Acquisitions

2012 Acquisition

Nexsan Corporation

On December 31, 2012, we acquired Nexsan Corporation (Nexsan) which is a provider of disk-based storage systems and has a portfolio of disk-based and hybrid disk-and-solid-state storage systems with existing customers worldwide. This acquisition is intended to significantly accelerate our growth in the small and medium-sized business and distributed enterprise storage markets. The purchase price consisted of a cash payment of $104.6 million (subject to adjustment based primarily on working capital received) and 3,319,324 shares of our common stock which was the equivalent of $15.5 million based on the fair value of our stock on the date of acquisition. The purchase price allocation resulted in goodwill of $65.5 million, which is primarily attributable to strategic synergies and intangible assets that do not qualify for separate recognition and is not deductible for tax purposes. We have determined that the goodwill is under its own reporting unit as it operates with discrete financial information which will be regularly reviewed. As of December 31, 2012, our purchase price allocation is preliminary pending final evaluation of all information received associated with the assets and liabilities acquired. See Note 6 - Intangible Assets and Goodwill for more information regarding goodwill and intangible assets.

The following table illustrates our allocation of the purchase price to the assets acquired and liabilities assumed:



	Amount
	(In millions)
Cash	$	0.8
Accounts receivable	14.6
Inventory	6.9
Prepaid and other	9.0
Property, plant and equipment	5.2
Intangible assets	42.6
Goodwill	65.5
Other assets	0.6
Accounts payable	(5.3		)
Accrued expenses	(10.0		)
Deferred revenue - current	(4.3		)
Deferred revenue - non-current	(2.5		)
Other long-term liabilities	(3.0		)
	$	120.1

Of the $120.1 million of consideration paid, approximately $11.9 million was paid directly to creditors of Nexsan in full satisfaction of Nexsan obligations that were required to be repaid at the time of closing based on the merger agreement.

Our allocation of the purchase price to the assets acquired and liabilities assumed resulted in the recognition of the following intangible assets:



			Weighted
			Average
	Amount		Life
	(In millions)
Trade names	$	3.1	5 years
Other - developed technology	19.4		3-7 years
Other - research and development technology	1.7		NA
Customer relationships	18.4		12 years
	$	42.6

2011 Acquisitions

IronKey Systems, Inc.

On October 4, 2011, we acquired the secure data storage hardware business of IronKey Systems Inc. (IronKey) for a cash payment of $19.0 million. During 2012, we purchased the IronKey license for its secure storage management software and service, as well as the IronKey brand for secure storage products, for $4.0 million (we held a license for brand use in 2011 with the acquisition of IronKey).

The purchase price allocation, associated with the 2011 acquisition, resulted in goodwill of $9.4 million, which was primarily attributable to expected strategic synergies and intangible assets that do not qualify for separate recognition. Goodwill associated with the acquisition of IronKey is included in our Americas segment and in our Americas-Mobile Security reporting unit for the purposes of goodwill impairment testing. This goodwill is deductible for tax purposes. See Note 6 - Intangible Assets and Goodwill for more information regarding goodwill. The comparability of our results with this acquisition was not impacted and therefore, pro forma disclosures were not presented.

During 2012, we recorded an adjustment to the purchase price related to working capital in the amount of $0.6 million. As the purchase accounting for this acquisition was finalized in 2011, the adjustment was recorded as a charge to restructuring and other in the Consolidated Statements of Operations.

The following table illustrates our allocation of the purchase price to the assets acquired and liabilities assumed:



	Amount
	(In millions)
Accounts receivable and other assets	$	3.5
Inventories	2.1
Intangible assets	7.8
Goodwill	9.4
Accounts payable and other liabilities	(3.8		)
	$	19.0

Our allocation of the purchase price to the assets acquired and liabilities assumed resulted in the recognition of the following intangible assets:



			Weighted
			Average
	Amount		Life
	(In millions)
Tradename	$	0.8	2 years
License	1.9		7 years
Customer relationships	0.4		7 years
Distributor relationships	0.9		9 years
Proprietary technology	3.8		4 years
	$	7.8

These intangible assets were not impaired as a part of the impairment recorded during the fourth quarter of 2012 as discussed further in Note 6 - Intangible Assets and Goodwill.

Memory Experts International, Inc. (MXI Security)

On June 4, 2011, we acquired the assets of MXI Security, a leader in high-security and privacy technologies, from Memory Experts International Inc., (MXI). MXI sells encrypted and biometric USB drives, encrypted and biometric hard disk drives, secure portable desktop solutions, and software solutions. MXI products contain various security features such as password authentication, encryption and remote manageability. The purchase price consisted of a cash payment of $24.5 million and future contingent consideration totaling up to $45.0 million (considered to have an estimated fair value of $9.2 million at the time of the acquisition) for a total purchase price of $33.7 million. The purchase price allocation resulted in goodwill of $21.9 million, primarily attributable to expected strategic synergies and intangible assets that do not qualify for separate recognition. Goodwill associated with MXI is included in our Americas segment and in our Americas-Mobile Security reporting unit for the purposes of goodwill impairment testing. This goodwill is deductible for tax purposes. See Note 6 - Intangible Assets and Goodwill for more information regarding goodwill.

The following table illustrates our allocation of the purchase price to the assets acquired and liabilities assumed:



	Amount
	(In millions)
Accounts receivable and other assets	$	0.8
Inventories	1.1
Intangible assets	10.6
Goodwill	21.9
Accounts payable and other liabilities	(0.7		)
	$	33.7

Our allocation of the purchase price to the assets acquired and liabilities assumed resulted in the recognition of the following intangible assets:



			Weighted
			Average
	Amount		Life
	(In millions)
Trademark	$	0.7	10 years
Supply agreement	1.4		3 years
Customer relationships	1.0		8 years
Proprietary technology	7.5		6 years
	$	10.6

During 2012, the MXI trademark was abandoned due to consolidating our brands and we recorded a charge of $0.6 million in our Consolidated Statement of Operations. The other intangible assets acquired with MXI were not impaired as a part of the impairment recorded during the fourth quarter of 2012 as discussed further in Note 6 - Intangible Assets and Goodwill.

The amount of contingent consideration was to be based on incremental revenue and gross margin percent from MXI and MXI-based Defender branded products. During the second quarter of 2012, the MXI Security contingent consideration agreement was amended in light of the IronKey acquisition that occurred late in 2011. Under the amended agreement, the amount of contingent consideration will continue to allow for up to $45.0 million of additional payments, and will be based on incremental gross profit (revenue less cost of goods sold) and gross margin percent from MXI branded products, IronKey products and all other Defender branded products as well as future Imation mobile security products. The contingent consideration arrangement included the potential for three separate payments based on defined criteria for whether the individual payments would be made and, if so, for how much. The first contingent consideration payment was not achieved. The second contingent consideration payment allows for up to $25.0 million of additional payments with the sum of the first and second payments being up to a maximum of $25.0 million. The second contingent consideration payment is based on gross profit and gross margin percent achieved from July 1, 2012 through June 30, 2013. The third contingent consideration payment allows for up to $20.0 million of additional payments and is based on gross profit and gross margin percent achieved from January 1, 2013 through December 31, 2013.

We remeasure the estimated fair value of the remaining contingent consideration each reporting period. At December 31, 2012, our estimated fair value of this contingent consideration obligation was determined to be $0.6 million. The decrease in the fair value of this contingent consideration obligation from December 31 2011 was $8.6 million which was recorded as a benefit in restructuring and other in the Consolidated Statements of Operations.

We use the income approach in calculating the fair value of our contingent consideration. Our expected cash flows are affected by various significant assumptions, including the discount rate and cash flow projections. Our valuation as of December 31, 2012 utilized our business plans and projections as the basis for expected future cash flows and a discount rate of 16.0 percent. See Note 12 - Fair Value Measurements for further discussion of our valuation technique.

BeCompliant Corporation (doing business as Encryptx)

On February 28, 2011 we acquired substantially all of the assets of BeCompliant Corporation, doing business as Encryptx (Encryptx), a technology leader in encryption and security solutions for removable storage devices and removable storage media. The purchase price was $2.3 million, consisting of a cash payment of $1.0 million and the estimated fair value of future contingent consideration of $1.3 million. The purchase price allocation resulted in goodwill of $1.6 million, primarily attributable to expected strategic synergies and intangible assets that do not qualify for separate recognition. This goodwill is deductible for tax purposes. See Note 6 - Intangible Assets and Goodwill for further discussion of this goodwill. During 2012 we paid $0.7 million of the contingent consideration. The final contingent consideration payment of $0.7 million was determined based on certain 2012 milestones and was paid during the first quarter of 2013 and is the value of the contingent consideration that is recorded as of December 31, 2012.