2.	ACQUISITIONS

Empathy Lab, LLC — On December 18, 2012, the Company acquired substantially all of the assets and assumed certain liabilities of Empathy Lab, LLC (“Empathy Lab”), a U.S.-based digital strategy and multi-channel experience design firm. The acquisition is intended to enhance the Company’s strong capabilities in global delivery of software engineering services with the proven expertise in two important growth areas-development and execution of enterprise-wide eCommerce initiatives and transformation of media consumption and distribution channels. In addition to strengthening our Travel and Consumer and Business Information and Media verticals, Empathy Lab brings significant expertise in digital marketing strategy consulting and program management.

The purchase price was comprised of approximately $27,257 payable in cash, of which approximately 10% was placed in escrow for a period of 18 months as a security for the indemnification obligations of the sellers under the asset purchase agreement. Additionally, the Company issued to the sellers 326,344 shares of non-vested (“restricted”) common stock contingent on their continued employment with the Company (Note 14), of which 65,268 shares were placed in escrow for a period of 18 months as a security for the indemnification obligations of the sellers under the asset purchase agreement. The restricted stock has an estimated value of $6,755 and will be recorded as a stock-based compensation expense over an associated service period of three years.

Additionally, the Company agreed to issue stock options to certain employees acquired through the Empathy Lab acquisition. The stock options will be issued in the amount by which the acquiree’s revenue exceeds the target revenue for the first half of 2013, as defined by the purchase agreement. The stock options will be issued under the Company’s current long-term incentive plan and will be subject to all vesting restrictions and other terms and conditions customary for the Company.

The purchase price was allocated to the assets acquired based on their related fair values, as follows:


Cash and cash equivalents	$	1,191
Trade receivables and other current assets		5,983
Property and equipment		186
Deferred tax asset		30
Acquired intangible assets		11,200
Goodwill		11,359

Total assets acquired		29,949

Accounts payable and accrued expenses		1,028
Deferred revenue and other liabilities		1,664

Total liabilities assumed		2,692

Net assets acquired	$	27,257

The Company performed a valuation analysis to determine the fair values of certain intangible assets of Empathy Lab as of the acquisition date. As part of the valuation process, the excess earnings method was used to determine the value of customer relationships. Fair values of trade name and non-competition agreements were determined using the relief from royalty and discounted earnings methods, respectively. The Company expects approximately $11,470 of tax goodwill amortizable over a15-year period.

The following table presents the estimated fair values and useful lives of intangible assets acquired:


	December 18, 2012		Weighted Average Useful Life (in years)
Customer relationships	$	6,900		10
Trade names		3,900		5
Non-competition agreements		400		4

Total	$	11,200

The above estimated fair values of the assets acquired and liabilities assumed are provisional and based on information available as of the acquisition date to estimate the fair values of the assets acquired and liabilities assumed. The Company believes such information provides a reasonable basis for estimating the fair values but the Company is waiting for additional information necessary to finalize those amounts, particularly with respect to the estimated fair values of intangible assets and deferred income taxes. Thus, the provisional measurements of fair value reflected are subject to change. Such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the Empathy Lab acquisition date.

Included in consolidated statements of income and comprehensive income for the year ended December 31, 2012 are $545 of revenues and $104 of net income of the acquiree, respectively.

Total acquisition-related post-combination compensation expense recognized for the year ended December 31, 2012 was $79 and is presented within selling, general and administrative expenses. Total acquisition-related costs were $81 and are presented within selling, general and administrative expenses for the year ended December 31, 2012, respectively.

Pro forma results of operations for the Empathy Lab acquisition completed during the year ended December 31, 2012 have not been presented because the effects of the acquisition were not material, individually and in aggregate with other acquisitions completed by the Company during 2012, to the Company’s consolidated results of operations.

Thoughtcorp, Inc. — On May 23, 2012, the Company acquired substantially all of the assets and assumed certain liabilities of Thoughtcorp, Inc., a Toronto-based software solutions provider (“Thoughtcorp”). The acquisition is intended to expand the Company’s geographic footprint within North America, and complement its global delivery capabilities with expertise in areas such as agile development, enterprise mobility and business intelligence. In addition, Thoughtcorp brings significant telecommunications expertise, and is also expected to expand and enhance the Company’s offering within the Banking and Financial Services and Travel and Consumer verticals.

The purchase price was comprised of $7,497 paid in cash and 217,274 shares of common stock with a fair value of $3,607 at the acquisition date. Half of these shares were placed in escrow for a period of 18 months as a security for the indemnification obligations of the sellers under the asset purchase agreement. Additionally, the Company issued to the sellers 217,272 shares of non-vested (“restricted”) common stock contingent on their continued employment with the Company (Note 14). These shares have an estimated value of $3,607 and will be recorded as stock-based compensation expense over an associated service period of two years. A deferred tax asset has been recognized for the tax effect of the fair value of the portion of the shares that were placed in escrow.

The purchase price was allocated to the assets acquired based on their related fair values, as follows:


Cash and cash equivalents	$	1,111
Trade receivables and other current assets		2,484
Property and equipment		92
Deferred tax asset		1,348
Acquired intangible assets		5,296
Goodwill		2,935

Total assets acquired		13,266

Accounts payable and accrued expenses		461
Assumed shareholder and director loans		1,290
Deferred revenue and other liabilities		411

Total liabilities assumed		2,162

Net assets acquired	$	11,104

The Company performed a valuation analysis to determine the fair values of certain intangible assets of Thoughtcorp as of the acquisition date. As part of the valuation process, the excess earnings method was used to determine the value of customer relationships. Fair values of trade name and non-competition agreements were determined using the relief from royalty and discounted earnings methods, respectively. The Company expects approximately $8,310 of tax goodwill, of which 75% is deductible at 7% per annum on a declining basis.

The following table presents the fair values and useful lives of intangible assets acquired:


	May 23, 2012		Weighted Average Useful Life (in years)
Customer relationships	$	2,810		10
Trade names		2,014		5
Non-competition agreements		472		5

Total	$	5,296

Included in consolidated statements of income for the year ended December 31, 2012 are $7,184 of revenues and $206 of net losses of the acquiree, respectively.

Total acquisition-related post-combination compensation expense recognized for the year ended December 31, 2012 was $1,252 and is presented within selling, general and administrative expenses. Total acquisition-related costs were $420 and are presented within selling, general and administrative expenses for the year ended December 31, 2012, respectively.

Pro forma results of operations for the Thoughtcorp acquisition completed during the year ended December 31, 2012 have not been presented because the effects of the acquisition, individually and in aggregate with other acquisitions completed by the Company during 2012, were not material to the Company’s consolidated results of operations.

Instant Information, Inc. — On August 20, 2010 EPAM agreed to acquire certain assets and assume certain liabilities of Instant Information, Inc. The primary purpose of this acquisition was to acquire skilled workforce and experienced management, the rights to the intellectual property embodied by our InfoNgen services and cloud deployment capabilities, as well as to strengthen our existing Business Information and Media vertical.

The purchase price consisted of $360 cash plus contingent consideration of $1,000 in Company stock subject to accelerated issuance in the event of completion by the Company of an Initial Public Offering during the period specified. Contingent consideration was dependent upon the acquiree’s meeting specified level of performance over calendar years of 2010-2012. The fair value of the contingent consideration was based on the Company’s probability assessment of the established profitability measures and was estimated to be nil as of the December 31, 2011 and 2010. During the first quarter of 2012, the Company completed an initial public offering of its common stock and issued 53,336 shares to the acquiree pursuant to the accelerated issuance provision. The resultant charge of $640 was recorded within the sales, general and administrative expenses in the consolidated statements of income and comprehensive income.

Under the acquisition method of accounting the Company has allocated the purchase price to the tangible and intangible assets and liabilities acquired based on their fair values. As part of the process, the Company performed a valuation analysis to determine the fair values of certain intangible assets of Instant Information, Inc. as of the acquisition date. As part of the valuation process, relief from royalty method was used to determine the fair value of the trade name of $216. The intangible is being amortized over a 5 year life. Goodwill is amortizable over 15 years for tax purposes.

The purchase price was allocated to the assets acquired based on their related fair values, as follows:


Cash and cash equivalents	$	11
Restricted cash		107
Trade receivables		273
Prepaid and other assets		53
Property and equipment		113
Software		19
Trade name		216
Goodwill		838

Total assets acquired		1,630

Accounts payable		580
Accrued expenses		186
Deferred revenue		448
Liability under capital leases		36
Other taxes payable		20

Total liabilities assumed		1,270

Net assets acquired	$	360

The results of Instant Information, Inc. are included in the Company’s consolidated financial statements from August 21, 2010.

Included in consolidated statements of income and comprehensive income for the year ended December 31, 2010 are $677 and $873 of revenues and net losses of the acquiree, respectively.

Total acquisition-related costs were $63 and are presented within selling, general and administrative expenses for the year ended December 31, 2010.

Pro forma results of operations for the Instant Information, Inc. acquisition completed in 2010 have not been presented because the effects of the acquisition were not material to the Company’s consolidated results of operations.