideration and valuation of financial instruments including derivative contracts and investments. Management bases its estimates on historical experience and on various other factors and assumptions that are believed to be reasonable under the circumstances. The actual amounts may vary from the estimates used in the preparation of the accompanying consolidated financial statements.
Fair Value of Financial Instruments
At June 30, 2015 and March 31, 2015, the carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled accounts receivable, restricted cash, accounts payable, accrued employee compensation and benefits and other accrued expenses, approximate their fair values due to the nature of the items. See Note 5 for a discussion of the fair value of the Company’s other financial instruments.
Recent accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In June 2014, the FASB issued ASU No. 2014 12—“Stock Compensation—Accounting for Share Based Payments. In some cases, the terms of an award may provide that a performance target that affects vesting could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved. A performance target that affects vesting and that could be achieved after an employee’s requisite service period shall be accounted for as a performance condition. As such, the performance target shall not be reflected in estimating the fair value of the award at the grant date. Compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service already has been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The ASU is effective for annual and interim periods for fiscal years beginning on or after December 15, 2015. Entities can apply the amendment either a) prospectively to all awards granted or modified after the effective date or b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The ASU does not have an impact on the consolidated financial statements.
(3) Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period, and diluted earnings per share is computed by including the dilutive impact of common stock equivalents outstanding for the period in the denominator. Common stock equivalents include shares issuable upon the exercise of outstanding stock options, stock appreciation rights, unvested restricted stock awards and unvested restricted stock units, net of shares assumed to have been purchased with the proceeds, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the periods set forth below:
|
|
|
Three Months Ended
|
|
||||
|
|
|
2015 |
|
2014 |
|
||
|
Numerators: |
|
|
|
|
|
||
|
Net income |
|
$ |
10,113 |
|
$ |
9,003 |
|
|
Denominators: |
|
|
|
|
|
||
|
Weighted average common shares outstanding |
|
29,068,946 |
|
28,476,804 |
|
||
|
Dilutive effect of employee stock options and unvested restricted stock |
|
861,353 |
|
875,035 |
|
||
|
Dilutive effect of stock appreciation rights |
|
4,329 |
|
9,442 |
|
||
|
Weighted average shares-diluted |
|
29,934,628 |
|
29,361,281 |
|
||
|
Basic earnings per share |
|
$ |
0.35 |
|
$ |
0.32 |
|
|
Diluted earnings per share |
|
$ |
0.34 |
|
$ |
0.31 |
|
During the three months ended June 30, 2015 and 2014, options to purchase 5,538 and 25,378 shares of common stock, respectively, were excluded from the calculations of diluted earnings per share as their effect would have been anti-dilutive.
(4) Investment Securities
At June 30, 2015 and March 31, 2015, all of the Company’s investment securities were classified as available-for-sale and were carried on its balance sheet at their fair market value. A fair market value hierarchy based on three levels of inputs was used to measure each security (see Note 5).
The following is a summary of investment securities at June 30, 2015:
|
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
||||
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
||||
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
$ |
36,714 |
|
$ |
2 |
|
$ |
(30 |
) |
$ |
36,686 |
|
|
Non-current |
|
13,017 |
|
6 |
|
(25 |
) |
12,998 |
|
||||
|
Agency and short-term notes: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
4,026 |
|
1 |
|
— |
|
4,027 |
|
||||
|
Non-current |
|
7,101 |
|
1 |
|
— |
|
7,102 |
|
||||
|
Municipal bonds: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
200 |
|
— |
|
— |
|
200 |
|
||||
|
Time deposits: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
35,834 |
|
— |
|
— |
|
35,834 |
|
||||
|
Total available-for-sale securities |
|
$ |
96,892 |
|
$ |
10 |
|
$ |
(55 |
) |
$ |
96,847 |
|
The following is a summary of investment securities at March 31, 2015:
|
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
Fair
|
|
||||
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
||||
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
$ |
41,873 |
|
$ |
10 |
|
$ |
(22 |
) |
$ |
41,861 |
|
|
Non-current |
|
10,551 |
|
— |
|
(21 |
) |
10,530 |
|
||||
|
Agency and short-term notes: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
6,737 |
|
3 |
|
— |
|
6,740 |
|
||||
|
Non-current |
|
10,203 |
|
1 |
|
(2 |
) |
10,202 |
|
||||
|
Municipal bonds: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
200 |
|
— |
|
— |
|
200 |
|
||||
|
Time deposits: |
|
|
|
|
|
|
|
|
|
||||
|
Current |
|
41,613 |
|
— |
|
— |
|
41,613 |
|
||||
|
Total available-for-sale securities |
|
$ |
111,177 |
|
$ |
14 |
|
$ |
(45 |
) |
$ |
111,146 |
|
The Company evaluates investments with unrealized losses to determine if the losses are other than temporary. The Company has determined that the gross unrealized losses at June 30, 2015 and March 31, 2015 are temporary. In making this determination, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, the underlying collateral of the investments, and the magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position. Additionally, while the Company classifies the securities as available for sale, the Company does not currently intend to sell such investments and it is more likely than not the Company will not be required to sell such investments prior to the recovery of their carrying value, except as disclosed in Note 5.
Proceeds from sales of available-for-sale investment securities and the gross gains and losses that have been included in earnings as a result of those sales were as follows:
|
|
|
Three months ended
|
|
||||
|
|
|
2015 |
|
2014 |
|
||
|
Proceeds from sales of available-for-sale investment securities |
|
$ |
19,054 |
|
$ |
5,298 |
|
|
Gross gains |
|
$ |
1 |
|
$ |
— |
|
|
Gross losses |
|
— |
|
— |
|
||
|
Net realized gains on sales of available-for-sale investment securities |
|
$ |
1 |
|
$ |
— |
|
(5) Fair Value of Financial Instruments
The Company uses a framework for measuring fair value under U.S. generally accepted accounting principles and enhanced disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s financial assets and liabilities reflected in the consolidated financial statements at carrying value include marketable securities and other financial instruments which approximate fair value. Fair value for marketable securities is determined using a market approach based on quoted market prices at period end in active markets. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
· Level 1—Quoted prices in active markets for identical assets or liabilities.
· Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2015:
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
Investments: |
|
|
|
|
|
|
|
|
|
||||
|
Available-for-sales securities—current |
|
$ |
— |
|
$ |
76,747 |
|
$ |
— |
|
$ |
76,747 |
|
|
Available-for-sales securities—non-current |
|
— |
|
20,100 |
|
— |
|
20,100 |
|
||||
|
Foreign currency derivative contracts |
|
— |
|
1,733 |
|
— |
|
1,733 |
|
||||
|
Total assets |
|
$ |
— |
|
$ |
98,580 |
|
$ |
— |
|
$ |
98,580 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
Foreign currency derivative contracts |
|
$ |
— |
|
$ |
3,197 |
|
$ |
— |
|
$ |
3,197 |
|
|
Contingent consideration |
|
— |
|
— |
|
3,947 |
|
3,947 |
|
||||
|
Total liabilities |
|
$ |
— |
|
$ |
3,197 |
|
$ |
3,947 |
|
$ |
7,144 |
|
The Company determines the fair value of the contingent consideration related to acquisitions based on the probability of attaining certain revenue and profit margin targets using an appropriate discount rate to present value the liability. See Note 7 of the notes to our financial statements included herein for a description of the Company’s acquisitions and related contingent consideration targets. The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities at June 30, 2015.
|
|
|
Level 3
|
|
|
|
Balance at April 1, 2015 |
|
$ |
2,432 |
|
|
Contingent consideration related to acquisition purchase price allocation |
|
1,370 |
|
|
|
Contingent consideration recognized in earnings |
|
144 |
|
|
|
Foreign currency translation adjustments |
|
1 |
|
|
|
Balance at June 30, 2015 |
|
$ |
3,947 |
|
(6) Derivative Financial Instruments
The Company evaluates its foreign exchange policy on an ongoing basis to assess its ability to address foreign exchange exposures on its consolidated balance sheets, statements of income and consolidated statement of cash flows from all foreign currencies, including most significantly the U.K. pound sterling, the euro, the Swedish krona, Indian rupee and Sri Lankan rupee. The Company enters into hedging programs with highly rated financial institutions in accordance with its foreign exchange policy (as approved by the Company’s audit committee and board of directors) which permits hedging of material, known foreign currency exposures. Currently, the Company maintains three hedging programs, each with varying contract types, duration and purposes. The Company’s “Cash Flow Program” is designed to mitigate the impact of volatility in the U.S. dollar and U.K. pound sterling equivalents of the Company’s Indian rupee denominated expenses over a rolling 36 month period. The Cash Flow Program transactions currently meet the criteria for hedge accounting as cash flow hedges. The Company’s “Balance Sheet Program” involves the use of 30 day derivative instruments designed to mitigate the monthly impact of foreign exchange gains/losses on certain intercompany balances and payments. The Company’s “Economic Hedge Program” involves the purchase of derivative instruments with maturities of up to 92 days, and is designed to mitigate the impact of foreign exchange on U.K. pound sterling, the euro and Swedish krona denominated revenue and costs with respect to the quarter for which such instruments are purchased. The Balance Sheet Program and the Economic Hedge Program are treated as economic hedges as these programs do not meet the criteria for hedge accounting and all gains and losses are recognized in consolidated statement of income under the same line item as the underlying exposure being hedged.
The Company evaluates all of its derivatives based on market observable inputs, including both forward and spot prices for currencies. Any significant change in the forward or spot prices for hedged currencies would have a significant impact on the value of the Company’s derivatives. Changes in fair value of the designated cash flow hedges for the Company’s Cash Flow Program are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”), net of tax, until the forecasted hedged transactions occur and are then recognized in the consolidated statement of income in the same line item as the item being hedged. The Company evaluates hedge effectiveness at the time a contract is entered into, as well as on an ongoing basis. If, and when, all or part of a hedge relationship is discontinued because the forecasted transaction is deemed probable of not occurring by the end of the originally specified period or within an additional two-month period of time thereafter, the contract, or the relative amount of the contract, is deemed “ineffective” and any related derivative amounts recorded in equity are reclassified to earnings. There were no gains (losses) that were reclassified from AOCI into earnings as a result of forecasted transactions that were considered probable of not occurring for the three months ended June 30, 2015 and 2014.
Changes in the fair value of the derivatives purchased under the Balance Sheet Program are reflected in the Company’s consolidated statement of income and are included in foreign currency transaction gains (losses) for each period. Changes in the fair value of the derivatives purchased under the Economic Hedge Program are also reflected in the Company’s consolidated statement of income and are included in the same line item as the underlying exposure being hedged for each period.
The U.S. dollar notional equivalent market value, which consists of the notional value and net unrealized gain or loss, of all outstanding foreign currency derivative contracts, was $125,612 and $ 121,380, at June 30, 2015 and March 31, 2015, respectively. Unrealized net losses related to these contracts which are expected to be reclassified from AOCI to earnings during the next 12 months were $773 at June 30, 2015. At June 30, 2015, the maximum outstanding term of any derivative instrument was 33 months.
The following table sets forth the fair value of derivative instruments included in the consolidated balance sheets at June 30, 2015 and March 31, 2015:
Derivatives designated as hedging instruments
|
|
|
June 30, 2015 |
|
March 31, 2015 |
|
||
|
Foreign currency exchange contracts: |
|
|
|
|
|
||
|
Other current assets |
|
$ |
1,235 |
|
$ |
3,285 |
|
|
Other long-term assets |
|
$ |
498 |
|
$ |
1,359 |
|
|
Accrued expenses and other current liabilities |
|
$ |
2,008 |
|
$ |
1,183 |
|
|
Long-term liabilities |
|
$ |
1,189 |
|
$ |
619 |
|
The following tables set forth the effect of the Company’s foreign currency exchange contracts on the consolidated financial statements of the Company for the three months ended June 30, 2015 and 2014:
|
|
|
Amount of Gain (Loss) Recognized in AOCI on Derivatives
|
|
||||
|
Derivatives Designated as Cash Flow |
|
Three months June 30, |
|
||||
|
Hedging Relationships |
|
2015 |
|
2014 |
|
||
|
Foreign currency exchange contracts |
|
$ |
(3,876 |
) |
$ |
443 |
|
|
Location of Gain (Loss) Reclassified |
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
||||
|
from AOCI into Income (Effective |
|
Three months ended June 30, |
|
||||
|
Portion) |
|
2015 |
|
2014 |
|
||
|
Costs of revenue |
|
$ |
280 |
|
$ |
(394 |
) |
|
Operating expenses |
|
$ |
151 |
|
$ |
(243 |
) |
|
|
|
|
|
Amount of Gain (Loss) Recognized in Income
|
|
||||
|
Derivatives not Designated |
|
Location of Gain or (Loss) |
|
Three months ended
|
|
||||
|
as Hedging Instrument |
|
Recognized in Income on Derivatives |
|
2015 |
|
2014 |
|
||
|
Foreign currency exchange contracts |
|
Foreign currency transaction gains (losses) |
|
$ |
(898 |
) |
$ |
(249 |
) |
|
|
|
Revenue |
|
$ |
(286 |
) |
$ |
(148 |
) |
|
|
|
Costs of revenue |
|
$ |
106 |
|
$ |
49 |
|
|
|
|
Selling, general and administrative expenses |
|
$ |
5 |
|
$ |
9 |
|
(7) Acquisitions
On April 1, 2015, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company, Apparatus, Inc. an Indiana corporation (“Apparatus”), the majority stockholder of Apparatus (“Major Stockholder”) and the other stockholders (collectively with the Major Stockholder, the “Sellers”), to acquire all of the issued and outstanding stock of Apparatus (the “Acquisition”). The Company completed the Acquisition on April 1, 2015, at which time Apparatus became a wholly owned subsidiary of the Company. The acquisition strengthens the Company’s growing Infrastructure Management Services (IMS)
practice and offers the combined Company’s clients a stronger set of offerings that are focused on simplifying their IT infrastructure and driving high levels of efficiency in IT operations.
Under the terms of the Stock Purchase Agreement, the purchase price for the Acquisition was approximately $34,200 in cash, subject to post closing working capital adjustments. The purchase price is also subject to adjustment after the closing by up to an additional $1,700 in earn out consideration to the Sellers in the event of Apparatus’ achievement at 100% of certain revenue and profit milestones for the fiscal year ending March 31, 2016. The Sellers can earn up to 110% of the earn-out if the performance targets are exceeded by 110%. The Company deposited 8.5% of the purchase price into escrow for a period of 12 months as security for the Sellers’ indemnification obligations under the Stock Purchase Agreement. The Company, Sellers and Apparatus made customary representations, warranties and covenants in the Stock Purchase Agreement.
In connection with the Acquisition, the Company offered employment to all of Apparatus’ employees. The Company has agreed to offer up to $1,500 in the form of variable cash compensation to certain Apparatus employees in the event of Apparatus’ achievement at 100% of certain revenue and profit milestones for the fiscal year ending March 31, 2016. These Apparatus employees can earn up to 110% if the performance targets are exceeded by 110%. The Company has also agreed to issue an aggregate of up to $3,500 in shares of restricted stock from the Company’s stock option and incentive plan, not to exceed 93,333 shares, to certain Apparatus employees. The shares will vest annually over a four year period and will be recorded as post-acquisition compensation expense.
A summary of the preliminary purchase price allocation for Apparatus is as follows:
|
|
|
Amount |
|
Useful Life |
|
|
|
Consideration Transferred: |
|
|
|
|
|
|
|
Cash paid at closing |
|
$ |
31,248 |
|
|
|
|
Holdback of 8.5% |
|
2,903 |
|
|
|
|
|
Fair value of contingent consideration |
|
830 |
|
|
|
|
|
Fair value of consideration transferred |
|
34,981 |
|
|
|
|
|
Less: Cash acquired |
|
(731 |
) |
|
|
|
|
Total purchase price, net of cash acquired |
|
$ |
34,250 |
|
|
|
|
Acquisition-related costs |
|
$ |
631 |
|
|
|
|
Purchase Price Allocation: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
731 |
|
|
|
|
Accounts receivable and unbilled receivable |
|
2,916 |
|
|
|
|
|
Prepaid expense |
|
79 |
|
|
|
|
|
Property and equipment |
|
1,115 |
|
|
|
|
|
Goodwill |
|
19,526 |
|
|
|
|
|
Customer relationships |
|
12,200 |
|
10 years |
|
|
|
Technology |
|
500 |
|
5 years |
|
|
|
Trademark |
|
400 |
|
3 years |
|
|
|
Other current liabilities |
|
(2,486 |
) |
|
|
|
|
Total purchase price |
|
34,981 |
|
|
|
|
|
Less: Cash acquired |
|
(731 |
) |
|
|
|
|
Total purchase price, net of cash acquired |
|
$ |
34,250 |
|
|
|
The purchase price allocation is based upon preliminary estimates and assumptions that may be subject to change during the measurement period.
On June 1, 2015, Virtusa AB, a wholly owned subsidiary of the Company organized and formed in Sweden, acquired the assets of a consulting company located in Sweden. The purchase price was approximately $360 in cash subject to adjustment after closing for up to an additional $540 in earn-out consideration. The purchase price allocation was as follows: goodwill of $505, customer relationships of $446 and other current liabilities of $51.
The following unaudited, pro forma information assumes the Apparatus acquisition occurred on April 1, 2014. The unaudited pro forma consolidated results of operations are provided for informational purposes only and do not purport to represent the Company’s actual consolidated results of operations had each acquisition occurred on the dates assumed, nor are these necessarily indicative of the Company’s future consolidated results of operations.
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
||
|
|
|
|
|
|
|
||
|
Revenue |
|
$ |
134,844 |
|
$ |
119,084 |
|
|
Net income |
|
$ |
10,448 |
|
$ |
8,252 |
|
Revenue and net loss relating to Apparatus since the acquisition date, amounting to $7,084 and $(612), respectively, have been included in the consolidated statement of income for the three months ended June 30, 2015. The unaudited pro forma consolidated results of operations for the three months ended June 30, 2015 and 2014 included amortization of intangible assets, share-based compensation expense, acquisition related costs, earn-out bonuses and changes in the fair value of contingent consideration.
(8) Goodwill and Intangible Assets
Goodwill:
The Company has one reportable segment. The following are details of the changes in goodwill balance at June 30, 2015:
|
|
|
Amount |
|
|
|
Balance at April 1, 2015 |
|
$ |
50,360 |
|
|
Goodwill arising from acquisitions |
|
20,031 |
|
|
|
Foreign currency translation adjustments |
|
327 |
|
|
|
Balance at June 30, 2015 |
|
$ |
70,718 |
|
The acquisition costs and goodwill balance deductible for the Company’s business acquisitions for tax purposes are $60,318. The acquisition costs and goodwill balance not deductible for tax purposes are $9,895 and relate to the Company’s TradeTech Consulting AB acquisition, which closed on January 2, 2014.
The Company performed the annual assessment of its goodwill during the fourth quarter of the fiscal year ended March 31, 2015 and determined that the estimated fair value of the Company’s reporting unit exceeded its carrying value and therefore goodwill was not impaired. The Company will continue to complete goodwill impairment assessments at least annually during the fourth quarter of each ensuing fiscal year. The Company will continue to evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived assets, including intangible assets, may warrant revision or that the carrying value of these assets may be impaired. Any write -downs are treated as permanent reductions in the carrying amount of the assets.
Intangible Assets:
The following are details of the Company’s intangible asset carrying amounts acquired and amortization at June 30, 2015.
|
|
|
Weighted Average
|
|
Gross Carrying
|
|
Accumulated
|
|
Net Carrying
|
|
|||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|||
|
Customer relationships |
|
9.5 |
|
$ |
46,963 |
|
$ |
13,447 |
|
$ |
33,516 |
|
|
Partner relationships |
|
6.0 |
|
700 |
|
630 |
|
70 |
|
|||
|
Trademark |
|
2.7 |
|
458 |
|
83 |
|
375 |
|
|||
|
Backlog |
|
1.0 |
|
1,182 |
|
1,182 |
|
— |
|
|||
|
Technology |
|
5.0 |
|
500 |
|
16 |
|
484 |
|
|||
|
|
|
9.2 |
|
$ |
49,803 |
|
$ |
15,358 |
|
$ |
34,445 |
|
The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.
(9) Income Taxes
The Company applies an estimated annual effective tax rate to its year-to-date operating results to determine the interim provision for income tax expense. The Company’s effective tax rate was 26.7% for the three months ended June 30, 2015, as compared to an effective tax rate of 26.4% for the three months ended June 30, 2014. The Company’s reported effective tax rate is impacted by jurisdictional mix of profits in which the Company operates, statutory tax rates in effect, unusual or infrequent discrete items requiring a provision during the period and certain exemptions or tax holidays the Company has in place.
The Company created two export oriented units in India, one in Bangalore during the fiscal year ended March 31, 2011 and a second unit in Hyderabad during the fiscal year ended March 31, 2010 for which no income tax exemptions were availed. The Indian subsidiaries also operate two development centers in areas designated as a SEZ, under the SEZ Act of 2005. In particular, the Company was approved as a SEZ Co-developer and has built a campus on a 6.3 acre parcel of land in Hyderabad, India that has been designated as an SEZ. As a SEZ Co-developer, the Company is entitled to certain tax benefits for any consecutive period of 10 years during the 15 year period starting in fiscal year 2008. The Company has elected to claim SEZ Co-developer income tax benefits starting in fiscal year ended March 31, 2013. In addition, the Company has leased facilities in SEZ designated locations in Hyderabad and Chennai, India. The Company’s profits from the Hyderabad and Chennai SEZ operations are eligible for certain income tax exemptions for a period of up to 15 years beginning in fiscal March 31, 2009. The Company’s India profits ineligible for SEZ benefits are subject to corporate income tax at the current rate of 34.6%. In the fiscal year ended March 31, 2014, the Company leased a facility in a SEZ designated location in Bangalore and Pune, India each of which is eligible for tax holidays for up to 15 years beginning in the fiscal year ended March 31, 2014. Based on the latest changes in tax laws, book profits of SEZ units are subject to Indian Minimum Alternative Tax (“MAT”), commencing April 1, 2011, which will continue to negatively impact the Company’s cash flows.
In addition, the Company’s Sri Lankan subsidiary, Virtusa (Private) Limited, is operating under a 12 year income tax holiday arrangement that is set to expire on March 31, 2019 and required Virtusa (Private) Limited to meet certain job creation and investment criteria by March 31, 2015. During the fiscal year ended March 31, 2015, the Company believed it had fulfilled its hiring and investment commitments and is eligible for tax holiday through March 2019. The current agreement provides income tax exemption for all export business income. The Company has submitted the required support to the Sri Lanka Board of Investment and is awaiting confirmation. At June 30, 2015, the Company believes it is eligible for the entire 12 year tax holiday.
The Company’s effective income tax rate is based on the composition of estimated income in different jurisdictions, including those where the Company is enjoying tax holidays, for the applicable fiscal year and adjustments, if any, in the applicable quarterly periods, for unrecognized tax benefits for uncertain income tax positions or other discrete items required to be reported during interim periods. The Company’s aggregate income tax rate in foreign jurisdictions is lower than its income tax rate in the United States due primarily to lower rates generally in jurisdictions in which the Company operates and applicable tax holiday benefits of the Company, obtained primarily in India and Sri Lanka.
Unrecognized tax benefits represent uncertain tax positions for which the Company has established reserves. At June 30, 2015 and March 31, 2015, the total liability for unrecognized tax benefits was $556 and $546, respectively, if realized. Each fiscal year, unrecognized tax benefits may be adjusted upon the closing of the statute of limitations for income tax returns filed in various jurisdictions. During the three months ended June 30, 2015 and June 30, 2014, the unrecognized tax benefits increased by $10 and decreased by $33, respectively. The increase in unrecognized tax benefits in the three months period ending June 30, 2015 was predominantly due to increases for incremental interest accrued on existing uncertain tax positions.
Undistributed Earnings of Foreign Subsidiaries
A substantial amount of the Company’s income before provision for income tax is from operations earned in its Indian and Sri Lankan subsidiaries and is subject to tax holiday. The Company intends to use accumulated and future earnings of foreign subsidiaries to expand operations outside the United States and, accordingly, undistributed income is considered to be indefinitely reinvested. The Company does not provide for U.S. income taxes on foreign earnings. At June 30, 2015, the Company had $202,390 of unremitted earnings from foreign subsidiaries and approximately $96,044 of cash and short-term investments that would otherwise be available for potential distribution, if not indefinitely reinvested. If required, such cash and investments could be repatriated to the United States. However, under current law, any repatriation would be subject to United States federal income tax less applicable foreign tax credits. Due to the various methods by which such earnings could be repatriated in the future, the amount of taxes attributable to the undistributed earnings is not practicably determinable.
(10) Concentration of Revenue and Assets
Total revenue is attributed to geographic areas based on the location of the client. Long-lived assets represent property, plant and equipment, intangible assets and goodwill, net of accumulated depreciation and amortization, and are attributed to geographic area based on their location. Geographic information is summarized as follows:
|
|
|
Three Months Ended
|
|
||||
|
|
|
2015 |
|
2014 |
|
||
|
Client revenue: |
|
|
|
|
|
||
|
North America |
|
$ |
96,702 |
|
$ |
73,464 |
|
|
Europe |
|
30,346 |
|
31,897 |
|
||
|
Rest of world |
|
7,796 |
|
6,913 |
|
||
|
Consolidated revenue |
|
$ |
134,844 |
|
$ |
112,274 |
|
|
|
|
June 30,
|
|
March 31,
|
|
||
|
Long-lived assets, net of accumulated depreciation and amortization: |
|
|
|
|
|
||
|
North America |
|
$ |
91,582 |
|
$ |
59,316 |
|
|
Asia |
|
33,336 |
|
32,896 |
|
||
|
Europe |
|
19,320 |
|
18,045 |
|
||
|
Consolidated long-lived assets, net |
|
$ |
144,238 |
|
$ |
110,257 |
|
Revenue from significant clients as a percentage of the Company’s consolidated revenue was as follows:
|
|
|
Three Months Ended
|
|
||
|
|
|
2015 |
|
2014 |
|
|
Customer 1 |
|
13.4 |
% |
8.9 |
% |
|
Customer 2 |
|
9.8 |
% |
13.1 |
% |
(11) Debt
On December 31, 2013, the Company entered into an amended and restated credit agreement with JPMorgan Chase Bank, N.A. (“JPM”). The credit agreement amended and restated the Company’s $3,000 secured revolving credit agreement with JPM and provides for a $25,000 secured revolving credit facility, which shall be available to fund working capital and other corporate purposes, as well as to serve as security in support of the Company’s foreign currency hedging programs. The credit agreement contains financial covenants that require the Company to maintain a Funded Debt to Adjusted EBITDA Ratio of not more than 2.00 to 1.00 and a Fixed Charge Coverage Ratio of less than 2.50 to 1.00, each as determined for the trailing twelve month period ending on each fiscal quarter. The Company is currently in compliance with all covenants contained in the credit agreement and believes that the credit agreement provides sufficient flexibility to enable continued compliance with its terms. Interest under this credit facility accrues at a rate between LIBOR plus 1.5% and LIBOR plus 1.75% based on the Company’s ratio of indebtedness to Adjusted EBITDA. The term of the credit facility is five years, ending December 31, 2018. This facility replaced the Company’s prior $3,000 line of credit with JPM. At June 30, 2015, there were no borrowings outstanding under the credit facility.
Beginning in fiscal 2009, the Company’s U.K. subsidiary entered into an agreement with a financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances to the financial institution. During the three months ended June 30, 2015, $3,867 of receivables was sold under the terms of the financing agreement. Fees paid pursuant to this agreement were immaterial during the three months ended June 30, 2015. The Company had no letters of credit outstanding at June 30, 2015.
(12) Pensions and post-retirement benefits
The Company has noncontributory defined benefit plans covering its employees in India and Sri Lanka as mandated by the Indian and Sri Lankan governments. The following tables provide information regarding pension expense recognized:
|
|
|
Three Months Ended
|
|
||||
|
|
|
2015 |
|
2014 |
|
||
|
Components of net periodic pension cost |
|
|
|
|
|
||
|
Service cost |
|
$ |
186 |
|
$ |
136 |
|
|
Interest cost |
|
69 |
|
59 |
|
||
|
Expected return on plan assets |
|
(82 |
) |
(54 |
) |
||
|
Amortization past service cost |
|
39 |
|
24 |
|
||
|
Amortization of actuarial loss |
|
2 |
|
3 |
|
||
|
Net periodic pension cost |
|
$ |
214 |
|
$ |
168 |
|
The Company expects to contribute approximately $1,000 in cash to the pension plans during the fiscal year ending March 31, 2016. The Company made cash contributions of $729 to the plans during the three months ended June 30, 2015.
(13) Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) by component were as follows for the three months ended June 30, 2015 and 2014:
|
Accumulated Other Comprehensive Income (Loss) |
|
Three Months Ended
|
|
||||
|
(In thousands, except per share amounts) |
|
2015 |
|
2014 |
|
||
|
Investment securities |
|
|
|
|
|
||
|
Beginning balance |
|
$ |
(18 |
) |
$ |
(54 |
) |
|
Other comprehensive income (loss) (OCI) before reclassifications net of tax of $0 for all periods |
|
(14 |
) |
50 |
|
||
|
Reclassifications from OCI to other income — net of tax of $0 for all periods |
|
(1 |
) |
— |
|
||
|
Comprehensive income (loss) on investment securities, net of tax of $0 for all periods |
|
(15 |
) |
50 |
|
||
|
|
|
|
|
|
|
||
|
Closing Balance |
|
$ |
(33 |
) |
$ |
(4 |
) |
|
|
|
|
|
|
|
||
|
Currency Translation Adjustments |
|
|
|
|
|
||
|
Beginning balance |
|
$ |
(35,565 |
) |
$ |
(23,253 |
) |
|
OCI before reclassifications |
|
(1,614 |
) |
(201 |
) |
||
|
|
|
|
|
|
|
||
|
Closing Balance |
|
$ |
(37,179 |
) |
$ |
(23,454 |
) |
|
|
|
|
|
|
|
||
|
Cash Flow Hedges |
|
|
|
|
|
||
|
Beginning balance |
|
$ |
2,387 |
|
$ |
(3,829 |
) |
|
OCI before reclassifications net of tax of $(828), and $357 |
|
(3,048 |
) |
86 |
|
||
|
Reclassifications from OCI to |
|
|
|
|
|
||
|
- Costs of revenue, net of tax of $(53) and $38 |
|
(227 |
) |
356 |
|
||
|
- Selling, general and administrative expenses, net of tax of $(29) and $24 |
|
(122 |
) |
219 |
|
||
|
Comprehensive income (loss) on cash flow hedges, net of tax of $(910) and $419 |
|
(3,397 |
) |
661 |
|
||
|
|
|
|
|
|
|
||
|
Closing Balance |
|
$ |
(1,010 |
) |
$ |
(3,168 |
) |
|
|
|
|
|
|
|
||
|
Benefit plans |
|
|
|
|
|
||
|
Beginning balance |
|
$ |
(932 |
) |
$ |
(578 |
) |
|
OCI before reclassifications net of tax of $0 for all periods |
|
— |
|
— |
|
||
|
Reclassifications from OCI for prior service credit (cost) to: |
|
|
|
|
|
||
|
- Costs of revenue, net of tax of $0 for all periods |
|
2 |
|
2 |
|
||
|
- Selling, general and administrative expenses, net of tax of $0 for all periods |
|
— |
|
— |
|
||
|
Reclassifications from OCI for net actuarial gain (loss) amortization to: |
|
|
|
|
|
||
|
- Costs of revenue, net of tax of $0 for all periods |
|
24 |
|
15 |
|
||
|
- Selling, general and administrative expenses, net of tax of $0 for all periods |
|
15 |
|
10 |
|
||
|
Other adjustments |
|
15 |
|
(40 |
) |
||
|
Comprehensive income (loss) on benefit plans, net of tax of $0 for all periods |
|
56 |
|
(13 |
) |
||
|
|
|
|
|
|
|
||
|
Closing Balance |
|
$ |
(876 |
) |
(591 |
) |
|
|
|
|
|
|
|
|
||
|
Accumulated other comprehensive loss closing balance |
|
$ |
(39,098 |
) |
$ |
(27,217 |
) |
(14) Subsequent Events
On July 16, 2015, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the U.K. pound sterling against the U.S. dollar. The contracts have an aggregate notional amount of approximately £4,327 (approximately $6,717) and will expire on various dates through September 30, 2015. The weighted average U.K. pound sterling settlement rate associated with these contracts is approximately $1.55.
On July 21, 2015, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the Swedish Krona (“SEK”) against the U.S. dollar and the euro (“EUR”) against the U.S. dollar (the “Euro contracts”), each of which will expire on various dates during the period ending September 30, 2015. The SEK contracts have an aggregate notional amount of approximately SEK 2,758 (approximately $324) and the EUR contracts have an aggregate notional amount of approximately EUR 92 (approximately $101). The weighted average U.S. dollar settlement rate associated with the SEK contracts is approximately $0.117, and the weighted average U.S. dollar settlement rate associated with the EUR contracts is approximately $1.092.
On July 27, 2015, the Company purchased multiple foreign currency forward contracts designed to hedge fluctuation in the Indian rupee against the U.S. dollar and U.K. pound sterling. The U.S dollar contracts have an aggregate notional amount of approximately 963,543 Indian rupees (approximately $13,819) and have an average settlement rate of 69.96 Indian rupees. The U.K. pound sterling contracts have an aggregate notional amount of approximately 657,177 Indian rupees (approximately £6,058) and have an average settlement rate of 108.57 Indian rupees. These contracts will expire at various dates during the 36 month period ending on June 30, 2018. The Company will be obligated to settle these contracts based upon the Reserve Bank of India published Indian rupee exchange rates. Based on the U.S. dollar to U.K. pound sterling spot rate on July 27, 2015 of $1.55, the blended weighted average Indian rupee rate associated with both the U.S. dollar and U.K. pound sterling contracts would be approximately 69.83 Indian rupees per U.S. dollar.
On July 28, 2015, the Company acquired the business of Agora Group, Inc., an IT consulting organization headquartered in Atlanta, Georgia, USA and its Indian affiliate (collectively, “Agora”), focused on implementing and integrating business process management (BPM) solutions on leading BPM suites. Agora employs approximately 60 experienced practitioners with deep knowledge in BPM-related solutions.
Under the terms of the asset purchase agreement by and among the Company, Agora Group, Inc. and the sole stockholder of the Agora Group, Inc., the Company acquired Agora’s business for approximately $7,500 in cash (net of working capital adjustments). The Company has also agreed to issue an aggregate of up to $2,890 in restricted stock awards from the Company’s stock option and incentive plan, not to exceed 77,067 shares, to certain Agora employees. The restricted stock awards will vest annually over a four year period.
From the purchase price, the Company deposited approximately $854 into escrow for a period of 12 months as security for the Agora Group’s and the sole stockholder’s indemnification obligations under the asset purchase agreement. The Company, the Agora Group and sole stockholder made customary representations, warranties and covenants in the asset purchase agreement. The asset purchase agreement also contains non-solicitation and non-competition provisions pursuant to which the Agora Group and the sole stockholder agreed not to solicit any employee or affiliate or client of the Company and to not engage in any competitive business or activities, in each case, for a period of three years after the date of closing of the transaction.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the financial condition and results of operations of Virtusa Corporation should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015 (the “Annual Report”), which has been filed with the Securities and Exchange Commission, or SEC.
Forward looking statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seek,” “intends,” “plans,” “estimates,” “projects,” “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements, such as statements regarding anticipated future revenue, contract percentage completions, capital expenditures, the effect of new accounting pronouncements, management’s plans and objectives and other statements regarding matters that are not historical facts, involve predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including those factors set forth in Item 1A. “Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended March 31, 2015. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Business overview
Virtusa Corporation (the “Company”, “Virtusa”, “we”, “us” or “our”) is a global information technology services company. We use an offshore delivery model to provide a broad range of information technology (“IT”) services, including IT consulting, technology implementation and application outsourcing. Using our enhanced global delivery model, innovative platforming approach and industry expertise, we provide cost-effective services that enable our clients to use IT to enhance business performance, accelerate time-to-market, increase productivity and improve customer experience. We manage to a targeted 25% to 75% onsite-to-offshore service delivery mix, although such delivery mix may be impacted by several factors, including our new and existing client delivery requirements, as well as the impact of any acquisitions. Headquartered in Massachusetts, we have offices in the United States, the United Kingdom, Germany, Sweden and Austria, with global delivery centers in India, Sri Lanka, Hungary, Singapore and Malaysia, as well as a near shore delivery center in the United States. At June 30, 2015, we had 9,818 employees, or team members.
In the three months ended June 30, 2015, our revenue increased by 20% to $134.8 million, compared to $112.3 million in the three months ended June 30, 2014.
In the three months ended June 30, 2015, net income increased by 12% to $10.1million, as compared to $9.0 million in the three months ended June 30, 2014.
The increase in revenue for the three months ended June 30, 2015, as compared to the three months ended June 30, 2014, primarily resulted from:
· Revenue generated from clients acquired by us in the acquisition of Apparatus Inc. (“Apparatus”) on April 1, 2015
· Broad based revenue growth across our client portfolio existing at June 30, 2014
· Broad based revenue growth across our industry groups lead by our communication and technology (“C&T”) and financial services and insurance industry groups
The key drivers of the increase in our net income for the three months ended June 30, 2015, as compared to the three months ended June 30, 2014, were as follows:
· Higher revenue contribution from existing clients
· Increase in gross profit, which also reflects lower costs due to the depreciation of the Indian rupee, partially offset by higher operating costs, including an increased investment in our sales and business development organization and facilities to support our growth, and acquisition-related expenses, including amortization
· Further offset by increased income tax expense related to higher taxable profits
High repeat business and client concentration are common in our industry. During the three months ended June 30, 2015 and 2014, 87% and 85% of our revenue was derived from clients who had been using our services for more than one year. Accordingly, our global account management and service delivery teams focus on expanding client relationships and converting new engagements to long-term relationships to generate repeat revenue and expand revenue streams from existing clients.
We derive our revenue from two types of service offerings: application outsourcing, which is recurring in nature; and consulting, including technology implementation, which is non-recurring in nature. For the three months ended June 30, 2015 and 2014, our application outsourcing and consulting revenue remains unchanged at 55% and 45% respectively.
In the three months ended June 30, 2015, our European revenue decreased by 5%, or $1.6 million, to $30.3 million, or 22% of total revenue, from $31.9 million, or 28% of total revenue in the three months ended June 30, 2014. The decrease in revenue for the three months ended June 30, 2015 is primarily due to the depreciation of the U.K. pound sterling, the euro and Swedish krona (“SEK”) against the U.S. dollar.
Our gross profit increased by $7.8 million to $47.5 million for the three months ended June 30, 2015, as compared to $39.7 million in the three months ended June 30, 2014. The increase in gross profit during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014, was primarily due to higher revenue, partially offset by increased cost of revenue, which includes increases in the number of IT professionals and higher subcontractor costs. As a percentage of revenue, gross margin was 35.2% and 35.3% in the three months ended June 30, 2015 and 2014, respectively. The decrease in gross margin for the three months ended June 30, 2015 was primarily due to increased compensation costs related to an increase in the number of IT professionals partially offset by the depreciation in the Indian rupee.
We perform our services under both time-and-materials and fixed-price contracts. Revenue from fixed-price contracts represented 40% and 35% of total revenue, and revenue from time-and-materials contracts represented 60% and 65% of total revenue for the three months ended June 30, 2015 and 2014, respectively. The increase in revenue earned from fixed-price contracts in the three months ended June 30, 2015 primarily reflects our client preferences.
From time to time, we have also supplemented organic revenue growth with acquisitions. These acquisitions have focused on adding domain expertise, expanding our professional services teams and expanding our client base. We expect that for our long-term growth, we will continue to seek evolving market opportunities through a combination of organic growth and acquisitions. We believe we can fund future acquisitions with our internally available cash, cash equivalents and marketable securities, and cash generated from operations, or through debt or equity financings, although we cannot assure you that any such additional financing will be available at terms favorable to us, or at all.
As an IT services company, our revenue growth is highly dependent on our ability to attract, develop, motivate and retain skilled IT professionals. We monitor our overall attrition rates and patterns to align our people management strategy with our growth objectives. At June 30, 2015, our attrition rate for the trailing 12 months, which reflects voluntary and involuntary attrition, was approximately 17.8%. Our attrition rate at June 30, 2015 reflects a slightly higher rate of voluntary attrition as compared to the corresponding prior year period and is slightly above our long-term goal. Although we remain committed to continuing to improve our attrition levels, there is intense competition for IT professionals with the specific domain skills necessary to provide the type of services we offer. If our attrition rate increases or is sustained at higher levels, our growth may slow and our cost of attracting and retaining IT professionals could increase.
We engage in a foreign currency hedging strategy using foreign currency forward contracts designed to hedge fluctuations in the Indian rupee against the U.S. dollar and U.K. pound sterling, as well as the euro, the Swedish krona and the U.K. pound sterling against the U.S. dollar, to reduce the effect of change in these foreign currency exchange rates on our foreign operations, when consolidated into U.S. dollars and intercompany balances. There is no assurance that these hedging programs or hedging contracts will be effective. Because these foreign currency forward contracts are designed to reduce volatility in the Indian rupee, U.K. pound sterling and the Swedish krona exchange rates, they not only reduce the negative impact of a stronger Indian rupee, weaker U.K. pound sterling and weaker Swedish krona, but also could reduce the positive impact of a weaker Indian rupee on our Indian rupee
expenses or reduce the impact of a stronger U.K. pound sterling or stronger Swedish krona on our U.K. pound sterling and Swedish krona denominated revenues. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier and in larger amounts than expected.
Application of critical accounting estimates and risks
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the recoverability of tangible assets, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, in particular those related to the recognition of revenue and profits based on the percentage of completion method of accounting for fixed-price contracts, share-based compensation, income taxes, including reserves for uncertain tax positions, deferred taxes and liabilities, contingent consideration both upon and subsequent to acquisitions and valuation of financial instruments including derivative contracts and investments. Actual amounts could differ significantly from these estimates. Our management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenue and expenses that are not readily apparent from other sources. Additional information about these critical accounting policies may be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in the Annual Report.
Results of operations
Three months ended June 30, 2015 compared to the three months ended June 30, 2014
The following table presents an overview of our results of operations for the three months ended June 30, 2015 and 2014:
|
|
|
Three Months Ended
|
|
$ |
|
% |
|
|||||
|
(dollars in thousands) |
|
2015 |
|
2014 |
|
Change |
|
Change |
|
|||
|
Revenue |
|
$ |
134,844 |
|
$ |
112,274 |
|
$ |
22,570 |
|
20.1 |
% |
|
Costs of revenue |
|
87,362 |
|
72,588 |
|
14,774 |
|
20.4 |
% |
|||
|
Gross profit |
|
47,482 |
|
39,686 |
|
7,796 |
|
19.6 |
% |
|||
|
Operating expenses |
|
35,072 |
|
28,456 |
|
6,616 |
|
23.2 |
% |
|||
|
Income from operations |
|
12,410 |
|
11,230 |
|
1,180 |
|
10.5 |
% |
|||
|
Other income (expense) |
|
1,390 |
|
994 |
|
396 |
|
39.8 |
% |
|||
|
Income before income tax expense |
|
13,800 |
|
12,224 |
|
1,576 |
|
12.9 |
% |
|||
|
Income tax expense |
|
3,687 |
|
3,221 |
|
466 |
|
14.5 |
% |
|||
|
Net income |
|
$ |
10,113 |
|
$ |
9,003 |
|
$ |
1,110 |
|
12.3 |
% |
Revenue
Revenue increased by 20.1%, or $22.5 million, from $112.3 million during the three months ended June 30, 2014 to $134.8 million in the three months ended June 30, 2015. The increase in revenue was primarily driven by higher revenue contribution from our clients existing as of June 30, 2014, revenue generated from clients acquired by us in the acquisition of Apparatus and broad based revenue growth across our industry groups lead by our C&T and financial services and insurance industry groups. Revenue from North American clients in the three months ended June 30, 2015 increased by $23.2 million, or 31.6%, as compared to the three months ended June 30, 2014, due to broad based revenue growth, particularly in our financial services and C&T industry groups and clients acquired in the last twelve months, including $7.1 million contributed from the Apparatus acquisition. Revenue from European clients decreased by $1.6 million, or 4.9%, as compared to the three months ended June 30, 2014, primarily due the depreciation of the U.K. Pound sterling, the euro and SEK against the U.S. dollar. We had 121 active clients at June 30, 2015, as compared to 107 active clients at June 30, 2014.
Costs of revenue
Costs of revenue increased from $72.6 million in the three months ended June 30, 2014 to $87.4 million in the three months ended June 30, 2015, an increase of $14.8 million, or 20.4% which reflects a benefit of $1.8 million due to the depreciation of the Indian rupee. The increase in cost of revenue was primarily due to an increase in the number of IT professionals and related compensation and benefit costs of $11.9 million, including higher onsite costs related to the mix of resources required for onsite work. The increased costs of revenue are also due to an increase in subcontractor costs of $1.3 million and an increase in travel expenses of $0.7 million. At June 30, 2015, we had 8,736 IT professionals as compared to 7,535 at June 30, 2014.
As a percentage of revenue, cost of revenue increased from 64.7% for the three months ended June 30, 2014 to 64.8% for three months ended June 30, 2015.
Gross profit
Our gross profit increased by $7.8 million, or 19.6%, to $47.5 million for the three months ended June 30, 2015, as compared to $39.7 million for the three months ended June 30, 2014, primarily due to our growth in revenue, partially offset by increased cost of revenue related to the growth in the number of IT professionals and subcontractor costs. As a percentage of revenue, our gross profit was 35.2% and 35.3% in the three months ended June 30, 2015 and 2014, respectively.
Operating expenses
Operating expenses increased from $28.5 million in the three months ended June 30, 2014 to $35.1 million in the three months ended June 30, 2015, an increase of $6.6 million, or 23.2%, which reflects a benefit of $0.9 million due to the depreciation of the Indian rupee. The increase in operating expenses was primarily due to an increase of $4.2 million in compensation related expenses and an increase of $1.2 million in professional fees. As a percentage of revenue, our operating expenses increased from 25.3% in the three months ended June 30, 2014 to 26.0% in the three months ended June 30, 2015.
Income from operations
Income from operations increased by 10.5%, from $11.2 million in the three months ended June 30, 2014 to $12.4 million in the three months ended June 30, 2015. As a percentage of revenue, income from operations decreased from 10.0% in the three months ended June 30, 2014 to 9.2% in the three months ended June 30, 2015.
Other income (expense)
Other income (expense) increased from $1.0 million in the three months ended June 30, 2014 to $1.4 million in the three months ended June 30, 2015 primarily due to increases in interest income.
Income tax expense
Income tax expense increased by $0.5 million, from $3.2 million in the three months ended June 30, 2014 to $3.7 million in the three months ended June 30, 2015. Our effective tax rate increased from 26.4% for the three months ended June 30, 2014 to 26.7% for the three months ended June 30, 2015. The increase in the effective tax rate was primarily due to the geographic mix of profits and expiration of certain tax incentives in India offset by SEZ tax holiday incentives located in Bangalore and Pune, India and tax benefits related to the Apparatus results of operations.
Net income
Net income increased by 12.3%, from $9.0 million in the three months ended June 30, 2014 to $10.1 million in the three months ended June 30, 2015 due primarily to higher gross profits.
Non-GAAP Financial Measures
We include certain non-GAAP financial metrics as defined by Regulation G by the Securities and Exchange Commission. These non-GAAP financial metrics are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial metrics calculated in accordance with GAAP, and may be different from non-GAAP metrics used by other companies. In addition, these non-GAAP metrics should be read in conjunction with our financial statements prepared in accordance with GAAP.
We believe the following financial metrics will provide additional insights to measure the operational performance of our business.
· We present the following consolidated statement of income metrics that exclude acquisition-related charges, stock-based compensation expense and foreign currency transaction gains and losses to provide further insights into the comparison of our operating results among the periods, as well as enhancing comparability with the operating results of peer companies:
· Non-GAAP income from operations: income from operations, as reported on our consolidated statements of income, excluding stock-based compensation expense and acquisition-related charges
· Non-GAAP operating margin: non-GAAP income from operations as a percentage of reported revenues
· Non-GAAP net income: net income, as reported on our consolidated statements of income, excluding the tax adjusted impact of the following: stock- based compensation, acquisition-related charges and foreign currency transaction gains and losses
· Non-GAAP diluted earnings per share: diluted earnings per share, as reported on our consolidated statements of income, excluding tax adjusted per share impact of the following: stock-based compensation, acquisition-related charges and foreign currency transaction gains and losses
The following table presents a reconciliation of each non-GAAP financial metric to the most comparable GAAP metric for the three month ended June 30, 2015 and 2014:
|
|
|
Three Months Ended
|
|
||||
|
|
|
2015 |
|
2014 |
|
||
|
|
|
(in thousands, except
|
|
||||
|
GAAP income from operation |
|
$ |
12,410 |
|
$ |
11,230 |
|
|
Add: Stock-based compensation expense |
|
3,529 |
|
2,471 |
|
||
|
Add: Acquisition-related charges(1) |
|
2,301 |
|
285 |
|
||
|
Non-GAAP income from operations |
|
$ |
18,240 |
|
$ |
13,986 |
|
|
GAAP operating margin |
|
9.2 |
% |
10.0 |
% |
||
|
Effect of above adjustments to income from operations |
|
4.3 |
% |
2.5 |
% |
||
|
Non-GAAP operating margin |
|
13.5 |
% |
12.5 |
% |
||
|
GAAP net income |
|
$ |
10,113 |
|
$ |
9,003 |
|
|
Add: Stock-based compensation expense |
|
3,529 |
|
2,471 |
|
||
|
Add: Acquisition-related charges(1) |
|
2,301 |
|
285 |
|
||
|
Add: Foreign currency transaction (gains) losses(2) |
|
25 |
|
155 |
|
||
|
Tax adjustments(3) |
|
(1,563 |
) |
(767 |
) |
||
|
Non-GAAP net income |
|
$ |
14,405 |
|
$ |
11,147 |
|
|
GAAP diluted earnings per share |
|
$ |
0.34 |
|
$ |
0.31 |
|
|
Effect of stock-based compensation expense |
|
0.09 |
|
0.06 |
|
||
|
Effect of acquisition-related charges(1) |
|
0.05 |
|
0.01 |
|
||
|
Effect of foreign currency transaction (gains) losses(2) |
|
0.00 |
|
0.00 |
|
||
|
Non-GAAP diluted earnings per share |
|
$ |
0.48 |
|
$ |
0.38 |
|
(1) Acquisition-related charges include, when applicable, amortization of purchased intangibles, external deal costs, acquisition-related retention bonuses, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets and other acquisition-related costs.
(2) Foreign currency transaction gains and losses are inclusive of gains and losses on related foreign exchange forward contracts not designated as hedging instruments for accounting purposes.
(3) Tax adjustments reflect the tax effect of the non-GAAP adjustments using the effective tax rate for the respective periods.
Liquidity and capital resources
We have financed our operations from sales of shares of equity securities, including common stock, and from cash from operations. We have not borrowed against our existing or preceding credit facilities to fund operations.
In connection with the OSB Consulting LLC (“OSB”) acquisition on November 1, 2013, the purchase price was subject to adjustment after the closing for up to an additional $6.0 million in earn-out consideration based on the achievement of certain revenue and operating margin targets for the five months ended March 31, 2014, the nine months ending December 31, 2014 and the twelve months ending December 31, 2015. The Company determined that OSB had met 100% of the performance targets for the five months ended March 31, 2014 and the nine months ended December 31, 2014 and we therefore paid $500 and $2,500, respectively, of the earn-out consideration during the fiscal year ending March 31, 2015 with respect to these targets. The fair value of the remaining contingent consideration at June 30, 2015 is $2,545.
On December 31, 2013, we entered into an amended and restated credit agreement with JPMorgan Chase Bank, N.A. (“JPM”) expiring December 31, 2018. The credit agreement amends and restates our $3.0 million secured revolving credit agreement with JPM and provides for a $25 million secured revolving credit facility, which shall be available to fund working capital and other corporate purposes, as well as to serve as security in support of our foreign currency hedging programs. The credit agreement contains financial and reporting covenants and limitations. At June 30, 2015, there were no borrowings outstanding under the credit facility (see Note 11 to the notes to our consolidated financial statements included in this Quarterly Report).
On April 1, 2015, we entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among Virtusa, Apparatus, Inc. an Indiana corporation (“Apparatus”), the majority stock holder of Apparatus (“Major Stockholder”) and the other stockholders (collectively with the Major Stockholder, the “Sellers”), to acquire all of the issued and outstanding stock of Apparatus (the “Acquisition”). We completed the Acquisition on April 1, 2015, and Apparatus is now a wholly owned subsidiary of the Company.
Under the terms of the Stock Purchase Agreement, the purchase price for the Acquisition was approximately $34.2 million in cash, subject to post closing working capital adjustments. The purchase price is also subject to adjustment after the closing by up to an additional $1.7 million in earn out consideration to the Sellers in the event of Apparatus’ achievement at 100% of certain revenue and profit milestones for the fiscal year ending March 31, 2016. The Sellers can earn up to 110% of the earn-out if the performance targets are exceeded by 110%. We deposited 8.5% of the purchase price into escrow for a period of 12 months as security for the Sellers’ indemnification obligations under the Stock Purchase Agreement. The Company, Sellers and Apparatus made customary representations, warranties and covenants in the Stock Purchase Agreement.
In connection with the Acquisition, we offered employment to all of Apparatus’ employees. We have agreed to offer up to $1.5 million in the form of variable cash compensation to certain Apparatus employees in the event of Apparatus’ achievement at 100% of certain revenue and profit milestones for the fiscal year ending March 31, 2016. These Apparatus employees can earn up to 110% if the performance targets are exceeded by 110%.
On July 28, 2015, we acquired the business of Agora Group, Inc., an IT consulting organization headquartered in Atlanta, Georgia, USA and its Indian affiliate (collectively, “Agora”), focused on implementing and integrating business process management (BPM) solutions on leading BPM suites. Agora employs approximately 60 experienced practitioners with deep knowledge in BPM-related solutions.
Under the terms of the asset purchase agreement by and among Virtusa, Agora Group, Inc. and the sole stockholder of the Agora Group, Inc., we acquired Agora’s business for approximately $7.5 million in cash (net of working capital adjustments). We has also agreed to issue an aggregate of up to $2.89 million in restricted stock awards from our stock option and incentive plan, not to exceed 77,067 shares, to certain Agora employees. The restricted stock awards will vest annually over a four year period.
From the purchase price, we deposited approximately $0.9 million into escrow for a period of 12 months as security for the Agora Group’s and the sole stockholder’s indemnification obligations under the asset purchase agreement. The Company, the Agora Group and sole stockholder made customary representations, warranties and covenants in the asset purchase agreement. The asset purchase agreement also contains non-solicitation and non-competition provisions pursuant to which the Agora Group and the sole stockholder agreed not to solicit any employee or affiliate or client of the Company and to not engage in any competitive business or activities, in each case, for a period of three years after the date of closing of the transaction.
At June 30, 2015, a significant portion of our cash and short-term investments was held by our foreign subsidiaries. We continually monitor our cash needs and employ tax planning and financing strategies to ensure cash is available in the appropriate jurisdictions to meet operating needs. The cash held by our foreign subsidiaries is considered indefinitely reinvested in local operations. If required, it could be repatriated to the United States. However, under current law, any repatriation would be subject to United States federal income tax less applicable foreign tax credits.
Beginning in fiscal 2009, our U.K. subsidiary entered into an agreement with an unrelated financial institution to sell, without recourse, certain of its Europe-based accounts receivable balances from one client to the financial institution. During the three months ended June 30, 2015, we sold $3.9 million of receivables under the terms of the financing agreement. Fees paid pursuant to this agreement were not material during the three months ended June 30, 2015. No amounts were due under the financing agreement at June 30, 2015, but we may elect to use this program again in future periods. However, we cannot provide any assurances that this or any other financing facilities will be available or utilized in the future.
Cash flows
The following table summarizes our cash flows for the periods presented:
|
|
|
Three Months Ended
|
|
||||
|
(in thousands) |
|
2015 |
|
2014 |
|
||
|
Net cash provided by (used in) operating activities |
|
$ |
1,445 |
|
$ |
(2,500 |
) |
|
Net cash used for investing activities |
|
(22,999 |
) |
(4,792 |
) |
||
|
Net cash provided by financing activities |
|
2,058 |
|
1,458 |
|
||
|
Effect of exchange rate changes on cash |
|
(1,458 |
) |
(1 |
) |
||
|
Net decrease in cash and cash equivalents |
|
(20,954 |
) |
(5,835 |
) |
||
|
Cash and cash equivalents, beginning of period |
|
124,802 |
|
82,761 |
|
||
|
Cash and cash equivalents, end of period |
|
$ |
103,848 |
|
$ |
76,926 |
|
Operating activities
Net cash provided by operating activities increased from the three months ended June 30, 2014 to the three months ended June 30, 2015 primarily due to increased net income adjusted for stock-based compensation, reversal of contingent consideration during the three months ended June 30, 2014, and a net increase in cash from changes in working capital primarily driven by changes in accrued employee compensation, income tax payable and prepaid and other current assets.
Investing activities
Net cash used in investing activities increased from the three months ended June 30, 2014 to the three months ended June 30, 2015 primarily due to the Apparatus acquisition partially offset by proceeds from sale of investments.
Financing activities
Net cash provided by financing activities increased from the three months ended June 30, 2014 to the three months ended June 30, 2015 primarily due to payment of contingent consideration related to OSB acquisition during the three months ended June 30, 2014.
Off-balance sheet arrangements
We do not have investments in special purpose entities or undisclosed borrowings or debt.
We have a foreign currency cash flow hedging program designed to mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling as described below in “Quantitative and Qualitative Disclosures about Market Risk.” The program contemplates a partially hedged position of the Indian rupee for a rolling twelve-quarter period. From time to time, we may also purchase multiple foreign currency forward contracts designed to hedge fluctuation in foreign currencies, such as the U.K. pound sterling, euro and Swedish Krona against the U.S. dollar, or the U.K. pound sterling against the Sri Lankan rupee, and other multiple foreign currency hedges designed to hedge foreign currency transaction gains and losses on our intercompany balances as well as to minimize the impact of foreign currency fluctuations on foreign currency denominated revenue and expenses. Other than these foreign currency derivative contracts, we have not entered into off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.
Recent accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on April 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In June 2014, the FASB issued ASU No. 2014 12—“Stock Compensation—Accounting for Share Based Payments In some cases, the terms of an award may provide that a performance target that affects vesting could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved. A performance target that affects vesting and that could be achieved after an employee’s requisite service period shall be accounted for as a performance condition. As such, the performance target shall not be reflected in estimating the fair value of the award at the grant date. Compensation cost shall be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service already has been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost for which requisite service has not yet been rendered shall be recognized prospectively over the remaining requisite service period. The total amount of compensation cost
recognized during and after the requisite service period shall reflect the number of awards that are expected to vest and shall be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service period. The ASU is effective for annual and interim periods for fiscal years beginning on or after December 15, 2015. Entities can apply the amendment either a) prospectively to all awards granted or modified after the effective date or b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The ASU does not have an impact on the consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risks, and the ways we manage them, are summarized in Item 7A of the Annual Report. There have been no material changes in the three months ended June 30, 2015 to such risks or to our management of such risks except for the additional factors noted below.
Foreign Currency Exchange Rate Risk
We are exposed to foreign currency exchange rate risk in the ordinary course of business. We have historically entered into, and in the future we may enter into, foreign currency derivative contracts to minimize the impact of foreign currency fluctuations on both foreign currency denominated assets and forecasted expenses. The purpose of this foreign exchange policy is to protect us from the risk that the recognition of and eventual cash flows related to Indian rupee denominated expenses might be affected by changes in exchange rates. Some of these contracts meet the criteria for hedge accounting as cash flow hedges (See Note 6 of the notes to our financial statements included herein for a description of recent hedging activities).
We evaluate our foreign exchange policy on an ongoing basis to assess our ability to address foreign exchange exposures on our balance sheet, income statement and operating cash flows from all foreign currencies, including most significantly the U.K. pound sterling, the Indian rupee, the euro, the Sri Lankan rupee and the Swedish krona.
We use foreign currency hedging programs to mitigate the risks of volatility in the Indian rupee against the U.S. dollar and U.K. pound sterling. The U.S. dollar equivalent market value of the outstanding foreign currency derivative contracts at June 30, 2015 was $125.6 million. There is no assurance that these hedging programs or hedging contracts will be effective. As these foreign currency hedging programs are designed to reduce volatility in the Indian rupee, they not only reduce the negative impact of a stronger Indian rupee but also reduce the positive impact of a weaker Indian rupee on our Indian rupee expenses. In addition, to the extent that these hedges do not qualify for hedge accounting, we may have to recognize gains or losses on the aggregate amount of hedges placed earlier than expected.
The U.K. pound sterling, Swedish krona and the euro exchange fluctuations can have an unpredictable impact on our U.K. pound sterling, Swedish krona and the euro revenues generated, and costs incurred. In response to this volatility, we have entered into hedging transactions designed to hedge our forecasted revenue and expenses denominated in the U.K. pound sterling, the Swedish krona as well as the euro. These derivative contracts have maximum duration of 92 days and do not meet the criteria for hedge accounting. Such hedges may not be effective in mitigating this currency volatility. These hedges are designed to reduce the negative impact of a weaker U.K. pound sterling, Swedish krona or the euro, however they also reduce the positive impact of a stronger U.K. pound sterling, Swedish krona or the euro.
Interest Rate Risk
We had no debt outstanding at June 30, 2015 under our $25.0 million secured revolving credit facility. We do not believe we are exposed to material direct risks associated with changes in interest rates other than with our cash and cash equivalents, short-term investments and long-term investments. At June 30, 2015, we had $200.7 million in cash and cash equivalents, short-term investments and long-term investments, the interest income from which is affected by changes in interest rates. Our invested securities primarily consist of government sponsored entity bonds, money market mutual funds, commercial paper, corporate debts and municipal bonds. Our investments in debt securities are classified as “available-for-sale” and are recorded at fair value. Our “available-for-sale” investments are sensitive to changes in interest rates. Interest rate changes would result in a change in the net fair value of these financial instruments due to the difference between the market interest rate at the period end and the market interest rate at the date of purchase of the financial instrument.
Concentration of Credit Risk
Financial instruments which potentially expose us to concentrations of credit risk primarily consist of cash and cash equivalents, short-term investments and long-term investments, accounts receivable, derivative contracts, other financial assets and unbilled accounts receivable. We place our operating cash, investments and derivatives in highly-rated financial institutions. We adhere to a formal investment policy with the primary objective of preservation of principal, which contains minimum credit rating and diversification requirements. We believe that our credit policies reflect normal industry terms and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require collateral. Credit losses and write-offs of accounts receivable balances have historically not been material to our financial statements and have not exceeded our expectations.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At June 30, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in (i) enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period and (ii) ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
We have not made any changes in our internal control over financial reporting during the three months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, as filed with the Securities and Exchange Commission, on May 20, 2015 (the “Annual Report”), which could materially affect our business, financial condition or future results. During the quarterly periods covered by this Quarterly Report on Form 10-Q, there were no material changes to the risk factors described in our Annual Report.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds; Purchases of Equity Securities By the Issuer and Affiliated Purchasers
Under the terms of our 2007 Stock Option and Incentive Plan, or the 2007 Plan, we have issued shares of restricted stock to our employees. On the date that these restricted shares vest, we automatically withhold (unless instructed otherwise in advance by an employee that the employee will pay such taxes in cash), via a net exercise provision pursuant to our applicable restricted stock agreements and the 2007 Plan, the number of vested shares (based on the closing price of our common stock on such vesting date) equal to the tax liability owed by such grantee. The shares withheld from the grantees to settle their minimum withholding tax liability are reallocated to the number of shares available for issuance under the 2007 Plan. For the three month period ended June 30, 2015, we withheld an aggregate of 76,648 shares of restricted stock at a price of $45.86 per share.
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:
|
Exhibit No. |
|
|
Description |
|
|
|
|
|
|
10.1* |
|
|
Asset Purchase Agreement by and among Virtusa Corporation, Agora Group, Inc. (“Agora”) and the sole stockholder of Agora dated as of July 28, 2015 |
|
|
|
|
|
|
10.2 |
|
|
Stock Purchase Agreement by and among Virtusa Corporation, Apparatus, Inc., an Indiana corporation, and Kelly Pfledderer and the other selling stockholder listed therein, dated as of April 1, 2015 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed April 1, 2015, and incorporated herein by reference). |
|
|
|
|
|
|
31.1* |
|
|
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2* |
|
|
Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1** |
|
|
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350. |
|
|
|
|
|
|
32.2** |
|
|
Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350. |
|
|
|
|
|
|
101* |
|
|
The following financial statements from Virtusa Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, as filed with the SEC on July 30, 2015, formatted in XBRL (eXtensible Business Reporting Language), as follows: |
|
|
|
|
|
|
|
(i) |
|
Consolidated Balance Sheets at June 30, 2015 (Unaudited) and March 31, 2015 |
|
|
(ii) |
|
Consolidated Statements of Income for the Three Months Ended June 30, 2015 and June 30, 2014 (Unaudited) |
|
|
(iii) |
|
Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2015 and June 30, 2014 (Unaudited) |
|
|
(iv) |
|
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2015 and June 30, 2014 (Unaudited) |
|
|
(v) |
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
* Filed herewith.
Schedules and exhibits to the Asset Purchase Agreement among the Company, Agora and the sole stockholder of Agora have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request.
** Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Virtusa Corporation |
|
|
Date: July 30, 2015 |
By: |
/s/ Kris Canekeratne |
|
|
|
|
|
|
|
Kris Canekeratne, |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
Date: July 30, 2015 |
By: |
/s/ Ranjan Kalia |
|
|
|
|
|
|
|
Ranjan Kalia, |
|
|
|
Executive Vice President |
|
|
|
and Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer) |
|
Exhibit No. |
|
|
Description |
|
|
|
|
|
|
10.1* |
|
|
Asset Purchase Agreement by and among Virtusa Corporation, Agora Group, Inc. (“Agora”) and the sole stockholder of Agora dated as of July 28, 2015 |
|
|
|
|
|
|
10.2 |
|
|
Stock Purchase Agreement by and among Virtusa Corporation, Apparatus, Inc., an Indiana corporation, and Kelly Pfledderer and the other selling stockholder listed therein, dated as of April 1, 2015 (previously filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed April 1, 2015, and incorporated herein by reference). |
|
|
|
|
|
|
31.1* |
|
|
Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2* |
|
|
Certification of principal financial and accounting officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32.1** |
|
|
Certification of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350. |
|
|
|
|
|
|
32.2** |
|
|
Certification of principal financial and accounting officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350. |
|
|
|
|
|
|
101* |
|
|
The following financial statements from Virtusa Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, as filed with the SEC on July 30, 2015, formatted in XBRL (eXtensible Business Reporting Language), as follows: |
|
|
|
|
|
|
|
(i) |
|
Consolidated Balance Sheets at June 30, 2015 (Unaudited) and March 31, 2015 |
|
|
(ii) |
|
Consolidated Statements of Income for the Three Months Ended June 30, 2015 and June 30, 2014 (Unaudited) |
|
|
(iii) |
|
Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2015 and June 30, 2014 (Unaudited) |
|
|
(iv) |
|
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2015 and June 30, 2014 (Unaudited) |
|
|
(v) |
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
* Filed herewith.
Schedules and exhibits to the Asset Purchase Agreement among the Company, Agora and the sole stockholder of Agora have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request.
** Furnished herewith. This certification shall not be deemed filed for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934.
Exhibit 10.1
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
by and among
VIRTUSA CORPORATION,
AGORA GROUP INC.
AND
THE SOLE STOCKHOLDER OF AGORA GROUP INC.
TABLE OF CONTENTS
|
|
|
Page |
|
|
|
|
|
ARTICLE 1 PURCHASE AND SALE OF ASSETS |
1 |
|
|
1.1 |
Purchase of Assets |
1 |
|
1.2 |
Assumption of Liabilities |
3 |
|
1.3 |
Assignment of Contracts and Rights |
4 |
|
1.4 |
The Closing |
4 |
|
1.5 |
Allocation of Purchase Price |
5 |
|
|
|
|
|
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLER STOCKHOLDER |
6 |
|
|
2.1 |
Organization; Corporate Power and Licenses of the Company |
6 |
|
2.2 |
Capitalization and Related Matters |
6 |
|
2.3 |
No Subsidiaries |
6 |
|
2.4 |
Authorization; No Breach |
6 |
|
2.5 |
Financial Statements |
7 |
|
2.6 |
Absence of Undisclosed Liabilities |
8 |
|
2.7 |
Assets |
8 |
|
2.8 |
Tax Matters |
8 |
|
2.9 |
Contracts and Commitments |
10 |
|
2.10 |
Intellectual Property Rights |
12 |
|
2.11 |
Litigation, etc. |
13 |
|
2.12 |
Brokers |
14 |
|
2.13 |
Insurance |
14 |
|
2.14 |
Employees |
14 |
|
2.15 |
Employee Benefits |
16 |
|
2.16 |
Compliance with Laws |
18 |
|
2.17 |
Affiliated Transactions |
18 |
|
2.18 |
Customers and Suppliers |
18 |
|
2.19 |
Warranties, etc. |
19 |
|
2.20 |
Leased Real Property |
19 |
|
2.21 |
Governmental Licenses and Permits; Legal Compliance |
20 |
|
2.22 |
Absence of Certain Developments |
20 |
|
2.23 |
Bank Accounts |
22 |
|
2.24 |
Privacy of Individually Identifiable Personal Information |
22 |
|
2.25 |
Investment Company Status |
22 |
|
2.26 |
Statements True and Correct |
22 |
|
2.27 |
No Other Representations or Warranties |
22 |
|
|
|
|
|
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER |
22 |
|
|
3.1 |
Organization of Buyer |
23 |
|
3.2 |
Authorization of Transaction |
23 |
|
3.3 |
Non-contravention |
23 |
|
3.4 |
Brokers |
23 |
|
3.5 |
Statements True and Correct |
23 |
|
3.6 |
No Other Representations or Warranties |
23 |
|
|
|
|
|
ARTICLE 4 ADDITIONAL AGREEMENTS |
23 |
|
|
4.1 |
Expenses |
23 |
|
4.2 |
Certain Filings |
24 |
|
4.3 |
Trademarks; Tradenames; Domain Names |
24 |
|
4.4 |
Payments With Respect to Purchased Assets |
24 |
|
4.5 |
Tax Matters |
24 |
|
4.6 |
Confidentiality; Non-Compete; Non-Solicitation |
25 |
|
4.7 |
Litigation Support |
28 |
|
4.8 |
Transition Services |
28 |
|
4.9 |
Employee and Related Matters |
29 |
|
4.10 |
Employee Equity Incentive Pool |
30 |
|
4.11 |
Seller Personal Information |
31 |
|
4.12 |
Company Financial Statements |
31 |
|
4.13 |
Maintenance of the Existence of the Company |
31 |
|
4.14 |
Insurance |
31 |
|
4.15 |
Public Announcements |
31 |
|
|
|
|
|
ARTICLE 5 DELIVERABLES |
31 |
|
|
5.1 |
Company Deliverables |
31 |
|
5.2 |
Buyer Deliverables |
33 |
|
|
|
|
|
ARTICLE 6 REMEDIES FOR BREACHES OF THIS AGREEMENT AND OTHER MATTERS |
33 |
|
|
6.1 |
Survival of Representations and Warranties |
33 |
|
6.2 |
Indemnification of Buyer |
33 |
|
6.3 |
Indemnification Provisions for Benefit of the Company and the Seller Stockholder |
35 |
|
6.4 |
Matters Involving Third Parties |
36 |
|
6.5 |
Manner of Payment |
37 |
|
6.6 |
Insurance and Third Party Recovery |
38 |
|
6.7 |
Exclusive Remedy |
38 |
|
6.8 |
Offset |
38 |
|
6.9 |
Delivery and Release of Holdback Fund |
38 |
|
|
|
|
|
ARTICLE 7 CERTAIN DEFINITIONS |
39 |
|
|
7.1 |
Additional Definitions |
44 |
|
|
|
|
|
ARTICLE 8 MISCELLANEOUS |
45 |
|
|
8.1 |
No Third Party Beneficiaries |
45 |
|
8.2 |
Entire Agreement |
45 |
|
8.3 |
Successors and Assigns |
46 |
|
8.4 |
Counterparts |
46 |
|
8.5 |
Headings |
46 |
|
8.6 |
Notices |
46 |
|
8.7 |
Governing Law |
47 |
|
8.8 |
Amendments and Waivers |
47 |
|
8.9 |
Incorporation of Schedules |
47 |
|
8.10 |
Construction |
47 |
|
8.11 |
Severability of Provisions |
48 |
|
8.12 |
Specific Performance |
48 |
|
8.13 |
Delivery by Facsimile, etc. |
48 |
|
8.14 |
Captions |
48 |
|
8.15 |
Consent to Jurisdiction |
48 |
|
8.16 |
Waiver of Jury Trial |
49 |
|
|
|
|
|
EXHIBITS |
|
|
|
|
|
|
|
EXHIBIT A |
FORMS OF EMPLOYMENT AGREEMENTS |
|
|
|
|
|
|
EXHIBIT B |
FORM OF TREASURY REGULATIONS SECTION 1.1445-2(b)(2) CERTIFICATE |
|
|
SCHEDULES |
|
|
|
|
|
Schedule 1.1(a)(i) |
Tangible Personal Property |
|
Schedule 1.1(b)(v) |
Excluded Contracts |
|
Schedule 2.2(a) |
Capitalization |
|
Schedule 2.2(b) |
Preemptive Rights |
|
Schedule 2.2(c) |
Voting Agreements; Transfer Restrictions |
|
Schedule 2.4(b) |
Conflicts |
|
Schedule 2.5(a) |
Financial Statements |
|
Schedule 2.5(c) |
Accounts Payable |
|
Schedule 2.6(b) |
Indebtedness |
|
Schedule 2.7(a) |
Assets |
|
Schedule 2.7(b) |
Condition of Tangible Assets |
|
Schedule 2.8(a) |
Tax Returns |
|
Schedule 2.8(b) |
Tax Exceptions |
|
Schedule 2.9(a) |
Material Contracts |
|
Schedule 2.9(d) |
Trade Names |
|
Schedule 2.10(a) |
Intellectual Property |
|
Schedule 2.10(b) |
Intellectual Property Ownership Exceptions |
|
Schedule 2.10(d) |
Intellectual Property Litigation |
|
Schedule 2.10(e) |
Intellectual Property Infringement |
|
Schedule 2.10(f) |
Intellectual Property Payables |
|
Schedule 2.11 |
Litigation |
|
Schedule 2.12 |
Brokerage Commissions |
|
Schedule 2.13 |
Insurance |
|
Schedule 2.14(a)(i) |
Labor Organizations |
|
Schedule 2.14(b)(i) |
Company Employees |
|
Schedule 2.14(b)(ii) |
Contingent Workers |
|
Schedule 2.14(b)(iii) |
Employee Obligations |
|
Schedule 2.14(b)(iv) |
Terminations |
|
Schedule 2.14(c) |
Exempt and Nonexempt Company Employees |
|
Schedule 2.15(a) |
Employee Benefit Plans |
|
Schedule 2.15(b) |
Employee Benefit Plan Compliances |
|
Schedule 2.15(e) |
Insurance for Employee Benefit Plans |
|
Schedule 2.16 |
Compliance with Laws |
|
Schedule 2.17 |
Affiliated Transactions |
|
Schedule 2.18(a) |
Material Customers |
|
Schedule 2.18(b) |
Unwritten Customer Contracts |
|
Schedule 2.18(c) |
Material Suppliers |
|
Schedule 2.20(b) |
Leased Real Property |
|
Schedule 2.21 |
Permits |
|
Schedule 2.22 |
Material Adverse Change |
|
Schedule 2.23 |
Bank Accounts |
|
Schedule 3.4 |
Transaction Expenses |
|
Schedule 4.9(a) |
Active, Key, and Foreign Employees |
|
Schedule 5.1(c) |
Required Contract Consents |
|
Schedule 5.1(f) |
Released Liens |
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”) is made as of July 28, 2015, by and among (i) AGORA GROUP, INC., a Georgia corporation, (the “ Company ”), (ii) the sole stockholder of the Company listed on the signature pages hereto (the “ Seller Stockholder ”) and (iii) VIRTUSA CORPORATION, a Delaware corporation (“ Buyer ”). Terms used herein and not otherwise defined herein shall have the meaning given to such terms in Article 7 hereof.
WHEREAS , the Company is engaged in the business of providing IT services related to or involving Pegasystems or IBM BPM technologies or in the Business Process Management (BPM) or Business Rules Engine (BREmarkets (as currently conducted, and currently proposed to be conducted, by the Company and its Subsidiaries and Affiliates, the “ Business ”); and
WHEREAS , Buyer desires to acquire from the Company, and the Company desires to sell to Buyer, certain of the assets of the Company as set forth herein.
NOW, THEREFORE , in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF
ASSETS
1.1 Purchase of Assets .
(a) Purchased Assets . Pursuant to the terms and subject to the conditions set forth herein, at the Closing, Buyer shall purchase, and the Company shall sell, convey, assign, transfer and deliver to Buyer, all of the assets, properties, rights, titles and interests, other than the Excluded Assets, of every kind or nature owned, leased or licensed by the Company as of the Closing Date directly or indirectly in the conduct of the Business, whether tangible, intangible, real, personal or mixed and wherever located, including all of the following assets (collectively, the “ Purchased Assets ”):
(i) all tangible personal property, including all machinery, equipment, molds, tools, spare parts, furniture, accessories, office materials, packaging and shipping materials, office equipment, personal computers, telephone units, facsimile machines, file cabinets, artwork and drawings and other tangible personal property, including those items listed on Schedule 1.1(a)(i) ;
(ii) all raw materials, work-in-progress, finished goods, supplies and other inventories, wherever situated (the “ Inventory ”);
(iii) subject to Section 1.1(b) and Section 1.3 , all rights existing under the Assumed Contracts;
(iv) all claims, deposits, prepayments, prepaid expenses, warranties, guarantees, refunds, causes of action, rights of recovery, rights of set-off and rights of recoupment of every kind and nature (including rights to insurance proceeds), except for any of the foregoing to the extent they relate to Excluded Assets or Excluded Liabilities;
(v) all Intellectual Property of the Company and its Affiliates ;
(vi) all Permits, to the extent transferable under applicable Law;
(vii) all books and records, including ledgers, correspondence, lists, studies and reports and other printed or written materials, including, without limitation, all lists and records pertaining to customers, personnel, agents, suppliers, distributors and pricing, purchase and sale records, quality control records, research and development files, files and data, company manuals and other business related documents and materials, whether written, electronic or otherwise and all telephone and facsimile numbers and internet access (including email) accounts (to the extent transferable) and all information related to Taxes of the Company, but excluding personal income Tax Returns of the Seller Stockholder; provided , that the Company may retain copies of any records as may be required by applicable Law or as necessary to perform its obligations hereunder;
(viii) all other assets of any kind or nature of the Company and its Affiliates owned or licensed and used in its conduct of the Business or purported to be owned or held ; and
(ix) all insurance, warranty and condemnation net proceeds received after the Closing Date with respect to damage, non-conformance of or loss to the foregoing Purchased Assets.
(b) Excluded Assets . Notwithstanding the foregoing, the following assets of the Company are expressly excluded from the purchase and sale contemplated hereby (the “ Excluded Assets ”) and, as such, are not included in the assets to be conveyed as contemplated hereby:
(i) all cash and cash equivalents (other than assumed deposits);
(ii) all accounts receivable, notes receivable and other amounts receivable from third parties, including customers and employees (other than receivables in connection with any Purchased Assets for services to be provided by Buyer following the Closing Date);
(iii) the general ledgers, accounting records, minute books, charter documents, stock books, correspondence and materials related to the Company’s Tax Returns, including any declarations, reports or statements, statutory books, corporate seals or other records having to do with the corporate organization of the Company;
(iv) the personnel files or records and any other records that the Company is required by Law to retain in its possession; provided that Buyer shall be given copies of such records as such documents exist as of the Closing Date;
(v) all rights to the Contracts set forth on Schedule 1.1(b)(v) ;
(vi) all bank accounts;
(vii) the rights which accrue or will accrue to the Company under this Agreement or the other Transaction Documents;
(viii) all claims, deposits, prepayments, prepaid expenses, warranties, guarantees, refunds, causes of action, rights of recovery, rights of set-off and rights of recoupment of every kind and nature (including rights to insurance proceeds) relating to the foregoing Excluded Assets;
(ix) all insurance, warranty and condemnation net proceeds received after the Closing Date with respect to damage, non-conformance of or loss to the foregoing Excluded Assets; and
(x) all assets and property of any kind not owned, leased or licensed by the Company, including, without limitation, equipment, office furniture and materials, personal computers, telephone units, facsimile and photocopy machines, software licenses, and other tangible and intangible property owned, leased or licensed by employees or independent contractors of the Company and used in connection with the performance of their duties to the Company.
1.2 Assumption of Liabilities.
(a) Assumed Liabilities . At the Closing, Buyer shall assume and shall agree to pay, defend, discharge and perform as and when due and performable all Liabilities arising under each Assumed Contract from and after the Closing (other than Liabilities attributable to products sold, services rendered or other actions on or prior to the Closing Date, or to any failure by the Company or its Affiliates to comply with the terms thereof on or prior to the Closing Date or Liabilities directly related to the transfer of the Purchased Assets (including Company Transaction Expenses or any Liability of the Company or an Affiliate thereof, as contemplated by this Agreement) (the “ Assumed Liabilities ”).
(b) Excluded Liabilities . Notwithstanding anything to the contrary contained herein, Buyer is assuming only the Assumed Liabilities and is not assuming any other Liability of the Company or any Affiliate thereof (or any predecessor owner of all or part of the Company’s business or assets) of whatever nature whether currently in existence or arising or asserted hereafter. All such other Liabilities shall be retained by and remain Liabilities of the Company and its Affiliates (all such Liabilities not being assumed are herein referred to as the “ Excluded Liabilities ”). Without limiting the foregoing, none of the following shall be Assumed Liabilities for purposes of this Agreement:
(i) all Excluded Taxes of the Company or its Affiliates;
(ii) all Indebtedness of the Company or its Affiliates;
(iii) all Liabilities relating to or arising out of the Company’s or Company’s Affiliate’s bonus plans, whether written or oral, including any promises to Company or its Affiliate’s employees, made or in effect prior to the Closing Date (the “ Company Bonus Plans ”);
(iv) all claims, causes of action, litigation and other rights of third parties relating to or arising out of (A) the Assumed Contracts, including, without limitation, any warranty or indemnity obligation of the Company or its Affiliates in respect of products sold or services rendered on or prior to the Closing Date or claims against the Company or its Affiliates directly related to the transfer of the Purchased Assets as contemplated by this Agreement or (B) the Excluded Assets, including, without limitation, any Contract that is not an Assumed Contract;
(v) all accounts payable and accrued expenses of the Company or its Affiliates (whether prior to or following the Closing),
(vi) all Liabilities of the Company or any Affiliate relating to or arising out of the Excluded Assets, including, without limitation, any Contract that is not an Assumed Contract;
(vii) all Liabilities relating to or arising out of the Assumed Contracts, including any warranty or indemnity obligation of the Company or any Affiliate, right of refund, rights of set off or other obligations or claims, solely in respect of products sold or services rendered on or prior to the Closing Date;
(viii) all Environmental Liabilities; and
(ix) all Liabilities relating to or arising out of the Company’s employment of the employees of the Company or engagement of contractors by the Company or employment of employees by the Affiliates or engagement of contractors by the Affiliates, including without limitation wages, commission, accrued vacation pay, performance and other bonuses, benefits and ownership interests.
1.3 Assignment of Contracts and Rights . Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall not constitute an agreement to assign any Contract if an attempted assignment thereof, without consent of a third party thereto, would constitute a breach or other contravention thereof or in any way adversely affect the rights of Buyer or the Company thereunder. The Company will use commercially reasonable efforts to obtain the consent of the other parties to any such Contract in accordance with the Required Contract Consent for the assignment thereof to Buyer or its designated Affiliate as Buyer may request. Unless and until such consent is obtained, or if an attempted assignment thereof would be ineffective or would adversely affect the rights of Buyer or the Company thereunder so that Buyer would not in fact receive all rights under such Contract, the Company and Buyer will cooperate in an arrangement under which Buyer would obtain the benefits and assume the obligations thereunder in accordance with this Agreement, including subcontracting, sub-licensing, or subleasing to Buyer, or under which the Company would enforce, at Buyer’s expense, for the benefit of Buyer, with Buyer assuming at Buyer’s sole expense the Company’s obligations and Liabilities (solely to the extent provided in Section 1.2(a) ), any and all rights of the Company against a third party thereto. The Company will promptly pay to Buyer when received all monies received by the Company under any such Contracts relating to or arising out of products delivered, services rendered or work performed on or after the Closing Date, and Buyer shall pay, defend, discharge and perform all Liabilities relating to or arising out of products delivered, services rendered or work performed on or after the Closing Date under such Contracts.
1.4 The Closing .
(a) Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by the Transaction Documents (the “ Closing ”) shall take place (i) at the offices of Goodwin Procter LLP, 53 State Street, Exchange Place, Boston, MA 02109, or electronically, at 12:01 a.m. (local time), on July 28, 2015, or at such other place or on such other date as is mutually acceptable to Buyer, the Company and the Seller Stockholder. The date of the Closing is herein referred to as the “ Closing Date .” All transactions shall be deemed to occur at 12:01 a.m. on the Closing Date, and the Closing shall be effective as of 12:02 a.m. on the Closing Date.
(b) Subject to the terms and conditions set forth herein, and on the basis of the representations, warranties, covenants and agreements set forth herein, and in the following order:
(i) At the Closing, the initial purchase price (the “ Purchase Price ”) to be paid by Buyer for the Purchased Assets shall be Eight Million One Hundred Sixty Six Thousand Dollars ($8,166,000) (on a debt-free basis) , plus (A) the aggregate amount of any Assumed Liabilities, less (B) the Operating Expense Amount, (C) less the Client Payable Amount less (D) the Holdback Amount (as defined below). Buyer shall be entitled to deduct from the Purchase Price at Closing any amounts payable by the Company and required to be withheld and deducted under the Code or other applicable Tax law. Any amount so deducted shall be remitted by Buyer to the appropriate Governmental Entity. To the extent such amounts are withheld by Buyer, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the relevant recipient. The Purchase Price shall be paid as provided in Section 1.4(b)(ii) .
(ii) At the Closing, Buyer shall deliver, in exchange for the Purchased Assets, the Purchase Price to the Company in immediately available funds by wire transfer to an account
designated by the Company by notice to Buyer, which notice shall be delivered not later than two (2) Business Days prior to the Closing Date (the “ Seller Account ”).
(c) In addition to the foregoing, as applicable, the Company shall deliver to Buyer or one or more of its designees such deeds, bills of sale, endorsements, Consents (as defined below), assignments and other good and sufficient instruments of conveyance and assignment as Buyer shall deem reasonably necessary to vest in Buyer or one or more of its designees all right, title and interest in, to and under the Purchased Assets in the manner described herein free and clear of all Liens and in form and substance reasonably satisfactory to Buyer.
(d) At the Closing, Buyer shall deposit the amount of Eight Hundred and fifty-four thousand dollars ($854,000 ) (the “ Holdback Amount ”) in immediately available funds by wire transfer in the Holdback Fund. The Holdback Amount will serve as one source, but not the exclusive source, for the satisfaction of any indemnification or other claims of any Buyer Party (as defined below) pursuant to Article 6 . On the date that is twelve (12) months following the Closing Date, subject to Section 6.9 hereof, any remaining Holdback Amount shall be delivered by Buyer to the Company from the Holdback Fund in accordance with Section 6 .
(e) Closing Deliveries . At the Closing, subject to and on the terms and conditions set forth in this Agreement: (i) Buyer shall deliver to the Company or the Seller Stockholder, as appropriate, each of the documents required to be delivered by Buyer pursuant to Section 5.2 that has not been delivered prior to the Closing Date; and (ii) the Company and the Seller Stockholder shall deliver to Buyer each of the documents required to be delivered by such Parties pursuant to Section 5.1 that has not been delivered prior to the Closing Date.
1.5 Allocation of Purchase Price . As promptly as practicable, but no later than sixty (60) days following the last day of the month in which the Closing occurs, Buyer shall prepare an allocation of the Purchase Price (and all other allocable costs) among the assets of the Company in accordance with Code Sections 1060 and the Treasury Regulations thereunder (and any similar provision of state, local or non-U.S. law, as appropriate) (the “ Allocation ”). Buyer shall promptly submit the Allocation to the Company for approval. Buyer will make available to the Company and its accountant all records of work papers used in preparing the Allocation. The Company shall have thirty (30) days to review the Allocation. If the Company does not deliver written notice to Buyer of any disagreement with Buyer’s calculations within such thirty (30) day review period, then the Allocation shall become final. If the Company disagrees with any item set forth in Buyer’s Allocation, the Parties will have fifteen (15) days to attempt to mutually resolve the disagreement. If any item remains in dispute at the end of the fifteen (15) day period, the dispute will be submitted to and settled by Ernst & Young or another independent accounting firm of nationally recognized standing reasonably satisfactory to the Company and Buyer (which shall not have any material relationship with the Company, the Seller Stockholder or Buyer) (the “ Independent Accountant ”). The Company and Buyer shall jointly engage the Independent Accountant to review this Agreement and to resolve the disputed items or amounts for the purpose of calculating the Allocation. In making such calculation, the Independent Accountant shall, acting as an expert and not an arbiter, consider only those items or amounts in the Buyer’s calculation of the Allocation as to which the Company has disagreed. The Independent Accountant’s determination will be based solely on presentations by the Company and Buyer and the Independent Accountants shall deliver to the Company and Buyer as promptly as practicable (but in any event within thirty (30) days of its engagement) a report setting forth such calculation. Such report shall be final and binding upon the Company, the Seller Stockholder and Buyer. The fees and expenses of the Independent Accountant shall be borne equally by the Company and Buyer. Buyer, the Seller Stockholder, the Company and their Affiliates agree (i) that the Allocation shall represent the fair market values of the Company’s assets, (ii) to prepare and file all Tax Returns (including, but not limited to, Internal Revenue Service Form 8594) in a manner consistent with the Allocation, and (iii) not to take any
Tax position (whether in Tax audits, Tax Returns or otherwise) that is inconsistent with the Allocation unless required to do so by applicable law. All adjustments to the Purchase Price shall also be allocated in accordance with the methodology set forth in the Allocation. The Company shall timely and properly prepare, execute, file and deliver all documents, forms and other information as Buyer may reasonably request to prepare the Allocation.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SELLER STOCKHOLDER
As a material inducement to Buyer to enter into and perform its obligations under this Agreement, the Company and the Seller Stockholder represent and warrant to Buyer that the statements contained in this Article 2 are true and correct as of the Closing Date, unless a different date is set forth in any such covenant or representation or warranty (in which case, as of that different date):
2.1 Organization; Corporate Power and Licenses of the Company . The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia. The Company is not qualified to do business in any other jurisdictions and, given the character of the Company’s assets and properties and the business transacted (or proposed to be transacted) by the Company as of the date hereof, no such qualification is required, except where the failure to be so qualified would not have a Material Adverse Effect. The Company possesses all requisite corporate power and authority to carry out the transactions contemplated by this Agreement and the Transaction Documents. Copies of the Company’s articles of incorporation, bylaws and other organizational documents, previously made available to Buyer, reflect all amendments made thereto and in effect as of the Closing Date, and are correct and complete as of the Closing Date.
2.2 Capitalization and Related Matters . The issued and outstanding shares of common stock or other equity interests in the Company (the “Securities”) held beneficially and of record by the Seller Stockholder are as set forth on Schedule 2.2(a) . Except as set forth on Schedule 2.2(a) , there are no other issued or outstanding securities of the Company, or securities convertible or exchangeable for any Securities or containing any profit participation features, nor are there any outstanding rights or options to subscribe for or to purchase any Securities, or any equity appreciation rights or phantom equity plans. All of the Securities have been validly issued, fully paid and are nonassessable and are free and clear of any Liens. Except as set forth on Schedule 2.2(b) , there are no statutory or contractual preemptive rights or rights of refusal with respect to the Securities. The Company has not violated any applicable federal or state securities laws in connection with the offer, sale or issuance of any of its Securities. Except as set forth on Schedule 2.2(c) , there are no agreements with respect to the voting or transfer of the Securities. All of the Securities are owned (beneficially and of record) by the Seller Stockholder. To the Knowledge of the Company, no former shareholder of the Company has any claim or rights against the Company that remains unresolved or to which the Company has or may have (now or in the future) any Liability.
2.3 No Subsidiaries . The Company does not have any Subsidiaries.
2.4 Authorization; No Breach .
(a) The Company and the Seller Stockholder have the power and authority to enter into this Agreement and to carry out his or its obligations hereunder. The execution and delivery of the Transaction Documents and the performance by the Company and the Seller Stockholder of his or its obligations hereunder or thereunder have been duly authorized, and no other proceedings or approvals on the part of the Company or Seller Stockholder are necessary to approve and authorize such execution, delivery and performance, or the consummation of the transactions contemplated hereby and thereby. Each
Transaction Document to which the Company or Seller Stockholder is a party has been duly executed by such Party and constitutes a valid and legally binding obligation of such Person, enforceable in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratoriums or similar laws at the time in effect affecting the enforceability or rights of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies.
(b) Except as set forth on Schedule 2.4(b) , the execution and delivery by the Company and Seller Stockholder of this Agreement, and all other Transaction Documents to which such Person is a party, and the fulfillment of and compliance with the respective terms hereof and thereof, do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any Lien upon the Securities or any asset or property of the Company, including without limitation, the Purchased Assets, pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any exemption or other action by or notice or declaration to, or filing with, or other Consent from, any Governmental Entity by or with respect to the Company or Seller Stockholder pursuant to, (A) the articles of incorporation, the bylaws or other governing documents of the Company, (B) any Legal Requirement to which the Company or Seller Stockholder or any of their assets or properties is subject, or (C) any Contract, order, judgment or decree to which the Company or Seller Stockholder or any of their assets or properties is subject, except in the case of (B) where the conflict, breach, default, violation or failure to give notice or make such filing would not have a Material Adverse Effect.
2.5 Financial Statements .
(a) Attached hereto as Schedule 2.5(a) are copies of the Company’s (i) consolidated balance sheets as of May 30, 2015 (the “ Latest Balance Sheet ”) and the related statements of profit and loss and Cash Flows for the 5-month period then ended (collectively, the “ Interim Financial Statements ”) and (ii) consolidated balance sheets and related statements of profit and loss and cash flows for the fiscal years ended December 31, 2014 and 2013, (collectively, and together with the Interim Financial Statements, the “ Financial Statements ”). Each of the Financial Statements is accurate and complete in all material respects, is consistent with the books and records of the Company (which, in turn, are accurate and complete in all material respects) and has been prepared on a modified cash basis or income tax basis, consistently applied throughout such Financial Statements and the periods covered thereby, subject to changes resulting from normal year-end adjustments with respect to the Interim Financial Statements (none of which would be material either individually or in the aggregate. The Financial Statements present fairly, in all material respects, the financial condition, results of operations, shareholders’ equity and cash flows of the Company as of the dates and for the periods referred to therein.
(b) The accounts receivable of the Company as set forth on the Latest Balance Sheet or arising since the date thereof are valid and genuine; and have arisen solely out of bona fide sales and deliveries of goods, performance of services and other business transactions in the ordinary course of business. The allowance for bad debt on the Latest Balance Sheet has been determined consistent with the principles, policies, estimates and procedures used to determine the allowance for bad debt set forth in the Financial Statements for the period ended December 31, 2014 and the six months ended June 30, 2015.
(c) The accounts payable as set forth on the Latest Balance Sheet or accruing since the date thereof are valid and genuine; and have arisen solely out of bona fide arm’s length transactions in the ordinary course of business and no such account payable is delinquent in its payment. Since the date of the Latest Balance Sheet, the Company has paid its accounts payable in the ordinary course of business and in a manner which is consistent with its past practices. Except as set forth on Schedule 2.5(c) , the Company has no account payable to any person who is an Insider (other than reimbursements to employees in the
ordinary course of business, the outstanding balance of which to any single employee is less than five thousand dollars ($5,000) in the aggregate).
(d) To the extent Buyer determines, in its sole discretion, that any audited financial statements of the Company are required to be filed with the SEC pursuant to the Securities Exchange Act or any rules and regulations thereunder, the Seller Stockholder and the Company shall use commercially reasonable efforts to assist Buyer in obtaining consent and approval from the Company’s independent auditor to file its audit opinions with regard to such audited financial statements within any applicable time period relating to such filing; provided , however , that the Company and Seller Stockholder shall not be required to commence litigation against or compensate such independent auditor or any other Person in connection with obtaining any such consent. .
2.6 Absence of Undisclosed Liabilities . Except as set forth on Schedule 2.6(a) , the Company has no Liabilities of the type required to be set forth in a balance sheet prepared in accordance with GAAP other than (a) Liabilities reflected on the face of the Latest Balance Sheet and (b) Liabilities that have arisen since the date of the Latest Balance Sheet in the ordinary course of business (none of which relates to breach of Contract, breach of warranty, tort, infringement, violation of or Liability under any Legal Requirements, or any action, suit or proceeding). Except as set forth on Schedule 2.6(b) , the Company has no outstanding Indebtedness.
2.7 Assets . All of the Company’s tangible assets are located at the Leased Real Property. Except as set forth on Schedule 2.7(a) , the Company has good and marketable title to, or a valid license or leasehold interest in, the Purchased Assets, free and clear of all Liens, except for Permitted Liens. Except as described on Schedule 2.7(b) , the Company’s equipment and other tangible assets are in good operating condition (normal wear and tear excepted) and are fit in all respects for use in the ordinary course of business. The Purchased Assets and the Excluded Assets constitute all of the assets necessary for the conduct of the Company’s business as presently conducted. The Purchased Assets will enable Buyer to operate such business from and after the Closing in substantially the same manner as operated by the Company prior to the Closing (taking into account that Buyer is not acquiring the Excluded Assets).
2.8 Tax Matters . Except as set forth on Schedule 2.8(a) , the Company has timely filed all material Tax Returns required to be filed by it, each such Tax Return has been prepared in compliance with all Legal Requirements, and all such Tax Returns are complete and accurate in all material respects. All material Taxes due and payable by the Company (whether or not shown on any Tax Return) have been paid. The unpaid Taxes of the Company (A) did not, as of the end of the most recent fiscal month, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between financial accounting and Tax income) set forth on the face of the Latest Balance Sheet (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date. Since the date of the Latest Balance Sheet, neither the Company nor any of its Subsidiaries has incurred any Liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice. The Company has provided to Buyer, with respect to the most recent three taxable periods , copies of all federal, state and local income Tax Returns (including, without limitation, all Georgia Tax Returns), examination reports and statements of deficiencies assessed against or agreed to by the Company, in each case, which are correct and complete in all material respects.
(a) Except as set forth on Schedule 2.8(b) , (i) the Company has withheld from all employees, customers, independent contractors, creditors and any other applicable payees proper and accurate amounts for all taxable periods in compliance with all Tax withholding provisions of applicable law and has remitted, or will remit on a timely basis, such amounts to the appropriate Governmental Entity (ii) the Company has maintained adequate documentation regarding the jurisdictions in which its
employees have provided services, and has properly withheld and paid all applicable Taxes accordingly(iii) with respect to each issuance of Securities, the Company has maintained adequate documentation of the fair market value of such Securities at the time of issuance . Except as set forth in Schedule 2.8(b):
(i) the Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency;
(ii) the Company has not paid, has not become liable to pay and does not expect to pay, any penalty, fine, or surcharge in relation to any Tax;
(iii) no deficiency or proposed adjustment, which has not been settled or otherwise resolved, for any amount of Tax has been proposed, asserted or assessed, by any Governmental Entity against the Company;
(iv) there is no Action, suit, Governmental Entity proceeding or audit now in progress, pending or, to the Knowledge of the Company, threatened against or with respect to the Company;
(v) the Company will not be required to include any amount in taxable income or exclude any item of deduction or loss from taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (A) change in method of accounting for a taxable period ending on or prior to the Closing Date, (B) “closing agreement,” as described in Code Section 7121 (or any corresponding provision of state, local or non-U.S. income Tax law) entered into on or prior to the Closing Date, (C) installment sale or open transaction on or prior to the Closing Date, (D) prepaid amount received on or prior to the Closing Date, or (E) election under Code Section 108(i).
(vi) the Company (A) is not a party to, and does not owe any amount under, any Tax sharing or allocation agreement, (B) is not a member of an affiliated, combined or unitary group for federal, state or local income tax purposes, and (C) has no Liability for the payment of Taxes of any other Person as a transferee or successor, by Contract or otherwise there are no Liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company;
(vii) the Company does not expect any taxing authority to claim or assess any amount of additional Taxes against the Company;
(viii) no claim has ever been made by a Governmental Entity in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to Taxes assessed by such jurisdiction; and
(ix) to the Knowledge of the Company, the Company has not made any payment, and is not and will not become obligated (under any contract entered into on or before the Closing Date) to make any payment, that will be non-deductible under Section 162 or 404 of the Code (or any corresponding provision of state, local or non-U.S. income Tax law);
(x) Seller Stockholder is not a “foreign person” (as that term is defined in Section 1445 of the Code);
(xi) none of the Purchased Assets is subject to any “Section 467 rental agreement” within the meaning of Section 467(d) of the Code or Treasury Regulations Section 1.467-1(c);
(xii) the Company has not participated in a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b).
2.9 Contracts and Commitments .
(a) Except as specifically contemplated by this Agreement or as set forth on Schedule 2.9(a) , neither the Company nor any Affiliate is a party to or bound by any written or oral:
(i) collective bargaining agreement or other Contract with any labor union;
(ii) management agreement or other Contract for the employment of any officer, individual employee or other Person on a full time, part-time or consulting basis or providing for the payment of any cash or other compensation or benefits in connection with the sale of all or a material portion of its assets or a change of control (other than at-will employment agreements with its employees that do not commit the Company or its Subsidiaries or Affiliates to severance, termination or other similar payments);
(iii) Contract relating to Indebtedness (including any letter of credit or guaranty arrangements) or to the mortgaging, pledging or otherwise placing a Lien on any of its assets or any of its Securities, or any guaranty of an obligation of a third party;
(iv) Contract, including, but not limited to, purchase orders, for the purchase, sale, distribution or marketing of products or for the furnishing or receipt of services which either calls for performance over a period of more than one (1) year or involves consideration in excess of fifty thousand dollars ($50,000) per year or one hundred thousand dollars ($100,000) in the aggregate;
(v) Contract that prohibits or limits the Company or any Affiliate, or that would prohibit or limit Buyer after the Closing Date, from freely engaging in any line of business or with any Person anywhere in the world or during any period of time;
(vi) Contract under which it has advanced or loaned any other Person any amounts (other than advances in the ordinary course of business to employees who are not officers of the Company, the outstanding balance of which for any such Person is less than five thousand dollars ($5,000) in the aggregate);
(vii) Contract under which it is lessee of or holds or operates any property, real or personal, owned by any other party which involves annual payments of greater than fifty thousand dollars ($50,000) or group of such Contracts with the same Person which involve consideration in excess of one hundred thousand dollars ($100,000) in the aggregate, or under which it is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by it which involves consideration in excess of fifty thousand dollars ($50,000);
(viii) license or other Contract with respect to any intangible property (including any Intellectual Property ), other than (A) licenses to the Company or its Subsidiaries of unmodified, mass-marketed, executable desktop software applications with an annual license fee of less than two thousand dollars ($2,000) in the aggregate for any such license or group of related licenses, (B) customer or client Contracts entered into in the ordinary course of business and containing terms and conditions with respect to the licensing of Intellectual Property substantially similar to the terms and conditions with respect to the licensing of Intellectual Property that the Company generally agrees to with its other customers, copies of which have been made available to Buyer (C) licenses which are
embedded into a purchase or lease agreement for tangible property which has an electronic component controlled in whole or part by Intellectual Property or software, including, without limitation, electronic communications equipment such as telephones and computer equipment;
(ix) any Contract which contains any provisions requiring the Company to indemnify any other party;
(x) any Contract between the Company and any of its Affiliates;
(xi) royalty, dividend or similar arrangement based on the revenues or profits of the Company or any Contract involving fixed price or fixed volume arrangements;
(xii) any bonus, commission, pension, profit sharing, deferred compensation, severance, incentive compensation, membership interest purchase, stock option or appreciation arrangement for the benefit of its current or former directors, officers, employees, or any other Person;
(xiii) Contract that provides any customer or client with pricing, discounts or benefits that change based on the pricing, discounts or benefits offered to other customers of the Company or its Subsidiaries or Affiliate, including, without limitation, Contracts containing “most favored nation” provisions;
(xiv) Contract which contains performance guarantees, rights of refund, liquidated damages or service credits;
(xv) Contract involving the settlement of any pending or threatened Action with respect to which, as of the date of this Agreement, (A) any unpaid amount exceeds twenty-five thousand dollars ($25,000) or (B) conditions precedent to the settlement have not been satisfied;
(xvi) Contract appointing any agent to act on its or their behalf;
(xvii) power of attorney;
(xviii) Contract relating to the acquisition or sale of any business (or any material portion thereof), whether or not consummated and including any confidentiality agreements entered into with respect thereto;
(xix) Contract relating to the ownership of or investment in any business or enterprise (including investments in joint ventures and minority equity investments);
(xx) Contract pursuant to which it subcontracts work to third parties; or
(xxi) other Contract (or group of related Contracts) the performance of which involves consideration in excess of fifty thousand dollars ($50,000) per year or one hundred thousand dollars ($100,000) in the aggregate or which cannot be canceled by the Company or its Subsidiaries or Affiliates within thirty (30) days notice without premium or penalty.
(b) With respect to the Company’s and Affiliate’s obligations thereunder and, with respect to the obligations of the other parties thereto, all of the Contracts set forth or required to be set forth on Schedule 2.9(a) (each a “ Material Contract ”) are valid, binding and enforceable against the Company or any Affiliate and, to the Knowledge of the Company, enforceable by the Company or any Affiliate against
the other parties thereto, in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratoriums or similar laws at the time in effect affecting the enforceability or rights of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies. The Company and each Affiliate has performed all material obligations required to be performed by it under each Material Contract, and the Company has not received any notice that it is in default under or in breach of, and has not received notice of any claim of default or breach under, any Material Contract. No event has occurred which, with the passage of time or the giving of notice or both, would reasonably be expected to result in a default, breach or event of non-compliance by the Company or any Affiliate under any Material Contract.
(c) A true, correct and complete copy of each written Material Contract, and an accurate description of each oral Material Contract, has been made available to Buyer, together with all amendments, waivers and other changes thereto.
(d) Except as set forth on Schedule 2.9(d) , during the preceding five (5)-year period, the Company has not used any name or names under which it invoiced account debtors, maintained records concerning its assets or otherwise conducted its business, other than the exact names under which it has executed this Agreement or the Transaction Documents.
2.10 Intellectual Property Rights .
(a) The attached Schedule 2.10(a) sets forth true and complete lists of (i) all registered and unregistered marks, patents and copyrights owned by the Company or its Affiliates (each, a “Company Entity”) and used or held for use by the Company Entity in connection with the conduct of the Business (such marks, patents and copyrights, together with all other Intellectual Property owned by a Company Entity and used or held for use by a Company Entity in connection with the conduct of the Business, the “ Company Intellectual Property ”), (ii) all licenses or other agreements under which a Company Entity is granted rights to the Intellectual Property of another Person, other than (A) licenses of unmodified, mass-marketed, executable desktop software applications with a total license fee of less than two thousand dollars ($2,000) in the aggregate for any such license or group of related licenses, and (B) licenses which are embedded into a purchase or lease agreement for tangible property which has an electronic component controlled in whole or part by Intellectual Property or software, including, without limitation, electronic communications equipment such as telephones and computer equipment, and , and (iii) all licenses or other agreements under which a Company Entity has granted rights to others in the Intellectual Property of a Company Entity, other than customer or client Contracts entered into in the ordinary course of business and containing terms and conditions with respect to the licensing of Intellectual Property substantially similar to the terms and conditions with respect to the licensing of Intellectual Property that the Company generally agrees to with its other customers, copies of which have been provided to Buyer.
(b) Except as set forth on Schedule 2.10(b) , each Company Entity exclusively owns and possesses all right, title and interest in and to, or has a valid and enforceable license to use, all Company Intellectual Property purported to be owned, used or held for use by such Company Entity, in each case without any conflict with or infringement of the rights of any Person, and free and clear of all Liens (other than Permitted Liens). Each Company Entity is in full compliance with all licenses held by such Company Entity in Intellectual Property owned by third parties, and all licenses for Open Source Software .
(c) All Company Intellectual Property that is owned by any Company Entity and that have been issued by, or registered or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or any similar Governmental Entity anywhere in the world, have been duly maintained (including the payment of maintenance fees) and are not expired, cancelled or abandoned and are valid and enforceable.
(d) Except as set forth on Schedule 2.10(d) , there are no pending or, to the Knowledge of the Company, threatened Actions against any Company Entity alleging that the operation of the Business or any activity of such Company Entity has infringed, misappropriated or otherwise conflicted with, or that such Company Entity, by conducting its Business, would infringe, misappropriate or otherwise conflict with, any rights of any other Person in Intellectual Property, or that any Company Intellectual Property is invalid or unenforceable. To the Knowledge of the Company, neither the operation of the Business, nor any activity by the Company, infringes, misappropriates or violates (or in the past infringed, misappropriated or violated) any rights of any other Person in Intellectual Property.
(e) Except as set forth on Schedule 2.10(e) , to the Knowledge of the Company, no third party is infringing, misappropriating or violating, or has infringed, misappropriated or violated, any of the Company Intellectual Property.
(f) Except as set forth on Schedule 2.10(f) , no compensation or other consideration is owed to any third party by any Company Entity due to such Company Entity’s ownership, license (as licensor or licensee) or use (directly or indirectly via another party) of the Company Intellectual Property, and no Company Entity has received any notice alleging that any such compensation or other consideration is owed by the Company to any such third party.
(g) All Company Intellectual Property owned by each of the Company Entities has been (i) developed by employees of such Company Entity, (ii) developed by independent contractors to such Company Entity, (iii) acquired from a third party under a Contract listed on Schedule 2.10(a) or (iv) created as works made for hire. Every current and former officer, director, consultant, independent contractor and employee of the Company Entities has executed a Contract that assigns to such Company Entity all of their interests in any and all inventions, improvements, discoveries, writings and other works of authorship, and information relating to the Business or any of the products or services being researched, developed, manufactured or sold by such Company Entity or that may be used with any such products or services, and all rights in Intellectual Property relating thereto. To the Knowledge of the Company, (x) no such Person is in breach of his or her obligations under such Contracts, and (y) no such Person is party to any conflicting Contract, including any Contract that restricts them from engaging in activities for the Company Entities.
(h) To the Knowledge of the Company, the Company Entities have not (except in the ordinary course of business under obligations of confidentiality) disclosed or permitted to be disclosed or undertaken or arranged to disclose to any Person other than Buyer any trade secrets owned by any Company Entity or used or held for use by any Company Entity in the Business (the “ Company Trade Secrets ”). The Company Entities have taken reasonable security measures to protect the secrecy, confidentiality and value of the Company Trade Secrets, including, without limitation, requiring each employee and consultant of the Company Entities and any other person with access to Company Trade Secrets to execute a binding confidentiality agreement, copies or forms of which have been provided to Buyer and there has not been any breach by any party to such confidentiality agreements.
2.11 Litigation, etc . Except as set forth on Schedule 2.11 , there are no Actions pending or, to the Knowledge of the Company, threatened against the Company or its Affiliates (or pending or, to the Knowledge of the Company, threatened against any of the officers, directors or employees of the Company or its Affiliates with respect to the Company’s or Affiliate’s business or proposed business activities), or pending or threatened by the Company or its Affiliate’s against any third party, at law or in equity, or before or by any Governmental Entity (including any actions, suits, proceedings or investigations with respect to the transactions contemplated by the Transaction Documents), and, to the Company’s Knowledge, there is no valid basis for any of the foregoing. The Company and its Affiliates are not subject to any judgment, order or decree of any court or other Governmental Entity. Schedule 2.11 includes a description of all
Actions involving any of the Company’s directors, officers or employees, in their capacity as such, occurring, arising or existing during the past three (3) years.
2.12 Brokers . Except as set forth in Schedule 2.12 hereto, (i) there are no claims for brokerage commissions or finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement or any of the Transaction Documents based on any Contract to which the Company is a party or otherwise binding upon the Company, and (ii) the Company has not made, and the Company is not obligated to make, any payment for brokerage commissions, finder’s fees or other similar compensation to any Person in connection with the transactions contemplated by the Transaction Documents. The Company shall pay, and hold Buyer harmless against, any Liability (including reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any such claim or payment.
2.13 Insurance . Schedule 2.13 lists each insurance policy maintained for or on behalf of the Company with respect to its properties, assets and business, together with a list of material claims made in the past three (3) years. All of such insurance policies are in full force and effect, and no default exists with respect to the obligations of the Company under any such insurance policies and the Company has not received any notification of cancellation of any of such insurance policies. All premiums with respect to such insurance policies have been paid through the date hereof. There are no pending claims against such insurance with respect to the Company as to which the insurers have denied coverage. Except as set forth on Schedule 2.13 , the Company has no self-insurance or co-insurance programs.
2.14 Employees .
(a) Except as set forth on Schedule 2.14(a)(i) , with respect to the Company and its Affiliates: (i) there is no collective bargaining agreement or relationship with any labor organization; (ii) no labor organization or group of employees has filed any representation petition or made any written or oral demand for recognition; (iii) no union organizing efforts are underway or, to the Knowledge of the Company, threatened; (iv) no labor strike, work stoppage, slowdown, or other labor dispute has occurred, and none is underway or, to the Knowledge of the Company, threatened; (v) there is no employment-related charge, complaint, grievance, investigation or inquiry of any kind, pending or, to the Knowledge of the Company, threatened in any forum, relating to an alleged violation or breach by the Company or its Affiliates of any Legal Requirements relating to the employment of labor; and (vi) no employee or agent of the Company has committed any act or omission giving rise to any Liability for any violation identified in subsection (v) above. To the Knowledge of the Company, none of the Company’s employees is subject to any noncompetition, non-solicitation, confidentiality, employment, consulting or similar Contracts relating to, affecting or in conflict with the present or proposed business activities of the Company.
(b) Schedule 2.14(b)(i) sets forth a correct and complete list of all employees of the Company and its Affiliates as of the date hereof, including a list of all officers and directors of the Company and the Affiliates, and whether or not they have executed and delivered to the Company or its Affiliate, as the case may be, any (i) Contract providing for the nondisclosure by such Person of any confidential information of the Company or the Affiliate, (ii) Contract providing for the assignment or license by such Person to the Company or Affiliate of any Intellectual Property, (iii) any Contract preventing such Person from competing with the Company or an Affiliate during and/or following termination of employment, (iv) any Contract preventing such Person from soliciting and hiring employees of the Company or an Affiliate of the Company during and/or following termination of employment and (v) any Contract preventing such Person from soliciting and servicing any customers of the Company or an Affiliate thereof. Schedule 2.14(b)(i) sets forth the classification of each employee as exempt or nonexempt and, for each employee, the position or title of such person, the base salary or wage rates, and any incentive or other form of compensation (including bonuses thereto) for each employee for the fiscal year ended December 31, 2014 and six month period ending June 30, 2015. Schedule 2.14(b)(ii) sets forth a complete and accurate list of
all of the independent contractors, consultants, temporary employees, leased employees or other servants or agents employed, engaged or used with respect to the operation of the business of the Company and/or its Affiliates and classified by the Company or its Affiliates as other than employees or compensated other than through wages paid by the Company or its Affiliates through the Company’s or Affiliate’s payroll department ( collectively, with respect to the Company and Affiliates, “ Contingent Workers ”), showing for each Contingent Worker such individual’s role in the business and fee or compensation arrangements with the Company or the Affiliate, as the case may be. Schedule 2.14(b)(iii) sets forth an itemized list of the wages, salaries, severance, commissions, accrued vacation, bonuses, fees, benefits or other amounts to be paid or items of value to be provided to employees of the Company or Affiliate or Contingent Workers at the Closing or otherwise in connection with the transactions contemplated by the Transaction Documents, including, without limitation, any and all withholding, employment or other Taxes incurred in connection therewith, and all amounts payable under any Bonus Plan of the Company or an Affiliate thereof (the “ Employee Obligations ”). No current or former employee of the Company or Affiliate or Contingent Worker has advised the Company or an Affiliate in writing that he or she has excluded works or inventions made prior to his or her employment with the Company or its Affiliates from any inventions agreement between the Company and/or an Affiliate thereof and such Person. To the Knowledge of the Company, all employees of the Company and the Affiliates devote substantially all of their business time and attention to the businesses of the Company and the Affiliates. Except as contemplated by this Agreement or as set forth on Schedule 2.14(b)(iv) , to the Knowledge of the Company, (i) no officer or employee, or group of employees or Contingent Workers, has expressed any plans to terminate his or her employment or service arrangement with the Company (or with Buyer following the Closing) and (ii) in the past twelve (12) months no officer’s or employee’s employment with the Company or Affiliate thereof has been terminated for any reason.
(c) Except as set forth on Schedule 2.14(c) , the Company has properly classified and treated each employee of the Company or its Affiliates and any Contingent Worker in accordance with applicable Legal Requirements of all applicable Governmental Entities and for purposes of all Employee Benefit Plans. The Employee Obligations have been properly accrued for and represent the only amounts due, or that will become due, to any employee of the Company or Affiliate or any Contingent Worker that accrued or otherwise became payable on or before the Closing Date or in connection with the transactions contemplated by the Transaction Documents. Neither the Company nor any Affiliate is delinquent in any payments to any employee of the Company or Affiliate or Contingent Worker for any wages, salaries, severance, commissions, accrued vacation, bonuses, fees, benefits or other compensation due with respect to any services performed for it or amounts require to be reimbursed to such employees or Contingent Workers.
(d) The Company and each Affiliate are in compliance in all respects with all applicable laws respecting employment and employment practices, terms and conditions of employment, classification of employees, wages and hours, occupational safety and health, including, but not limited to, the National Labor Relations Act, the Immigration Reform and Control Act of 1986, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, 42 U.S.C. Section 1981, the Americans With Disabilities Act, the Fair Labor Standards Act, the Occupational Safety and Health Act, the Family Medical Leave Act, and any other law respecting employment, including, but not limited to, authorization to work in the United States, equal employment opportunity (including prohibitions against discrimination, harassment, and retaliation), payment of wages, hours of work, occupational safety and health, and labor practices. In the last three (3) years, (i) the Company has not effected a “plant closing” (as defined in the Worker Adjustment and Retraining Notification Act (the “ WARN Act ”)), affecting any site of employment or one or more facilities or operating units within any site of employment or facility, (ii) there has not occurred a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of the Company and its Affiliates, (iii) the Company has not engaged in layoffs or employment terminations sufficient in number to trigger
application of, and notification requirements under, any state, local or non-U.S. law or regulation similar to the WARN Act and (iv) during the ninety (90) day period immediately preceding the date of this Agreement, neither the Company nor any Affiliate has terminated involuntarily the employment of more than three (3) individuals from employment in positions, excluding individuals who were “part-time employees” of the Company or its Affiliates within the meaning of the WARN Act, 29 U.S.C. § 2101(a)(8) and applicable regulations at 20 C.F.R. § 639.3(h). The Company shall be responsible for any failure to provide any notice required by the WARN Act or any state law counterpart.
2.15 Employee Benefits .
(a) Except as disclosed and set forth on Schedule 2.15(a) , neither the Company nor any Affiliate maintains, sponsors, contributes to, provides benefits under or has any actual or potential Liability with respect to any Employee Benefit Plan or any other benefit, pension, gratuity or similar plan or benefit, whether of the Affiliate or required by a Governmental Entity .
(b) The Company’s Employee Benefit Plans have been and shall be maintained in compliance in all material respects with their terms and with the requirements of the Code and ERISA and all other applicable laws and regulations, and the Company has not received notification to the contrary from the Internal Revenue Service, Department of Labor, or the PBGC. Except as set forth on the attached Schedule 2.15(b) , each Employee Benefit Plan that is intended to qualify under Section 401(a) or 501(c)(9) of the Code is so qualified and has received a favorable determination or approval letter from the Internal Revenue Service with respect to such qualification, or may rely on an opinion letter issued by the Internal Revenue Service with respect to a prototype plan adopted in accordance with the requirements for such reliance, or has time remaining for application to, or for receipt in response to a timely filed application of a determination from, the Internal Revenue Service for a determination of the qualified status of such Employee Benefit Plan for any period for which such Employee Benefit Plan would not otherwise be covered by an Internal Revenue Service determination and no event or omission has occurred that would cause any Employee Benefit Plan to lose such qualification. No asset of the Company is subject to any lien under ERISA or the Code, and the Company has not incurred any Liability under Title IV of ERISA or to the PBGC. No litigation or governmental administrative proceeding, audit or other proceeding (other than those relating to routine claims for benefits) is pending or, to the Knowledge of the Company, threatened with respect to any Employee Benefit Plan or, with respect to any Employee Benefit Plan, any fiduciary or service provider thereof, and, to the Knowledge of the Company, there is no reasonable basis for any such litigation or proceeding. Except as set forth on Schedule 2.15(b), e ach Affiliate’s Employee Benefit Plans comply with all applicable Laws, are fully funded and do not give rise to any Liability which has not been fully funded or paid by such Affiliate.
(c) The Company has never: (i) maintained, contributed to or had any actual or potential Liability with respect to any active or terminated, funded or unfunded, Multiemployer Plan or employee benefit plan subject to Section 302 of Title I of ERISA, Title IV of ERISA or Section 412 of the Code; (ii) failed to satisfy any minimum funding requirement, if any, under Section 412 of the Code or Section 302 of ERISA; (iii) failed to make a required contribution or payment to a Multiemployer Plan (as described in Section 4001(a)(3) of ERISA); or (iv) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan.
(d) With respect to each Employee Benefit Plan, except as set forth on Schedule 2.15(b) , all required (in accordance with their terms and applicable Law) payments, premiums, contributions, reimbursements or accruals for all periods (or partial periods) ending prior to or as of the Closing Date shall have been made or paid as of the Closing Date, or properly accrued on the Latest Balance Sheet.
(e) The Company does not, and as of the Closing Date, the Company will not maintain or contribute to any Employee Welfare Benefit Plan which provides benefits to employees after termination of employment (other than as required under Part 6 of Subtitle B of Title I of ERISA and Section 498B of the Code or applicable state law). The Company has complied in all respects with the health care continuation requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code. Except as set forth on Schedule 2.15(e) , each Company Employee Benefit Plan that provides health or welfare benefits is fully insured.
(f) True, complete and correct copies, to the extent applicable of (i) all documents pursuant to which the Company Employee Benefit Plans are maintained, funded and administered, (ii) the two most recent annual reports (Form 5500 series) filed with the Internal Revenue Service (with attachments) with respect to the Company Employee Benefit Plans, (iii) the two most recent actuarial valuation reports with respect to the Company Employee Benefit Plans, (iv) the two most recent financial statements with respect to the Employee Benefit Plans, (v) all governmental rulings, determinations and opinions (and pending requests for governmental rulings, determinations and opinions) with respect to the Company Employee Benefit Plans, (vi) the most recent valuation (but in any case at least one that has been completed within the last calendar year) of the present and future benefit obligations under each Company Employee Benefit Plan that provides post-retirement or post-employment, health, life insurance, accident or other “welfare-type” benefits, and (vii) all non-routine correspondence to and from any state or federal agency with respect to the Company Employee Benefit Plans, in each case, have been provided or made available to Buyer upon Buyer’s request.
(g) Except as specifically contemplated by this Agreement, neither the execution and delivery of this Agreement or any approval of this Agreement by the shareholders of the Company or, if applicable, the board of directors of the Company, nor the consummation of the transactions contemplated hereby could (either alone or in conjunction with any other event): (i) result in, or cause the accelerated vesting payment, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer, director or other service provider, including but not limited to any Contingent Workers, of the Company or any of its Affiliates ; (ii) limit the right of the Company or any of its Affiliates to amend, merge, terminate or receive a reversion of assets from any Employee Benefit Plan or related trust; or (iii) result in a requirement to pay any tax “gross-up” or similar “make-whole” payments to any employee, director or Contingent Worker of the Company or an Affiliate.
(h) Neither the Company nor any other “disqualified person” (within the meaning of Section 4975 of the Code) or “party in interest” (within the meaning of Section 3(14) of ERISA) has taken any action with respect to any of the Employee Benefit Plans which could subject any such Employee Benefit Plan (or its related trust) or the Company or any officer, director or employee of any of the foregoing to any penalty or tax under Section 502(i) of ERISA or Section 4975 of the Code.
(i) The Company has no Liability (potential or otherwise) with respect to any “employee benefit plan” (as defined in Section 3(3) of ERISA) solely by reason of being treated as a single employer under Section 414 of the Code with any other entity.
(j) To the extent permitted under applicable Law, each Employee Benefit Plan may be amended, terminated, or otherwise modified by the Company, including the elimination of any and all future benefit accruals thereunder and no employee communications or provision of any Employee Benefit Plan has failed to effectively reserve the right of the Company or the Affiliate to so amend, terminate or otherwise modify such Employee Benefit Plan. Neither the Company nor any of its Affiliates has announced its intention to modify or terminate any Employee Benefit Plan or adopt any arrangement or program which, once established, would come within the definition of an Employee Benefit Plan. To the extent permitted under applicable Law, each asset held under each Company Employee Benefit Plan may
be liquidated or terminated without the imposition of any redemption fee, surrender charge or comparable liability.
(k) Since the date any Employee Benefit Plan was first adopted by the Company and through December 31, 2014, each Employee Benefit Plan that constitutes in any part a nonqualified deferred compensation plan within the meaning of Section 409A of the Code (each, a “ NQDC Plan ”) has been operated and maintained in accordance with a good faith, reasonable interpretation of Section 409A of the Code with respect to amounts deferred (within the meaning of Section 409A of the Code) after such adoption date. From and after January 1, 2009, each NQDC Plan has been operated and maintained in operational and documentary compliance with Section 409A of the Code and applicable guidance thereunder. No payment to be made under any Employee Benefit Plan is, or will be, subject to the penalties of Section 409A(a)(1) of the Code.
(l) No Employee Benefit Plan is subject to the laws of any jurisdiction outside the United States or India.
(m) No Employee Benefit Plan, nor any Liability of any kind thereunder or with respect thereto, will be required by operation of law or otherwise to be transferred to Buyer as a result of the transactions contemplated hereby.
2.16 Compliance with Laws . Except as set forth on Schedule 2.16 , the Company has complied in all material respects with, and is currently in compliance in all material respects with, all applicable Legal Requirements of all Governmental Entities relating to the operation and conduct of its businesses or any of its properties or facilities, including all Legal Requirements concerning trade practices, advertising, antitrust or competition or relating to employment of labor, and the Company has not received written notice of any violation (whether material or not), or non-written notice of a material violation, of any of the foregoing.
2.17 Affiliated Transactions . Except as set forth on Schedule 2.17 or expressly contemplated by this Agreement or the other Transaction Documents: (i) any and all Contracts between the Company and any officer, director, employee, shareholder or Affiliate of the Company, or any individual related by blood, marriage or adoption to any such Person or any entity in which any such Person or individual owns any beneficial interest (each, an “ Insider ”), have been terminated or cancelled and are no longer enforceable; (ii) no Insider has any interest in any property, real or personal or mixed, asset or right used by the Company or that is necessary for the conduct of its business; (iii) except as disclosed on Schedule 2.17, there are no services provided to or on behalf of the Company by the Seller Stockholder or its Affiliates, or to or on behalf of the Seller Stockholder or its Affiliates, by the Company; and (iv) there are no outstanding loans or advances to, or guarantees for the benefit of, any Insider from the Company or its Affiliates (other than advances in the ordinary course of business to employees who are not officers of the Company, the outstanding balance of which for any such Person is less than five thousand dollars ($5,000) in the aggregate) (each, an “ Affiliated Transaction ”).
2.18 Customers and Suppliers .
(a) Schedule 2.18(a) lists (i) each customer or client of the Company (including distributors) and its Affiliates accounting for more than two percent (2%) of the gross revenues of the Company and Affiliates (when consolidated) for each of the two most recent fiscal years (and the revenues generated from such customer or client) and (ii) any current customers or clients (including distributors) which the Company or its Affiliates reasonably anticipates shall account for more than two percent (2%) of the gross revenues of the Company for the fiscal year ending December 31, 2014 and six months ended June 30, 2015 (each, a “Material Customer”). No Material Customer has canceled or otherwise terminated
its relationship with the Company or its Affiliates or has materially decreased its usage or purchase of the services or products of the Company or its Affiliates. To the Knowledge of the Company, no Material Customer has any plan or intention to terminate, cancel or otherwise materially and adversely modify its relationship with the Company or its Affiliates or to decrease materially or limit its usage, purchase or distribution of the services or products of the Company or its Affiliates (whether as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Documents or otherwise).
(b) Except as described on Schedule 2.18(b) , neither the Company nor its Affiliates are performing work for, providing or selling products or services to, consulting or otherwise engaged by, or collecting fees, commissions or other payments from, any customer, client or third party without a fully executed and enforceable written Contract governing the terms of such engagement. Each of the arrangements described on Schedule 2.18(b) is legal, valid and binding and enforceable obligation of the Company or its Affiliates and, enforceable by the Company or its Affiliates against the other parties thereto, in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratoriums or similar laws at the time in effect affecting the enforceability or rights of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies.
(c) Schedule 2.18(c) lists each vendor, supplier, service provider and other similar business relation of the Company from whom the Company purchased greater than fifty thousand dollars ($50,000) in goods and/or services over the course of the twelve (12) months ended December 31, 2014 or the six months ended June 30, 2015 (each, a “ Material Supplier ”), the amounts owing to each such Material Supplier, and whether such amounts are past due. The Company has not received any written notice from any Material Supplier to the effect that, and the Company has no reason to believe that, such Material Supplier will stop, decrease the rate of, or change the terms (whether related to payment, price or otherwise) with respect to, supplying materials, products or services to the Company (whether as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Documents or otherwise).
2.19 Warranties, etc . There are no existing or threatened claims against the Company or its Affiliates relating to any work performed or services provided by the Company or its Affiliates and there are no liabilities for warranty or other claims with respect to any of the services of the Company or its Affiliates, including claims for refunds or discounts or non-payment for services already performed. .
2.20 Leased Real Property .
(a) The Company does not own any real property.
(b) Schedule 2.20 ( b) sets forth a complete list of all real property leased or subleased by the Company (the “ Leased Real Property ”), and the street address thereof. The Company has a valid leasehold interest in each Leased Real Property. The Company has made available to Buyer complete and accurate copies (including all amendments) of each of the leases for the Leased Real Property (the “ Leases ”). With respect to each Lease: (i) the Lease is legal, valid, binding and enforceable against the Company and, to the Knowledge of the Company, the other parties thereto, and is in full force and effect, and shall continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing subject only to bankruptcy, insolvency, reorganization, moratoriums or similar laws at the time in effect affecting the enforceability or rights of creditors generally and by general equitable principles which may limit the right to obtain equitable remedies; (ii) neither the Company nor, to the Knowledge of the Company, any other party to the Lease is in breach or default and no event has occurred which, with notice or lapse of time or both, would constitute such a breach or default by the Company or permit termination, modification or acceleration under the Lease; (iii) no party to the Lease has repudiated
any provision thereof; (iv) there are no disputes, oral agreements or forbearance programs in effect as to the Lease; (v) the Lease has not been modified in any respect, except to the extent that such modifications are disclosed by the documents delivered to Buyer; (vi) the Company has not subleased, assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the Lease; (vii) the rental set forth in the Lease is the actual rental being paid, the Company has paid all rental payments (and Taxes thereon) incurred up through the Closing Date, and there are no separate agreements or understandings with respect to the same; (viii) the Company has not exercised or given any notice of exercise, nor, to the Knowledge of the Company, has any lessor or landlord exercised or received any notice of exercise, of any option, right of first offer or right of first refusal contained in any Lease, including any such option or right pertaining to purchase, expansion, renewal, extension or relocation; and (ix) the Company’s possession and quiet enjoyment of the Leased Real Property under such Lease has not been disturbed and, to the Knowledge of the Company, there are no disputes with respect to such Lease.
2.21 Governmental Licenses and Permits; Legal Compliance .
Schedule 2.21 contains a complete listing of all material permits, licenses, franchises, certificates, approvals, consents, certificates of authorization, registrations and other authorizations of any Governmental Entity (including all applications therefor), or other similar rights, together with any renewals, extensions, or modifications thereof and additions thereto (collectively, the “ Permits ”) owned or possessed by the Company or used by the Company in the conduct of its Business. Except as set forth on Schedule 2.21 , the Company owns or possesses all right, title and interest in and to all Permits that are necessary to conduct its Business as currently conducted or as proposed to be conducted, except where the failure to own or possess such Permits would not have a Material Adverse Effect. The Company is in compliance with the terms and conditions of such Permits, except where the failure to so comply would not have a Material Adverse Effect. No loss or expiration of any Permit is pending or, to the Knowledge of the Company, threatened (including as a result of the transactions contemplated hereby) other than expiration in accordance with the terms thereof, which terms do not expire as a result of the consummation of the transactions contemplated hereby. Except as indicated on Schedule 2.21 , all of the Permits relating to any Purchased Assets are transferable to Buyer and will be transferred by the Company to Buyer on the Closing Date.
(e) The Permits described on Schedule 2.21 constitute all of the Permits, filings, notices, accreditation, waivers, and the like of, to or with any Governmental Entity or any other Person (collectively, the “ Consents ”) which the Company is required to have obtained pursuant and which are required for the consummation of the transactions contemplated by the Transaction Documents or the ownership of the assets or the conduct of the business of the Company and its Subsidiaries. All such Consents have been obtained by the Company, as applicable, as of the Closing and shall remain in full force and effect after the Closing.
2.22 Absence of Certain Developments . Except as set forth on Schedule 2.22 , since the date of the Latest Balance Sheet, (i) there has not been any event or circumstance that has had or could reasonably be expected to have a Material Adverse Effect, and (ii) the Company and its Affiliates have conducted their Business only in the ordinary course of business. As amplification but not limitation of the foregoing, since the date of the Latest Balance Sheet, the neither the Company nor any Affiliate has:
(a) redeemed or repurchased, directly or indirectly, any Securities;
(b) issued, sold or transferred any notes, bonds or other debt securities or any stock, securities convertible, exchangeable or exercisable into stock, or warrants, options or other rights to acquire stock, of the Company or its Affiliates ;
(c) borrowed any amount or incurred or become subject to any Indebtedness or other Liabilities, except trade payables and accrued liabilities incurred in the ordinary course of business;
(d) mortgaged, pledged or subjected to any Lien (other than Permitted Liens) any portion of its properties or assets;
(e) sold, leased, licensed (as licensor), assigned, disposed of or transferred (including transfers to the Company or any employees or Affiliates of the Company) any of its assets (whether tangible or intangible), except for sales in the ordinary course of business and sales of other assets not in excess of ten thousand dollars ($10,000) in the aggregate and other than licenses granted to customers in the ordinary course of business pursuant to Contracts containing terms and conditions with respect to the licensing of Intellectual Property substantially similar to the terms and conditions with respect to the licensing of Intellectual Property that the Company or its Affiliates generally agree to with its other customers, copies of which have been previously provided to Buyer;
(f) disclosed any proprietary confidential information to any Person that is not subject to any confidentiality agreement;
(g) suffered any extraordinary losses or waived any rights of material value, whether or not in the ordinary course of business;
(h) suffered any theft, damage, destruction or casualty loss in excess of ten thousand dollars ($10,000), to its assets, whether or not covered by insurance;
(i) entered into, amended, accelerated or terminated any Contract of the type required to be disclosed on Schedule 2.9(a) , taken any action or entered into any transaction involving more than ten thousand dollars ($10,000) or otherwise outside the ordinary course of business, or entered into any transaction with any Insider;
(j) (i) made or granted any bonus or increase in the compensation or benefits of any employee, officer or Contingent Worker of the Company or (ii) entered into, amended, modified or terminated any Employee Benefit Plan;
(k) conducted its billing and collection of receivables and inventory purchases other than in the ordinary course of business or materially changed its pricing structure;
(l) made any capital expenditures or commitments therefor (other than in the ordinary course of business and in amounts sufficient to support ongoing business operations);
(m) delayed or postponed the repair and maintenance of its properties or the payment of accounts payable, accrued liabilities and other obligations and Liabilities;
(n) made loans or advances to, guarantees for the benefit of, or any investments in, any Persons in excess of ten thousand dollars ($10,000) in the aggregate;
(o) instituted or settled any claim or lawsuit involving equitable or injunctive relief or the payment by or on behalf of the Company of more than ten thousand dollars ($10,000) in the aggregate;
(p) granted any performance guarantees to its customers other than in the ordinary course of business and consistent with the policies and practices disclosed to Buyer;
(q) declared, set aside or paid any dividend or made any similar distribution, redeemed, purchased or otherwise acquired, directly or indirectly, any of its capital stock (or other equity securities), or made any loan or entered into any Contract or other transaction with or distributed any assets or property to any Insiders, except for compensation paid to Insiders in the ordinary course of business;
(r) acquired any other business or entity (or any significant portion or division thereof), whether by merger, consolidation or reorganization or by the purchase of its assets or capital stock or other securities;
(s) changed any Tax election or Tax accounting method, filed any amended Tax Return or claim for refund, consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment, settled or comprised any Action, controversy or audit relating to Taxes, or incurred any Liability for Taxes other than in the ordinary course of business; or
(t) committed or agreed, in writing or otherwise, to do any of the foregoing, except as expressly contemplated by the Transaction Documents.
2.23 Bank Accounts . Schedule 2.23 lists all of the Company’s bank accounts.
2.24 Privacy of Individually Identifiable Personal Information . Any collection and use of individually identifiable personal information by the Company and its Affiliates comply in all material respects with the Company’s privacy policies, any Contract between the Company and any other Person relating to privacy and all applicable Legal Requirements.
2.25 Investment Company Status . The Company is not and has not been at any time, nor is the Company controlled by (or has ever been controlled by) any Person who is (or was at such time), an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
2.26 Statements True and Correct . No representation, warranty or disclosure made by the Company in any Transaction Document, or any of the Schedules, attachments or Exhibits hereto or thereto, contains any untrue statement of fact or omits to state any material fact necessary in order to make statements contained herein or therein not misleading in light of circumstances under which they were made.
2.27 No Other Representations or Warranties .. Except for the representations and warranties contained in the Transaction Documents, or any of the Schedules, attachments or Exhibits hereto or thereto, the Company and the Seller Stockholder make no other representations or warranties, express or implied, and the Company and the Seller Stockholder hereby disclaim any such other representations or warranties, whether by the Company, the Seller Stockholder or any other Person, with respect to this Agreement and the transactions contemplated hereby, notwithstanding the delivery or disclosure to Buyer of any documentation or other information by the Company, the Seller Stockholder or any other Person with respect to any of the foregoing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Seller Stockholder and the Company to enter into and perform their respective obligations under this Agreement, Buyer represents and warrants that the statements contained in this Article 3 are true and correct as of the Closing Date.
3.1 Organization of Buyer . Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company possesses all requisite corporate power and authority and all licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and to carry out the transactions contemplated by the Transaction Documents.
3.2 Authorization of Transaction . Buyer has full corporate power and authority to execute and deliver the Transaction Documents and to perform its obligations thereunder. The execution, delivery and performance of the Transaction Documents to which Buyer is a party have been duly authorized by Buyer. Each of the Transaction Documents to which Buyer is a party constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions.
3.3 Non-contravention . The execution and delivery by Buyer of this Agreement, and all other Transaction Documents to which it is a party, and the fulfillment of and compliance with the respective terms hereof and thereof, do not and shall not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any Lien upon the securities or any asset or property of Buyer pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any exemption or other action by or notice or declaration to, or filing with, or other Consent from, any Governmental Entity pursuant to, the charter or bylaws or equivalent governing document of Buyer, or any Legal Requirement to which Buyer or any of its Affiliates or any of their assets or properties is subject (excluding any notice, filing or other action that may be required pursuant to the Securities Exchange Act or any state securities or state “Blue Sky” laws), or any Contract, order, judgment or decree to which Buyer or any of its Affiliates or any of their assets or properties is subject.
3.4 Brokers . There are no claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement or any of the Transaction Documents based on any Contract to which Buyer is a party or otherwise binding upon Buyer. Except as set forth in Schedule 3.4 , Buyer has not made, and Buyer is not obligated to make, any payment to any Person in connection with the transactions contemplated by the Transaction Documents. Buyer shall pay, and hold the Company harmless against, any Liability (including reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any such claim.
3.5 Statements True and Correct . No representation, warranty or disclosure made by Buyer in any Transaction Document, or any of the Schedules, attachments or Exhibits hereto or thereto, contains any untrue statement of fact or omits to state any fact necessary in order to make statements contained herein or therein not misleading in light of circumstances under which they were made.
3.6 No Other Representations or Warranties. Except for the representations and warranties contained in any Transaction Document, or any of the Schedules, attachments or Exhibits hereto or thereto, Buyer makes no other representations or warranties, express or implied, and Buyer hereby disclaims any such other representations or warranties, whether by Buyer or any other Person, with respect to this Agreement and the transactions contemplated hereby, notwithstanding the delivery or disclosure to the Company or the Seller Stockholder of any documentation or other information by Buyer or any other Person with respect to any of the foregoing.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Expenses . Except as otherwise provided herein or in any other Transaction Document, each Party hereto shall pay all of its own fees, costs and expenses (including, without limitation, fees, costs
and expenses of legal counsel, investment bankers, brokers or other representatives and consultants and appraisal fees, costs and expenses) incurred in connection with the negotiation of this Agreement and the Transaction Documents, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby (whether consummated or not).
4.2 Certain Filings . The Company and the Seller Stockholder, on the one hand, and Buyer shall cooperate with each other and use their commercially reasonable efforts to promptly obtain the authorizations, consents, registrations, permits, confirmations, orders and approvals necessary for their execution and delivery of, and the performance of their obligations pursuant to, this Agreement from any Governmental Entity. The Parties hereto will not take any action that will have the effect of delaying, impairing or impeding the receipt of any required approvals and shall promptly respond to any requests for additional information from any Governmental Entity or other third party in respect thereof.
4.3 Trademarks; Tradenames; Domain Names . As soon as practicable after the Closing, the Company shall eliminate, and shall cause each Affiliate to eliminate, the use of all of the trademarks, tradenames, service marks and service names included in the Purchased Assets, in any of their forms or spellings, on all advertising, stationery, business cards, checks, purchase orders and acknowledgments, customer agreements and other contracts and business documents; provided, however, that the Company shall be entitled to use such trademarks, tradenames, service marks and service names to the extent reasonably necessary to deal with Excluded Assets and Excluded Liabilities. The Company shall as soon as practicable after the Closing, but in no event later than thirty (30) days after the Closing, change the corporate name of the Company so as to bear no resemblance to the current name of the Company (and shall cause each Affiliate to do the same).
4.4 Payments With Respect to Purchased Assets . The Company shall promptly remit to Buyer all monies received by the Company or any of its Affiliates following the Closing Date in payment for any Purchased Assets (including all Assumed Contracts, with respect to services performed after the Closing Date) acquired by Buyer pursuant to this Agreement (unless such payments constitute Excluded Assets), net of the Client Payable Amount. Payments remitted to Buyer pursuant to this Section 4.4 shall be in the form received by the Company or any of its Affiliates.
4.5 Tax Matters .
(a) Transfer Taxes . The Company shall be liable for and shall hold Buyer harmless against any transfer, documentary, sales, use, value added, excise, stock transfer, stamp, recording, registration and any similar Taxes and fees (whether of the Company or any Affiliate), including any penalties and interest thereon, that become payable in connection with the transactions contemplated by this Agreement (“ Transfer Taxes ”). Buyer may withdraw the amount of any Transfer Taxes from the Holdback Amount in order to satisfy Company’s obligations hereunder. The applicable Parties shall cooperate in filing such forms and documents as may be necessary to permit any such Transfer Tax to be assessed and paid on or prior to the Closing Date in accordance with any available pre-sale filing procedure, and to obtain any exemption or refund of any such Transfer Tax.
(b) Tax Deficiencies . The Company shall not permit to exist any Tax deficiencies (including penalties and interest) of any kind assessed against or relating to the Company or any Affiliate with respect to any taxable periods ending on or before, or including, the Closing Date of a character or nature that could reasonably be expected to result in Liens (other than Permitted Liens) or claims on any of the Purchased Assets or on Buyer’s title or use of the Purchased Assets following the Closing or that would reasonably be expected to result in any claim against Buyer (except those Tax deficiencies being contested in good faith by the Company).
(c) Apportioned Taxes . Subject to Section 4.5(a) , all real property Taxes, personal property Taxes and similar ad valorem obligations levied with respect to the Purchased Assets for a taxable period which includes (but does not end on) the Closing Date (collectively, the “ Apportioned Obligations ”) shall be apportioned between the Company and Buyer as of the Closing Date based on the number of days of such taxable period ending on and including the Closing Date (“ Pre-Closing Apportioned Period ”) and the number of days of such taxable period beginning from the day after the Closing Date through the end of such taxable period (the “ Post-Closing Apportioned Period ”). The Company shall be liable for the proportionate amount of Apportioned Obligations that is attributable to the Pre-Closing Apportioned Period. Buyer shall be liable for the proportionate amount of the Apportioned Obligations that is attributable to the Post-Closing Apportioned Period. Within ninety (90) days after the Closing, the Company and Buyer shall present a statement to the other setting forth the amount of reimbursement to which each is entitled under this Section 4.5(c) (which shall take into account, any Taxes previously overpaid by a party) together with such supporting evidence as is reasonably necessary to calculate such amount to be reimbursed. Such amount shall be paid by the Party owing it to the other Party within ten (10) Business Days after delivery of such statement. Thereafter, Buyer shall notify the Company upon receipt of any bill for real property Taxes, personal property Taxes or similar ad valorem obligations relating to the Purchased Assets, part or all of which are attributable to the Pre-Closing Apportioned Period, and shall promptly deliver such bill to the Company who shall (if so permitted) pay the same to the appropriate Governmental Entity; provided that if such bill also relates to the Post-Closing Apportioned Period, the Company shall remit, prior to the due date of assessment, to Buyer payment only for the proportionate amount of such bill that is attributable to the Pre-Closing Apportioned Period. In such a case, Buyer shall be responsible to timely remit payment to the relevant Government Entity. If either the Company or Buyer shall make a payment for which it is entitled to reimbursement under this Section 4.5(c) , the party that is liable for such payment pursuant to this Section 4.5(c) shall make such reimbursement promptly but in no event later than ten (10) Business Days after the presentation of a statement setting forth the amount of reimbursement to which the presenting party is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement. Any Tax refunds, credits or overpayments attributable to real property Taxes, personal property Taxes and similar ad valorem obligations levied with respect to the Purchased Assets shall be apportioned between the Buyer and the Company in accordance with the apportionment provided in this Section 4.5(c) .
(d) Cooperation on Tax Matters . The Parties shall cooperate fully, as and to the extent reasonably requested by any other Party, in connection with the filing of Tax Returns, and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention for the period of the statute of limitations and (upon the other Party’s reasonable request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available (provided that if the Company has no employees it shall be under no obligation to hire any employees) on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Each Party shall provide to the others, within ten (10) Business Days of the receipt thereof, any tax related communications and notices it receives which may impact the other Party’s Tax Liability or filing responsibilities. Prior to destroying or disposing of any records or information relating to Taxes of the Company for periods (or portions thereof) ending on or prior to the Closing Date, Company shall give Buyer thirty (30) days’ prior written notice and Buyer shall have the right to take possession of such records and information.
4.6 Confidentiality; Non-Compete; Non-Solicitation . In further consideration for the payment of the Purchase Price hereunder, each of the Company and Seller Stockholder as applicable, agrees as follows:
(a) The Seller Stockholder has had access to Confidential Information of the Company and its Affiliates and its related entities (each of the foregoing, an “Agora Entity,” and
collectively, the “Agora Group”). The Company and the Seller Stockholder agree that unless such Party first secures the written consent of an authorized representative of Buyer, following the Closing such Party shall not use, and shall cause its Affiliates not to use, and shall use reasonable efforts to cause its agents, representatives, employees and officers not to use, for his, her or itself or anyone else, and shall not disclose to others, any Confidential Information, other than (i) on behalf of and for the benefit of Buyer or (ii) to the extent such use or disclosure is required by law or order of any Governmental Entity (in which event the Company and Seller Stockholder, as applicable, shall inform Buyer in advance of any such required disclosure, shall cooperate with Buyer in all reasonable ways in obtaining a protective order or other protection in respect of such required disclosure, and shall limit such disclosure to the extent reasonably possible while still complying with such requirements). The Company and Seller Stockholder shall use reasonable care to safeguard Confidential Information and to protect it against disclosure, misuse, espionage, loss and theft.
(b) Each of the Company and Seller Stockholder further agrees that, at any time requested, such Party shall promptly deliver to Buyer all Confidential Information and other Intellectual Property (to the extent such Intellectual Property relates to the Purchased Assets) of the Agora Group in his, her or its possession and control and all copies thereof, in whatever form or medium, including, without limitation, written records, optical, magnetic or digital media, and all other materials containing or embodying any such Confidential Information and/or Intellectual Property. If Buyer requests, the Company and Seller Stockholder, as applicable, shall promptly provide written confirmation that such Party has returned all such materials.
(c) Each of the Company and Seller Stockholder agree that the Company and its Affiliates have received from third parties confidential or proprietary information of such third party that may be subject to a duty on the Company’s and Affiliates’ part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Company and Seller Stockholder agree that he, she or it owes Buyer and such third parties a duty to hold all such confidential or proprietary information in the strictest confidence to the extent such information relates to the Purchased Assets, and each agrees not to disclose it to any person, firm, or corporation (except as necessary in carrying out such Party’s future work for Buyer consistent with the agreement with such third party) or to use it for the benefit of anyone other than for Buyer or such third party (consistent with the agreement with such third party) without the express authorization of Buyer.
(d) For a period of three (3) years from the Closing Date (the “ Non-Compete Period ”), neither the Company nor the Selling Stockholder shall, and neither shall authorize any of its respective Affiliates to, directly or indirectly (whether as an owner, partner, operator, manager, employee, officer, director, consultant, advisor, representative, agent or independent contractor of any Person or otherwise) (i) engage in any business or accept employment with any Buyer Competitor or Company Competitor (as defined below); or (ii) provide any Competitive Services or Competitive Products (each as defined below) whether directly or indirectly and whether on its or his own or on behalf of any Buyer Competitor or Company Competitor (as defined below) to any third party; provided that the foregoing restriction shall not apply to ownership of less than 3% of the outstanding stock of any publicly-traded corporation. “ Buyer Competitor ” shall mean any Person whose principal business, or any business unit, division or subsidiary of a Person whose principal business, is the provision of global engineering and/or information technology services using an off-shore model where at least a majority of the company’s (or in the case of a business unit, division or subsidiary, majority of its employees, as the case may be) employees are located in non-U.S. locations (i.e., India, Sri Lanka, China etc.) and “Company Competitor” shall mean any business that provides products or services the same as or substantially similar to or competitive with the Business within the Territory. Each of the Company and Seller Stockholder agrees that this covenant is reasonable with respect to its duration, geographical area and scope.
(e) As a separate and independent covenant, each of the Company and the Seller Stockholder agrees that, during the Non-Compete Period, without the prior written consent of Buyer, it shall not, and shall not authorize any of its Affiliates to, directly or indirectly (whether as an owner, partner, operator, manager, employee, officer, director, consultant, advisor, representative, agent or independent contractor of any Person or otherwise), to (i) divert, take away or solicit (or attempt to do any of the foregoing) any of the customers of the Agora Group, including those of the Company or the Buyer (the “ Combined Customers ”), or any proposed or prospective customers of the Agora Group, including those of the Company or the Buyer, other than pursuant to relationships with Buyer or any of its Subsidiaries on behalf of, and to the benefit of, the Buyer, (ii) call on, divert, take away, solicit, or service any Combined Customer, any supplier, licensee, licensor or other business relation or Prospective Customer of the Agora Group, including Buyer or the Company, or (iii) induce or attempt to induce any Combined Customer, supplier, licensee, licensor or other business relation of the Agora Group to cease doing business with the Agora Group, in each of cases (i), (ii) and (iii) above with respect to products and/or services that have been provided by the Agora Group, including the Buyer or the Company, are currently being provided by the Agora Group or which the Agora Group is currently in the process of developing or which services or products are provided or offered at any time prior to of the expiration of the Non-Compete Period, such services being referred to hereunder as “ Competitive Services ” and such products being referred to as “ Competitive Products .” . A customer shall be deemed a proposed or prospective customer of the Agora Group if (a) the Buyer or any Affiliate thereof is actively soliciting the business of such prospective or proposed customer in connection with the Business, (b) the Company or any Affiliate was engaged in such active negotiations at the time of the Closing, or (c) the customer is otherwise being actively solicited by the Agora Group, including Buyer or Company (the “ Prospective Customer ”), in each case, including at any time prior to the expiration of the Non-Compete Period. During the Non-Compete Period, as a separate and independent covenant, the Company and the Seller Stockholder each agrees that, without the prior written consent of Buyer, it shall not, and shall not authorize any of its Affiliates to, directly or indirectly (whether as an owner, partner, operator, manager, employee, officer, director, consultant, advisor, representative, agent or independent contractor of any Person or otherwise) hire, recruit, solicit or induce, or attempt to hire, recruit, solicit or induce, any employee or consultant of the Agora Group or its Affiliates to terminate or otherwise cease his or her employment or consulting relationship with the Agora Group or its Affiliates, or assist directly or indirectly in the recruitment or solicitation of any employee or consultant of the Agora Group or its Affiliates or otherwise hire or attempt to hire any such employee or consultant of the Agora Group or its Affiliates for any purpose, other than on behalf of, and to the benefit of, the Buyer. For this purpose, an employee or consultant of the Agora Group or its Affiliates shall include any former employee or consultant of the Agora Group or Buyer or any of its Subsidiaries for a period of six (6) months after termination or cessation of their employment with the Agora Group.
(f) The Seller Stockholder acknowledges that, in the course of his employment with the Agora Group, Seller Stockholder has become familiar with the Confidential Information of the Agora Group. The Seller Stockholder further acknowledges that he has had direct or indirect responsibility, oversight or duties with respect to all of the businesses of the Agora Group and its and their current and prospective employees, vendors, customers, clients and other business relations, and that, accordingly, the restrictions contained in this Section 4.6 are reasonable in all respects and necessary to protect the goodwill and Confidential Information of the Agora Group and that, without such protection, the Agora Group customer and client relationship and competitive advantage would be materially adversely affected. It is specifically recognized by the Company and the Seller Stockholder that Seller Stockholder ‘s services to the Agora Group are special, unique, and of extraordinary value, that the Buyer has a protectable interest in prohibiting the Company and Seller Stockholder as provided in this Section 4.6, that such Seller Stockholder was significantly responsible for the creation and preservation of the Agora Group goodwill, and that money damages are insufficient to protect such interest, and that such prohibitions would be necessary and appropriate without regard to payments being made to the Company and the Seller Stockholder hereunder. The Company and the Seller Stockholder each further acknowledges that the
restrictions contained in this Section 4.6 do not impose an undue hardship on him or it, and that Seller Stockholder has general business skills which may be used in industries other than that in which the Agora Group conducts its business and do not deprive the Seller Stockholder of his livelihood.
(g) If, at the time of enforcement of this Agreement, a court or arbitrator’s award holds that the restrictions stated in this Section 4.6 are unreasonable under circumstances then existing, the Parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. The Parties hereto agree that money damages would not be an adequate remedy for any breach of this Section 4.6 . Therefore, in the event of a breach or threatened breach of any provisions of this Section 4.6 that is continuing, Buyer, its successors and permitted assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof. In addition, in the event of a breach or violation by the Company or the Seller Stockholder of this Section 4.6 , the Non-Compete Period with respect to such Party shall be tolled until such breach or violation has been duly cured. In the event an arbitrator or a court of competent jurisdiction determines that the Company or a Seller Stockholder has breached any provision of this Section 4.6 , in addition to all other rights and remedies, Buyer shall be entitled to recover from such Party attorneys’ fees associated with establishing such breach. The Company and Seller Stockholder agree that the restrictions contained in this Section 4.6 are reasonable.
(h) The Company and Seller Stockholder each acknowledge, represent and warrant that: (i) sufficient consideration has been given to such Party by Buyer with respect to the transactions contemplated by this Agreement; (ii) he, she or it has consulted with independent legal counsel regarding his, her or its rights and obligations under this Section 4.6 ; (iii) that he, she or it fully understands the terms and conditions contained herein; and (iv) that the agreements in this Section 4.6 are reasonable and necessary for the protection of Buyer and are an essential inducement to Buyer to enter into this Agreement.
(i) The Company and Seller Stockholder each further represent and warrant that: (i) the execution, delivery and performance of this Agreement does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which such Party is a party or by which he, she or it is bound; and (ii) this Agreement is a valid and binding obligation on such Party and is enforceable in accordance with its terms.
4.7 Litigation Support . In the event that, and for so long as, any Party is actively contesting or defending against any Action in connection with (i) any transaction contemplated by any of the Transaction Documents or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Purchased Assets or the transactions contemplated by the Transaction Documents, each of the other Parties will reasonably cooperate with such contesting or defending Party and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under the provisions of this Agreement or unless such Action involves a dispute between or among the Parties).
4.8 Transition Services . The Company and Seller Stockholder will not in any manner take any action which is designed, intended or might reasonably be anticipated to have the effect of discouraging customers, clients, suppliers, vendors, service providers, lessors, licensors and other business associates of the Company from maintaining the same business relationships with Buyer after the date of this Agreement.
4.9 Employee and Related Matters.
(a) Transferred Employees . As of the Closing Date, the employees of the Company (and Affiliate of Company) who are actively employed by the Company (and/or by any Affiliate of Company) (the “ Active Employees ”) and all of the key employees of the Company (or Affiliate thereof) (the “ Key Employees ”) shall be offered employment by either Buyer or one of its Affiliates (the “ Employer ”). The Company shall use its commercially reasonable efforts to cause substantially all of the Active Employees and all of the Key Employees to accept employment with the Employer prior to the Closing and will use its commercially reasonable to cause all Active Employees to accept employment with the Employer within ten (10) Business Days of the Closing; provided , however , to the extent that the employment of an Active Employee is subject to a work visa (a “ Foreign Employee ”) such ten (10) day period shall be extended for such time as necessary for the Foreign Employee to have the necessary paperwork to be employed by the Employer completed so long as such extended period does not exceed forty-five (45) Business Days after the Closing Date. The Foreign Employees of the Company are set forth on Schedule 4.9(a) . Not later than the Closing Date (or such later date as may be agreed in writing by Buyer or, in the case of certain Active Employees and Foreign Employees, such longer period specified in the preceding sentence), the Company shall have terminated the employment of all Active Employees. The Employer shall not offer employment to any employees of the Company who, as of the Closing Date, are absent from active employment with the Company for any reason (including as a result of layoff or leave of absence) (the “ Inactive Employees ” and, together with the Active Employees and the Key Employees, the “ Company Employees ”). The Active Employees and Key Employees who accept employment with the Employer shall be referred to herein as “ Transferred Employees .” The Company Employees who are not offered employment with, or who do not accept employment with, the Employer shall be referred to herein as “ Non-Transferred Employees .” Nothing in this Agreement shall limit the Employer’s ability to modify the salary, wage, benefit or overall compensation level or terminate the employment of any Transferred Employee at any time and for any reason, including without cause. Except as described in this Section 4.9 , neither Buyer nor any of its Affiliates shall have any Liability with respect to any Non-Transferred Employee or former employee or retiree of the Company (except with respect to individuals subsequently hired by the Buyer or any of its Affiliates)(including any Person currently covered by any benefit plan of the Company who is not a Transferred Employee), regardless of when such Liability arises or occurred (whether on, prior to or after the Closing Date). The Company shall be solely responsible for the payment of all wages, salaries and other compensation and employee benefits (including any commissions, accrued vacation, bonuses, incentive compensation payments, severance pay, notice pay, insurance, supplemental pension, deferred compensation, “stay” or other similar incentive bonuses, change-in-control bonuses (or other bonuses or compensation related in any way to the execution, delivery or performance of this Agreement), retirement and any other benefits, premiums, claims and related costs) based on or arising under employment with the Company of the Company Employees or arising under any applicable Law or Legal Requirement as applied to Company or any Affiliate, including without limitation, the Transferred Employees. Without limiting the foregoing, the Company shall be responsible for the payment of any accrued bonuses, vacation pay, severance, notice pay, supplemental pension, gratuity, retirement, deferred compensation and any other benefits, premiums, claims and related costs owed to, or accrued with respect to any Transferred Employees up to the Closing Date. Buyer shall be solely responsible for the payment of all wages, salaries and other compensation and employee benefits (including any severance pay, notice pay, insurance, supplemental pension, deferred compensation, bonuses, retirement and any other benefits, premiums, claims and related costs) to any of the Transferred Employees arising solely out of their employment with the Employer or its Affiliates on or after the Closing Date. Neither Buyer nor any of its Affiliates shall assume any Liability with respect to any Employee Benefit Plan of the Company or any Affiliate or other employee benefit plan of any kind or nature maintained by the Company or Affiliate thereof for any of their employees, former employees or retirees, except as set forth in this Section 4.9 .
(b) Benefits Plans . Prior to or on the Closing Date, the Company shall make all employee and required employer contributions to the Company’s 401(k) plan (the “ Company 401(k) Plan ”), and shall cause the accounts of all Transferred Employees under the Company 401(k) Plan to become fully vested (if applicable) and paid in full (subject to the terms of the Company 401(k) Plan) as of the Closing Date.
(c) Employee Benefits . As of the Closing Date, Employer shall permit Transferred Employees to be eligible to participate in all employee plans and benefit arrangements of Employer with the exception of the Employer 401(k) Plan (the Transferred Employees shall be eligible to participate in the Employer 401(k) Plan at the next enrollment opportunity in accordance with the Employer’s 401(k) Plan) and waiting or other notice periods and other terms and conditions as set forth in such plans in which similarly situated employees of Employer are generally eligible to participate in accordance with the then prevailing terms of such employee plans and benefit arrangements, provided , however , that (i) nothing herein shall prevent Employer from terminating the employment of any such Transferred Employee or modifying or terminating such plans from time to time, and (ii) all Transferred Employees of the Company and their spouses and dependents who are covered under the Company’s health plan at the time of the Closing shall be eligible to be covered immediately after the Closing Date under a group health plan of the Employer.
(d) Mutual Cooperation . Subject to applicable Law (including any privacy laws) and the Mutual Non-Disclosure Agreement between the Company and Buyer, dated as of March 9, 2015 (the “ NDA ”), the Company shall provide promptly to the Employer, at the Employer’s request, any information or copies of personnel records (including addresses, dates of birth, dates of hire, work- and pay-related and dependent information) relating to the Transferred Employees or relating to the service of Transferred Employees with the Company (and predecessors of the Company, as applicable) prior to the Closing Date. The Company and the Employer shall each cooperate with the other and shall provide to the other such documentation, information and assistance as is reasonably necessary to effect the provisions of this Section 4.9 .
(e) Additional Covenants . The Company shall retain all Liabilities in respect of the Employee Benefit Plans of the Company, whether incurred on, prior to, or after the Closing. All claims incurred by Transferred Employees on or prior to the Closing Date under the Employee Benefit Plans of the Company shall be covered pursuant to the terms and conditions of such Employee Benefit Plans. For purposes of this paragraph, a claim shall be deemed to be incurred on the date on which medical or other treatment or service is rendered and not the date of the submission of the claim related thereto.
(f) Employee Wages Tax Reporting . The Parties agree to utilize, or cause their respective Affiliates to utilize, the standard procedure set forth in Section 4 of Revenue Procedure 2004-53, 2004-34 I.R.B.320 (Aug. 23, 2004) for wage reporting with respect to the Transferred Employees.
(g) Employee Resignations . At the Closing, the Company shall cause the Key Employees to deliver to Buyer an executed resignation letter, in a form acceptable to Buyer, evidencing such Key Employee’s resignation from the Company and any and all Affiliates thereof, with such resignation to be effective immediately prior to the Closing.
4.10 Employee Equity Incentive Pool . Buyer shall set aside an equity incentive pool in an aggregate amount of two million eight hundred ninety thousand dollars ($2,890,000) (but in no event shall such incentive pool exceed seventy-seven thousand (77,000) shares of common stock of Buyer) (the “ Incentive Pool ”) for certain employees of the Company. On or before the Closing, Buyer shall deliver to the Company a schedule, mutually agreed upon by Buyer and the Company,
setting forth the employees to be provided awards from the Incentive Pool and the form, amounts and vesting schedules of such awards.
4.11 Seller Personal Information. Buyer shall, and shall cause its Affiliates and representatives to, comply with all applicable Legal Requirements regarding, and maintain in confidence, any information relating to the Seller Stockholder or any Company Employees provided to Buyer in connection with the transactions contemplated by this Agreement.
4.12 Company Financial Statements. On or before September 30, 2015, the Company shall provide to Buyer the Company’s consolidated balance sheets as of June 30, 2015 and July 31, 2015 and the related statements of profit and loss and cash flows for each of the monthly periods then ended, each such date. Such financial statements will be accurate and complete in all material respects, be consistent with the books and records of the Company (which, in turn, will be accurate and complete in all material respects) and will be prepared on a basis consistent with the preparation of the Financial Statements, subject to changes resulting from normal year-end adjustments (none of which would be material either individually or in the aggregate for any such period).
4.13 Maintenance of the Existence of the Company. At all times from and after the Closing Date until the third anniversary of the Closing Date, (i) the Company shall, and the Seller Stockholder shall cause the Company to, remain in existence as a corporate entity, (ii) the Company shall not, and the Seller Stockholder shall cause the Company not to, wind-up or dissolve or take any corporate action contemplating any of the foregoing; provided that none of the foregoing shall restrict the Company’s right to pay dividends or make distributions of available cash or other property to its shareholders as determined in the Company’s sole discretion.
4.14 Insurance . The Company shall at all times for three years after the Closing maintain insurance coverage in the amounts and types commercially appropriate for the nature of the Company’s business at any such time. At Buyer’s reasonable request, if possible and appropriate for the type of insurance at issue, the Company shall name Buyer as an additional insured on such policies.
4.15 Public Announcements. Except as may otherwise be required by Legal Requirements or as expressly set forth herein, the timing and content of all press releases and public announcements relating to the transactions contemplated by this Agreement and the other Transaction Documents shall be determined by Buyer and Company shall not make any press release or public announcement or authorize or permit any third party (including any broker or agent thereof) to make any press releases or public announcements regarding the Transaction without the prior written consent of Buyer. Except as may otherwise be required by Legal Requirements or as expressly set forth herein or in Section 4.9(a) , the timing and content of all communications to the Company’s customers, vendors and employees relating to the transactions contemplated by this Agreement and the other Transaction Documents shall be determined jointly by Buyer and the Company and agreed in writing prior to the Closing Date and thereafter only by Buyer.
ARTICLE 5
DELIVERABLES
5.1 Company Deliverables . At the Closing, the Seller Stockholder or the Company, as applicable, shall deliver the following documents to Buyer:
(a) Executed counterparts to each Transaction Document to which the Company or the Seller Stockholder is a party.
(b) Evidence of all filings, notices, licenses, assignments, permits and other consents of, to or with, any Governmental Entity or any other Person that are required of the Company for the consummation of the transactions contemplated by the Transaction Documents.
(c) Executed counterparts to all third party consents and estoppel certificates that Buyer deems necessary or desirable under the Assumed Contracts set forth on Schedule 5.1(c) hereto, in the form and substance reasonably satisfactory to Buyer (the “ Required Contract Consents ”).
(d) Evidence that all Affiliated Transactions identified on Schedule 2.17 have been terminated and are no longer of any force or effect.
(e) All releases from third parties of any and all Liens (other than Permitted Liens) relating to the Purchased Assets, in each case, as set forth on Schedule 5.1(f) .
(f) From each Key Employee, a completed and executed resignation letter, in a form reasonably acceptable to Buyer, evidencing such Key Employee’s resignation from the Company and any and all Affiliates thereof, with such resignation to be effective immediately prior to the Closing.
(g) With respect to all Active Employees and all of the Key Employees, as set forth on Schedule 4.9(a) , (i) completed and executed employment agreements or consulting agreements, as applicable, in the forms set forth on Exhibit A hereto (the “ Employment Agreements ”), and (ii) any other agreements or documents, completed and executed by such employees, that are required by Buyer generally of its employees.
(h) Completed and executed employment agreements or consulting agreements, as applicable, in the forms set forth on Exhibit A-1 hereto (the “ Indian Employment Agreements ”) with an Indian subsidiary of Buyer, and (ii) any other agreements or documents, completed and executed by such employees, that are required by Buyer generally of its employees located in India with respect to the employees listed on Exhibit A-1.
(i) A copy of (i) the articles of incorporation, as amended, of the Company certified by a duly authorized officer of the Company, dated as of the Closing Date, stating that such articles of incorporation are true and correct, as filed with the Secretary of State of Georgia and that no amendments have been made to such articles of organization since such date, (ii) the bylaws of the Company, as amended and currently in effect, certified by a duly authorized officer of the Company, and (iii) copies of the resolutions duly adopted by the Company’s shareholders and board of directors, authorizing the execution, delivery and performance of this Agreement and the Transaction Documents and approving the transactions contemplated hereby and thereby, in each case, certified by a duly authorized officer of the Company.
(j) A certificate of the Secretary of State of the jurisdiction in which the Company is organized stating that the Company is in good standing, dated no later than the Closing Date.
(k) A funds flow memorandum duly executed by the Company and setting forth, among other things, the amount of estimated Transaction Expenses of the Company payable at the Closing.
(l) Certificate of non-foreign status described in Treasury regulations Section 1.1445-2(b)(2) from the Company in the form set forth on Exhibit B hereto.
(m) The Agora India Transfer Documentation.
(n) Such other documents or instruments as Buyer may reasonably request to effect the transactions contemplated hereby.
5.2 Buyer Deliverables . At the Closing, Buyer shall deliver the following documents to the Company:
(a) Executed counterparts of each Transaction Document and each Employment Agreement to which Buyer is a party.
(b) A certificate of an authorized officer of Buyer certifying resolutions of the Board of Directors of Buyer adopting and approving the execution and delivery of this Agreement and any other Transaction Document to which Buyer is a party, and the consummation of the transactions contemplated hereby and thereby.
(c) Evidence of all filings, notices, licenses, permits and other consents of, to or with, any Governmental Entity or any other Person that are required of Buyer: (i) for the consummation of the transactions contemplated by the Transaction Documents; (ii) in order to prevent a breach of or default under or a right of termination or modification of any Contract to which the Company is a party or to which any portion of the property of Buyer is subject; or (iii) for the conduct of the business of Buyer as heretofore conducted following the Closing.
(d) Such other documents or instruments as the Company may reasonably request to effect the transactions contemplated hereby.
ARTICLE 6
REMEDIES FOR BREACHES OF THIS AGREEMENT AND OTHER
MATTERS
6.1 Survival of Representations and Warranties . All of the representations and warranties of the Company and/or the Seller Stockholder, on the one hand, and Buyer, on the other hand, set forth in this Agreement or in any other Transaction Document shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (regardless of any investigation, inquiry or examination made by or on behalf of, or any knowledge of, or the acceptance of any certificate by or on behalf of, any Party, or the acceptance of any of the disclosure schedules attached hereto or any certificate).
6.2 Indemnification of Buyer .
(a) Subject to the limitations set forth in Sections 6.2(b) and 6.2(c) , the Company and the Seller Stockholder, jointly and severally, shall indemnify Buyer and each of its Affiliates, officers, directors, employees, agents, representatives, successors and permitted assigns (each, a “ Buyer Party ”), and save and hold each of them harmless from and against, and pay on behalf of or reimburse any Buyer Party as and when incurred for, all Losses which any Buyer Party may incur, suffer, sustain or become subject to as a result of:
(i) any breach of any representation or warranty made by the Company or the Seller Stockholder and contained in this Agreement, any other Transaction Document or in any schedule or exhibit attached to this Agreement, any other Transaction Document;
(ii) any breach of any covenant made by or in respect of the Company or such Seller Stockholder under this Agreement or any other Transaction Document;
(iii) any Liability related to a Purchased Asset arising on or before the Closing Date or with respect to any period prior to the Closing Date
(iv) any Excluded Asset or Excluded Liability; and
(v) any claim by any Person or Persons related to, or arising out of, any of the foregoing.
(b) Survival Date . Neither the Company nor the Seller Stockholder will be liable with respect to any claim made pursuant to Section 6.2(a)(i) above for the breach of any representation or warranty contained in Article 2 of this Agreement or in any other Transaction Document unless written notice of a possible claim for indemnification with respect to such breach is given by a Buyer Party to the Company or the Seller Stockholder as applicable, as follows (such date, with respect to each Section, is referred to herein as its “ Survival Date ”):
(i) on or before the date which is thirty (30) days after the expiration of the applicable statute of limitations (including any extension or waivers thereof) with respect to claims arising under Sections 2.8 (Tax Matters) and 2.15 (Employee Benefits);
(ii) at any time with respect to claims arising under Sections 2.1 (Organization; Corporate Power and Licenses of the Company), 2.2 (Capitalization and Related Matters), Section 2.3 (No Subsidiaries), 2.4(a) (Authorization), and, as applicable (the representations and warranties contained in the Sections referenced in clause (b)(i) and this clause (b)(ii) are collectively referred to herein as the “ Seller Fundamental Representations ” and, individually, as a “ Seller Fundamental Representation ”);
(iii) on or before the second anniversary of the Closing Date with respect to claims arising under Sections 2.4(b) (No Breach), 2.10 (Intellectual Property Rights), 2.14 (Employees), 2.16 (Compliance with Laws) or 2.18(b) (Certain Customer Contracts) or 2.19 (Warranties);
(iv) on or before the first anniversary of the Closing Date with respect to claims arising under any other Section of Article 2 ; and
(v) notwithstanding the foregoing and subject to the limitations set forth in Section 6.2(c) below, so long as written notice is given on or prior to the applicable Survival Date with respect to any claim, the Company and the Seller Stockholder shall be required to indemnify any Buyer Party for all Losses that any Buyer Party may suffer with respect to such claim until such claim is finally resolved.
(c) Limitations .
(i) Notwithstanding anything in this Agreement to the contrary, the Company and the Seller Stockholder will not be liable to any Buyer Party for any Losses under Section 6.2(a)(i) (1) unless, and until the aggregate amount of the Losses relating to all such claims exceeds fifty thousand dollars ($50,000) (the “ Threshold ”),at which time the Company and the Seller Stockholder shall be liable for the amount of all such Losses from the first dollar in accordance with the terms hereof, and (2) to the extent that the aggregate liability of the Company and the Seller Stockholder for
all such Losses exceeds Five Million Dollars ($5,000,000) (the “Rep Cap”). Notwithstanding anything in this Agreement to the contrary, the Company and the Seller Stockholder will not be liable to any Buyer Party for any Losses under Section 6.2(a) to the extent that the aggregate liability of the Company and the Seller Stockholder for all such Losses exceeds Eight Million Five Hundred Forty Thousand Dollars ($8,540,000) (the “ Cap ”); provided, however, that, notwithstanding anything to the contrary in this Agreement, neither the Threshold nor Rep Cap shall apply to any Losses resulting or arising from breaches of any Seller Fundamental Representation, and neither the Threshold, Rep Cap nor the Cap shall apply to any Losses resulting or arising from any instance of fraud, intentional misrepresentation, willful misconduct or gross negligence of the Seller Stockholder or Company.
(ii) The Buyer Parties will use commercially reasonable efforts to mitigate any Losses upon becoming aware of any event, fact or circumstance that would reasonably be expected to, or does, give rise to such Loss. In no event will any party be liable to another pursuant to this Agreement for any exemplary or special damages or any consequential loss which is not reasonably foreseeable as a result of, or arising from, or in connection with, any breach or claim, except to the extent the same are incurred, or payable to a third party, by an Indemnified Party in connection with a Third Party Claim.
6.3 Indemnification Provisions for Benefit of the Company and the Seller Stockholder .
(a) Subject to the limitations set forth in Sections 6.3(b) and 6.3(c) , Buyer shall indemnify the Company and the Seller Stockholder and each of their respective Affiliates, officers, directors, employees, agents, representatives, heirs, successors and permitted assigns (each, a “ Seller Party ”) and save and hold each of them harmless from and against, and pay on behalf of or reimburse any Seller Party as and when incurred for, all Losses which any Seller Party may incur, suffer, sustain or become subject to as a result of:
(i) any breach of any representation or warranty made by Buyer and contained in this Agreement, any other Transaction Document or in any schedule or exhibit attached to this Agreement, any other Transaction Document or in any certificate delivered by Buyer in connection with the Closing;
(ii) any breach of any covenant or agreement of Buyer in any of the Transaction Documents;
(iii) any Liability related to a Purchased Asset arising after the Closing Date with respect to a period after the Closing Date; and
(iv) any claim by any Person or Persons related to, or arising out of, any of the foregoing.
(b) Survival Date . Buyer will not be liable with respect to any claim made pursuant to Section 6.3(a)(i) above for the breach of any representation or warranty contained in Article 3 of this Agreement unless written notice of a possible claim for indemnification with respect to such breach is given by the Representative to Buyer as follows:
(i) at any time with respect to claims arising under Sections 3.1 (Organization of Buyer) and/or 3.2 (Authorization of Transaction) (the representations and warranties contained in the Sections referenced in this clause (i) are collectively referred to herein as the “ Buyer Fundamental Representations ” and, individually, as a “ Buyer Fundamental Representation ”);
(ii) on or before the first anniversary of the Closing Date with respect to claims arising under any other Sections of Article 3 ; and
(iii) notwithstanding the foregoing and subject to the limitations set forth in Section 6.3(c) below, so long as written notice is given on or prior to the applicable Survival Date with respect to any claim, Buyer shall be required to indemnify any Seller Party for all Losses that any Seller Party may suffer with respect to such claim until such claim is finally resolved.
(c) Limitations .
(i) Notwithstanding anything in this Agreement to the contrary, Buyer will not be liable to any Seller Party for any Losses under Section 6.3(a)(i) unless, until and to the extent the aggregate amount of the Losses relating to all such claims exceeds the Threshold at which time Buyer shall be liable for the amount of all such Losses from the first dollar in accordance with the terms hereof , but not in excess of the Cap; provided , however , the Cap shall not apply to Losses resulting from breaches of the Buyer Fundamental Representations, and neither the Threshold nor the Cap shall apply to any Losses resulting or arising from any instance of fraud, intentional misrepresentation, willful misconduct or gross negligence of the Buyer.
(ii) The Seller Parties will use commercially reasonable efforts to mitigate any Losses upon becoming aware of any event, fact or circumstance that would reasonably be expected to, or does, give rise to such Loss.
(iii) In no event will any party be liable to another pursuant to this Agreement for any exemplary or special damages or any consequential loss which is not reasonably foreseeable as a result of, or arising from, or in connection with, any breach or claim, except to the extent the same are incurred, or payable to a third party, by an Indemnified Party in connection with a Third Party Claim.
6.4 Matters Involving Third Parties .
(a) If any Seller Party or any Buyer Party seeks indemnification under this Article 6 , such Person (the “ Indemnified Party ”) shall give written notice to the other Person (the “ Indemnifying Party ”). In that regard, if any Loss shall be brought or asserted by any third party which, if adversely determined, may entitle the Indemnified Party to indemnity pursuant to this Article 6 (a “ Third Party Claim ”), the Indemnified Party shall promptly notify the Indemnifying Party of the same in writing, specifying in reasonable detail the basis of such Loss and the facts pertaining thereto; provided , however , that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from its obligations hereunder unless the delay in notice has a material adverse effect on the Indemnifying Party’s ability to successfully defend such claim or materially increases the amount of Losses with respect to such claim.
(b) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will exercise its right to defend the Indemnified Party from and against the entirety of any Loss (without any limitations) the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim (subject to the limitations contained in this Article 6 ), (ii) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, (iii) the Third Party Claim involves only money damages and does
not seek an injunction or other equitable relief, (iv) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to be materially adverse to the continuing business interests of the Indemnified Party, (v) the Indemnifying Party actively and diligently conducts the defense of the Third Party Claim, and (vi) if the Third Party Claim relates to Taxes, the Third Party Claim would not, in the good faith judgment of the Indemnified Party, materially and adversely affect the Indemnified Party in respect of any Taxes or any Taxable period for which the Indemnifying Party would not be liable hereunder.
(c) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 6.4(b) above, (i) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (ii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (which consent shall not be withheld unreasonably) and (iii) except as provided in this Section 6.4(c) , the Indemnifying Party will not consent to the entry or any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (which consent shall not be withheld unreasonably). Notwithstanding the foregoing, if a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such offer within thirty (30) Business Days after its receipt of such notice, the Indemnifying Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim.
(d) In the event that any of the conditions in Section 6.4(b) above is or becomes unsatisfied, however, (i) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (ii) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including attorneys’ fees and expenses), and (iii) the Indemnifying Party will remain responsible for any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 6.4 (but subject to the limitations contained in this Article 6 ).
6.5 Manner of Payment .
(a)
Any indemnification payment to a Buyer Party pursuant to this
Article 6
shall be effected first by notice to Buyer under the Holdback Fund and, only if the Holdback Fund is depleted, by wire transfer of immediately available funds to an account designated by Buyer within five (5) days after the determination of indemnification amounts, in each case, subject to the limitations contained in this
Article 6
.
(b) Any indemnification payment to the Company pursuant to this Article 6 shall be effected by wire transfer of immediately available funds to an account designated by the Company within five (5) days after the determination of indemnification amounts, in each case, subject to the limitations contained in this Article 6. Any indemnification payment to the Seller Stockholder pursuant to this Article
6 shall be effected by wire transfer of immediately available funds to the Seller Stockholder to an account designated by the Seller Stockholder within five (5) days after the determination of indemnification amounts.
(c) Any indemnification payments made pursuant to this Agreement shall be treated as adjustments to the Purchase Price for all Tax purposes, unless otherwise required by applicable law.
6.6 Insurance and Third Party Recovery. In determining the liability of a Party for indemnification pursuant to this Article 6 , no Loss shall be deemed to have been sustained to the extent of any proceeds previously received by such Party from any insurance recovery (net of all out-of-pocket costs directly related to such recovery) or other recovery from a third party (net of all out-of-pocket costs directly related to such recovery). If an amount is actually recovered from an insurance carrier or other third party after a payment has been made by the Indemnifying Party pursuant to this Article 6 , then the party receiving such amount shall promptly remit such amount to the Indemnifying Party.
6.7 Exclusive Remedy. Except as provided in Section 8.12, the right to indemnification under Article 6, subject to all of the terms, conditions, and limitations hereof, shall constitute the sole and exclusive remedy of a Party hereto (or a specified beneficiary) with respect to any and all claims hereto (other than claims arising from fraud, intentional misrepresentation, willful misconduct or gross negligence on the part of a Party in connection with the transactions contemplated by this Agreement) for any breach of any representations, warranty, covenant, agreement or obligation set forth in this Agreement or any Transaction Document.
6.8 Offset . To the extent permissible by applicable Law, the Losses which any Buyer Party suffers, sustains or becomes subject to pursuant to this Article 6 (it being understood that such Losses must be determined in accordance with the terms and conditions set forth in this Agreement) may, at the option of such Buyer Party, be satisfied by setting off all or any portion of such Losses against any amounts which such Buyer Party owes to the Company or Selling Stockholder, as the case may be, at such time.
6.9 Delivery and Release of Holdback Fund .
(a) Subject to the limitations and terms and conditions of this Article 6 , to the extent that any Buyer Party is entitled to indemnification for any Loss pursuant to this Article 6 , such Buyer Party shall be entitled to reimbursement out of the Holdback Fund; provided, however, that to the extent that the amount of such Losses exceed the amount remaining in the Holdback Fund or arise after the Survival Date, the Buyer Party may collect such Losses directly from the Company or the Seller Stockholder, jointly and severally.
(b) The Company shall give written instruction to Buyer to release from the Holdback Fund and pay to the Company by wire transfer of immediately available funds to an account designated by the Company the amounts set forth below at the following times and subject to the following conditions:
(i) On the one (1) year anniversary of the Closing Date, the remaining Holdback Amount minus the aggregate amount of any Good Faith Damages Estimate; or
(ii) Within five (5) Business Days after the final resolution of a particular indemnity claim for which a Good Faith Damages Estimate is retained in the Holdback Fund pursuant to clause (b)(i) above, the amount, if any, by which such Good Faith Damages Estimate in respect of such claim exceeds the final determination of the Losses in respect of such claim.
ARTICLE 7
CERTAIN DEFINITIONS
“ Action ” means any action, suit, proceeding, order, investigation, claim, grievance, arbitration, or complaint.
“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, (including, but not limited to, all directors and officers of such Person) controlled by, or under common control with, such Person.
“ Agora India ” means Agora Corporate Solutions Pvt. Ltd.
“ Agora India Transfer Documentation ” means the documents contemplated by Section 5.1(h) and such other documents as may be necessary or appropriate to transfer and/or assign (i) the employment of Agora India’s employees, and (ii) that certain Contractors Services Agreement, dated June 16, 2015, by and between Sopra India Pvt. Ltd and Agora India, to an Indian subsidiary of Buyer.
“ Assumed Contracts ” means all Contracts to which the Company is a party other than those Contracts which have been terminated prior to or as of the Closing pursuant to the terms of this Agreement. For the avoidance of doubt, Assumed Contracts shall include each Contract set forth on Schedule 2.9(a) (except where such Contract is also expressly set forth on Schedule 1.1(b)(v) ), and any other Contract of the Company not disclosed to Buyer if Buyer notifies the Company that such Contract shall be an Assumed Contract after Buyer becomes aware of the existence thereof.
“ Business Day ” means each day of the week except Saturdays, Sundays and days on which banking institutions are authorized to be closed by the Federal Reserve Bank in New York, New York.
“ Client Payable Amount ” means $163,740 .” Code ” means the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated and rulings issued thereunder, as amended, supplemented or substituted therefor from time to time.
“ Company Competitor ” means any Person, or any business unit, division or subsidiary of any Person which directly or indirectly competes with the Business.
“ Company Customer(s) ” means any of the customers or clients of the Company or Buyer and any of their Subsidiaries or subdivisions as of the Closing Date.
“ Company Transaction Expenses ” means (i) the fees and disbursements payable to legal counsel and accountants of the Company in connection with the transactions contemplated by the Transaction Documents and (ii) all other fees and expenses, in each case, incurred by the Company in connection with the transactions contemplated by the Transaction Documents as determined on the Closing Date, in each case, that have not been paid in full prior to the Closing Date. “ Company Transaction Expenses ” shall also include, without limitation, any and all withholding, employment or other Taxes payable in connection with the amounts incurred pursuant to the immediately preceding sentence.
“ Confidential Information ” means all information (whether or not specifically identified as confidential), in any form or medium, that is disclosed to, or developed or learned by, the Company or the Seller Stockholder as an owner of stock in the Company, as the case may be, in the performance of duties for, or on behalf of, an Agora Entity or that relates to the business, products, services or research of an Agora Entity or any of their investors, partners, affiliates, strategic alliance participants, officers, directors, employees or shareholders or their respective Affiliates, including, without limitation: (i) internal business
information (including, without limitation, information relating to strategic plans and practices, business, accounting, financial or marketing plans, practices or programs, training practices and programs, salaries, bonuses, incentive plans and other compensation and benefits information and accounting and business methods); (ii) identities of, individual requirements of, specific contractual arrangements with, and information about, an Agora Entity, its Affiliates, their customers and their confidential information; (iii) industry research compiled by, or on behalf of an Agora Entity, including, without limitation, identities of potential target companies, management teams, and transaction sources identified by, or on behalf of, an Agora Entity; (iv) compilations of data and analyses, processes, methods, track and performance records, and data and data bases relating thereto; and (v) information related to the Company’s Intellectual Property and updates of any of the foregoing, provided, however, “ Confidential Information ” shall not include any information that (x) in no way relates or pertains to the Purchased Assets, (y) the Company or the Seller Stockholder can demonstrate has become generally known to and generally available for use within the industry other than as a result of the acts or omissions of such Seller Stockholder or a person that such Seller Stockholder has direct control over, or (z) is lawfully acquired by Seller Stockholder or the Company, as applicable, from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation..
“ Contract ” means any agreement, contract, instrument, lease, guaranty, indenture, license, or other legally binding arrangement, commitment or understanding between parties or by one party in favor of another party, whether written or oral.
“ Employee Benefit Plan ” means any Employee Pension Benefit Plan (including any Multiemployer Plan), Employee Welfare Benefit Plan, fringe benefit, bonus, deferred compensation, retirement, vacation, sick leave, severance, employment, executive compensation, change in control, incentive or other compensation plan, program policy or arrangement, whether or not subject to ERISA and any plans, programs or arrangements providing compensation to employee and non-employee directors, established, maintained, or contributed to by the Company or otherwise for the benefit of its employees, officers, directors, shareholders, Contingent Workers and their dependents or beneficiaries and any other benefit, pension or similar plan of an Affiliate thereof, including, without limitation, any provident fund, gratuity plan, severance plan or obligation of such Affiliate .
“ Employee Pension Benefit Plan ” shall have the meaning set forth in Section 3(2) of ERlSA.
“ Employee Welfare Benefit Plan ” shall have the meaning set forth in Section 3(1) of ERISA.
“ Employer 401(k) Plan ” means the Defined Contribution Retirement Savings Plan of Buyer, qualified under Section 401(k) of the Code.
“ Environmental and Safety Requirements ” means all federal, state, local and non-U.S. statutes, regulations, ordinances, guidelines and similar provisions whether or not having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, as the foregoing are enacted or in effect prior to, on or after the Closing Date.
“ Environmental Liabilities ” means any and all Liabilities arising in connection with or in any way relating to the past or current operation of the Business, whether contingent or fixed, actual or potential,
known or unknown, that (i) arise under or relate to Environmental and Safety Requirements and (ii) arise from or relate in any way to actions taken by the Company prior to the Closing Date or conditions existing on or prior to the Closing Date as a result of actions taken by the Company or conditions existing on or prior to the Closing Date .
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder, as amended, supplemented or substituted therefor from time to time.
“ Excluded Taxes ” means (i) all Taxes of the Company or any of its Affiliates, or for which the Company or any of its Affiliates is liable, for any taxable period, (ii) all Taxes relating to the Excluded Assets or Excluded Liabilities for any taxable period; and (ii) all Taxes relating to the Purchased Assets or the Assumed Liabilities for any taxable period ending on or prior to the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, for the portion of such taxable period ending on the Closing Date, except as provided in Section 4.5(c) .
“ GAAP ” means (for the purposes of this Agreement and any Schedules hereto) United States generally accepted accounting principles, consistently applied.
“ Governmental Entity ” means any (i) province, region, state, county, city, town, village, district or other jurisdiction, (ii) federal, provincial, regional, state, local, municipal, non-U.S. or other government, (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, bureau, department or other entity and any court or other tribunal), (iv) multinational organization, (v) body exercising, or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature, or (vi) official of any of the foregoing.
“ Good Faith Damages Estimate ” means, with respect to any pending or unresolved claim asserted by a Buyer Party that is reasonably expected to result in indemnification pursuant to Article 6 , an amount equal to the good faith estimate by the Buyer Party of its indemnifiable Losses in respect of such claim.
“ Holdback Fund ” means the Holdback Amount deposited by Buyer in a separate interest bearing account of Buyer solely for that purpose, together with any interest or earnings thereon.
“ Indebtedness ” means any of the following indebtedness of the Company, whether or not contingent: (i) indebtedness for borrowed money (including any principal, premium, accrued and unpaid interest, related expenses, prepayment penalties, commitment and other fees, sale or liquidity participation amounts, reimbursements, indemnities and all other amounts payable in connection therewith), (ii) Liabilities evidenced by bonds, debentures, notes, or other similar instruments or debt securities, (iii) Liabilities of the Company under or in connection with letters of credit or bankers’ acceptances or similar items, (iv) Liabilities to pay the deferred purchase price of property or services (other than those trade payables incurred in the ordinary course of business), (v) all Liabilities arising from cash/book overdrafts, (vi) all Liabilities under capitalized leases (as determined in accordance with GAAP), (vii) all Liabilities of the Company under conditional sale or other title retention agreements, (viii) all Liabilities with respect to vendor advances or any other advances made to the Company other than trade payables incurred in the ordinary course of business which are not less than 60 days outstanding but reflected on the Company’s Closing Balance Sheet , (ix) all Liabilities of the Company arising out of interest rate and currency swap arrangements and any other arrangements designed to provide protection against fluctuations in interest or currency rates, (x) any deferred purchase price Liabilities related to past acquisitions (xi) all Liabilities of the Company arising from any breach of any of the foregoing and (xii) all indebtedness of others guaranteed by the Company or secured by any Lien or security interest on the assets of the Company.
“ Intellectual Property ” means trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing, patents and patent applications, inventions, invention disclosures, trade secrets, technology, technical data, know how, methods and processes, copyrights and copyrightable works (including, without limitation, computer software, Open Source Software, source code, executable code, data, databases and documentation), proprietary information and data, all other intellectual property and registrations and applications for any of the foregoing.
“ Knowledge ” or “ knowledge ” “ means respect to any Person the actual knowledge after reasonable inquiry of any director, governing body member or executive officer of such Person; provided that in the case of the Company’s “Knowledge” or “knowledge” means the actual knowledge after reasonable inquiry of the Seller Stockholder.
“ Law ” or “ law ” means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law ).
“ Legal Requirement ” means any requirement arising under any Law or any determination or direction of any arbitrator or any Governmental Entity with respect to any Law, including any Environmental and Safety Requirements and including any of the foregoing that relate to data use, privacy or protection.
“ Liability” or “Liabilities ” means any liability, debt, obligation, deficiency, interest, Tax, penalty, fine, claim, demand, judgment, cause of action or other loss (including, without limitation, loss of benefit or relief), cost or expense of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and whether due or becoming due and regardless of when asserted.
“ Lien ” means any security interest, pledge, bailment (in the nature of a pledge or for purposes of security), mortgage, deed of trust, the grant of a power to confess judgment, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or personal property.
“ Loss ” or “ Losses ” means any and all Liabilities, damages, fines, dues, Taxes, penalties, charges, assessments, deficiencies, judgments, defaults, settlements and other losses (including diminution in value) and fees, costs and expenses (including interest, expenses of investigation, defense, prosecution and settlement of claims, court costs, reasonable fees and expenses of attorneys, accountants and other experts, and all other fees and expenses) as the same are incurred in connection with any Action, Third Party Claim or any other claim, default or assessment (including any claim asserting or disputing any right under this Agreement or any Transaction Documents against any party hereto or otherwise), plus any interest that may accrue on any of the foregoing.
“ Material Adverse Effect ” means there has not been any material adverse change in the business, financial condition, operating results, assets, Liabilities, operations, applicable regulations, customer, client, supplier, employee or sales representative or distributor relations or business prospects of the Company and its Affiliates, taken as a whole.
“ Multiemployer Plan ” shall have the meaning set forth in Section 3(37) of ERISA (Code Section 29 USC Section 1002(37)).
“ Open Source Software ” means computer software (including, without limitation, source code, object code, libraries and middleware) subject to the GNU General Public License, the Lesser GNU Public License or other similar licensing regimes commonly called “open source.”
“ Operating Expense Amount ” shall mean $1,075,000.
“ ordinary course of business ” means the ordinary course of the Company’s business consistent with past custom and practice, including as to frequency and amount.
“ Party ” or “ Parties ” means any party hereto.
“ PBGC ” means the Pension Benefit Guaranty Corporation or any successor thereto.
“ Permitted Liens ” means (i) statutory Liens for current Taxes not yet due and payable, (ii) mechanic’s, carriers’, workers’, repairers’ and similar statutory Liens arising or incurred in the ordinary course of business for amounts which are not delinquent or due and which are not, individually or in the aggregate, material, (iii) zoning, entitlement, building and other land use regulations imposed by Government Entities having jurisdiction over the Leased Real Property which are not violated by the current or proposed use, operation or occupancy of the Leased Real Property by the Company or otherwise, and (iv) covenants, conditions, restrictions, easements and other similar matters of record affecting title to the Leased Real Property which do not materially impair the occupancy or use of the Leased Real Property for the purposes for which it is currently used or proposed to be used by the Company.
“ Person ” means an individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Entity.
“ Prospective Customer ” means any proposed or prospective customer or client of the Company or Buyer and any of their subsidiaries, subdivisions, or Affiliates that (i) within the last 12 months has had any correspondence with the Company, Buyer or any of their subsidiaries, subdivisions, or Affiliates regarding doing business with the Company, (ii) is listed on any of the Company’s, Buyer’s or any of their subsidiaries’, subdivisions’, or Affiliates’ internal pipeline discussions or related memoranda, (iii) is engaged in active negotiations with the Company, Buyer or any of their subsidiaries, subdivisions, or Affiliates on the Closing Date, or (iv) is otherwise being solicited by the Company or Buyer or any of their subsidiaries, subdivisions, or Affiliates, in each case within six (6) months prior to the Closing Date.
“ SEC ” means the United States Securities and Exchange Commission.
“ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended.
“ Subsidiary(ies)” means any corporation or other Person which is an entity with respect to which another specified entity either (i) has the power to vote or direct the voting of sufficient securities to elect a majority of the directors or managers of such Person, or (ii) owns a majority of the ownership interests of such entity.
“ Tax” or “Taxes ” means any federal, state, local, non-U.S. or other taxes, including, without limitation, income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), custom, duty, capital stock, branch, franchise”, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, goods and services, alternative or add-on minimum, estimated, or other tax, charge, custom, duty, fee, impost, levy or
assessment imposed by any Governmental Entity including (i) any interest, penalty, or addition thereto, whether disputed or not, and (ii) any obligation to indemnify or otherwise assume or succeed to the tax Liability of any other Person.
“ Tax Return ” means any return, declaration, report, estimate, claim for refund, information return or statement (including any attachment, amendment or schedule thereto) required to be filed, or which is otherwise filed, with any Governmental Entity in respect of any Tax.
“Territory” means the United States and India.
“ Transaction Documents ” means this Agreement (including the Schedules and Disclosure Schedules), the Agora India Transfer Documentation and all other Contracts or certificates delivered or executed in connection therewith ).
7.1 Additional Definitions .
|
Term |
|
Section |
|
Affiliated Transaction |
|
2.17 |
|
Active Employees |
|
4.9(a) |
|
Affiliated Transaction |
|
2.17 |
|
Agreement |
|
Preface |
|
Allocation |
|
1.5 |
|
Apportioned Obligations |
|
4.5(c) |
|
Assumed Liabilities |
|
1.2(a) |
|
Business |
|
Preface |
|
Buyer |
|
Preface |
|
Buyer Fundamental
|
|
6.2(b)(ii) |
|
Buyer Party |
|
6.2(a) |
|
Cap |
|
6.2(c)(i) |
|
Closing |
|
1.4(a) |
|
Closing Date |
|
1.4(a) |
|
Company |
|
Preface |
|
Company 401(k) Plan |
|
4.9(b) |
|
Company Employees |
|
4.9(a) |
|
Company Entity |
|
2.10(a) |
|
Company Intellectual Property |
|
2.10(a) |
|
Company Trade Secrets |
|
2.10(h) |
|
Consents |
|
2.20 |
|
Contingent Workers |
|
2.14(b) |
|
Current D&O Policy |
|
2.13 |
|
De Minimis Amount |
|
6.2(c)(i) |
|
Employee Obligations |
|
2.14(b) |
|
Employer |
|
4.9(a) |
|
Employment Agreements |
|
5.1(h) |
|
Excluded Assets |
|
1.1(b) |
|
Excluded Liabilities |
|
1.2(b) |
|
Financial Statements |
|
2.5(a) |
|
Foreign Employee |
|
4.9(a) |
|
Holdback Amount |
|
1.4(d) |
|
Inactive Employees |
|
4.9(a) |
|
Term |
|
Section |
|
Incentive Pool |
|
4.10 |
|
Indemnified Party |
|
6.4(a) |
|
Indemnifying Party |
|
6.4(a) |
|
Independent Accountant |
|
1.5 |
|
Insider |
|
2.17 |
|
Interim Financial Statements |
|
2.5(a) |
|
Inventory |
|
1.2(a)(ii) |
|
Key Employees |
|
4.9(a) |
|
Latest Balance Sheet |
|
2.5(a) |
|
Leased Real Property |
|
2.19(b) |
|
Leases |
|
2.19(b) |
|
Material Contract |
|
2.9(b) |
|
Material Customer |
|
2.18(a) |
|
Material Supplier |
|
2.18(c) |
|
Non-compete Period |
|
4.6(d) |
|
Non-Transferred Employees |
|
4.9(a) |
|
NDA |
|
4.9(d) |
|
Permits |
|
2.200 |
|
Post-Closing Apportioned Period |
|
4.5(c) |
|
Pre-Closing Apportioned Period |
|
4.5(c) |
|
Pre-Closing Indemnitees |
|
2.13 |
|
Products |
|
2.10(a) |
|
Purchase Price |
|
1.4(b)(i) |
|
Purchased Assets |
|
1.1(a) |
|
Quarterly Financial Statements |
|
4.12 |
|
Required Contract Consents |
|
5.1(c) |
|
Securities |
|
2.2 |
|
Seller Account |
|
1.4(b)(ii) |
|
Seller Fundamental
|
|
6.3(b)(i) |
|
Seller Stockholder |
|
Preface |
|
Seller Party |
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6.3(a) |
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Survival Date |
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6.2(b) |
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Third Party Claim |
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6.4(a) |
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Threshold |
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6.2(c)(ii) |
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Transfer Taxes |
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4.5(a) |
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Transferred Employees |
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4.9(a) |
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WARN Act |
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2.14(d) |
ARTICLE 8
MISCELLANEOUS
8.1 No Third Party Beneficiaries . This Agreement shall not confer any rights or remedies upon any Person other than the Parties (and, where indicated herein, with respect to Article 4 , the Affiliates of the Parties and such other Persons designated therein) and their respective successors and permitted assigns.
8.2 Entire Agreement . This Agreement (including the Schedules, attachments and exhibits hereto and the documents referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof.
8.3 Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns, but neither this Agreement nor any of the rights or obligations hereunder may be assigned (whether by operation of law, through a change in control or otherwise) by the Company, the Seller Stockholder without the prior written consent of Buyer, or by Buyer without the prior written consent of the Company or the Seller Stockholder; provided, however, Buyer and its Affiliates shall have the right to assign (a) all or any portion of this Agreement and the other Transaction Documents (including its rights and obligations hereunder and thereunder), including its rights to indemnification, to any of its (whether prior to or subsequent to the Closing) lenders as collateral security, and (b) all or any portion of this Agreement and the other Transaction Documents and its rights and obligations hereunder and thereunder, including its rights to indemnification, in connection with a (i) merger or consolidation involving Buyer or its Subsidiaries, (ii) a sale of stock or assets (including any real estate) of Buyer or its Subsidiaries or (iii) dispositions of the business of the Company or any part thereof; provided, further, that no such assignment shall release Buyer from any liability or obligation under this Agreement.
8.4 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
8.5 Headings . The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
8.6 Notices . All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given when delivered personally to the recipient or sent to the recipient by telecopy or email (receipt confirmed, with copy sent the next day by reputable express courier service (charges prepaid)) or by reputable express courier service (charges prepaid), and addressed to the intended recipient as set forth below:
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If to the Company or Seller Stockholder: |
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Ravi Mallik |
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998 Northrope Drive |
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Atlanta, Georgia 30324 |
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Email: Ravi.J.Mallik@Agora-Group.com |
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With a copy to (which shall not constitute notice): |
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Smith, Gambrell & Russell, LLP |
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1230 Peachtree Street, NE, Suite 3100 |
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Atlanta, Georgia 30309 |
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Attn: Nicholas C. Rueter |
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Email: nrueter@sgrlaw.com |
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Facsimile No: (404) 685-7047 |
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If to Buyer: |
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Virtusa Corporation |
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Any email or facsimile sent after normal business hours of the receiving Party shall be deemed delivered the following business day. Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means, but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it is actually received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth.
8.7 Governing Law . This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Delaware.
8.8 Amendments and Waivers . No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties hereto. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.
8.9 Incorporation of Schedules . The Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.
8.10 Construction . Where specific language is used to clarify by example a general statement contained herein (such as by using the word “including”), such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. The disclosure of an item in one section or subsection of the Schedules shall be deemed to modify the representations and warranties of the Party contained in the section or subsection of this Agreement to which it corresponds but not any other representation and warranty of the Party in this Agreement unless (i) such disclosure item is expressly cross-referenced as applying to such other representation and warranty of the Party, or (ii) it can readily be inferred by a reasonable party, and is reasonably obvious, without investigation or further diligence, that such item is also applicable to another section of the Agreement.
Inclusion of any items in the Disclosure Schedules does not constitute an admission by a Party or otherwise imply that such matter is material and shall not be deemed to establish a standard of materiality, does not represent a determination that such item had or is reasonably likely to have a Material Adverse Effect for the purposes of the Agreement, and does not represent a determination by a Party that such item did not arise in the ordinary course of business. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein (or is otherwise entitled to indemnification) in any respect, the fact that there exists another representation, warranty, or covenant (including any indemnification provision) relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached (or is not otherwise entitled to indemnification with respect thereto) shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant (or is otherwise entitled to indemnification pursuant to a different provision).
8.11 Severability of Provisions . If any covenant, agreement, provision or term of this Agreement is held to be invalid for any reason whatsoever, then such covenant, agreement, provision or term will be deemed severable from the remaining covenants, agreements, provisions and terms of this Agreement and will in no way affect the validity or enforceability of any other provision of this Agreement.
8.12 Specific Performance . Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction over the Parties and the matter in addition to any other remedy to which they may be entitled, at law or equity.
8.13 Delivery by Facsimile, etc . This Agreement and any signed Contract entered into in connection herewith or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or “PDF” transmission, shall be treated in all manner and respects as an original Contract and shall be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such Contract, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such Contract shall raise the use of a facsimile machine or “PDF” transmission to deliver a signature or the fact that any signature or Contract was transmitted or communicated through the use of a facsimile machine or “PDF” transmission as a defense to the formation of a Contract and each such party forever waives any such defense.
8.14 Captions . The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption had been used in this Agreement.
8.15 Consent to Jurisdiction . THE PARTIES AGREE THAT JURISDICTION AND VENUE IN ANY ACTION BROUGHT BY ANY PARTY PURSUANT TO THIS AGREEMENT SHALL PROPERLY AND EXCLUSIVELY LIE IN ANY FEDERAL OR STATE COURT LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS. BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND HEREBY WAIVE ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER
OR INCONVENIENT FORUM FOR THE RESOLUTION OF SUCH ACTION. THE PARTIES FURTHER AGREE THAT THE MAILING BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, OF ANY PROCESS REQUIRED BY ANY SUCH COURT SHALL CONSTITUTE VALID AND LAWFUL SERVICE OF PROCESS AGAINST THEM, WITHOUT NECESSITY FOR SERVICE BY ANY OTHER MEANS PROVIDED BY STATUTE OR RULE OF COURT.
8.16 Waiver of Jury Trial . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Parties have executed this Asset Purchase Agreement as of the date first above written.
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AGORA GROUP, INC. |
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By: |
/s/ Ravi Mallik |
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Name: |
Ravi Mallik |
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Title: |
President & CEO |
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VIRTUSA CORPORATION |
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By: |
/s/ Thomas R. Holler |
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Name: |
Thomas R. Holler |
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Title: |
EVP & Chief Strategy Officer |
[Signature Page to Asset Purchase Agreement]
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SELLER STOCKHOLDER |
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By: |
/s/ Ravi Mallik |
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Name: |
Ravi Mallik |
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Title: |
President & CEO |
[Signature Page to Asset Purchase Agreement]
Exhibit 31.1
CERTIFICATION
I, Kris Canekeratne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Virtusa Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: July 30, 2015 |
/s/ Kris Canekeratne |
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Kris Canekeratne |
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Chairman and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Ranjan Kalia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Virtusa Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: July 30, 2015 |
/s/ Ranjan Kalia |
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Ranjan Kalia |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Virtusa Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kris Canekeratne, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: July 30, 2015 |
/s/ Kris Canekeratne |
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Kris Canekeratne |
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Chairman and Chief Executive Officer |
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(Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Virtusa Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ranjan Kalia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: July 30, 2015 |
/s/ Ranjan Kalia |
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Ranjan Kalia |
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Executive Vice President and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |