Business Combination and Subsequent Deconsolidation of Spigit

At December 31, 2012, the Company owned 27% of the voting stock in Spigit and accordingly, recorded its investment as an unconsolidated affiliate using the equity method of accounting. However, the Company had not recorded any losses reported by Spigit since 2011, as previous losses had reduced the carrying value of the Company’s investment in Spigit to zero at December 31, 2011.

Business Combination with Spigit:

On January 31, 2013, the Company acquired additional common stock and series F voting preferred stock in Spigit in an initial transaction by obtaining newly issued shares directly from Spigit for $5 million and converting outstanding loans. Subsequent to the initial transaction, the Company invested an additional $5 million. As a result of these transactions, the Company increased its voting ownership in Spigit from 27% at December 31, 2012 to 73% during 2013. In accordance with applicable accounting guidance, the initial acquisition was accounted for using the acquisition method of accounting and as such, the results of Spigit were included in the Company’s consolidated statement of operations starting on the date of acquisition.

The major classes of assets to which the Company preliminarily allocated the purchase price were goodwill of $5.1 million and identifiable intangible assets of $11 million.

The following table summarizes the consideration transferred and the estimated fair values of net assets acquired and liabilities assumed (in thousands):



Consideration transferred:
Cash paid and other consideration	$	6,156
Net assets acquired:
Cash	$	5,174
Goodwill	5,101
Intangible assets	10,976
Other assets	6,009
Total assets	27,260
Debt	(8,038		)
Accounts payable and accrued liabilities	(13,066		)
Total liabilities	(21,104		)
Net assets acquired	$	6,156

Deconsolidation of Spigit and Investment in Mindjet:

On September 10, 2013, Spigit was merged with Mindjet, another privately held enterprise software developer. Under the terms of the agreement, the Company exchanged its common and preferred shares in Spigit for common and preferred shares of Mindjet based on an agreed-upon exchange ratio. As a result of the merger transaction, the Company no longer owns a direct financial interest in Spigit and the Company’s investment in Mindjet is not a controlling interest. Therefore the Company deconsolidated the assets and liabilities of Spigit, and simultaneously recorded its investment in Mindjet at fair value, on the date of the merger.

Collectively, the Company’s investment in Mindjet controls 28.8% of the voting interest of the company comprised of 15.2% and 13.6% from the common shares and preferred shares, respectively. The preferred shares are entitled to 1.5 votes per share, are noncumulative, nonparticipating (with certain exceptions), entitled to dividends at a rate of 6% when declared, convertible into 1.5 shares of common stock of Mindjet at the Company’s discretion (and automatically upon certain events), and provide a $7 million liquidation preference. The Company is also contractually entitled to one of the six board seats on Mindjet’s board of directors.

The collective attributes of the Company’s common and preferred stock investment in Mindjet enable the Company to exert significant influence over the operating and financial decisions of Mindjet. Consequently, the Company accounts for the investment in common stock using the equity method of accounting which resulted in recording a loss of $89,000 in the statement of operations within equity in loss of affiliate representing 15.2% of Mindjet’s loss for the period September 11, 2013 to September 30, 2013. The investment in preferred stock is held at its initial carrying value in the accompanying consolidated balance sheet. The total carrying value of the investment is subject to impairment testing, at least annually or more frequently if facts and circumstances indicate the investment may be impaired.

The fair value of the Company’s investment in Mindjet was $28.7 million on the date of the merger which resulted in a $21.2 million gain before income taxes on the deconsolidation of Spigit that is reported in other income in the consolidation statements of operations for the three and nine months ended September 30, 2013. The Company recorded a deferred tax expense of $3.8 million related to the taxable temporary difference of the Company’s tax basis in its investment in Mindjet which is not expected to reverse within a period that would allow it to be offset by existing deductible temporary differences. Consequently, the Company has recorded a net deferred tax liability which is included in other liabilities at September 30, 2013.

The calculation of the gain is as follows:



Fair value of total investment in Mindjet	$	28,679
Less: carrying amount of the Company’s investment in Spigit	(7,498		)
Gain on deconsolidation	$	21,181

Concurrent with the closing of the transaction, the Company recorded $2.2 million in compensation expense which reflects the fair value of Mindjet common shares, from the Company’s allocation of Mindjet common shares under the terms of the merger, which were provided by Mindjet as compensation to certain members of Spigit management. Such expense is included in operating and other costs in the consolidated statements of operations for the three months ended September 30, 2013. The resulting carrying value of the Company’s investment in Mindjet is $26.4 million, which is included in investments in the consolidated balance sheet as follows:



	Carrying Value at September 30, 2013		Voting Interest
Investment in common stock, equity method	$	9,173	15.2	%
Investment in preferred stock, cost method	17,210		13.6	%
	$	26,383	28.8	%