Acquisitions

Videotel

On July 2, 2014, KVH Media Group Limited (KMG UK), an indirectly wholly owned subsidiary of KVH, entered into a Share Purchase Agreement with Nigel Cleave to acquire all of the issued share capital of SDL and VMA, for an aggregate purchase price of approximately $49,162. Videotel is a maritime training services company headquartered in London that produces and distributes training films and eLearning computer-based training courses to commercial customers in the maritime market. Videotel also has sales offices in Hong Kong and Singapore. The acquisition was consummated on the same day. The purchase price was determined through arm’s-length negotiation and is subject to a potential post-closing adjustment based on the value of the net assets delivered at the closing.

The Share Purchase Agreement contains certain representations, warranties, covenants and indemnification provisions. The Share Purchase Agreement provides that 10% of the purchase price shall be held in escrow for a period of approximately twenty-one months after the closing in order to satisfy valid indemnification claims that KMG UK may assert for specified breaches of representations, warranties and covenants. The escrow and holdback amounts of $6,600 million were not funded as of September 30, 2014, which have been accrued for in accrued other on its consolidated balance sheets.

In the Share Purchase Agreement, the Seller agreed to comply with certain confidentiality, non-competition and non-solicitation covenants with respect to the business of Videotel for a period of eighteen months after the closing.

The total purchase price and the preliminary estimate of the excess of the total purchase price over the estimated fair value of the net assets acquired is as follows:



Consideration transferred—cash			$	49,162
Book value of tangible net assets acquired	$	3,467
Fair value adjustments to deferred revenue	961
Fair value of tangible net assets acquired			4,428
Identifiable intangibles at acquisition-date fair value
Customer relationships	12,759
Proprietary content	9,814
Internally developed software	2,160
Favorable operating leases	791
Total intangible assets			25,524
Deferred income taxes			(4,813		)
Goodwill			$	24,023

Except as discussed in note 14 below, the carrying values of tangible assets and liabilities in Videotel’s unaudited combined balance sheet as of June 30, 2014 are considered to be reasonable estimates of the fair values of those assets and liabilities as of that date.

The Company's fair value estimate of assets acquired and liabilities assumed is pending completion of several elements, including the finalization of valuations of the fair value of the assets acquired and liabilities assumed and final review by the Company's management. Included in the liabilities is an unertain tax position liability of $3,600 which was held on Videotel’s balance sheet as of the acquisition date and we are continuing to evaluate. The primary areas that are not yet finalized relate to the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, and income and non-income based taxes. The final determination of the assets acquired and liabilities assumed will be based on the established fair value of the assets acquired and the liabilities assumed as of the acquisition date. The excess of the purchase price over the fair value of net assets acquired is allocated to goodwill. The final determination of the purchase price, fair values and resulting goodwill may differ significantly from what is reflected in the foregoing table.

The acquired finite-lived intangible assets from the Videotel acquisition were recorded at their estimated fair value of $25,524 on the acquisition date. Refer to note 14 for the classification of Videotel intangible assets including their useful lives.

Total service revenue of approximately $4,758 from Videotel is included in the Company's results for the three and nine months ended September 30, 2014. Transaction costs related to the acquisition of Videotel were $5 and $468 for the three and nine months ended September 30, 2014.

Pro Forma Financial Information

The following table provides certain supplemental statements of operations information on an unaudited pro forma basis as if the Videotel acquisition had occurred on January 1, 2013:



	Nine Months Ended September 30,
	2014		2013
Pro forma net revenues	$	133,452	$	139,074
Pro forma net income	$	436	$	7,015
Basic pro forma net income per share	$	0.03	$	0.46
Diluted pro forma net income per share	$	0.03	$	0.46

The pro forma results presented above are for illustrative purposes only for the period presented and do not purport to be indicative of the actual results which would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations which may occur in the future.

Headland Media Limited

On May 11, 2013, KVH Industries U.K. Limited, a newly formed, wholly owned subsidiary of KVH, entered into a Share Purchase Agreement with Oakley Capital Private Equity L.P., Mark Woodhead, Andrew Michael Galvin and the Trustees of the Headland Media Limited Employee Benefit Trust to acquire all of the issued share capital of Headland Media Limited (now known as the KVH Media Group), a media and entertainment service company based in the United Kingdom that distributes news, sports, movies, music and training video content for commercial and leisure customers in the maritime, hotel, and retail markets, for an aggregate purchase price of £15,576 ($24,169 at the exchange rate of £1.00: $1.5517 on May 11, 2013). The aggregate purchase price includes $169 in payments made in July 2013 related to a post-closing adjustment. The acquisition of Headland Media Limited (now known as the KVH Media Group) was accounted for under the acquisition method of accounting for the business combination. The purchase price was determined as a result of arms-length negotiation and was subject to a potential post-closing adjustment based on the value of the net assets delivered at the closing.

Since the date of the acquisition, May 11, 2013, the Company has recorded approximately $19,777 of service revenue attributable to KVH Media Group within its consolidated financial statements, of which $10,977 was recorded during the nine months ended September 30, 2014.