(Mark One) | ||
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended May 3, 2019 | ||
or | ||
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Delaware | 27-0463349 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Concourse Parkway NE Suite 500 | ||
Atlanta, Georgia | 30328 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, par value $0.01 per share | SCWX | The NASDAQ Stock Market LLC (NASDAQ Global Select Market) |
Large accelerated filer ¨ | Accelerated filer þ | |
Non-accelerated filer ¨ | Smaller reporting company ¨ | |
Emerging growth company þ |
TABLE OF CONTENTS | ||||
ITEM | PAGE | |||
May 3, 2019 | February 1, 2019 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, net of allowances of $5,851 and $6,160, respectively | |||||||
Inventories, net | |||||||
Other current assets | |||||||
Total current assets | |||||||
Property and equipment, net | |||||||
Operating lease right-of-use assets, net | — | ||||||
Goodwill | |||||||
Purchased intangible assets, net | |||||||
Other non-current assets | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | $ | |||||
Accrued and other | |||||||
Short-term deferred revenue | |||||||
Total current liabilities | |||||||
Long-term deferred revenue | |||||||
Operating lease liabilities, non-current | — | ||||||
Other non-current liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Note 6) | |||||||
Stockholders' equity: | |||||||
Preferred stock - $0.01 par value: 200,000 shares authorized; 0 shares issued | |||||||
Common stock - Class A of $.01 par value: 2,500,000 shares authorized; 11,521 and 11,016 issued and outstanding, respectively. | |||||||
Common stock - Class B of $.01 par value: 500,000 shares authorized; 70,000 shares issued and outstanding | |||||||
Additional paid in capital | |||||||
Accumulated deficit | ( | ) | ( | ) | |||
Accumulated other comprehensive (loss) income | ( | ) | ( | ) | |||
Treasury stock, at cost - 857 and 819 shares, respectively | ( | ) | ( | ) | |||
Total stockholders' equity | |||||||
Total liabilities and stockholders' equity | $ | $ |
Three Months Ended | |||||||
May 3, 2019 | May 4, 2018 | ||||||
Net revenue | $ | $ | |||||
Cost of revenue | |||||||
Gross margin | |||||||
Research and development | |||||||
Sales and marketing | |||||||
General and administrative | |||||||
Total operating expenses | |||||||
Operating loss | ( | ) | ( | ) | |||
Interest and other, net | |||||||
Loss before income taxes | ( | ) | ( | ) | |||
Income tax benefit | ( | ) | ( | ) | |||
Net loss | $ | ( | ) | $ | ( | ) | |
Loss per common share (basic and diluted) | $ | ( | ) | $ | ( | ) | |
Weighted-average common shares outstanding (basic and diluted) | |||||||
Three Months Ended | |||||||
May 3, 2019 | May 4, 2018 | ||||||
Net loss | $ | ( | ) | $ | ( | ) | |
Foreign currency translation adjustments, net of tax | ( | ) | ( | ) | |||
Comprehensive loss | $ | ( | ) | $ | ( | ) |
Three Months Ended | |||||||
May 3, 2019 | May 4, 2018 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | ) | $ | ( | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | |||||||
Stock-based compensation expense | |||||||
Effects of exchange rate changes on monetary assets and liabilities denominated in foreign currencies | ( | ) | |||||
Income tax benefit | ( | ) | ( | ) | |||
Provision for doubtful accounts | |||||||
Changes in assets and liabilities: | |||||||
Accounts receivable | |||||||
Net transactions with parent | |||||||
Inventories | ( | ) | |||||
Other assets | ( | ) | |||||
Accounts payable | ( | ) | |||||
Deferred revenue | |||||||
Accrued and other liabilities | ( | ) | ( | ) | |||
Net cash used in operating activities | ( | ) | ( | ) | |||
Cash flows from investing activities: | |||||||
Capital expenditures | ( | ) | ( | ) | |||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities: | |||||||
Principal payments on financing arrangement with Dell Financial Services | ( | ) | |||||
Taxes paid on vested restricted shares | ( | ) | ( | ) | |||
Purchases of stock for treasury | ( | ) | |||||
Payments on financed capital expenditures | ( | ) | |||||
Net cash used in financing activities | ( | ) | ( | ) | |||
Net decrease in cash and cash equivalents | ( | ) | ( | ) | |||
Cash and cash equivalents at beginning of the period | |||||||
Cash and cash equivalents at end of the period | $ | $ |
Common Stock - Class A | Common Stock - Class B | |||||||||||||||||||||||||||||||||
Outstanding Shares | Amount | Outstanding Shares | Amount | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||||||||
Balances, February 2, 2018* | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||
Net loss | — | — | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Vesting of restricted stock units | — | — | ( | ) | — | — | — | |||||||||||||||||||||||||||
Grant of restricted stock awards | — | — | ( | ) | — | — | — | |||||||||||||||||||||||||||
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares | ( | ) | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Balances, May 4, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ |
Common Stock - Class A | Common Stock - Class B | |||||||||||||||||||||||||||||||||
Outstanding Shares | Amount | Outstanding Shares | Amount | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Stockholders' Equity | ||||||||||||||||||||||||||
Balances, February 1, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
Net loss | — | — | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||||||||
Vesting of restricted stock units | — | — | ( | ) | — | — | — | |||||||||||||||||||||||||||
Grant of restricted stock awards | — | — | ( | ) | — | — | — | |||||||||||||||||||||||||||
Common stock withheld as payment for withholding taxes upon the vesting of restricted shares | ( | ) | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Shares repurchased | ( | ) | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||
Balances, May 3, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
Three Months Ended | |||||||
May 3, 2019 | May 4, 2018 | ||||||
Numerator: | |||||||
Net loss | $ | ( | ) | $ | ( | ) | |
Denominator: | |||||||
Weighted-average number of shares outstanding: | |||||||
Basic and Diluted | |||||||
Loss per common share: | |||||||
Basic and Diluted | $ | ( | ) | $ | ( | ) | |
Weighted-average anti-dilutive stock options, non-vested restricted stock and restricted stock units |
Three Months Ended | |||||||||
May 3, 2019 | May 4, 2018 | ||||||||
Managed Security Solutions revenue | $ | $ | |||||||
Security and Risk Consulting revenue | |||||||||
Total revenue | $ | $ |
As of February 1, 2019 | Upfront payments received and billings during the three months ended May 3, 2019 | Revenue recognized during the three months ended May 3, 2019 | As of May 3, 2019 | |||||||||||||
Deferred revenue | $ | $ | $ | ( | ) | $ |
As of February 2, 2018* | Upfront payments received and billings during the three months ended May 4, 2018 | Revenue recognized during the three months ended May 4, 2018 | As of May 4, 2018 | |||||||||||||
Deferred revenue | $ | $ | $ | ( | ) | $ |
Total | Expected to be recognized in the next 12 months | Expected to be recognized in 12-24 months | Expected to be recognized in 24-36 months | Expected to be recognized thereafter | ||||||||||||||||
Performance obligation - active | $ | $ | $ | $ | $ | |||||||||||||||
Performance obligation - backlog | ||||||||||||||||||||
Total | $ | $ | $ | $ | $ |
As of February 1, 2019 | Amount capitalized | Amount recognized | As of May 3, 2019 | |||||||||||||
Deferred commissions | $ | $ | $ | ( | ) | $ | ||||||||||
Deferred fulfillment costs | ( | ) |
As of February 2, 2018* | Amount capitalized | Amount recognized | As of May 4, 2018 | |||||||||||||
Deferred commissions | $ | $ | $ | ( | ) | $ | ||||||||||
Deferred fulfillment costs | ( | ) |
May 3, 2019 | February 1, 2019 | |||||||||||||||||||||||
Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Customer relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Technology | ( | ) | ( | ) | ||||||||||||||||||||
Finite-lived intangible assets | ( | ) | ( | ) | ||||||||||||||||||||
Trade name | — | — | ||||||||||||||||||||||
Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
May 3, 2019 | |||
Weighted-average remaining lease term | |||
Weighted-average discount rate | % |
Fiscal Years Ending | ||||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total operating lease payments | $ | |||
Less imputed interest | ( | ) | ||
Total operating lease liabilities | $ |
Fiscal Years Ending | February 1, 2019 | |||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total operating lease payments | $ |
Three Months Ended | |||||||
May 3, 2019 | May 4, 2018 | ||||||
Loss before income taxes | $ | ( | ) | $ | ( | ) | |
Income tax benefit | $ | ( | ) | $ | ( | ) | |
Effective tax rate | % | % |
May 3, 2019 | February 1, 2019 | |||||||
(in thousands) | ||||||||
Intercompany payable (in accrued and other) | $ | $ | ||||||
Accounts receivable from customers under reseller agreements with Dell (included in accounts receivable, net) | $ | $ | ||||||
Net operating loss tax sharing receivable under agreement with Dell (included in "Other current assets" and "Other non-current assets" at May 3, 2019 and in "Other current assets" at February 1, 2019) | $ | $ |
• | Level 1 - Quoted market prices in active markets for identical assets or liabilities |
• | Level 2 - Other observable market-based inputs or unobservable inputs that are corroborated by market data |
• | Level 3 - Significant unobservable inputs |
May 3, 2019 | February 1, 2019 | ||||||||
Level 1 | Level 1 | ||||||||
(in thousands) | |||||||||
Cash equivalents - Money Market Funds | $ | $ |
• | prevent security breaches by fortifying their cyber defenses, |
• | detect malicious activity, |
• | respond rapidly to security breaches, and |
• | predict emerging threats. |
• | maintain and extend our technology leadership, |
• | expand and diversify our customer base, |
• | deepen our existing customer relationships, and |
• | attract and retain top talent. |
May 3, 2019 | May 4, 2018 | ||||||
Subscription customer base | 4,100 | 4,400 | |||||
Total customer base | 4,600 | 4,900 | |||||
Monthly recurring revenue (in millions) | $ | 36.1 | $ | 35.5 | |||
Annual recurring revenue (in millions) | $ | 433.0 | $ | 425.9 | |||
Average subscription revenue per customer (in thousands) | $ | 104.9 | $ | 97.6 | |||
Revenue retention rate | 99 | % | 100 | % |
• | Amortization of Intangible Assets. Amortization of intangible assets consists of amortization of customer relationships and acquired technology. In connection with the acquisition of Dell by Dell Technologies in fiscal 2014, all of our tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date. Accordingly, amortization of intangible assets consists of amortization associated with intangible assets recognized in connection with this transaction. |
• | Stock-based Compensation Expense. Non-cash stock-based compensation relates to both the Dell Technologies and Secureworks equity plans. We exclude such expenses when assessing the effectiveness of our operating performance since stock-based compensation does not necessarily correlate with the underlying operating performance of the business. |
• | Aggregate Adjustment for Income Taxes. The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments mentioned above. The tax effects are determined based on the tax jurisdictions where the above items were incurred. |
Three Months Ended | |||||||
May 3, 2019 | May 4, 2018 | ||||||
(in thousands) | |||||||
GAAP and non-GAAP revenue | $ | 132,842 | $ | 126,161 | |||
GAAP gross margin | $ | 70,001 | $ | 65,631 | |||
Amortization of intangibles | 3,410 | 3,410 | |||||
Stock-based compensation expense | 260 | 269 | |||||
Non-GAAP gross margin | $ | 73,671 | $ | 69,310 | |||
GAAP research and development expenses | $ | 22,642 | $ | 22,354 | |||
Stock-based compensation expense | (1,176 | ) | (1,031 | ) | |||
Non-GAAP research and development expenses | $ | 21,466 | $ | 21,323 | |||
GAAP sales and marketing expenses | $ | 38,193 | $ | 35,670 | |||
Stock-based compensation expense | (781 | ) | (621 | ) | |||
Non-GAAP sales and marketing expenses | $ | 37,412 | $ | 35,049 | |||
GAAP general and administrative expenses | $ | 23,638 | $ | 25,197 | |||
Amortization of intangibles | (3,524 | ) | (3,524 | ) | |||
Stock-based compensation expense | (2,699 | ) | (2,809 | ) | |||
Non-GAAP general and administrative expenses | $ | 17,415 | $ | 18,864 | |||
GAAP operating income (loss) | $ | (14,472 | ) | $ | (17,590 | ) | |
Amortization of intangibles | 6,934 | 6,934 | |||||
Stock-based compensation expense | 4,916 | 4,730 | |||||
Non-GAAP operating income (loss) | $ | (2,622 | ) | $ | (5,926 | ) | |
GAAP net income (loss) | $ | (8,270 | ) | $ | (13,819 | ) | |
Amortization of intangibles | 6,934 | 6,934 | |||||
Stock-based compensation expense | 4,916 | 4,730 | |||||
Aggregate adjustment for income taxes | (5,467 | ) | (2,391 | ) | |||
Non-GAAP net income (loss) | $ | (1,887 | ) | $ | (4,546 | ) | |
GAAP earnings (loss) per share | $ | (0.10 | ) | $ | (0.17 | ) | |
Amortization of intangibles | 0.09 | 0.09 | |||||
Stock-based compensation expense | 0.06 | 0.06 | |||||
Aggregate adjustment for income taxes | (0.07 | ) | (0.03 | ) | |||
Non-GAAP earnings (loss) per share * | $ | (0.02 | ) | $ | (0.06 | ) | |
* Sum of reconciling items may differ from total due to rounding of individual components | |||||||
GAAP net income (loss) | $ | (8,270 | ) | $ | (13,819 | ) | |
Interest and other, net | (268 | ) | (505 | ) | |||
Income tax benefit | (5,934 | ) | (3,266 | ) | |||
Depreciation and amortization | 10,365 | 10,287 | |||||
Stock-based compensation expense | 4,916 | 4,730 | |||||
Adjusted EBITDA | $ | 809 | $ | (2,573 | ) |
▪ | Research and Development, or R&D, Expenses. Research and development expenses include compensation and related expenses for the continued development of our solutions offerings, including a portion of expenses related to our threat research team, which focuses on the identification of system vulnerabilities, data forensics and malware analysis. R&D expenses also encompass expenses related to the development of prototypes of new solutions offerings and allocated overhead. Our customer solutions have generally been developed internally. We operate in a competitive and highly technical industry. Therefore, to maintain and extend our technology leadership, we intend to continue to invest in our R&D efforts by hiring more personnel to enhance our existing security solutions and to add complementary solutions. |
• | Sales and Marketing, or S&M, Expenses. Sales and marketing expenses include salaries, sales commissions and performance-based compensation, benefits and related expenses for our S&M personnel, travel and entertainment, marketing and advertising programs (including lead generation), customer advocacy events, and other brand-building expenses, as well as allocated overhead. As we continue to grow our business, both domestically and internationally, we will invest in our sales capability, which will increase our sales and marketing expenses in absolute dollars. |
▪ | General and Administrative, or G&A, Expenses. General and administrative expenses include primarily the costs of human resources and recruiting, finance and accounting, legal support, information management and information security systems, facilities management, corporate development and other administrative functions, and are partially offset by allocations of information technology and facilities costs to other functions. |
Three Months Ended | |||||||||||||||||
May 3, 2019 | May 4, 2018 | ||||||||||||||||
$ | % of Revenue | % Change | $ | % of Revenue | |||||||||||||
(in thousands, except percentages) | |||||||||||||||||
Net revenue | $ | 132,842 | 100.0 | % | 5.3 | % | $ | 126,161 | 100.0 | % | |||||||
Cost of revenue | $ | 62,841 | 47.3 | % | 3.8 | % | $ | 60,530 | 48.0 | % | |||||||
Total gross margin | $ | 70,001 | 52.7 | % | 6.7 | % | $ | 65,631 | 52.0 | % | |||||||
Operating expenses | $ | 84,473 | 63.6 | % | 1.5 | % | $ | 83,221 | 66.0 | % | |||||||
Operating income (loss) | $ | (14,472 | ) | (10.9 | )% | (17.7 | )% | $ | (17,590 | ) | (13.9 | )% | |||||
Net income (loss) | $ | (8,270 | ) | (6.2 | )% | (40.2 | )% | $ | (13,819 | ) | (11.0 | )% | |||||
Other Financial Information (1) | |||||||||||||||||
Non-GAAP net revenue | $ | 132,842 | 100.0 | % | 5.3 | % | $ | 126,161 | 100.0 | % | |||||||
Non-GAAP cost of revenue | $ | 59,171 | 44.5 | % | 4.1 | % | $ | 56,851 | 45.1 | % | |||||||
Non-GAAP gross margin | $ | 73,671 | 55.5 | % | 6.3 | % | $ | 69,310 | 54.9 | % | |||||||
Non-GAAP operating expenses | $ | 76,293 | 57.4 | % | 1.4 | % | $ | 75,236 | 59.6 | % | |||||||
Non-GAAP operating loss | $ | (2,622 | ) | (2.0 | )% | (55.8 | )% | $ | (5,926 | ) | (4.7 | )% | |||||
Non-GAAP net loss | $ | (1,887 | ) | (1.4 | )% | (58.5 | )% | $ | (4,546 | ) | (3.6 | )% | |||||
Adjusted EBITDA | $ | 809 | 0.6 | % | (131.4 | )% | $ | (2,573 | ) | (2.0 | )% |
(1) | See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for more information about these non-GAAP financial measures, including our reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP revenue. |
Three Months Ended | ||||||||||||||||
May 3, 2019 | May 4, 2018 | |||||||||||||||
Dollars | % of Revenue | % Change | Dollars | % of Revenue | ||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 22,642 | 17.0 | % | 1.3 | % | $ | 22,354 | 17.7 | % | ||||||
Sales and marketing | 38,193 | 28.8 | % | 7.1 | % | 35,670 | 28.3 | % | ||||||||
General and administrative | 23,638 | 17.8 | % | (6.2 | )% | 25,197 | 20.0 | % | ||||||||
Total operating expenses | $ | 84,473 | 63.6 | % | 1.5 | % | $ | 83,221 | 66.0 | % | ||||||
Other Financial Information | ||||||||||||||||
Non-GAAP research and development | $ | 21,466 | 16.2 | % | 0.7 | % | $ | 21,323 | 16.9 | % | ||||||
Non-GAAP sales and marketing | 37,412 | 28.2 | % | 6.7 | % | 35,049 | 27.8 | % | ||||||||
Non-GAAP general and administrative | 17,415 | 13.1 | % | (7.7 | )% | 18,864 | 15.0 | % | ||||||||
Non-GAAP operating expenses (1) | $ | 76,293 | 57.4 | % | 1.4 | % | $ | 75,236 | 59.6 | % |
(1) | See "Non-GAAP Financial Measures" and "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. |
May 3, 2019 | February 1, 2019 | ||||||
(in thousands) | |||||||
Cash and cash equivalents | $ | 111,176 | $ | 129,592 | |||
Accounts receivable, net | $ | 135,270 | $ | 141,344 |
Three Months Ended | ||||||||
May 3, 2019 | May 4, 2018 | |||||||
(in thousands) | ||||||||
Net change in cash from: | ||||||||
Operating activities | $ | (3,025 | ) | $ | (18,404 | ) | ||
Investing activities | (7,016 | ) | (2,216 | ) | ||||
Financing activities | (8,375 | ) | (3,617 | ) | ||||
Change in cash and cash equivalents | $ | (18,416 | ) | $ | (24,237 | ) |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Programs | ||||||
February 2, 2019 through March 1, 2019 | ||||||||||
Share repurchase program | 38,380 | $ | 23.72 | 38,380 | $ | 558,566 | ||||
Employee transactions (1) | 11,013 | 22.19 | NA | NA | ||||||
March 2, 2019 through March 29, 2019 | ||||||||||
Share repurchase program | — | — | — | 15,558,566 | ||||||
Employee transactions (1) | 59,717 | 20.52 | NA | NA | ||||||
March 30, 2019 through May 3, 2019 | ||||||||||
Share repurchase program | — | — | — | 15,558,566 | ||||||
Employee transactions (1) | 48,551 | 18.44 | NA | NA | ||||||
Total | 157,661 | $ | 20.69 | 38,380 | $ | 15,558,566 |
(1) | Represents shares delivered to the Company to satisfy tax withholding obligations in connection with the vesting of employee restricted stock awards. |
Exhibit No. | Description | |
10.1 | ||
10.2 | ||
10.3 | ||
10.4* | ||
10.5** | ||
31.1 | ||
31.2 | ||
32.1 | ||
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101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
SecureWorks Corp. | ||
By: | /s/ R. Wayne Jackson | |
R. Wayne Jackson | ||
Chief Financial Officer | ||
(Duly Authorized Officer) |
“Strategically Aligned Business (SAB) IT Enablement Services | Dell will provide to Spyglass strategic IT planning services, including: - acting as single point of contact for facilitation of Spyglass’ consumption of technology services within the Dell family of businesses - working to ensure that Spyglass has the option to utilize relevant IT-related agreements to which Dell is a party in support of Spyglass operations - providing program management services for adoption of services provided by Dell - serving as the single escalation point for inquiries regarding Dell Digital IT services and ongoing operations - coordinating semi-annual cross-SAB benchmarking and collaboration sessions | $42,299/Quarter for Fiscal Year 2020. This fee will be adjusted in subsequent years based on demand by mutual agreement.” |
DELL INC. | |||
By: | /s/ Robert Linn Potts | ||
Name: | Robert Potts | ||
Title: | Senior Vice President and Assistant Secretary | ||
SECUREWORKS CORP. | |||
By: | /s/ George B. Hanna | ||
Name: | George B. Hanna | ||
Title: | SVP and Corporate Secretary | ||
May 31, 2019 |
(a) | this Agreement, duly executed and delivered by the Borrower and the Lender; |
(b) | copies of all licenses, consents, authorizations and approvals of, and notices to and filings and registrations with, any Governmental Authority (including all foreign exchange approvals), and of all third-party consents and approvals, necessary in connection with the making and performance by the Borrower of the Agreement and the transactions contemplated thereby; |
(c) | copies of the resolutions of the Board of Directors of the Borrower authorizing the making and performance by it of the Agreement; and |
(d) | such other documents relating hereto as the Lender shall reasonably request. |
(a) | no Default shall have occurred and be continuing; |
(b) | there shall have occurred no event or condition that could reasonably be expected to result in a Material Adverse Effect; |
(c) | the representations and warranties made by the Borrower in Section 7 shall be true in all respects on and as of the relevant Borrowing Date and immediately |
(d) | the Lender shall have received such other documents relating hereto as the Lender shall reasonably request, each of which shall be in form and substance satisfactory to the Lender. |
(i) | The Business Day of the requested Borrowing is , . |
(ii) | The amount of the requested Borrowing is $ . |
(iii) | The proceeds of the Loan constituting the requested Borrowing are to be remitted to: |
a. | If at any time prior to January 31, 2020 Executive is terminated by SecureWorks, other than in a termination described in paragraph 2, the Separation Date will be the effective date of such termination, and Executive will be eligible to receive the severance benefits described in this Agreement. |
b. | If Executive voluntarily resigns prior to January 31, 2020 but after a new Chief Financial Officer is named, the Separation Date will be the effective date of such resignation, and Executive will be eligible to receive the severance benefits described in this Agreement. |
c. | If Executive voluntarily resigns prior to January 31, 2020 and prior to a new Chief Financial Officer being named, the Separation Date will be the effective date of such resignation, and Executive will not be eligible to receive any, and will forfeit all, severance benefits described in this Agreement. |
d. | If a new Chief Financial Officer is not named prior to January 31, 2020, an interim Chief Financial Officer will be named, and Executive will have no further duties after January 31, 2020 and will be eligible to receive the severance benefits described in this Agreement. |
a. | Severance Pay. If SecureWorks receives an Effective Final Release from Executive, SecureWorks will pay Executive severance pay (“Severance Pay”) in the amount of twelve (12) months of his current base salary, payable in four (4) substantially equal quarterly installments, with the first such installment payable on the last day of the third month following the Separation Date, and each subsequent installment payable on the last day of the third month following each payment. These payments will not include 401(k) or any other benefits-related deductions. However, all applicable taxes will be withheld. |
b. | Short-Term Incentive Plan Payments. If SecureWorks receives an Effective Final Release from Executive, SecureWorks will pay Executive an additional Severance Pay equal to a prorated short-term incentive plan award payout. This payout amount will be calculated using: |
i. | A payout modifier of 75% if the Separation Date is prior to January 31, 2020; otherwise a payout modifier of 100%. |
ii. | A proration factor based on the number of days in the fiscal year that Executive was employed by the Company through to the Separation Date. |
iii. | Executive’s base salary on the Separation Date (or his base salary on the date of this Agreement, if higher). |
iv. | A plan target for Executive’s grade of 55%. |
v. | An assumed corporate performance modifier and an individual performance modifier of 100% if the Separation Date is prior to January 31, 2020; otherwise the actual corporate performance modifier for the fiscal year ending January 31, 2020 (or, if the actual corporate performance modifier is not determinable by the payment date described below, an estimate of such actual corporate performance modifier) and an individual modifier of 100%. |
c. | Long-Term Incentive Plan Payments. If SecureWorks receives an Effective Final Release from Executive, and if Executive holds unvested long-term incentive grants which are due to vest within ninety (90) days after the Separation Date, SecureWorks |
i. | Stock Options: 75% TIMES the number of shares of SecureWorks common stock (“Common Stock”) due to vest under the option grant within ninety (90) days after Executive’s Separation Date TIMES the difference between (x) and (y), where (x) is average closing price for a share of Common Stock for the week prior to the week that includes the Separation Date, and (y) is the option exercise price per share of Common Stock under the option. If this value is negative, it will be excluded from the payment calculation. |
ii. | Restricted (and Performance Based) Stock: 75% TIMES the number of shares of Common Stock to vest within ninety (90) days after Executive’s Separation Date TIMES the average closing price for a share of Common Stock for the week prior to the week that includes the Separation Date. |
d. | COBRA. If SecureWorks receives an Effective Final Release from Executive, and if Executive and/or Executive’s eligible dependents are enrolled in a SecureWorks health, dental, and/or vision plan and Executive elects COBRA coverage for which Executive and/or Executive’s eligible dependents are eligible within the enrollment period, SecureWorks will pay the premiums for eighteen (18) months of benefits continuation under COBRA. All premiums for any benefits continuation under COBRA following that 18-month period shall be Executive’s sole responsibility. |
e. | Effect of No Release or No Final Release. Executive agrees that, except as expressly set forth in this Agreement, in any SecureWorks’ applicable plan, program or policy governing health and welfare and retirement plans and, with respect to equity grants, in any equity award agreement, Executive is not entitled to receive from SecureWorks payment or distribution of any amounts of cash compensation (including, but not limited to, base salary, bonuses or severance pay), benefits, perquisites or property of any type after the Separation Date. If Executive does not sign this Agreement or if Executive revokes this Agreement during the Revocation Period described in paragraph 18, or if Executive does not sign the final release and deliver to SecureWorks an Effective Final Release, the only amount payable shall be such amounts as are required by applicable law, payments in accordance with Executive’s rights, if any, to any benefits under SecureWorks’ health and welfare or retirement plans and payments in accordance with Executive’s rights, if any, to equity grants as set out the applicable equity award agreement(s). |
f. | Section 409A Compliance. The payments and benefits payable pursuant to this Agreement are intended either to be exempt from Internal Revenue Section 409A (“Section 409A”) as payments that would fall within the “short-term deferral period” within the meaning of Treasury Regulation Section 1.409A-1(b)(4) or to comply with the provisions of Section 409A. This Agreement shall be interpreted to avoid any penalty or sanctions under Section 409A. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to the maximum extent permitted to be exempt from or compliant with Section 409A and, if necessary, any such provision shall |
i. | It is intended that each installment of the payments and benefits hereunder shall be treated as a separate “payment” for purposes of Section 409A. |
ii. | To the extent that payments and benefits under this Agreement are deferred compensation subject to Section 409A and are contingent upon Executive’s taking any employment-related action, including without limitation execution (and non-revocation) of another agreement, such as a release agreement, and the period within which such action(s) may be taken by Executive would begin in one calendar year and expire in the following calendar year, then such amounts or benefits shall be paid in such following calendar year. |
iii. | If as of the Separation Date, Executive is a “specified employee” (within the meaning of Section 409A(a)(2)(B) or any successor provision thereto), then with regard to any payment or provision of benefit that is subject to Section 409A as deferred compensation and is due upon or as a result of Executive’s “separation from service,” notwithstanding any contrary provision under this Agreement, such payment or benefit shall not be made or provided, to the extent making or providing such payment or benefit would result in additional taxes or interest under Section 409A, until the date with is the earlier of (A) expiration of the six (6)-month period measured from such “separation from service,” and (B) the date of Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump-sum, and any remaining payments and benefit due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them in this Agreement. |
iv. | While this Agreement is intended to be exempt from or compliant with Section 409A, neither SecureWorks nor the Company makes or has made any representation, warranty or guarantee of any federal, state or local tax consequences of Executive’s entitlements under this Agreement, including, but not limited to, under Section 409A. |
a. | Release. Executive hereby fully releases the Company and all of its owners, partners, shareholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, subsidiaries, joint ventures, and affiliates (and agents, directors, officers, employees, representatives, and attorneys of such subsidiaries and affiliates) (collectively, "Released Parties"), from any and all known or unknown claims or demands he may have against any of them. Executive expressly waives any and all claims, whether asserted on an individual or class action basis, against the Released Parties including but not limited to all claims arising out of any contract, express or implied, and whether executory or not, any covenant of good faith and fair dealing, express or implied, any tort (whether intentional or negligent, including claims arising out of the negligence or gross negligence by the Released Parties and claims of express or implied defamation by the Released Parties), and any federal, state, or other governmental statute, regulation, or ordinance, including, without limitation, those |
b. | Final Release. On or about the Separation Date, SecureWorks will provide to Executive a release agreement having substantially the same terms and scope as the release terms described in paragraphs 4.a., 6, 7 or 8. The final release will also have a consideration period of at least 21 days, and a revocation period of at least seven (7) days after such final release is signed by Executive. If Executive signs and does not revoke the final release during its revocation period, the final release will constitute an “Effective Final Release,” and SecureWorks will provide Executive with the payments and benefits described in paragraph 3, unless Executive’s employment termination is effected under paragraph 1.c. or 2, in which case no amounts shall be payable to Executive under paragraph 3. |
c. | Directors’ and Officers’ Insurance. Notwithstanding the foregoing provisions of this paragraph 4, the releases described in this Agreement do not waive and will not be construed to waive, release or otherwise affect any indemnification, defense or other protections, rights or benefits that Executive may have or be entitled to, at the Separation Date or in the future, with respect to Executive’s activities during his employment with SecureWorks, under any policies of insurance, such as a directors’ and officers’ insurance policy, under any by-law(s) or policy(ies) of SecureWorks or under state law. |
a. | As a material inducement to SecureWorks to enter into this Agreement, Executive reaffirms Executive’s intent to comply with Executive’s post-employment obligations to SecureWorks under such agreements. By way of example, the post-termination terms and conditions of an Executive’s long-term incentive and equity award agreements remain in full force and effect, and Executive may require under such agreement to return shares of stock, share value, option proceeds, or cash award payments if he |
b. | For purposes of the restrictive covenants that Executive agreed to when executing the Protection of Sensitive Information, Noncompetition and Nonsolicitation Agreement, the definition of a “Direct Competitor” in paragraph 4 of that agreement, is revised to mean any entity or other business concern that offers or plans to offer products or services designed to protect business customers from information security risks (i.e., managed cyber security). For large organizations with broad business offerings beyond those of SecureWorks’ products and services (such as IBM and Verizon), the definition of Direct Competitor is intended to refer to a competing business unit (or units) within such company, and excludes other business units within any such company that do not directly compete with SecureWorks’ products and services so long as Executive does not provide direct support or consultation to the competing business unit (or units). In addition, under paragraph 5 of that agreement, Executive will be able to request that the restrictions be modified by SecureWorks to allow him to accept a position with a company that might otherwise be prohibited. |
a. | Executive. Executive agrees that, except as may be required by law or court order Executive will not, directly or indirectly, make any statement, oral or written, or perform any act or omission which is or could be detrimental in any material respect to the reputation or goodwill of SecureWorks or any other Released Party. Executive understands that Executive’s compliance with a subpoena or other legally compulsive process or Executive’s participation as a witness in any lawsuit will not be a violation of this provision. |
b. | Company. In the event SecureWorks is contacted regarding Executive, SecureWorks agrees to follow its policy and only disclose Executive’s dates of employment with SecureWorks and the last position held and will not authorize anyone to make or issue any additional statement, oral or written, which is or could be detrimental in any material respect to the reputation of Executive. Executive understands that SecureWorks’ compliance with a subpoena or other legally compulsive process or its participation in any lawsuit will not be a violation of this provision. |
FY20 Reseller-Spyglass VFH Terms and Conditions: | ||
A. This VFH Program (“Program”) is an agreement related to the sale of Services and Solutions in the Tri-Party Agreement. | ||
B. Reseller and Spyglass shall meet quarterly to assess performance. If both parties desire, they may make changes to the Program if mutual agreement is signed in writing by both parties. | ||
C. The intent of the quarterly performance assessments is to review and track sales performance pursuant to the Tri-Party Agreement. To support these assessments, at least as frequently as once per quarter, Reseller will provide compensation plans (which shall include sales and product modifiers). Spyglass may request related backup documentation relative to Dell’s current or past immediate quarter’s marketing activities. Such a request must be made within 90 days after the conclusion of a fiscal quarter. Such documentation includes compensation plans, sales, product modifiers, and travel expense invoices. | ||
D. The Program cannot be changed without mutual agreement from both parties. | ||
E. Fiscal Year Details | ||
Fiscal Quarter: | Beginning in FY20 Q1 | |
Segment: | Reseller-Spyglass-CS | |
Program Name: | Spyglass Dedicated Sales | |
Program | Shared Security Comp Plans: | |
Description/Objective | ||
Spyglass Dedicated Sales Comp Plans: | ||
As used in the table above, “# of Reps” means the total number of Security Sales representatives and “# of Managers” means the total number of Security Sales managers. | ||
Program Owner: | Kami Wickham | |
Dell Inc. | SecureWorks, Inc. |
By: /s/ Max Zieky | By: /s/ R. Wayne Jackson |
Name: Max Zieky | Name: R. Wayne Jackson |
Title: VP | Title: CFO |
Date: May 8, 2019 | Date: May 3, 2019 |
1. | I have reviewed this quarterly report on Form 10-Q of SecureWorks Corp.; |
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(s) 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(s) 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. |
June 5, 2019 | /s/ Michael R. Cote | |
Michael R. Cote | ||
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of SecureWorks Corp.; |
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(s) 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(s) 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. |
June 5, 2019 | /s/ R. Wayne Jackson | |
R. Wayne Jackson | ||
Chief Financial Officer |
1. | The quarterly report on Form 10-Q of the Company for the quarter ended May 3, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in such quarterly report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | June 5, 2019 | /s/ Michael R. Cote | |
Michael R. Cote | |||
President and Chief Executive Officer |
Date: | June 5, 2019 | /s/ R. Wayne Jackson | |
R. Wayne Jackson | |||
Chief Financial Officer |
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