BUSINESS COMBINATIONS

DonRiver Holdings, LLC Acquisition

On October 1, 2018, Ciena acquired DonRiver Holdings, LLC (“DonRiver”), a global software and services company specializing in federated network and service inventory management solutions within the service provider Operational Support Systems (OSS) environment. This transaction has been accounted for as the acquisition of a business.

During the fourth quarter of fiscal 2018, Ciena incurred approximately $3.5 million of acquisition-related costs associated with this transaction. These costs and expenses include fees associated with financial, legal and accounting advisors and other employment-related costs.

The following table summarizes the purchase price for the acquisition (in thousands):



	Amount
Cash	$	43,283
Contingent consideration	10,900
Total purchase price	$	54,183

The following table summarizes the final purchase price allocation related to the acquisition based on the estimated fair value of the acquired assets and assumed liabilities (in thousands):



	Amount
Cash and cash equivalents	$	1,025
Accounts receivable	4,790
Prepaid expenses and other long term assets	372
Goodwill	10,453
Customer relationships and contracts	37,700
Developed technology	9,700
Deferred revenue	(193		)
Other current and long term liabilities	(9,664		)
Total purchase price	$	54,183

The acquisition of DonRiver includes a $28.5 million three-year earn-out arrangement that consists of both a contingent consideration element and a contingent compensation element. The contingent consideration element requires additional cash consideration to be paid based on the future revenues generally derived from the DonRiver business over a 25-month period from the acquisition date through October 31, 2020. The undiscounted amounts potentially payable by Ciena under the contingent consideration element range from $0.0 million to $15.0 million in the aggregate over the period. Any amounts earned under the contingent consideration element are payable in the first quarters of fiscal 2019, fiscal 2020 and fiscal 2021. The $10.9 million fair value of the contingent consideration element as of the acquisition date was estimated by applying the income approach based upon a discounted cash flow technique using Monte Carlo simulations. The contingent compensation element of the earn-out arrangement includes an employment condition for the selling shareholders who became employees of Ciena upon the completion of the acquisition. The range of amounts that Ciena could pay under the contingent compensation element is between $0.0 million and $13.5 million in the aggregate over the period. Any amounts earned under the contingent compensation element are payable in the first quarters of fiscal 2021 and fiscal 2022. These amounts will be accrued over the period earned and recorded as expense in the Consolidated Statement of Operations.

Customer relationships and contracts represent agreements with existing DonRiver customers. Customer relationships and contracts are amortized on a straight line basis over their estimated useful life of seven years. Fair value was determined using the multi-period excess earnings method based on the present value of the incremental after-tax cash flows (or “excess earnings”) attributable to customer relationships for a discrete projection period.

Developed technology represents purchased technology that had reached technological feasibility and for which DonRiver had substantially completed development as of the date of acquisition. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight line basis over its estimated useful life of seven years.

The goodwill generated from the acquisition of DonRiver is primarily related to expected synergies. The total goodwill amount was recorded in the Software and Software-Related Services segment. The goodwill related to this acquisition is not deductible for tax purposes.

Pro forma disclosures have not been included due to immateriality.

Packet Design, LLC Acquisition

On July 2, 2018, Ciena acquired Packet Design, LLC (“Packet Design”), a provider of network performance management software focused on Layer 3 network optimization, topology and route analytics, in a cash transaction for approximately $41.1 million in cash. This transaction has been accounted for as the acquisition of a business.

During fiscal 2018, Ciena incurred approximately $1.6 million of acquisition-related costs associated with this transaction. These costs and expenses include fees associated with financial, legal and accounting advisors and severance and other employment-related costs, including payments to certain former Packet Design employees.

The following table summarizes the final purchase price allocation related to the acquisition based on the estimated fair value of the acquired assets and assumed liabilities (in thousands):



	Amount
Cash and cash equivalents	$	642
Accounts receivable	1,525
Prepaid expenses and other	450
Equipment, furniture and fixtures	31
Goodwill	20,304
Customer relationships and contracts	2,200
Developed technology	21,900
Accounts payable	(165		)
Accrued liabilities	(657		)
Deferred revenue	(5,176		)
Total purchase price	$	41,054

Customer relationships and contracts represent agreements with existing Packet Design customers. Customer relationships and contracts are amortized on a straight line basis over their estimated useful life of three years.

Developed technology represents purchased technology that had reached technological feasibility and for which Packet Design had substantially completed development as of the date of acquisition. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight line basis over its estimated useful life of five years.

The goodwill generated from the acquisition of Packet Design is primarily related to expected synergies. The total goodwill amount was recorded in the Software and Software-Related Services segment. The goodwill related to this acquisition is not deductible for tax purposes.

Pro forma disclosures have not been included due to immateriality.

TeraXion HSPC Asset Acquisition

On February 1, 2016, Ciena, through a Canadian subsidiary, acquired certain high-speed photonics components (“HSPC”) assets of TeraXion Inc. (“TeraXion”) and its wholly-owned subsidiary for approximately $32 million in cash. The assets purchased include TeraXion’s high-speed indium phosphide and silicon photonics technologies, as well as the underlying intellectual property. These technologies support the development of Ciena’s WaveLogic coherent optical chipsets. This transaction has been accounted for as the acquisition of a business.

The following table summarizes the final purchase price allocation related to the acquisition of the HSPC assets based on the estimated fair value of the acquired assets and assumed liabilities (in thousands):



	Amount
Inventory	$	119
Fixed assets	1,381
Developed technology	16,468
In-process technology	3,949
Goodwill	10,083
Total purchase price	$	32,000

Developed technology represents purchased technology that had reached technological feasibility and for which TeraXion had substantially completed development as of the date of acquisition. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight line basis over its estimated useful life of five years.

In-process technology represents purchased technology that had not reached technological feasibility as of the date of acquisition. Fair value was determined using future discounted cash flows related to the projected income stream of the in-process technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Upon completion of the in-process technology, it will be amortized on a straight line basis over its estimated useful life, which will be determined on that date.

The goodwill generated from the acquisition of the HSPC assets was primarily related to expected synergies and has been allocated to the Networking Platforms segment. The goodwill is not deductible for income tax purposes.

Pro forma disclosures have not been included due to immateriality.