Acquisitions

MICRONETICS ACQUISITION

On June 8, 2012, the Company and Wildcat Merger Sub Inc., a newly formed, wholly-owned subsidiary of the Company (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Micronetics, Inc. (“Micronetics”). On August 8, 2012, the transaction was closed. The Merger Sub merged with and into Micronetics with Micronetics continuing as the surviving company and wholly-owned subsidiary of the Company.

Headquartered in Hudson, NH, Micronetics is a leading designer and manufacturer of microwave and radio frequency ("RF") subsystems and components for defense and commercial customers.

Pursuant to the terms of the Merger Agreement, at the closing of the merger on August 8, 2012, each share of common stock of Micronetics issued and outstanding immediately prior to the closing was converted into the right to receive $14.80 in cash, without interest (the “Merger Consideration”). All outstanding options to acquire shares of Micronetics common stock that were vested as of the closing were canceled and the holders of such options were entitled to receive an amount of cash equal to the product of the total number of shares previously subject to such vested options and the excess of the Merger Consideration over the exercise price per share. All outstanding Micronetics stock options that were unvested at the closing were replaced by Mercury. The replacement stock options granted were determined based on a conversion ratio provided in the Merger Agreement. Micronetics existing bank debt was paid in full by Mercury on the closing date. Mercury funded the acquisition with cash on hand.

The following table presents the net purchase price and the preliminary fair values of the assets and liabilities of Micronetics:



	Amounts
Consideration transferred
Cash paid to shareholders and to settle vested options	$	69,830
Value allocated to unvested options	513
Less cash acquired	(2,109		)
Net purchase price	$	68,234

Estimated fair value of tangible assets acquired and liabilities assumed
Cash	$	2,109
Accounts receivable	3,635
Inventory	12,080
Fixed assets	5,712
Current and non-current deferred tax assets	2,764
Other current and non-current assets	1,721
Accounts payable and accrued expenses	(6,090		)
Long-term debt	(6,575		)
Deferred tax liabilities	(8,114		)
Estimated fair value of net tangible assets acquired	7,242
Estimated fair value of identifiable intangible assets	18,500
Estimated fair value of goodwill	44,601
Estimated fair value of assets acquired	$	70,343
Less cash acquired	(2,109		)
Net purchase price	$	68,234

The amounts above represent the preliminary fair value estimates as of June 30, 2013 and are subject to subsequent adjustment during the remainder of the measurement period. Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill or income, as applicable.

The goodwill of $44,601 arising from the Micronetics acquisition largely reflects the potential synergies and expansion of the Company's service offerings across product segments and markets complementary to the Company's existing products and markets. The Micronetics acquisition provides the Company with additional capability and expertise related to microwave and radio frequency technology. The acquisition is directly aligned with the Company's strategy of expanding its capabilities, services and offerings along the sensor processing chain. As of June 30, 2013, the Company did not have any goodwill eligible for tax deduction purposes.

The revenue and net loss from Micronetics included in the Company's consolidated statements of operations for the fiscal year ended June 30, 2013 was $35,474 and $(3,764), respectively.

Pro Forma Financial Information

The following tables summarize the supplemental statements of operations information on an unaudited pro forma basis as if the Micronetics acquisition had occurred on July 1, 2011:



	June 30,
	2013			2012
Pro forma net revenues	$	210,788		$	291,467
Pro forma net (loss) income	$	(14,099	)	$	24,116
Basic pro forma net (loss) earnings per share	$	(0.47	)	$	0.82
Diluted pro forma net (loss) earnings per share	$	(0.47	)	$	0.80

The pro forma results presented above are for illustrative purposes only for the applicable periods and do not purport to be indicative of the actual results which would have occurred had the transaction been completed as of the beginning of the period, nor are they indicative of results of operations which may occur in the future.

KOR AND PDI ACQUISITION

On December 22, 2011, the Company and King Merger Inc., a newly formed, wholly-owned subsidiary of the Company (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with KOR Electronics (“KOR”), and Shareholder Representative Services LLC, as the securityholders' representative. On December 30, 2011, the transaction closed with the Merger Sub being merged with and into KOR with KOR continuing as the surviving company and wholly-owned subsidiary of the Company (the “Merger”). By operation of the Merger, the Company acquired both KOR and its wholly-owned subsidiary, Paragon Dynamics, Inc. (“PDI”). For segment reporting, KOR and PDI are included in the MDIS business segment.

The Company acquired KOR and PDI for a net purchase price of $71,000 paid in cash. The Company funded the purchase price with cash on hand. The Company acquired KOR and PDI free of bank debt. The purchase price was subject to post-closing adjustment based on a determination of KOR's closing net working capital. In accordance with the Merger Agreement, $10,650 of the purchase price was placed into escrow to support the post-closing working capital adjustment and the sellers' indemnification obligations. The escrow is available for indemnification claims through December 30, 2013.

The purchase price provisional amounts were adjusted based on the final fair value estimates as of the end of the December 30, 2012 measurement period. During fiscal 2013, the Company made final adjustments to accounts receivable and cost in excess of billings, other current and non current assets, deferred income taxes and goodwill by $126, $810, $(235) and $(701), respectively. Any subsequent adjustments to these fair value estimates will result in an adjustment to income. As of June 30, 2013, there have been no material adjustments to the initial fair value estimates.

LNX ACQUISITION

On January 12, 2011, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with LNX, the holders of the equity interests of LNX, and Lamberto Raffaelli, as the sellers' representative (collectively, the “Sellers”). Pursuant to the Stock Purchase Agreement, the Company completed its purchase of all of the outstanding equity interests in LNX, and LNX became a wholly-owned subsidiary of the Company. Based in Salem, NH, LNX designs and builds next generation radio frequency receivers for signal intelligence, communication intelligence as well as electronic attack applications. LNX is included in the MCE business segment.

The Company acquired LNX for a purchase price of $31,000 paid in cash, plus an earn-out of up to $5,000 payable in cash, based upon achievement of financial targets during calendar years 2011 and 2012. The purchase price was subject to post-closing adjustment based on a determination of LNX's closing net working capital. The Company funded the purchase price with cash on hand. The Company acquired LNX free of bank debt. Immediately prior to the consummation of the acquisition, LNX divested its non-defense global procurement business. The Company determined the fair value of the earn-out contingent consideration as part of the LNX acquisition based on the probability of LNX attaining the specified financial targets and assigned a fair value of $4,828 to the liability. In accordance with the Stock Purchase Agreement, $6,200 of the purchase price was placed into escrow to support the post-closing working capital adjustment and the sellers' indemnification obligations, of which $1,523 was released to the Sellers and $27 was released to the Company in March 2011, upon the final calculation of net working capital. The remaining escrow was available for indemnification claims through August 31, 2012 upon which it was released to the Sellers.

As of June 30, 2012, the Company determined that it was probable that the earn-out related to the LNX acquisition would not be achieved. During the fourth quarter of fiscal 2012, the Company did not receive a purchase order for long lead-time materials. Therefore, the Company no longer expected to meet the specified revenue targets for the LNX earn-out due to the long-lead time necessary to generate these revenues and determined it did not expect to pay the earn-out. As a result, the Company adjusted the fair value of the earn-out contingent consideration and recorded $4,938 as a change in fair value of the liability in June 2012. The adjustment is separately classified in the consolidated statements of operations as an offset to operating expenses. Subsequently, in fiscal 2013, the LNX earn-out window expired with no further adjustments required.