VIRTUSA CORPORATION (NASDAQ:VRTU) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01. Entry into a Material Definitive Agreement.
Investment Agreement
On May3, 2017, Virtusa Corporation (the Company)
and Orogen Viper LLC (the Purchaser), entered
into an Investment Agreement (the Investment
Agreement), to which the Company issued and sold to the
Purchaser, and the Purchaser purchased from the Company, an
aggregate of 70,000 shares of voting convertible preferred stock
of the Company, designated as the Companys 3.875% SeriesA
Convertible Preferred Stock, par value $0.01 per share (the
SeriesA Preferred Stock), and 38,000 shares of a
separate class of non-voting convertible preferred stock of the
Company, designated as the Companys 3.875% SeriesA-1 Convertible
Preferred Stock, par value $0.01 per share (the SeriesA-1
Preferred Stock and, together with the SeriesA Preferred
Stock, the Preferred Stock), in each case for a
purchase price of $1,000 per share, representing $108.0 million
of gross proceeds to the Company.
Board Representation
The Investment Agreement provides the Purchaser the right, to the
terms of the SeriesA Preferred Stock, to appoint a director to
serve on our Board. to the Investment Agreement, in connection
with the closing of the transactions contemplated by the
Investment Agreement (the Closing), our Board of
Directors (the Board) increased the size of the
Board from nine directors to ten directors and elected Vikram S.
Pandit, the initial nominee designated by the Purchaser, to the
Board, subject to replacement to the procedures described in the
Investment Agreement. Such appointment right will terminate if
the Purchaser and its affiliates fail to retain beneficial
ownership of at least 50% of the number of shares of our common
stock underlying the Preferred Stock held by the Purchaser
immediately following the Closing.
Following the conversion of the Preferred Stock into shares of
our common stock, so long as the Purchaser retains beneficial
ownership of at least 50% of the number of shares of our common
stock underlying the Preferred Stock held by the Purchaser
immediately following the Closing, we have agreed to include one
nominee of the Purchaser for election as a director of the same
class (whether ClassI, ClassII or ClassIII) as the other
directors nominated by us for election at our next meeting of
stockholders following such conversion, and to renominate such
individual thereafter at each meeting of stockholders electing
such class of directors. We are required to use our reasonable
efforts to cause the election of such person.
Standstill
to the Investment Agreement, the Purchaser has agreed, subject to
certain exceptions, that until the later of (1)the first date on
which there is no Purchaser-affiliated director serving on our
Board, and (2)May3, 2019 (the Standstill
Period), the Purchaser will not, among other things,
subject to certain exceptions described in the Investment
Agreement: (i)acquire any securities of the Company if,
immediately after such acquisition, the Purchaser would
collectively own in the aggregate more than 20.0% of the then
outstanding common stock of the Company, (ii)propose or
seek to effect any tender or exchange offer, merger or other
business combination involving the Company or its securities,
or make any public statement with respect to such transaction,
(iii)make, or in any way participate in any proxy contest or
other solicitation of proxies, (iv)seek election or appointment
to, or representation on, our Board other than as set forth in
the Investment Agreement or the SeriesA Certificate of
Designations (as defined below), or seek the removal of any of
our directors, or (v)conduct any referendum of stockholders of
the Company or make or be the proponent of any stockholder
proposal.
Transfer Restrictions and Registration Rights
The Investment Agreement restricts the Purchasers ability to
transfer the Preferred Stock or shares of our common stock
issued or issuable upon conversion of the Preferred Stock,
subject to certain exceptions specified in the Investment
Agreement. In particular, prior to the earliest of (i)May3,
2019, (ii)a change of control of the Company or entry into a
definitive agreement for a transaction that, if consummated,
would result in a change of control of the Company, and
(iii)the later of May3, 2018 and the first date on which there
is no Purchaser-affiliated director serving on our Board, the
Purchaser will be restricted from selling, offering,
transferring, assigning, pledging, mortgaging, hypothecating,
gifting or disposing the Preferred Stock or shares of common
stock issued or issuable upon conversion of the Preferred
Stock. Such restrictions also prohibit the Purchaser from
entering into or engaging in any hedge, swap, short sale,
derivative transaction or other agreement or arrangement that
transfers any ownership of, or interests in, the shares of
Preferred Stock or shares of common stock issued or issuable
upon conversion of the Preferred Stock. These restrictions do
not apply to, among others, transfers to affiliates or in
connection with certain third-party tender offers.
Subject to certain limitations, the Investment Agreement
provides the Purchaser with certain registration rights for the
shares of common stock underlying the Preferred Stock
(including any shares issued or issuable as dividends on the
Preferred Stock) held by the Purchaser.
The Investment Agreement contains other customary terms for
private investments in public companies, including
representations, warranties and covenants.
The foregoing description of the Investment Agreement is
qualified in its entirety by reference to the Investment
Agreement, which is attached hereto as Exhibit10.1 and
incorporated herein by reference. The Investment Agreement is
attached hereto as an exhibit to provide investors and security
holders with information regarding its terms. It is not
intended to provide any other factual information about the
Company. The representations, warranties and covenants
contained in the Investment Agreement were made only for
purposes of the Investment Agreement and as of specific dates,
were solely for the benefit of the parties to the Investment
Agreement, and may be subject to limitations agreed upon by the
contracting parties, including being qualified by confidential
disclosures exchanged between the parties in connection with
the execution of the Investment Agreement.
Amendment to Credit Agreement
On May3, 2017, we entered into Amendment No.1 to Credit
Agreement with JPMorgan Chase Bank, N.A. (the
Administrative Agent) and the lenders party
thereto (the Credit Agreement Amendment),
amending our Credit Agreement, dated as of February25, 2016,
with such parties (as so amended, the Amended Credit
Agreement). to the Amended Credit Agreement Amendment,
we are permitted, among other things, to issue the Preferred
Stock and pay certain dividends with respect to the Preferred
Stock. The Credit Agreement Amendment contains other customary
terms for amendments of this type, including representations,
warranties and covenants. The foregoing description of the
Credit Agreement Amendment is qualified in its entirety by
reference to the Credit Agreement Amendment, which is attached
hereto as Exhibit10.2 and incorporated herein by reference.
Item 2.03. Creation of a Direct Financial Obligation or
an Obligation under an Off-Balance Sheet Arrangement of a
Registrant.
The disclosures concerning the Investment Agreement and the
terms of the Preferred Stock contained in Item 1.01 above or
Item 5.03 below (as applicable), are hereby incorporated into
this Item 2.03 by reference.
Item 3.02. Unregistered Sales of Equity
Securities.
The disclosures concerning the Investment Agreement contained
in Item 1.01 above and the Preferred Stock contained in 5.03
below are hereby incorporated into this Item 3.02 by reference.
The offer and sale of the Preferred Stock to the Investment
Agreement is exempt from registration under the Securities Act
of 1933, as amended (the Securities Act), to
Section4(a)(2)of the Securities Act. The Purchaser has
represented to the Company that it is an accredited investor as
defined in Rule501 under the Securities Act and that the
Preferred Stock is being acquired for investment purposes and
not with a view to or for sale in connection with any
distribution thereof in violation of any federal or state
securities laws.
Item 5.02. Departure of Directors or Certain Officers;
Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
On May3, 2017, the Board elected Vikram S. Pandit as a director
of the Company, as a Purchaser Designee as defined in the
Investment Agreement and as the Preferred Director as defined
in the SeriesA Certificate of Designations, to serve until his
successor is duly elected and qualified, or until his sooner
death, resignation or removal.
In connection with Mr.Pandits election to the Board, under the
Companys Amended and Restated Director Compensation Policy, on
May3, 2017, Mr.Pandit will receive a restricted stock unit
(RSU) in the amount of $50,000 issuable for
1,636 shares of the Companys common stock for his initial, one
time grant, with a vesting period of 33.3% on each of June1,
2018, 2019 and 2020, as well as a prorated grant of RSUs in the
amount of $33,333 (based on a $100,000 annual grant) issuable
for 1,091 shares of the Companys common stock as part of annual
board compensation, with a vesting period of 33.3% on each of
September1, 2017, 2018 and 2019. Each RSU will have an issuance
price of $30.55 and accelerates by 12 months upon a change of
control of the Company. In addition, the Company will pay to
Mr.Pandit a director fee of $50,000, payable in equal
installments quarterly.
Vikram S. Pandit, age 60, since July1, 2016 has served as
Chairman and Chief Executive Officer of The Orogen Group LLC,
an operating company he created with Atairos Group,Inc. that
makes control and other strategic investments in financial
services companies and related businesses. Mr.Pandit has more
than 35 years of professional experience and previously was
Chief Executive Officer and a member of the Board of Directors
of Citigroup Inc. from December2007 until October2012. In
July2007, when Citigroup acquired Old Lane LLC, a hedge fund of
which he was a founding member and Chairman of the members
committee since 2006, Mr.Pandit became Chairman and CEO of Citi
Alternative Investments and later led Citis Institutional
Clients Group prior to being appointed CEO of Citigroup. Prior
to Old Lane, Mr.Pandit served as the Chief Operating Officer of
Institutional Securities and Investment Banking businesses, a
Division of Morgan Stanley, from September2000 to March2005. He
served as the President of Institutional Securities at Morgan
Stanley from December2003 to March2005 and Co-President since
September2000. Mr.Pandit began his career at Morgan Stanley in
1983.
Mr.Pandit currently serves as an Independent Director of
Bombardier Inc. since 2014. He serves as a Member of Advisory
Board of NerdWallet,Inc. since 2015. Mr.Pandit serves as a
Member of the Board of Overseers of Columbia Business School.
He serves as a Member of the Governing Board of The Indian
School of Business. Mr.Pandit previously served as a Director
of The Nasdaq OMX Group,Inc. [Nasdaq: NDAQ] from 2000 to 2003.
Mr.Pandit also served as a Director of the
Institute of International Finance,Inc. He holds an MS degree
and a BS degree in Electrical Engineering from Columbia
University and received his PhD in Finance from Columbia.
Item 5.03. Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year
Certificates of Designation
On May3, 2017, we filed with the Secretary of State of the
State of Delaware (i)a Certificate of the Powers, Designations,
Preferences and Rights of the 3.875% SeriesA Convertible
Preferred Stock (the SeriesA Certificate of
Designations) and (ii)a Certificate of the Powers,
Designations, Preferences and Rights of the 3.875% SeriesA-1
Convertible Preferred Stock (the SeriesA-1 Certificate
of Designations and, together with the SeriesA
Certificate of Designations, the Certificates of
Designations). Generally, except with respect to
certain voting rights, and a conversion trigger applicable to
the SeriesA-1 Preferred Stock described below as the HSR
Conversion, the rights, preferences and privileges of the
SeriesA Preferred Stock and the SeriesA-1 Preferred Stock are
substantially identical.
The Preferred Stock has a liquidation preference of $1,000 per
share. In addition, cumulative preferred dividends accumulate
on the Preferred Stock at a rate of 3.875% per annum, and are
payable quarterly in arrears. The payments on such dividends
may be paid in cash or, at our option, in shares of our common
stock. We may only pay such dividends in shares of common stock
on or after August1, 2018, subject to an aggregate share cap
and so long as we have paid full cumulative dividends on the
Preferred Stock for all past dividend periods, and there is
adequate current public information with respect to the Company
and no volume limitations would apply to the resale of such
shares, in each case under Rule144 under the Securities Act.
The Preferred Stock is convertible at the option of the holders
at any time into shares of the Companys common stock at an
initial conversion rate of 27.77778 shares of the Companys
common stock per share of Preferred Stock (which is equal to an
initial conversion price of approximately $36.00 per share of
the Companys common stock), subject to certain customary
anti-dilution adjustments. If at any time after May3, 2020, the
closing sale price of our common stock exceeds 150% of the then
applicable conversion price of the Preferred Stock for at least
20 trading days during a period of 30 consecutive trading days,
the Company may cause some or all of the Preferred Stock to be
converted into shares of common stock at the then applicable
conversion rate. Upon the conversion of the Preferred Stock
into common stock, we are required to pay all accumulated but
unpaid dividends in additional shares of common stock valued at
the then applicable conversion price on the date of such
conversion.
Holders of SeriesA Preferred Stock (but not the SeriesA-1
Preferred Stock) are entitled to vote generally with the
holders of common stock on an as-converted basis (including
with respect to election of the members of our Board). Holders
of SeriesA Preferred Stock are also entitled to certain limited
special approval rights, including with respect to amendments
to the Companys organizational documents that have an adverse
effect on the SeriesA Preferred Stock, certain issuances of
senior or pari passu securities, certain purchases, redemptions
or other acquisitions of junior securities or payments,
dividends or distributions thereon. In addition, so long as any
shares of SeriesA Preferred Stock (but not the SeriesA-1
Preferred Stock) are outstanding and the Purchaser and its
affiliates collectively beneficially own at least a majority of
the shares of Preferred Stock beneficially owned by such
holders immediately following the Closing, the holders of
SeriesA Preferred Stock, voting as a separate class by majority
vote, are entitled to elect one director to serve on our Board.
Holders of SeriesA-1 Preferred Stock generally have no voting
rights except as required by law and with respect to amendments
to the Companys organizational documents that have an adverse
effect on the SeriesA-1 Preferred Stock. At such time as any
waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 applicable to the acquisition of
shares of Preferred Stock expires or is terminated, all shares
of the SeriesA-1 Preferred Stock then issued and outstanding
shall immediately and automatically convert on a one for one
basis to shares of SeriesA Preferred Stock (the HSR
Conversion). Upon such HSR Conversion, all accumulated
but unpaid dividends on such shares of SeriesA-1 Preferred
Stock immediately prior to such HSR Conversion will be
converted into an equivalent amount of accumulated but unpaid
dividends on shares of SeriesA Preferred Stock immediately
following such HSR Conversion.
With certain exceptions, upon a Fundamental Change (as defined
in the Certificates of Designations), the holders of the
Preferred Stock may require that the Company repurchase for
cash all or any whole number of shares of Preferred Stock at a
per-share repurchase price equal to 50% of the liquidation
preference of such shares, plus accumulated and unpaid
dividends. If we fail to effect such repurchase, the dividend
rate on the Preferred Stock will increase by 1% per annum and
an additional 1% per annum on each anniversary of the date that
the Company is required to effect such repurchase, during the
period in which such failure to effect the repurchase is
continuing, except that the dividend rate will not increase to
more than 6.875% per annum. The definition of Fundamental
Change includes a sale of substantially all the Companys
assets, a change of control of the Company by way of a tender
offer, merger or similar event, the adoption of a plan relating
to the Companys liquidation or dissolution and certain
delistings of our common stock, except in certain cases
described in the Certificates of Designations in which the
consideration received or to be received by the Companys common
stockholders in a sale or change of control transaction
consists primarily of publicly listed and traded securities.
Holders of Preferred Stock that are converted in connection
with a Make-Whole Fundamental Change, as defined in the
Certificates of Designations, are, under certain circumstances,
entitled to an increase in the conversion rate for such shares
of Preferred Stock based on the effective date of such event
and the applicable price attributable to the event as set forth
in a table contained in the Certificates of Designations. The
definition of Make-Whole Fundamental Change includes a sale of
substantially all the Companys assets, a change of control of
the Company by way of a tender offer, merger or similar event,
the adoption of a plan relating to the Companys liquidation or
dissolution and certain delistings of our common stock.
If any shares of Preferred Stock have not been converted into
common stock prior to May3, 2024 (the Maturity
Date), the Company will be required to repurchase such
shares at a repurchase price equal to the liquidation
preference of the repurchased shares plus the amount of
accumulated and unpaid dividends thereon. If we fail to effect
such repurchase, the dividend rate on the Preferred Stock will
increase by 1% per annum and an additional 1% per annum on each
anniversary of the Maturity Date during the period in which
such failure to effect the repurchase is continuing, except
that the dividend rate will not increase to more than 6.875%
per annum.
to the Certificates of Designations and the Investment
Agreement, we have, to the fullest extent permitted by the
Delaware General Corporation Law, renounced any interest or
expectancy in, or right to be offered an opportunity to
participate in, any business opportunity or classes or
categories of business opportunities that may be a corporate
opportunity for the Purchaser, its director designees or their
respective affiliates, as well as their respective principals,
directors, general partners, officers, employees, agents and
representatives acting on their behalf, except to the extent
any such opportunity which is expressly offered to, or comes to
the knowledge of, any of such persons solely in his or her
capacity as a member of the Board.
The foregoing description of the Certificates of Designations
is qualified in its entirety by reference to the Certificates
of Designations, which are attached hereto as Exhibits 3.1 and
3.2 and incorporated herein by reference.
Item 8.01. Other Events
On April30, 2017, the Board authorized a share repurchase
program of up to $30 million of the Companys common stock over
the next 12 months. Share repurchases under the program may be
made through open market purchases or privately negotiated
transactions in accordance with
applicable federal securities laws, including Rule10b-18 of the
Exchange Act. While the Board has approved the share purchasing
guidelines, the timing of repurchases and the exact number of
shares of common stock to be purchased will be determined by
the Companys management, at its discretion, and will depend
upon market conditions and other factors. The program will be
funded using the Companys cash on hand and cash generated from
operations. The program may be extended, suspended or
discontinued at any time.
On May3, 2017, the Company issued a press release announcing
its entry into the Investment Agreement, the closing of the
transactions contemplated thereby and the Companys share
repurchase program. A copy of the press release is attached
hereto as Exhibit99.1 and is incorporated herein by reference.
Item9.01. Financial Statements and Exhibits
(d) Exhibits
ExhibitNo. |
|
Description |
3.1 |
Certificate of the Powers, Designations, Preferences and |
|
3.2 |
Certificate of the Powers, Designations, Preferences and |
|
10.1 |
Investment Agreement, dated as of May3, 2017, between the |
|
10.2 |
Amendment No.1 to Credit Agreement with JPMorgan Chase |
|
99.1 |
Press Release issued by Virtusa Corporation on May3, 2017 |
About VIRTUSA CORPORATION (NASDAQ:VRTU)
Virtusa Corporation (Virtusa) is an information technology services company. The Company’s services include information technology (IT) and business consulting, digital enablement services, user experience (UX) design, development of IT applications, maintenance and support services, systems integration, infrastructure and managed services. Its services enable its clients to accelerate business outcomes by consolidating, rationalizing and modernizing the clients’ core customer-facing processes into one or more core systems. It delivers solutions through a global delivery model, applying advanced methods, such as Agile, a technique designed to accelerate application development. The Company uses its consulting methodology, Accelerated Solution Design (ASD). It supports the Chief Information Officers (CIOs) of its client organizations in solving their critical issues, including managing total cost of ownership, accelerating time-to-market and increasing productivity. VIRTUSA CORPORATION (NASDAQ:VRTU) Recent Trading Information
VIRTUSA CORPORATION (NASDAQ:VRTU) closed its last trading session down -0.29 at 30.55 with 633,681 shares trading hands.