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Acquisitions
 12 Months Ended
Dec. 31, 2011
Acquisitions  
Acquisitions

Note 4: Acquisitions

Prism Circuits

        In June 2009, the Company acquired substantially all the assets and business of Prism Circuits, Inc. (Prism Circuits), a provider of semiconductor interface IP. The acquisition significantly expanded the Company's product portfolio by adding high-speed multi-protocol compliant interface IP, which enables communication between semiconductors in a system. With the acquisition, the Company added over 50 engineers experienced in interface IP development and analog/mixed-signal applications.

        Under the terms of the acquisition agreement, the Company paid Prism Circuits $15.0 million in cash at closing (offset by approximately $1.4 million of cash acquired), assumed certain liabilities of Prism Circuits as consideration for the acquired assets and paid an additional $6.5 million of cash in July 2010 in satisfaction of a contractual earn-out commitment, as a result of the Company meeting certain objectives relating to the Prism Circuits business during the twelve-month period following the acquisition. In addition, the Company granted options to purchase 3,621,724 shares of the Company's common stock to the newly hired Prism Circuits employees as inducements material to employment in accordance with the terms of the acquisition agreement. The majority of these options are vesting on a straight-line basis over 48 months subject to continued employment requirements.

        The objectives for the earn-out payment related to:

  • •
    billing and collection by the Company of amounts payable under customer contracts assumed by the Company;

    •
    the achievement of specific product development milestones in accordance with a mutually agreed-upon schedule; and

    •
    the retention by the Company of certain key employees formerly employed by Prism Circuits.

        Because the acquisition agreement provided that 30% of the earn-out payment could be earned by the shareholders of Prism Circuits based on the Company's future employment of individuals, the amount allocated to this objective, or $1.95 million, was not considered to be a component of the acquisition price and was recognized as compensation expense and accrued on a straight-line basis over the one-year period subsequent to the acquisition. For 2010 and 2009, the Company recorded $0.8 million and $1.1 million, respectively, of expense and liability for the retention objective, which was achieved in June 2010. The remaining portion of the earn-out payment, or $4.55 million, was included in the acquisition price because the Company expected that it was more likely than not that the objectives related to this earn-out payment would be met.

        The Company recorded a total acquisition price as follows (in thousands):

Cash

   $ 15,000  

Acquisition-related earnout

     4,550  
       

Total acquisition price

   $ 19,550  
       

        The allocation of the acquisition price for net tangible and intangible assets was as follows (in thousands):

Net tangible assets

   $ 2,779  

Identifiable intangible assets:

        

Developed technology

     4,800  

Customer relationships

     390  

Contract backlog

     750  

Non-compete agreements

     140  

Goodwill

     10,691  
       

Total acquisition price

   $ 19,550  
       

        The developed technology asset is attributable to products which have reached technological feasibility. The value of the developed technology was determined by discounting estimated net future cash flows of the products.

        The customer relationships asset is attributable to the Company's ability and intent to sell existing, in process and future versions of the acquired products to the existing customers of Prism Circuits. The value of customer relationships was determined by discounting estimated net future cash flows from the customer agreements based on established valuation techniques accepted in the technology industry.

        The developed technology and customer relationships assets are being amortized on a straight-line basis over their estimated lives of three years.

        The contract backlog asset is attributable to the value of agreements acquired from Prism Circuits that were in the process of being delivered at the time of acquisition. The value of the contract backlog was determined by discounting estimated net future cash flows of the milestone payments based on established valuation techniques accepted in the technology industry. The Company expected to fulfill its obligations under these agreements during a one year period, and therefore this asset was amortized on a straight-line basis over one year.

        The non-compete agreements asset was attributable to the non-compete agreements executed by certain former key employees of Prism Circuits that have been employed by the Company and was amortized on a straight-line basis over the eighteen month terms of the agreements.

        Goodwill represents the excess of the acquisition price of an acquired business over the fair value of the underlying net tangible and intangible assets. Included in the goodwill amount is the value of the acquired workforce, which has significant expertise in high-speed interface IP and analog/mixed-signal technology. The Company assesses goodwill for impairment on at least an annual basis or when there is an indicator of impairment. The goodwill recognized is expected to be deductible for income tax purposes.

MagnaLynx

        In March 2010, the Company acquired all of the outstanding stock of MagnaLynx, Inc. (MagnaLynx), a provider of semiconductor interface technology. Under the terms of the merger agreement, the Company paid approximately $2.2 million to settle debt and certain other liabilities of MagnaLynx and approximately $1.2 million to MagnaLynx shareholders. An additional $0.5 million, referred to as the indemnification holdback, was payable 18 months after the closing, net of any costs related to indemnification claims that may have arisen during such 18 month period. An additional $1.0 million was payable six months after the closing as earn-out consideration based on MagnaLynx meeting certain contractually agreed-upon development milestones. Both the indemnification holdback and earn-out were paid in 2011. The earn-out consideration was included in the acquisition price because the Company expected that it was more likely than not that the objectives related to this earn-out would be met.

        The Company recorded a total acquisition price as follows (in thousands):

Cash

   $ 3,355  

Acquisition-related earn-out

     1,000  

Indemnification holdback

     500  

Liabilities assumed by MoSys

     32  
       

Total acquisition price

   $ 4,887  
       

        The allocation of the acquisition price for net tangible and intangible assets was as follows (in thousands):

Net tangible assets

   $ 100  

Intangible asset—developed technology

     4,440  

Goodwill

     347  
       

Total acquisition price

   $ 4,887  
       

        Goodwill represents the excess of the acquisition price of an acquired business over the fair value of the underlying net tangible and intangible assets. Included in the goodwill amount is the value of the acquired workforce, which has significant expertise in low-power interface IP. The goodwill recognized is expected to be deductible for income tax purposes.

        The value of the identifiable intangible asset was determined by using future cash flow assumptions. The intangible asset, which is considered developed technology, is being amortized on a straight-line basis over its estimated life of five years.