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 Super Dragon Limited and Videotel Marine Asia Limited, for an aggregate purchase price of approximately $47,446, which excluded $1,719 of cash consideration that was considered deferred compensation in purchase accounting. The Company expensed approximately $770 and $400 related to the deferred compensation during the year ended December 31, 2015 and 2014, respectively. 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 purchase price was determined through arm’s-length negotiation and was subject to a potential post-closing adjustment based on the value of the net assets delivered at the closing. In the second quarter of 2015, the Company finalized its valuations of the fair value of the assets acquired and liabilities assumed, which resulted in no adjustments to the purchase price.

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 21 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 approximately $6,000 were fully funded during the first quarter of 2015.

In the Share Purchase Agreement, Mr. Cleave agreed to comply with certain confidentiality, non-competition and non-solicitation covenants with respect to the business of Videotel for a period of 18 months after the closing.

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



Consideration transferred - cash			$	47,446
Book value of tangible net assets acquired	$	1,732
Fair value adjustments to deferred revenue	961
Fair value of tangible net assets acquired			$	2,693

Identifiable intangibles at acquisition-date fair value
Subscriber relationships	$	12,759
Proprietary content	9,814
Internally developed software	2,160
Favorable operating leases	791
Total intangible assets			$	25,524
Deferred income taxes			(3,922		)
Goodwill			$	23,151

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 1 and Note 10 for the classification of Videotel intangible assets including their useful lives.

From the acquisition on July 2, 2014 through December 31, 2015, the Company has recorded approximately $33,600 of service revenues attributable to Videotel within its consolidated financial statements, of which approximately $23,200 was recorded during the year ended December 31, 2015. Transaction costs related to the acquisition of Videotel were $1,200 for the year ended December 31, 2014.

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



	Year Ended December 31,
	2014		2013
Pro forma net revenues	$	183,886	$	183,267
Pro forma net income	$	2,386	$	7,356
Basic pro forma net income per share	$	0.15	$	0.49
Diluted pro forma net income per share	$	0.15	$	0.48

The pro forma results presented above are for illustrative purposes only for the periods 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.

The Share Purchase Agreement contains certain representations, warranties, covenants and indemnification provisions. The Share Purchase Agreement provided that 10% of the purchase price would be held in escrow for a period of at least 18 months after the closing in order to satisfy valid indemnification claims that KVH could have asserted for specified breaches of representations, warranties and covenants. The Company released the escrow in November 2014.

The total purchase price and the excess of the total purchase price over the fair value of the net assets acquired are as follows:



Consideration transferred - cash			$	24,169
Book value of tangible net assets acquired	$	163
Fair value adjustments to deferred revenue	123
Fair value of tangible net assets acquired			$	286

Identifiable intangibles at acquisition-date fair value
Subscriber relationships	$	8,271
Distribution rights	4,888
Internally developed software	543
Proprietary content	186
Total intangible assets			$	13,888
Deferred income taxes			(3,134		)
Goodwill			$	13,129

From the date of the acquisition, May 11, 2013, to December 31, 2015, the Company has recorded approximately $38,200 of service revenue attributable to KVH Media Group within its consolidated financial statements, of which approximately $15,000 was recorded during the year ended December 31, 2015.

The following table summarizes the supplemental statements of operations information on an unaudited pro forma basis as if the KVH Media Group acquisition had occurred on January 1, 2012:



	Year Ended December 31,
	2013
Pro forma net revenues	$	166,819
Pro forma net income	$	5,276
Basic pro forma net income per share	$	0.35
Diluted pro forma net income per share	$	0.34