4.	Acquisition of TLL, LLC

On February 2, 2015, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 22, 2014, we acquired 100% of the member interests in TLL, LLC (“Timeline Labs”), a privately-owned California-based software-as-a-service (“SaaS”) company that enables local broadcasters, national news organizations and other media companies and brands to analyze social media messages in real-time, find and broadcast social trends, and measure viewing audience engagement across television, mobile and personal computers.

We accounted for the acquisition of Timeline Labs as a business combination and the financial results of Timeline Labs have been included in our consolidated financial statements as of the date of acquisition. Under the acquisition method of accounting, the purchase price was allocated to SeaChange’s net tangible and intangible assets based upon their fair values as of February 2, 2015.

We have not disclosed the amount of revenues and earnings of Timeline Labs since the acquisition date, nor have we included pro forma financial information, as those amounts are not significant to our consolidated financial statements.

The preliminary allocation of the purchase price is as follows (amounts in thousands):

 

Fair value of consideration:
Cash, net of cash acquired		$	14,186
Closing stock consideration			3,019
Deferred stock consideration			6,543
Contingent consideration			504
Total purchase price		$	24,252
Fair value of assets acquired and liabilities assumed:
Current assets			249
Other long-term assets			108
Finite-life intangible assets			6,720
Goodwill			17,246
Current liabilities			(71	)
Allocated purchase price		$	24,252

Fair Value of Consideration Transferred

Upon completion of the acquisition, the Company made cash consideration payments to the former members of Timeline Labs in the amount of $14.2 million (“Closing Cash Consideration”), which included $0.2 million of preliminary working capital adjustments. The Closing Cash Consideration included $1.4 million applied from an escrow that was funded by the Company in the fourth quarter of fiscal 2015. Also upon completion of the acquisition, the Company issued 344,055 shares of common stock to the former members of Timeline Labs and deposited 173,265 shares of common stock into escrow.

The Company is also obligated to issue shares of common stock at the six-month and twelve-month anniversaries of the acquisition date. On August 3, 2015 we issued 260,537 shares of our common stock with a value of $1.8 million to the former members of Timeline Labs, in satisfaction of the six-month deferred stock consideration obligation to the former members of Timeline Labs pursuant to the Merger Agreement. The acquisition date fair value of the estimated shares for the twelve-month anniversary date is $4.8 million and is classified in the consolidated balance sheet as a current liability as of October 31, 2015.

 

Contingent Consideration

A former holder of a specified series of interest of Timeline Labs is eligible to receive additional earn-out consideration, consisting of shares of our common stock, if defined performance criteria are achieved for fiscal 2016 and 2017 without a requirement to remain as an employee of the Company. As of October 31, 2015, we have included a liability of $0.5 million in our consolidated balance sheet, which represents the fair value of the estimated shares at full achievement of the defined performance criteria. Any changes to this liability will be included in our consolidated statements of operations and comprehensive loss in the period which the change occurs. There were no changes to this liability for the three and nine months ended October 31, 2015.

Additionally, the former holders of a specified series of interests of Timeline Labs are eligible to receive additional earn-out compensation, consisting of shares of our common stock, if defined performance criteria are achieved for fiscal 2016 and 2017, provided, that if such person was an employee of Timeline Labs as of the closing date, such person must remain an employee as of the date that all earn-out consideration would be paid, with any forfeited amounts to be reallocated to other eligible persons. As of October 31, 2015, we estimated the fair value of the aggregate liability of the employee portion of contingent consideration to be $2.6 million which we will be recognizing as the requisite service period is completed. As of October 31, 2015, we have included a liability of $1.5 million in our consolidated balance sheet, which represents the fair value of the estimated shares at full achievement of the defined performance criteria. For the three and nine months ended October 31, 2015, we recorded charges of $0.5 million and $1.5 million, respectively, associated with this arrangement, based on the completion of the requisite service period, that has been included in the earn-outs and change in fair value of earn-outs in our consolidated statements of operations and comprehensive loss.

Intangible Assets

In determining the fair value of the intangible assets, the Company considered, among other factors, the intended use of the assets, the estimates of future performance of Timeline Lab’s products and analyses of historical financial performance. The fair values of identified intangible assets were calculated using an income-based approach based on estimates and assumptions provided by Timeline Labs’ and the Company’s management.

The following table sets forth the components of the identified intangible assets associated with the Timeline Labs acquisition and their estimated useful lives:

 

		Useful life		Fair Value
				(Amounts in thousands)
Tradename		7 years		$	620
Customer contracts		7 years			4,760
Non-compete agreements		2 years			170
Existing technology		5 years			1,170
				$	6,720

Acquired Goodwill

The preliminary purchase price allocation is subject to our final determination of fair value. We recorded the $17.2 million excess of the purchase price over the fair value of the identified tangible and intangible assets as goodwill, primarily due to expected synergies between the combined companies and expanded market opportunities. The goodwill is deductible for tax purposes.

Acquisition-related Costs

In connection with the acquisition, we incurred approximately $0.1 million in acquisition-related costs, including legal, accounting and other professional services for the nine months ended October 31, 2015. The acquisition costs were expensed as incurred and included in professional fees – other, in our consolidated statements of operations and comprehensive loss.