Shutterfly 2013 Annual Report Download - page 89

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Subsequent to the acquisition date, the Company finalized the Net Working Capital, Net Cash, and
Net Debt amounts resulting in a reduction of purchase price of approximately $1.3 million. In accordance
with the merger agreement, this amount will be repaid from the consideration held in escrow in the same
proportion of cash and stock as was made in the initial escrow contribution. As of December 31, 2011, the
cash proceeds due from escrow have been received and the stock has been deducted from shares
outstanding.
Purchase Price
The total purchase price, after adjusting for changes in Net Working Capital, Net Cash, and Net Debt,
is as follows (in thousands):
Cash consideration .................................................... $ 146,040
Fair value of common stock issued ......................................... 218,557
Fair value of vested stock awards assumed ................................... 41,766
Total fair value of consideration transferred .................................. $ 406,363
Tiny Prints operates tinyprints.com and weddingpaperdivas.com which offer cards, invitations, and
personalized stationery. With the acquisition and combined resources, the Company expects to incur
significant revenue and cost synergies through the Tiny Prints brands, customer base and workforce.
Estimated Fair Value of Stock Awards Assumed
In connection with the acquisition, each Tiny Prints stock option that was outstanding and unexercised
was assumed and converted into an option to purchase the Company’s common stock based on a
conversion ratio of 0.327, which was calculated as the consideration price per share of $12.44 divided by a
fixed per share value of $38. The Company assumed the stock options in accordance with the terms of the
applicable Tiny Prints stock option plan and the stock option agreement. Based on Tiny Prints’ stock
options outstanding at April 25, 2011, the Company converted options to purchase approximately
4.1 million shares of Tiny Prints common stock into options to purchase approximately 1.3 million shares
of the Company’s common stock. The Company also assumed and converted 196,896 unvested shares of
outstanding Tiny Prints restricted stock units into 64,386 shares of the Company’s restricted stock units,
using the same conversion ratios stated above.
The fair value of stock options assumed was calculated using a Black-Scholes valuation model with the
following assumptions: closing date market price of $54.64 per share; expected term of 4.5; risk-free
interest rate of 2.1%; expected volatility of 48.1%; and no dividend yield. The fair value of restricted stock
units assumed was calculated using the closing date market price of $54.64 per share for the Company’s
common stock. The Company included the fair value of vested stock options assumed of $41.8 million in
the consideration transferred for the acquisition. The estimated fair value of unvested stock options and
restricted stock units assumed by the Company of $25.8 million was not included in the consideration
transferred and is being recognized as stock-based compensation expense over the weighted average
remaining vesting period of approximately two years. In addition, the Company determined that
$2.9 million of incremental fair value was associated with vested awards at the acquisition date, and has
recognized this additional amount in its post-combination financial statements as stock-based
compensation.
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