BUSINESS COMBINATIONS

Ozmo, Inc.

On December 20, 2012, the Company completed the acquisition of Ozmo, Inc ("Ozmo"), which is included in the Microcontrollers segment, a leading provider in ultra-low power Wi-Fi Direct solutions. The Company acquired all the outstanding shares of Ozmo in an all cash transaction, including assumed liabilities, of $64.4 million.

A total of $7.7 million of the purchase consideration was distributed into an escrow account to meet any indemnification claims. The escrow account is legally owned by the shareholder rights representative. As the Company does not have legal title of the account, no asset and corresponding liability will be recorded relating to the amounts held in escrow.

Further, the employees are eligible for an aggregate potential earnout in 2013 and 2014 of up to $22.0 million, contingent on Ozmo achieving certain revenue targets in 2013 and 2014 and on continuing employment. The Company has recorded a liability of $1.9 million representing the fair value of the earnout.

The total purchase price of the acquisition was as follows:



	December 20, 2012
	(in thousands)

Cash in exchange for shareholders' equity interest	$	58,165
Unvested shares in Ozmo	237
Transaction expenses incurred by Ozmo	1,816
Long-term debt paid on behalf of Ozmo	1,415
Fair value of contingent consideration (earnout provision)	1,927
Liabilities assumed	861
Total purchase price	$	64,421

The purchase price was allocated as follows as of the closing date of the acquisition:



	December 20, 2012
	(In thousands)
Total purchase price	$	64,421
Less:
Net tangible assets acquired	(2,805		)
Intangible assets acquired:
Customer relationships	(2,650		)
Developed technologies	(12,020		)
Tradename	(60		)
Non-compete agreements	(660		)
Backlog	(60		)
Total intangible assets	(15,450		)
Goodwill	$	46,166

The Company recorded $46.2 million in goodwill, including workforce, in connection with the acquisition, which was assigned to the Company’s microcontroller segment. The goodwill balance of $46.2 million above was reduced by $11.2 million related to net deferred tax assets created as a result of the net operating losses generated by Ozmo in previous periods. Such goodwill is not expected to be deductible for tax purposes. Goodwill is not subject to amortization but will be tested annually for impairment or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with the relevant standards.

The intangible assets for the Ozmo acquisition were measured at fair value using the income approach. The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2012, which are being amortized on a straight-line basis:



	Gross Value		Accumulated Amortization			Net		Estimated Useful Lives
	(In thousands, except for years)
Other intangible assets:
Customer relationships	$	2,650	$	(26	)	$	2,624			3 years
Developed technologies	12,020		(61		)	11,959		4	to	6 years
Tradename	60		(1		)	59				3 years
Non-compete agreements	660		(10		)	650				2 years
Backlog	60		(1		)	59				1 year
	$	15,450	$	(99	)	$	15,351

Developed technology represents a combination of processes, patents assets and trade secrets developed through years of experience in design and development of the products. Customer relationships represent future projected net revenue that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Tradename represents the Ozmo brand that the Company may continue to use to market the current Ozmo products. Non-compete agreement represents the fair value to the Company from agreements with certain former Ozmo executives to refrain from competition for a number of years. Backlog represents committed orders from customers as of the closing date of the acquisition.

The Company recorded amortization of intangible assets of $0.1 million for the year ended December 31, 2012, associated with customer relationships, developed technologies, tradename, non-compete agreements and backlog.

Advanced Digital Design

On October 6, 2011, the Company completed the acquisition of Advanced Digital Design S.A (“ADD”), a Spanish company that develops power line communication solutions. The Company acquired all the outstanding shares of ADD in an all cash transaction of $19.9 million and assumed $4.9 million in net tangible liabilities.

In addition to the total purchase price paid, $4.5 million was placed in an escrow account, relating to deferred consideration for key employees. A portion of this amount will be released on the 18 months anniversary of the closing date and the remainder will be released on the 36 month anniversary of the closing date, and each release is contingent on the continuing employment of the key employees. This amount will be amortized over the service periods, resulting in expense classified within acquisition‑related charges in the consolidated statements of operations.

The purchase price was allocated as follows as of the closing date of the acquisition:



	October 6, 2011
	(In thousands)
Cash paid for acquisition	$	19,915
Less:
Net tangible liabilities assumed	4,879
Intangible assets acquired:
Customer relationships	(6,580		)
Developed technologies	(3,330		)
Tradename	(150		)
Non-compete agreements	(720		)
Backlog	(290		)
Total intangible assets	(11,070		)
Goodwill	$	13,724

The Company recorded $13.7 million in goodwill, including workforce, in connection with the acquisition, which was assigned to the Company’s microcontroller segment. Goodwill is not subject to amortization but will be tested annually for impairment or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with the relevant standards.

The intangible assets for the ADD acquisition were measured at fair value using the income approach. The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2012, which are being amortized on a straight-line basis:



	Gross Value		Accumulated Amortization			Net		Estimated Useful Lives
	(In thousands, except for years)
Other intangible assets:
Customer relationships	$	6,580	$	(548	)	$	6,032	15 years
Developed technology	3,330		(595		)	2,735		7 years
Tradename	150		(63		)	87		3 years
Non-compete agreement	720		(300		)	420		3 years
Backlog	290		(290		)	—		1 year
	$	11,070	$	(1,796	)	$	9,274

The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2011 which are being amortized on a straight-line basis:



	Gross Value		Accumulated Amortization			Net		Estimated Useful Lives
	(In thousands, except for years)
Other intangible assets:
Customer relationships	$	6,580	$	(110	)	$	6,470	15 years
Developed technology	3,330		(119		)	3,211		7 years
Tradename	150		(13		)	137		3 years
Non-compete agreement	720		(60		)	660		3 years
Backlog	290		(73		)	217		1 year
	$	11,070	$	(375	)	$	10,695

Developed technology represents a combination of processes, patents assets and trade secrets developed through years of experience in design and development of the products. Customer relationships represent future projected net revenue that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Tradename represents the ADD brand that the Company may continue to use to market the current ADD products. Non-compete agreement represents the fair value to the Company from agreements with certain former ADD executives to refrain from competition for a number of years. Backlog represents committed orders from customers as of the closing date of the acquisition.

The Company recorded the following acquisition‑related charges in the consolidated statements of operations in the years ended December 31, 2012 and 2011 related to the ADD acquisition:



	December 31, 2012		December 31, 2011
	(In thousands)
Amortization of intangible assets	$	1,421	$	375
Compensation‑related expense — cash	1,793		944
	$	3,214	$	1,319

The Company recorded amortization of intangible assets of $1.4 million and $0.4 million for the years ended December 31, 2012 and 2011, respectively, associated with customer relationships, developed technologies, tradename, non-compete agreements and backlog. The Company also recorded amortization of certain key employee consideration of $1.8 million and $0.9 million for the years ended December 31, 2012 and 2011, respectively, related to $4.5 million of deferred compensation discussed above. In 2011, the Company accelerated $0.4 million million of the key employee consideration as a result of the termination of an employee.

The Company incurred $0.7 million of transaction costs as of December 31, 2011, which are included in selling, general and administrative expenses in the consolidated statement of operations.

Quantum Research Group Ltd.

On March 6, 2008, the Company completed its acquisition of all the outstanding equity of Quantum Research Group Ltd. (now known as Atmel Technologies Ireland Limited) (“Quantum”), a supplier of capacitive sensing IP solutions. Quantum is a wholly‑owned subsidiary of Atmel.

Goodwill was $54.8 million and $54.3 million at December 31, 2012 and 2011, respectively, relating to the Quantum acquisition. The goodwill amount is not subject to amortization and is included within the Company’s microcontroller segment. It is tested for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on its 2012 impairment assessment, the Company concluded that the fair value of the reporting unit containing the goodwill balance substantially exceeded its carrying value; therefore, there was no impairment of the goodwill balance. The change in goodwill balance arises from foreign currency translation.

The Company has estimated the fair value of the Quantum‑related other intangible assets using the income approach and these identifiable intangible assets are subject to amortization. The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2012 which are being amortized on a straight-line basis:



	Gross Value		Accumulated Amortization			Net		Estimated Useful Life
	(In thousands, except for years)
Other intangible assets:
Customer relationships	$	15,427	$	(14,912	)	$	515	5 years
Developed technology	4,948		(4,783		)	165		5 years
Tradename	849		(849		)	—		3 years
Non-compete agreement	806		(806		)	—		5 years
	$	22,030	$	(21,350	)	$	680

The following table sets forth the components of the identifiable intangible assets subject to amortization as of December 31, 2011 which are being amortized on a straight-line basis:



	Gross Value		Accumulated Amortization			Net		Estimated Useful Life
	(In thousands, except for years)
Other intangible assets:
Customer relationships	$	15,427	$	(11,827	)	$	3,600	5 years
Developed technology	4,948		(3,793		)	1,155		5 years
Tradename	849		(849		)	—		3 years
Non-compete agreement	806		(806		)	—		5 years
	$	22,030	$	(17,275	)	$	4,755

Customer relationships represent future projected net revenue that will be derived from sales of current and future versions of existing products that will be sold to existing customers. Developed technology represents a combination of processes, patents and trade secrets developed through years of experience in design and development of the products. Trade name represents the Quantum brand which the Company does not intend to use in future capacitive sensing products. Non-compete agreement represents the fair value to the Company from agreements with certain former Quantum executives to refrain from competition for a number of years. Backlog represents committed orders from customers as of the closing date of the acquisition.

The Company recorded the following acquisition‑related charges in the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 related to the Quantum acquisition:



	Years Ended
	December 31, 2012		December 31, 2011			December 31, 2010
	(In thousands)
Amortization of intangible assets	$	4,075	$	4,192		$	4,466
Compensation‑related expense — cash	—		—			199
Compensation‑related credit — stock	—		(103		)	(3,065		)
	$	4,075	$	4,089		$	1,600

The Company recorded amortization of intangible assets of $4.1 million, $4.2 million and $4.5 million for the years ended December 31, 2012, 2011 and 2010, respectively, associated with customer relationships, developed technology, trade name, non-compete agreements and backlog.

The Company also agreed to compensate former key executives of Quantum, contingent upon continuing employment determined at various dates over a three year period. The Company agreed to pay up to $15.1 million in cash and issue 5.3 million shares of the Company’s common stock valued at $17.3 million, based on the Company’s closing stock price on March 4, 2008. These amounts were accrued over the employment period on a graded vested basis.

In March 2010, 3.2 million shares of the Company’s common stock were issued to a former executive of Quantum in connection with this arrangement. The remaining 2.2 million shares were forfeited in March 2010 due to a change in employment status. As a result, the Company recorded a credit of $4.5 million for the year ended December 31, 2010 for the reversal of the expenses previously recorded due to the graded vesting recognition methodology. The Company made cash payments of $3.8 million to the former Quantum employees for the year ended December 31, 2010. No further payments are expected to be made.

The acquisitions referred to in this Note 3 were not material to the Company at the time of acquisition. As a result, pro forma profit and loss statements for the acquired businesses are not presented.