BBBB Blackboard (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

þ   Preliminary Proxy Statement

 

o   Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

o   Definitive Proxy Statement

 

o   Definitive Additional Materials

 

o   Soliciting Material Pursuant to § 240.14a-12

 

BLACKBOARD INC.

(Name of Registrant as Specified in Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Common Stock, par value $0.01 per share of Blackboard Inc.

 

 

 

35,257,672 shares of Common Stock (including restricted stock and restricted stock units) and options to purchase 4,567,783 shares of Common Stock

 

 

 

The maximum aggregate value was determined based on the sum of: (A) 35,257,672 shares of Common Stock (including restricted stock and restricted stock units) multiplied by $45.00 per share; and (B) options to purchase 4,567,783 shares of Common Stock with exercise prices less than $45.00 per share multiplied by $11.20 (which is the difference between $45.00 and the weighted average exercise price of $33.80 per share). In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00011610 by the sum of the preceding sentence.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRELIMINARY PROXY MATERIAL, SUBJECT TO COMPLETION

BLACKBOARD INC.
650 Massachusetts Ave., NW, 6 ^th Floor
Washington, D.C. 20001

[ • ], 2011

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Blackboard Inc. (the “Company” ) to be held at [ • ] , local time, on [ • ] , 2011, at [ • ] .

 

On June 30, 2011, the Company entered into an Agreement and Plan of Merger, as it may be amended from time to time (the “merger agreement” ), with Bulldog Holdings, LLC ( “Parent” ), a Delaware limited liability company, and Bulldog Acquisition Sub, Inc. ( “Acquisition Sub” ), a Delaware corporation, pursuant to which Acquisition Sub will be merged with and into the Company, upon the terms and subject to the conditions set forth in the merger agreement, with the Company surviving as a wholly owned subsidiary of Parent. Parent and Acquisition Sub are affiliates of Providence Equity Partners L.L.C. The merger agreement was unanimously approved by the Company’s board of directors (the “Board” ) acting upon the unanimous recommendation of a transaction committee of the Board composed entirely of independent directors (the “Transaction Committee” ). At the special meeting, you will be asked to consider and vote upon a proposal to adopt the merger agreement. The merger agreement is attached as Annex A to the enclosed proxy statement.

 

If our stockholders approve and adopt the merger agreement and the merger is subsequently completed, you will be entitled to receive $45.00 in cash, without interest and less any applicable withholding taxes, per share of Company common stock you own immediately prior to the effective time of the merger (unless you have properly and validly perfected your statutory rights of appraisal with respect to the merger).

 

The Transaction Committee reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger. The Transaction Committee unanimously recommended that our Board approve and declare the advisability of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and recommend that our stockholders adopt the merger agreement. After careful consideration, our Board, acting upon the recommendation of the Transaction Committee, determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, fair to, and in the best interests of, the Company and its stockholders, and recommended that our stockholders adopt the merger agreement at the special meeting. Our Board recommends that you vote “FOR” the proposal to adopt the merger agreement, and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies .

 

In considering the recommendation of the Board, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of stockholders generally.

 

The Securities and Exchange Commission recently adopted new rules that require us to seek a non-binding advisory vote with respect to certain payments that will or may be made to the Company’s executive officers in connection with the merger. Accordingly, at the special meeting, you will be asked to consider and vote upon a proposal to approve, on a non-binding advisory basis, the “golden parachute” compensation that certain executive officers of the Company will or may receive in connection with the merger. Our Board recommends that you vote “FOR” the proposal to approve, on a non-binding advisory basis, the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

Your vote is very important, regardless of the number of shares of Company common stock you own. The merger cannot be consummated unless the merger agreement is adopted by the affirmative vote of the holders of at least a majority of all outstanding shares of Company common stock outstanding on the record date and entitled to vote at the special meeting. Whether or not you attend the meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or Internet prior to the meeting. If you fail to vote your shares or abstain from voting, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement. Failure to vote will have no effect on the adjournment proposal, but an abstention will have the same effect as a vote “AGAINST” such proposal. A failure to vote or an abstention will have no effect on the proposal regarding “golden parachute” compensation. If you attend the meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

 

If your shares of common stock are held in “street name” by your broker, bank or other nominee, your broker, bank or other nominee will be unable to vote your shares of the Company’s common stock without instructions from you. You should instruct your broker, bank or other nominee how to vote your shares of Company common stock in accordance with the instructions provided by your broker, bank or other nominee. The failure to instruct your broker, bank or other nominee to vote your shares of the Company’s common stock “FOR” the approval of the proposal to adopt the merger agreement will have the same effect as a vote “AGAINST” adoption of the merger agreement.

 

The proxy statement attached to this letter provides you with information about the proposed merger and the special meeting. We encourage you to read the entire proxy statement carefully. You may also obtain more information about the Company from the documents we have filed with the Securities and Exchange Commission.

 

Thank you for your cooperation and continued support.

 

Sincerely,

 

[ • ]

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated [ • ] , 2011 and is first being mailed to stockholders on or about [ • ] , 2011.

BLACKBOARD INC.
650 Massachusetts Ave., NW, 6th Floor
Washington, D.C. 20001

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD [•], 2011

 

 

 

A special meeting of stockholders of Blackboard Inc., a Delaware corporation (the “Company” ), will be held at [ • ] , local time, on [ • ] , 2011, at [ • ] for the following purposes:

 

1. To vote on a proposal to adopt the Agreement and Plan of Merger, dated as of June 30, 2011, as it may be amended from time to time (the “merger agreement” ), by and among Bulldog Holdings, LLC, a Delaware limited liability company ( “Parent” ), Bulldog Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ( “Acquisition Sub” ), and the Company, as more fully described in the accompanying proxy statement;

 

2. To vote on a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement;

 

3. To cast a non-binding advisory vote to approve “golden parachute” compensation payable under existing agreements with the Company that certain executive officers of the Company will or may receive in connection with the merger; and

 

4. To transact such other business as may properly come before the special meeting, or any adjournment or postponement of the special meeting, by or at the direction of the Board.

 

Only stockholders of record at the close of business on [ • ] , 2011 are entitled to notice of and to vote at the special meeting and any adjournment or postponement thereof. A list of stockholders of record is available for inspection at the Company’s corporate headquarters, located at 650 Massachusetts Avenue, NW, 1st Floor, Washington, D.C. 20001.

 

Your vote is very important, regardless of the number of shares of Company common stock you own. The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock outstanding on the record date and entitled to vote at the special meeting. The adoption of the proposal to adjourn the special meeting requires the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. The adoption of the proposal to approve “golden parachute” compensation requires the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and voting on the matter.

 

Holders of Company common stock who do not vote in favor of the adoption of the merger agreement are entitled to seek appraisal of the fair value of their shares under Delaware law in connection with the merger if they comply with the requirements of Delaware law explained on page [ • ] in the accompanying proxy statement.

 

Whether or not you plan to attend the meeting, I urge you to complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or Internet prior to the meeting to ensure that your shares will be represented at the meeting if you are unable to attend. If you fail to vote, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement for purposes of stockholder approval, but will have no effect for purposes of any vote regarding adjournment of the special meeting or approval of the “golden parachute” compensation. If your shares of common stock are held in “street name” by your broker, bank or other nominee, you should instruct your broker, bank or other nominee how to vote your shares of common stock in accordance with the instructions provided by your broker, bank or other nominee. Most stockholders have three options for submitting their vote by proxy: (1) via the Internet, (2) by telephone or (3) by mail. For further details, see the discussion on page [ • ] of the enclosed proxy statement. If you have Internet access, we encourage you to record your vote on the Internet. To ensure that your vote is recorded promptly, please vote by proxy as soon as possible, whether or not you plan to attend the meeting.

 

Our Board unanimously recommends that you vote “FOR” the adoption of the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies and “FOR” the approval, on a non-binding advisory basis, of the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

By Order of the Board of Directors

 

Matthew H. Small

Chief Business Officer, Chief Legal Officer and Secretary

 

Washington, D.C.

[ • ], 2011

 

Table of Contents

 

 

This Summary Term Sheet, together with the “Questions and Answers About the Merger and the Special Meeting,” highlights selected information in this proxy statement and may not contain all the information that may be important to you. We encourage you to read carefully this entire proxy statement, including its annexes and the documents we refer to or incorporate by reference in this proxy statement. Each item in this Summary Term Sheet includes a page reference directing you to a more complete description of that topic. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page [ • ].

 

In this proxy statement, the terms “Blackboard,” the “Company,” “we,” “our” and “us” refer to Blackboard Inc. and its subsidiaries, unless the context requires otherwise. We refer to Bulldog Holdings, LLC as “Parent,” and Bulldog Acquisition Sub, Inc. as “Acquisition Sub.” We refer to Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P. as the “Providence Funds.” We refer to Providence Equity Partners L.L.C. as “Providence.” When we refer to the “merger agreement,” we mean the Agreement and Plan of Merger, dated as of June 30, 2011, as it may be amended from time to time, by and among Parent, Acquisition Sub and the Company.

 

Parties to the Merger (page [ • ])

 

Blackboard Inc. is a leading provider of enterprise software applications and related services to the education industry. The Company’s corporate offices are located at 650 Massachusetts Ave, NW, Washington, D.C. 20001, and its telephone number is (202) 463-4860.

 

Parent is currently a wholly owned subsidiary of the Providence Funds, which are affiliates of Providence. Acquisition Sub is a wholly owned subsidiary of Parent. Both Parent and Acquisition Sub were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Neither Parent nor Acquisition Sub has engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. Providence is a leading global private equity firm specializing in equity investments in media, entertainment, communications and information services companies around the world.

 

Certain Effects of the Merger (page [ • ])

 

The merger agreement provides that, at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at such later time as may be jointly designated by Parent and the Company and specified in the certificate of merger), which we refer to as the “effective time,” Acquisition Sub will, upon the terms and subject to the conditions set forth in the merger agreement, merge with and into the Company with the Company surviving the merger as a wholly owned subsidiary of Parent. We sometimes use the term “surviving corporation” in this proxy statement to refer to the Company as the surviving entity following the merger. As a result of the merger, the Company will become a wholly owned subsidiary of Parent, will cease to be an independent, publicly traded company and you will cease to have any rights in the Company as a stockholder.

 

If the merger is completed, you will be entitled to receive $45.00 in cash, without interest and less any applicable withholding taxes, for each share of Company common stock owned by you immediately prior to the effective time. As a result of the merger, Company stockholders (other than any institutional co-investors and members of our management team who may have the opportunity to invest directly or indirectly in Parent and who choose to make that investment) will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth. Shares of the Company’s common stock will no longer be listed on the NASDAQ Global Select Market ( “NASDAQ” ), and the registration of such shares under the Securities Exchange Act of 1934, as amended (the “Exchange Act” ), will be terminated.

Merger Consideration (page [ • ])

 

If the merger is completed, each share of the Company’s common stock outstanding immediately prior to the effective time (other than shares owned by the Company, its wholly owned subsidiaries, Parent, Acquisition Sub or any other direct or indirect wholly owned subsidiary of Parent, shares held in the Company’s treasury and shares held by any stockholders who have properly and validly perfected their statutory rights of appraisal with respect to the merger in accordance with Delaware law) will be cancelled and extinguished and converted into the right to receive $45.00 in cash (the “merger consideration” ), without interest and less any applicable withholding taxes.

 

Treatment of Stock Options, Restricted Stock, and Restricted Stock Units (page [ • ])

 

Stock Options

 

Under the merger agreement, we have agreed to adopt such resolutions and take such other actions as may be required to provide that, except as may otherwise be set forth in a separate written agreement entered into after the date of the merger agreement, but prior to the effective time, between Parent or its affiliates, the Company and a holder of an option to purchase shares of Company common stock (a “Company option” ), each vested and unvested Company option outstanding immediately prior to the effective time (each, an “outstanding option” ) will be converted into the right to receive, after the effective time, in exchange for the cancellation of such outstanding option, an amount in cash, without interest and subject to the applicable tax withholding, equal to (a) the amount, if any, by which (i) the merger consideration exceeds (ii) the per share exercise price of such outstanding option, multiplied by (b) the number of shares of Company common stock subject to such outstanding option immediately prior to the effective time. Outstanding options with an exercise price per share that equals or exceeds the merger consideration will be cancelled and terminated at the effective time with no payment or other consideration paid to the holder thereof and the holder will have no rights with respect to such outstanding options.

 

Restricted Stock

 

Under the merger agreement, we have agreed to adopt such resolutions and take such other actions as may be required to provide that, except as may otherwise be set forth in a separate written agreement entered into after the date of the merger agreement, but prior to the effective time, between Parent or its affiliates, the Company and a holder of restricted stock, (a) any shares of unvested restricted common stock of the Company as of the effective time will be subject to twelve months of accelerated vesting in accordance with the terms of the applicable Company equity plan and award agreement, except that any holder that is not a member of the surviving corporation’s leadership team will have all unvested shares of restricted stock held immediately prior to the effective time accelerated and fully vested at the effective time (each, an “accelerated Company share” ), (b) each accelerated Company share will be converted into the right to receive an amount in cash, without interest and subject to the applicable tax withholding, equal to the merger consideration, in exchange for the cancellation of such accelerated Company share, payable promptly after the effective time and (c) each share of Company common stock that constitutes unvested restricted stock of the Company immediately prior to the effective time (after giving effect to the acceleration in (a) above) (each, an “unvested Company share” ), will be converted into the right to receive a cash amount equal to the merger consideration, subject to the same forfeiture provisions applicable to such unvested Company share immediately prior to the effective time, payable to the holder within two business days following the date on which the applicable forfeiture provisions lapse and subject to the applicable tax withholding, except that any condition related to continued employment shall be deemed to refer to employment with the surviving corporation or its affiliates.

 

Any share of Company common stock representing restricted stock held by Parent, Acquisition Sub or any other direct or indirect wholly owned subsidiary of Parent immediately prior to the effective time will become fully vested immediately prior to the effective time and, at the effective time, will cease to exist, be cancelled and retired and no consideration will be paid in exchange for such shares.

Restricted Stock Units

 

Under the merger agreement, we have agreed to adopt such resolutions and take such other actions as may be required to provide that each vested and unvested Company restricted stock unit outstanding immediately prior to the effective time will be converted into the right to receive, after the effective time, in exchange for the cancellation of such Company restricted stock unit, an amount in cash, without interest and subject to the applicable tax withholding, equal to (a) the merger consideration, multiplied by (b) the number of shares of Company common stock subject to such outstanding restricted stock unit immediately prior to the effective time.

 

When the Merger is Expected to be Completed (page [ • ])

 

We currently anticipate that the merger will be completed in the fourth quarter of 2011. However, there can be no assurances that the merger will be completed at all or, if completed, that it will be completed in the fourth quarter of 2011.

 

The Special Meeting (page [ • ])

 

The special meeting will be held at [ • ] , local time, on [ • ] , 2011, at [ • ] . At the special meeting you will be asked to, among other things, adopt the merger agreement. See “Questions and Answers About the Merger and the Special Meeting” beginning on page [ • ] and “The Special Meeting” beginning on page  [ • ] .

 

Record Date and Quorum (page [ • ])

 

You are entitled to vote at the special meeting if you owned shares of Company common stock at the close of business on [ • ] , 2011, the record date for the special meeting. The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock issued and outstanding as of the close of business on the record date will constitute a quorum. On the record date, there were [ • ]  shares of Company common stock outstanding.

 

Vote Required for Approval (page [ • ])

 

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock outstanding on the record date that are entitled to vote at the special meeting. Each outstanding share of Company common stock on the record date entitles the holder to one vote at the special meeting. Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. Approval of the non-binding advisory proposal regarding the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger requires the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and voting on the matter.

 

Recommendation of the Board of Directors (page [ • ])

 

Acting upon the unanimous recommendation of the transaction committee of the Board composed entirely of independent directors (which we refer to as the “Transaction Committee” ), the Board has unanimously (i) determined that the merger and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth in the merger agreement, are fair to, and in the best interests of, the Company and its stockholders, (ii) authorized and approved the execution, delivery and performance of the merger agreement by the Company and the transactions contemplated by the merger agreement, (iii) declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, and (iv) duly resolved to recommend that the stockholders of the Company adopt the merger agreement. The Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies and “FOR” the approval, on a non-binding advisory basis, of the “golden parachute”

compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

For a discussion of the material factors considered by our Board in making its recommendation, see “The Merger — Purpose of and Reasons for the Merger; Recommendation of the Transaction Committee and Our Board” beginning on page [ • ] .

 

Interests of the Company’s Directors and Executive Officers in the Merger (page [ • ])

 

In considering the recommendation of our Board, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, your interests as a stockholder and that may present actual or potential conflicts. These interests include, among others:

 

 

Our Board was aware of these interests and considered them, among other matters, in reaching its decision to approve the merger agreement and to recommend that the Company’s stockholders vote in favor of adopting the merger agreement. For the approximate value of the potential benefits that could be received by the executive officers and the directors, see “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page [ • ] .

 

Shares Held by Company Directors and Executive Officers (page [ • ])

 

As of the close of business on [ • ] , 2011, the record date, the Company’s directors and executive officers held and are entitled to vote, in the aggregate, [ • ]  shares of Company common stock (excluding Company options and restricted stock units), representing approximately [ • ] % of the aggregate Company common stock outstanding as of the record date. The directors and executive officers of the Company intend to vote their shares “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies, and “FOR” the approval, on a non- binding advisory basis, of the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

Opinion of Barclays Capital (page [ • ])

 

In connection with the merger, the Company’s financial advisor, Barclays Capital Inc., which we refer to as “Barclays Capital,” delivered a written opinion, dated June 30, 2011, to the Board to the effect that based upon and subject to the qualifications, limitations and assumptions stated therein and as of the date of the opinion, from a financial point of view, the merger consideration to be offered to the stockholders of the Company pursuant to the merger agreement was fair to such stockholders.

The full text of the written opinion, which describes the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached to this proxy statement as Annex B and is incorporated herein by reference. You should read the opinion carefully in its entirety. Barclays Capital’s opinion was provided to the Board in connection with their evaluation of the merger consideration provided for in the merger from a financial point of view. Barclays Capital’s opinion does not address any other aspects or implications of the merger and does not constitute a recommendation to any holder of shares of Company common stock as to how such holder should vote or act on any matters with respect to the proposed merger. See “The Merger — Opinion of Barclays Capital” beginning on page [ • ] .

 

Voting of Proxies (page [ • ])

 

Any Company stockholder entitled to vote whose shares are registered in their name may submit a proxy by telephone by calling [ • ] or via the Internet at [ • ] , in accordance with the instructions provided on the enclosed proxy card, or by returning the enclosed proxy card by mail, or may vote in person by appearing at the special meeting.

 

If your shares are held in “street name” by a broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares using the instructions provided by your broker, bank or other nominee. If you do not provide your broker, bank or other nominee with instructions, your shares will not be voted and that will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, but will have no effect on the adjournment proposal or the “golden parachute” compensation proposal.

 

Revocability of Proxies (page [ • ])

 

Any stockholder who executes and returns a proxy card (or submits a proxy via telephone or the Internet) may revoke or change their proxy at any time before it is voted at the special meeting by:

 

 

Please note that if you hold your shares in “street name” through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to vote your shares, the above-described options for changing your vote do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to change your vote.

 

Financing of the Merger; Equity Financing; Debt Financing (page [ • ])

 

Parent has obtained an equity financing commitment letter from the Providence Funds and Acquisition Sub has obtained debt financing commitments from the initial lenders (identified below under “Debt Financing” ) in connection with the transactions contemplated by the merger agreement in an aggregate amount of approximately of $2.0 billion. These funds, in addition to the Company’s and the surviving corporation’s cash, as the case may be, are expected to be sufficient to pay merger consideration in the amount of approximately $1.64 billion to our stockholders, to repay outstanding indebtedness and to pay fees and expenses in connection with the merger, the financing arrangements and the related transactions. The funding of these equity and debt financings are subject to the satisfaction of the conditions set forth in the commitment letters pursuant to which the financing will be provided.

 

We believe that the amounts committed under the commitment letters and the Company’s and the surviving corporation’s cash, as the case may be, will be sufficient to complete the merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, one or more of the parties to the commitment letters fails to fund the financing or if the conditions to such commitments are not met. Although obtaining the proceeds of any financing, including financing under the commitment letters, is not a condition to the completion of the merger, the failure of Parent and Acquisition Sub to obtain any portion of

the committed financing (or alternative financing) is likely to result in the failure of the merger to be completed. In that case, Parent may be obligated to pay the Company a fee of $106,409,000, as described under “The Merger Agreement — Termination Fees; Expenses.”

 

Equity Financing.   Parent has received an equity commitment letter from the Providence Funds to purchase common equity securities of Parent for an aggregate purchase price up to $850 million. In the event that Parent does not require all of the equity for which the Providence Funds made a commitment, the $850 million equity commitment will be reduced accordingly. The Providence Funds expect to fulfill a portion of their equity funding obligations with funds from one or more co-investors. In addition, Parent expects the Company’s management to make an indirect equity investment in Parent at the effective time. While there has been no agreement as to the amount of any indirect equity interests in Parent to be acquired by the Company’s management, Parent estimates that this amount is likely to be between $10 million and $20 million. Any indirect acquisition of equity interests in Parent by the Company’s management would have the effect of reducing the amount of the equity financing to be funded by the Providence Funds.

 

Debt Financing.   Acquisition Sub has received a debt commitment letter for debt financing in an aggregate principal amount of up to $1,150 million from Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas and Morgan Stanley Senior Funding, Inc., consisting of a $700 million senior secured first lien term loan facility (which amount may be increased by $80 million as more fully described in “The Merger — Financing of the Merger; Equity Financing; Debt Financing” below), a $100 million first lien senior secured revolving credit facility and a $350 million second lien senior secured term loan facility.

 

Financing Cooperation.   Upon the reasonable request of Parent, the Company has agreed to, and has agreed to cause its subsidiaries to, use its reasonable best efforts to cooperate with Parent in connection with obtaining the financing, as more fully described in “The Merger — Financing of the Merger; Equity Financing; Debt Financing” below. Parent has agreed to (i) reimburse the Company for all reasonable and documented costs (including all reasonable and documented out-of-pocket fees and expenses of counsel and other advisors) incurred by the Company and its subsidiaries in connection with such cooperation, and (ii) indemnify and hold harmless the Company and its subsidiaries, and their respective affiliates and representatives against all liabilities (including costs and expenses) directly or indirectly suffered or incurred in connection with the financing.

 

Regulatory Matters (page [ • ])

 

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act,” prohibits us from completing the merger until we have furnished certain information and materials to the Antitrust Division of the U.S. Department of Justice, which we refer to as the “DOJ,” and the Federal Trade Commission, which we refer to as the “FTC,” and the required waiting period has expired or been terminated. The notification and report forms were filed by Parent and the Company with the DOJ and the FTC on July 7, 2011.

 

Certain Material United States Federal Income Tax Consequences (page [ • ])

 

If you are a U.S. holder of our common stock, the merger will be a taxable transaction to you. For U.S. federal income tax purposes, your receipt of cash in exchange for your shares of Company common stock generally will cause you to recognize gain or loss measured by the difference, if any, between the cash you receive in the merger (determined before the deduction of any applicable withholding taxes) and your adjusted tax basis in your shares. You are urged to read the discussion in the section entitled “The Merger — Certain Material United States Federal Income Tax Consequences” beginning on page [ • ] and to consult your tax advisor as to the United States federal income tax consequences of the merger, as well as the effects of state, local and non-United States tax laws or any other United States federal tax laws.

Restrictions on Solicitations of Other Offers and Change in Recommendation (page [ • ])

 

The merger agreement restricts our ability to solicit or engage in discussions or negotiations with a third party regarding specified transactions involving the Company or its subsidiaries. Notwithstanding these restrictions, under certain limited circumstances required for our Board to comply with its fiduciary duties, the Company may (i) respond to a written inquiry or alternative acquisition proposal (as defined below in “The Merger Agreement — Restrictions on Solicitations of Other Offers” ) that the Board determines in good faith to be bona fide, that constitutes or would reasonably be expected to result in a superior proposal (as defined below in “The Merger Agreement — Restrictions on Solicitations of Other Offers” ), and did not result from a material breach of the non-solicitation provisions of the merger agreement, or (ii) terminate the merger agreement and enter into an agreement with respect to a superior proposal, so long as we comply with certain terms of the merger agreement, including paying a $49,112,000 termination fee to Parent.

 

In addition, neither our Board nor any committee of the Board is permitted to: (i)(A) withdraw or qualify, change or modify, in a manner adverse to Parent, or publicly propose to withdraw or qualify, change or modify, in a manner adverse to Parent, the Board recommendation in favor of the merger agreement; (B) publicly recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any alternative acquisition proposal; or (C) fail to include the Board recommendation in favor of the merger agreement in this proxy statement (we refer to any action described in this clause “(i)” as a “recommendation change” ); or (ii) approve or publicly recommend, or publicly propose to approve or recommend, or cause or permit the Company or any of its subsidiaries to execute or enter into with any person that makes an alternative acquisition proposal, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement or other similar agreement related to any alternative acquisition proposal (other than any acceptable confidentiality agreement) (each such agreement, an “acquisition agreement” ), except that, at any time prior to obtaining the Company stockholder approval, the Board may, if it determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties under applicable legal requirements, (i) make a recommendation change in response to (A) a superior proposal that did not result from a material breach of the non-solicitation provisions of the merger agreement or (B) an intervening circumstance (as defined below in “The Merger Agreement — Restrictions on Solicitations of Other Offers” ), and (ii) in response to a superior proposal that did not result from a material breach of the non-solicitation provision of the merger agreement, cause the Company to terminate the merger agreement (in each case, subject to certain conditions as more fully described in “The Merger Agreement — Restrictions on Solicitations of Other Offers” and “The Merger Agreement — Company Board Recommendation; Termination in Connection with Superior Proposal” ).

 

Conditions to the Completion of the Merger (page [ • ])

 

Each party’s obligation to effect the merger is subject to the satisfaction or waiver of the following conditions:

 

 

Parent’s and Acquisition Sub’s obligations to effect the merger are subject to the satisfaction or waiver of the following conditions:

 

 

 

The Company’s obligation to effect the merger is subject to the satisfaction or waiver of the following conditions:

 

 

Termination of the Merger Agreement (page [ • ])

 

The merger agreement may be terminated and the merger may be abandoned (before or after the adoption of the merger agreement by the Company’s stockholders):

 

 

 

 

 

 

 

 

Termination Fees; Expenses (page [ • ])

 

The Company has agreed to pay to Parent a termination fee of $49,112,000, which we refer to as the “termination fee,” if the merger agreement is terminated by:

 

 

If the merger agreement is terminated by the Company for either (i) Parent’s uncured breach of representations or warranties or uncured failure to perform its covenants and other obligations, which would give rise to the failure of any of the conditions to the Company’s obligations to close the transactions contemplated by the merger agreement (as described above) or (ii) the reasons described in the last paragraph above under “Termination of the Merger Agreement” as a result of Parent’s failure to consummate the merger as contemplated by the merger agreement, then Parent will be obligated to pay us a reverse termination fee of $106,409,000, which we refer to as the “reverse termination fee.”

 

If the merger agreement is terminated by Parent because of an inaccuracy of any representation or warranty of the Company or breach of a covenant or other obligation by the Company such that the applicable conditions to the obligations of Parent and Acquisition Sub to effect the merger would not be satisfied, then we are obligated to reimburse Parent in an amount equal to the sum of Parent’s and Acquisition Sub’s expenses up to $5,000,000 in the aggregate; provided that the amount of any payment by the Company of such expenses will be credited against the amount of any termination fee that may subsequently become payable.

 

Limitations on Remedies; Guarantee (page [ • ])

 

Parent and Acquisition Sub are, and subject to certain exceptions the Company is, entitled to obtain a decree of specific performance to specifically enforce the observance of covenants or obligations which are threatened to be breached by the other party. Upon the satisfaction of certain conditions, we will be entitled to obtain specific performance to cause the equity financing to be funded to fund the merger consideration and to consummate the merger. However, while we may pursue, simultaneously or otherwise, both a grant of specific performance and the payment of the reverse termination fee, we may not receive both the reverse termination fee and specific performance of the merger agreement resulting in the consummation of the merger.

 

Concurrently with the execution of the merger agreement, the Providence Funds entered into a guarantee in our favor pursuant to which they irrevocably guaranteed certain of Parent’s and Acquisition Sub’s obligations under the merger agreement, including payment of the reverse termination fee, if and when due, and payment of certain reimbursement and indemnification obligations of Parent and Acquisition Sub in cooperation with the arrangement of the financing. However, in no event will the Providence Funds’ liability under the guarantee exceed $111,409,000 in the aggregate.

 

The sole recourse of Parent against us, our affiliates and related parties, for any damages that Parent and its affiliates may incur in connection with the merger agreement and the transactions contemplated by the merger agreement is the right to terminate the merger agreement and receive the termination fee and the right to receive reimbursement of certain expenses incurred by Parent and Acquisition Sub (up to $5,000,000). Parent also has the right to pursue damages solely for willful and intentional breaches of the covenants restricting solicitation of proposals by the Company and recommendation changes by our Board, up to an amount not to exceed $81,853,000.

 

Market Price and Dividend Information (page [ • ])

 

The Company’s common stock is listed on NASDAQ under the trading symbol “BBBB.” On April 18, 2011, the day immediately prior to the Company’s public announcement that the Company was evaluating strategic alternatives to enhance stockholder value, the Company’s common stock closed at $37.16 per share. On June 29, 2011, which was the last full trading day before the Company announced the transaction, the Company’s common stock closed at $43.64 per share. On [ • ] , 2011, which was the last trading day before the date of this proxy statement, the Company’s common stock closed at $ [ • ] per share.

 

Appraisal Rights (page [ • ] and Annex C)

 

Under the Delaware General Corporation Law, which we refer to as the “DGCL,” holders of Company common stock who do not vote in favor of the proposal to adopt the merger agreement will have the right to seek appraisal of the fair value of their shares of Company common stock as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all applicable requirements of the

DGCL, which are summarized in this proxy statement. The ultimate amount you receive in an appraisal proceeding could be more than, the same as or less than the merger consideration. Any holder of Company common stock intending to exercise appraisal rights, among other things, must submit a written demand for appraisal to the Company prior to the vote on the proposal to adopt the merger agreement and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement and must otherwise strictly comply with all of the procedures required by the DGCL. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. A summary of appraisal procedures under Delaware law may be found at page [ • ] , and a copy of the relevant section of the DGCL is attached hereto as Annex C.

 

Litigation Related to the Merger (page [ • ])

 

On July 7, 2011, a purported class action relating to the transactions contemplated by the merger agreement was filed in the Delaware Chancery Court against the Company, the Board, Providence, Parent and Acquisition Sub entitled Astor BK Realty v. Michael L. Chasen, et. al. On July 8, 2011, a purported class action relating to the transactions contemplated by the merger agreement was filed in the Superior Court for the District of Columbia against the Company, the Board, Providence, Parent and Acquisition Sub entitled Leroy Pogodzinski v. Blackboard Inc. et. al. On July 19, 2011, a purported class action relating to the transactions contemplated by the merger agreement was filed in the Superior Court for the District of Columbia against the Company, the Board, Providence, Parent and Acquisition Sub entitled Eve Wachsler v. Blackboard Inc. et. al.

 

The lawsuits generally allege that the Board breached its fiduciary duties by, among other things, approving the transactions contemplated by the merger agreement, which allegedly were financially unfair to the Company and its public stockholders, and agreeing to provisions in the merger agreement that will allegedly prevent the Board from considering other offers. The lawsuits further allege that certain defendants aided and abetted these breaches. The lawsuits seek unspecified damages and equitable relief, including an injunction halting the transaction or rescission of the transaction as applicable. The Company believes the allegations in the lawsuits are without merit and intends to vigorously defend these matters.

 

One of the conditions to the closing of the merger is that no injunction shall have been issued by a court of competent jurisdiction that shall be continuing that prohibits the consummation of the merger. If any plaintiff is successful in obtaining an injunction prohibiting the completion of the merger on the agreed-upon terms, then such injunction may delay the commencement of the marketing period, prevent the merger from becoming effective, or from becoming effective within the expected time frame.

 

Additional Information (page [ • ])

 

You can find more information about the Company in the periodic reports and other information we file with the United States Securities and Exchange Commission, or the “SEC.” The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov . For a more detailed description of the additional information available, see “Where You Can Find More Information” beginning on page [ • ] .

 

The following questions and answers address briefly some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of Blackboard. Please refer to the more detailed information contained elsewhere in this proxy statement, including the annexes and the documents we refer to or incorporate by reference in this proxy statement.

 

 

The Merger and Related Transactions

 

 

 

 

The Special Meeting

 

 

 

 

 

 

 

 

This proxy statement and the documents to which we refer you in this proxy statement contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the expected completion and timing of the merger and other information relating to the merger. There are forward-looking statements throughout this proxy statement, including, among others, under the headings “Summary Term Sheet,” “Questions and Answers about the Merger and the Special Meeting,” “The Merger,” “The Merger — Opinion of Barclays Capital” “The Merger — Regulatory Matters,” “The Merger — Certain Effects of the Merger; Effects on the Company if the Merger is not Completed,” “The Merger — Certain Company Forecasts” and in statements containing words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “goal,” “anticipate,” “outlook,” “guidance,” “think,” “foreseeable future,” “will” and similar terms and phrases. Although the Company believes the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The underlying expected actions or the Company’s results of operations involve risks and uncertainties, many of which are outside the Company’s control, and any one of which, or a combination of which, could materially affect the Company’s results of operations and whether the forward-looking statements ultimately prove to be correct. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise, except as required by law.

 

In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

 

Many of the factors that will determine our future results are beyond our ability to control or predict. We cannot guarantee any future results, levels of activity, performance or achievements. In light of the significant uncertainties inherent in the forward-looking statements, readers should not place undue reliance on forward-looking statements, which speak only as of the date on which the statements were made and it should not be assumed that the statements remain accurate as of any future date.

 

You should carefully consider the cautionary statements contained or referred to in this section in connection with any subsequent forward-looking statements that may be issued by us or persons acting on our behalf.

 

Blackboard Inc.

650 Massachusetts Ave., NW, 6 ^th Floor

Washington, D.C. 20001

(202) 469-4860

 

The Company is a leading provider of enterprise software applications and related services to the education industry. The Company began operations in 1997 as a limited liability company organized under the laws of the state of Delaware. In 1998, the Company incorporated under the laws of the state of Delaware.

 

For more information about us, please visit our website at www.blackboard.com . The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. Detailed descriptions about our business and financial results are contained in our annual report on Form 10-K for the year ended December 31, 2010, which we incorporate into this proxy statement by reference. See “Where You Can Find More Information” beginning on page [ • ] .

 

Our common stock is publicly traded on NASDAQ under the symbol “BBBB.”

 

Bulldog Holdings, LLC

Bulldog Acquisition Sub, Inc.

c/o Providence Equity Partners

50 Kennedy Plaza

Providence, Rhode Island 02903

(401) 751-1700

 

Parent is currently a wholly owned subsidiary of the Providence Funds, which are affiliates of Providence. Acquisition Sub is a wholly owned subsidiary of Parent. Both Parent and Acquisition Sub were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Neither Parent nor Acquisition Sub has engaged in any business except activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. Providence is a leading global private equity firm specializing in equity investments in media, entertainment, communications and information services companies around the world.

 

The Board and the Company’s management in the ordinary course periodically review the Company’s long-range plan and assess potential strategic alternatives available to the Company to enhance stockholder value. In particular, at a meeting of the Board in October 2010, the Board discussed in detail various strategic alternatives available to the Company to enhance stockholder value. At this meeting, the Board concluded that it would conduct analyses to evaluate various growth strategies and also consider potential share repurchases as a mechanism to enhance stockholder value. In addition, from time to time over the last few years, certain parties (including one or more of the financial sponsors described below) approached the Company regarding possible strategic and investment transactions. However, none of these inquiries advanced beyond a preliminary stage.

 

In late February and early March of 2011, Michael L. Chasen, the Company’s Chief Executive Officer and President, attended the TED2011 conference in Long Beach, California. At the conference, each of three financial sponsors, which we refer to as “Financial Sponsor A,” “Financial Sponsor C” and “Financial Sponsor D,” approached Mr. Chasen regarding the possibility of such financial sponsor entering into a strategic or investment transaction with the Company. Also, while at the conference, Mr. Chasen spoke with Providence by telephone, at which time Providence expressed its interest regarding the possibility of it entering into a strategic or investment transaction with the Company. Mr. Chasen advised each such financial sponsor that it should submit any proposed strategic or investment transaction to the Company in writing and that, if submitted in advance of the Board’s regularly scheduled meeting on March 18, 2011, then such proposals may be considered at the meeting.

 

On March 9 and 10, 2011, Mr. Chasen attended the Wedbush 2011 Technology, Media and Telecommunications Management Access Conference in New York, New York. At the conference, each of Financial Sponsor A and Financial Sponsor C requested a meeting with Mr. Chasen. On March 10, 2011, Mr. Chasen met separately with each of Financial Sponsor A and Financial Sponsor C, and each expressed their interest in pursuing a possible acquisition of the Company. Mr. Chasen advised each such financial sponsor that he would notify the Board of its expressed interest and that any decision to engage in further conversations regarding a possible acquisition of the Company would be made by the Board. Each such financial sponsor told Mr. Chasen that it would submit something to the Company in writing prior to the Board meeting. Mr. Chasen promptly notified the Board members that he had met with these financial sponsors and that they had expressed their interest in pursuing a possible acquisition of the Company.

 

On March 10, 2011, Financial Sponsor A delivered to Mr. Chasen a written preliminary indication of interest regarding its desire to pursue a possible acquisition of the Company. Financial Sponsor A’s written preliminary indication of interest contemplated submitting a joint bid with another financial sponsor (which the Transaction Committee subsequently learned was “Financial Sponsor B” ) to acquire the Company at a purchase price range of $45.00 to $46.00 per share in cash, and was further subject to diligence, approval of the bidders’ committees and successful negotiation of transaction documents. The proposal was further conditioned on the Company entering into exclusive negotiations with Financial Sponsor A and Financial Sponsor B. Mr. Chasen promptly forwarded Financial Sponsor A’s written preliminary indication of interest to the Board.

 

On March 11, 2011, Financial Sponsor C delivered to Mr. Chasen a written preliminary indication of interest regarding its desire to pursue a possible acquisition of the Company. The indication of interest stated that Financial Sponsor C was interested in pursuing an acquisition of the Company at a purchase price of $47.00 per share in cash, and was further subject to diligence, approval of the bidder’s committees and successful negotiation and execution of transaction documents. The proposal was further conditioned on the Company entering into exclusive negotiations with Financial Sponsor C, subject to a post-signing “go-shop.” Mr. Chasen promptly forwarded Financial Sponsor C’s written preliminary indication of interest to the Board.

 

On March 14, 2011, the Board held a special meeting by teleconference for the purpose of discussing the preliminary indications of interest, at which the Company’s management was present. Matthew Small, the

Company’s Chief Business Officer, Chief Legal Officer and Secretary, reviewed with the Board its fiduciary duties under applicable law in considering the preliminary indications of interest received by the Company. The Company’s management then reviewed with the Board the preliminary indications of interest. The Board concluded that, prior to determining its response to the preliminary indications of interest, it would be appropriate to engage a financial advisor to, among other things, assist the Board in determining whether to explore a possible transaction and whether and how to respond to the preliminary indications of interest. The Board considered Barclays Capital and two other prospective financial advisors, each of which had been recommended by one or more Board members. In doing so, the Board considered (i) such prospective financial advisor’s capabilities, relevant transaction experience, proposed staffing and proposed fees and (ii) whether such prospective financial advisor had any potential conflicts of interest. The Board determined it appropriate to invite Barclays Capital to present to the Board at its upcoming regularly scheduled meeting to be held on March 18, 2011 and to request Barclays Capital’s form of engagement letter, due in particular to Barclays Capital’s knowledge of the education and software sectors and Barclays Capital’s reputation and overall experience. The Board further instructed the Company’s management to negotiate an engagement letter with Barclays Capital and to present it to the Board for review at the Board meeting on March 18, 2011.

 

On March 18, 2011, the Board held its next regularly scheduled meeting in Washington, D.C. The Company’s management, as well as Barclays Capital and Dewey & LeBoeuf LLP ( “Dewey & LeBoeuf” ), outside counsel to the Company, participated in the meeting. Dewey & LeBoeuf reviewed with the Board its fiduciary duties under applicable law in considering the indications of interest received by the Company. The Company’s management further discussed with the Board the terms of the proposed engagement letter negotiated with Barclays Capital, including the provisions relating to Barclays Capital’s compensation, at which time the Board approved the engagement letter. Barclays Capital then joined the meeting and reviewed with the Board, among other things, the financial and other terms of the preliminary indications of interest received by the Company from Financial Sponsor A and Financial Sponsor C, various strategic alternatives available to the Company and certain preliminary financial analyses and process considerations. The Board determined that it would be appropriate at the time, in light of the expressions of interest, to explore the feasibility of a potential sale transaction by conducting a targeted market check. The Board did not authorize Barclays Capital to conduct a formal auction since it had not made the determination to proceed with a change-in-control transaction. To facilitate this process, the Board determined it appropriate to establish the Transaction Committee, consisting of Joseph Cowan (Chairman of the Transaction Committee), Frank Gatti, Thomas Kalinske and Roger Novak, each of whom was deemed by the Board to be independent and had sufficient availability to devote the time and attention necessary to evaluate any proposed transaction and/or other potential alternatives available to the Company. The Board delegated to the Transaction Committee the full power, authority and discretion of the Board, to the extent permissible, with regard to any decisions relating to any potential sale of the Company, including (i) the power to determine whether to proceed with a sale process, (ii) the power to determine the scope of the sale process, if any, (iii) the authority to negotiate with any participant in the sale process and (iv) the authority to recommend to the Board whether or not to approve a proposed sale of the Company.

 

On March 22, 2011, the Transaction Committee held its first meeting by teleconference. The Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated in the meeting. Dewey & LeBoeuf reviewed with the Transaction Committee its fiduciary duties under applicable law relating to consideration of a possible sale of the Company. Barclays Capital updated the Transaction Committee on recent developments in the process and advised the Transaction Committee that Barclays Capital had contacted Financial Sponsor A / Financial Sponsor B and Financial Sponsor C to ask them to sign confidentiality agreements with the Company. Barclays Capital then reviewed with the Transaction Committee a proposed list of potentially interested parties to contact (including financial sponsors and strategic parties) to assess their interest in pursuing a potential transaction, as well as its views as to the advantages and disadvantages of approaching each such potential participant. After consultation with Barclays Capital, the Transaction Committee determined that it was appropriate to contact 19 prospective purchasers, consisting of eight strategic parties and 11 financial sponsors (including Providence, Financial Sponsor A / Financial Sponsor B and Financial Sponsor C), and instructed Barclays Capital to begin that process. In evaluating which parties to contact, the Transaction Committee selected each strategic party based on, among other things, such strategic

party’s financial resources and presence in the education and/or software sectors. The Transaction Committee selected each financial sponsor based on such financial sponsor’s financial resources, historical interest in the Company and knowledge of the education or software sectors. It was the view of the Transaction Committee that, in order to avoid any appearance of a conflict of interest, the Company’s management should not be involved in negotiations with potential bidders unless requested by the Transaction Committee and that any negotiations should be conducted by the Company’s financial and legal advisors with the oversight of the Transaction Committee. Accordingly, from the outset of the process, the Transaction Committee instructed the Company’s management not to engage in negotiations with potential bidders, including discussions regarding any employment or compensation arrangements, without the Transaction Committee’s permission. The Company’s management complied with the Transaction Committee’s instruction throughout the process.

 

On March 25, 2011, Barclays Capital and Mr. Cowan discussed Financial Sponsor A’s expressed interest in submitting a joint bid with Financial Sponsor B to acquire the Company. Barclays Capital and Mr. Cowan discussed the fact that Financial Sponsor A’s written preliminary indication of interest contemplated partnering with Financial Sponsor B, and that it did not appear that Financial Sponsor B would be willing to participate in the process independently. Barclays Capital and Mr. Cowan discussed that permitting the two financial sponsors to work together could ultimately lead to higher value being delivered to the Company’s stockholders. Following that discussion, Mr. Cowan advised Barclays Capital that the Transaction Committee would permit such an arrangement. Hereafter, we refer to Financial Sponsor A and Financial Sponsor B collectively as “Financial Sponsors A&B.”

 

On March 29, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital updated the Transaction Committee as to the status of its discussions with the potential bidders selected by the Transaction Committee at its last meeting, and advised the Transaction Committee of its discussions with Mr. Cowan regarding the teaming arrangement between Financial Sponsors A&B. Barclays Capital further advised the Transaction Committee that several of the strategic parties contacted by Barclays Capital had declined to participate in the process, and that six additional financial sponsors and two additional strategic parties had contacted Barclays Capital and made unsolicited requests to participate in the process. Following discussion of the merits and risks of including these additional parties, the Transaction Committee instructed Barclays Capital to invite five of the additional financial sponsors and one of the strategic parties to participate in the process.

 

During March and the first half of April of 2011, Barclays Capital contacted 17 financial sponsors (including Providence) and nine strategic parties to assess their interest in pursuing a potential acquisition of the Company. Of those contacted, the Company entered into confidentiality agreements with 14 financial sponsors (including Providence) and two strategic parties. Three financial sponsors and seven strategic parties declined to consider the potential transaction. These confidentiality agreements contained customary use, non-disclosure and standstill provisions. In addition, the confidentiality agreements contained provisions designed to facilitate an unrestricted bidding environment by prohibiting the potential bidders who would receive the Company’s confidential information from entering into teaming arrangements, sharing confidential information with prospective financing sources, and entering into exclusive financing arrangements without the Transaction Committee’s consent.

 

On March 31, 2011, the Company provided limited access to the Company’s data room, which contained public and non-public information about the Company, to each participant that had entered into a confidentiality agreement with the Company on or prior to that date.

 

On April 3, 2011, at the Transaction Committee’s direction, Barclays Capital sent a preliminary bid process letter to each participant requesting that such participant submit to Barclays Capital a preliminary non-binding indication of interest for a possible acquisition of the Company on or before April 14, 2011.

 

On April 5, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. At that meeting, Barclays Capital updated the Transaction Committee on the status of the discussions with the prospective bidders. Barclays Capital advised the Transaction Committee that three additional financial sponsors had contacted Barclays Capital and made unsolicited requests to participate in the process. Barclays Capital further advised

the Transaction Committee that Barclays Capital and Mr. Cowan had previously discussed the merits and risks of including these additional parties, and Mr. Cowan had instructed Barclays Capital to invite two of the additional financial sponsors to participate in the process.

 

On April 14, 2011, Barclays Capital received written preliminary indications of interest from Providence and five other financial sponsors, which we refer to as “Financial Sponsor D,” “Financial Sponsor E,” “Financial Sponsor F,” “Financial Sponsor G,” and “Financial Sponsor H,” in a possible acquisition of the Company. As noted above, Financial Sponsors A&B, as well as Financial Sponsor C, had previously submitted written preliminary indications of interest in March 2011. No strategic party submitted a written preliminary indication of interest as of the required bid date. In its preliminary indication of interest, Providence indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $45.00 to $47.00 per share in cash, which represented a premium of approximately 21.0% to 26.4% to the Company’s closing stock price of $37.19 per share on April 14, 2011. In their respective preliminary indications of interest, (i) Financial Sponsor D indicated that it was interested in pursuing an acquisition of the Company at a purchase price of $46.00 per share in cash, (ii) Financial Sponsor E indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $46.00 to $48.00 per share in cash, (iii) Financial Sponsor F indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $44.00 to $50.00 per share in cash, (iv) Financial Sponsor G indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $47.00 to $51.00 per share in cash and (v) Financial Sponsor H indicated that it was interested in pursuing an acquisition of the Company at a purchase price range of $44.00 to $47.00 per share in cash. Barclays Capital conducted follow up discussions with certain of these parties to gain additional detail relating to the terms of the written preliminary indications of interest. Of the financial sponsors submitting written preliminary indications of interest, four, including Providence, noted that they had current portfolio companies which, if combined with the Company, they believed might yield material synergies. In addition to Financial Sponsors A&B, four of the eight parties submitting written preliminary indications of interest indicated they would require a partner to complete an acquisition of the Company.

 

On April 15, 2011, the Transaction Committee held a meeting in Washington, D.C., at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital reviewed with the Transaction Committee the price ranges reflected in the eight written preliminary indications of interest that had been received from financial sponsors, including the joint bid by Financial Sponsors A&B, as well as the feedback received to that point from the bidders in the process. Barclays Capital noted that no written preliminary indications of interest had been received from strategic parties, and that one of the two strategic parties that had executed a confidentiality agreement had elected to withdraw from the process after further consideration and preliminary due diligence. Barclays Capital further advised that another strategic party ( “Strategic Party A” ) had provided an oral preliminary indication of interest but indicated that it was not inclined to acquire the Company on its own and would prefer to team with a larger complementary strategic party for purposes of pursuing a possible acquisition of the Company. In its oral indication of interest, Strategic Party A indicated that it was interested in pursuing an acquisition of the Company at a specified range of enterprise value, which implied a purchase price range of $41.50 to $46.00 per share. The Transaction Committee determined it appropriate not to solicit bids from additional strategic parties because of the lack of interest shown by strategic parties up to that time, as well as its view as to the lack of other viable strategic parties that might be interested in pursuing a transaction with the Company. The Transaction Committee also determined to exclude Financial Sponsor H from further participation due to its statements regarding its ability, and other indications that it was unlikely, to advance in the process. The Transaction Committee instructed Barclays Capital to contact Strategic Party A and request that Strategic Party A await further developments in order to determine whether an acceptable teaming opportunity might materialize. The Transaction Committee further requested that the Company’s management compile and provide to the Transaction Committee information regarding the implications of a change in control of the Company under the Company’s existing employment arrangements.

 

On April 18, 2011, an additional financial sponsor, which we refer to as “Financial Sponsor I,” delivered to Barclays Capital a written preliminary indication of interest. In its preliminary indication of interest, Financial Sponsor I indicated that it was interested in pursuing an acquisition of the Company at a purchase

price range of $45.00 to $48.00 per share in cash. Financial Sponsor I also noted that it could not acquire the Company on its own and would need to be paired with a partner prior to committing significant resources towards pursuing a possible acquisition.

 

On April 19, 2011, a media outlet contacted the Company directly and informed the Company that it intended to publish a story stating that the Company was considering a possible sale transaction. In response to the call from the media outlet, and following consultation with each member of the Transaction Committee, the Company issued a press release announcing that it had retained Barclays Capital as its financial advisor in response to receiving unsolicited, non-binding indications of interest in acquiring the Company. The press release stated that the Company was evaluating the indications of interest as well as strategic alternatives to enhance stockholder value, including whether other third parties would have an interest in acquiring the Company at a price and on terms that would represent a better value for its stockholders than having the Company continue to execute its business plan on a stand-alone basis. The closing price of the Company’s common stock on April 19, 2011 was $47.91 per share, $10.75 (28.9%) higher than the closing price on the previous day ($37.16 per share).

 

From April 19, 2011 (after the Company’s press release) until April 27, 2011, the Company held management presentations and due diligence meetings, at which Barclays Capital was also present, with each participant who submitted a written indication of interest and was selected by the Transaction Committee to continue to participate in the process. Following the management presentation to each such participant, such participant was granted access to a more expansive data room for use by such participant as part of its due diligence investigation of the Company.

 

On April 21, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital updated the Transaction Committee on the status of the management presentations and advised the Transaction Committee that, as a result of the press release, several financial sponsors that had not previously been involved in the process had made inquiries about participating, but that no additional strategic parties had emerged. Based on its review of the additional inquires, the Transaction Committee determined that only one additional financial sponsor, Financial Sponsor J, merited further consideration, and directed Barclays Capital to contact Financial Sponsor J.

 

On April 28, 2011, Financial Sponsor J submitted to Barclays Capital a written preliminary indication of interest regarding a possible acquisition of the Company. In its preliminary indication of interest, Financial Sponsor J indicated that it was interested in pursuing an acquisition of the Company at a purchase price of $50.00 per share in cash, but noted that it alone could not commit the entire amount of the equity required for an acquisition of the Company and would need to be paired with a partner prior to committing significant resources towards pursuing a possible acquisition.

 

On April 29, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital advised the Transaction Committee that it had received additional unsolicited calls from other financial sponsors expressing an interest in entering the process. After deliberation, the Transaction Committee determined it unadvisable to include any of these additional financial sponsors due to the number and strength of the financial sponsors already participating, and its view that it was unlikely such financial sponsors would ultimately be in a position to provide higher value. Furthermore, the Transaction Committee was concerned that the inclusion of additional financial sponsors at this stage of the process would further strain the limited available time of the Company’s management and would otherwise stretch the Company’s limited resources. The Transaction Committee set June 2, 2011 as the final due date for bids from all participants to be submitted. Dewey & LeBoeuf then reviewed with the Transaction Committee the form of merger agreement to be sent to participants in connection with their submission of final bids. In connection therewith, the Transaction Committee discussed how, if at all, the treatment of unvested equity awards should be addressed in the form of merger agreement to be sent to prospective bidders. At the request of the Transaction Committee, the Company’s management summarized the relevant provisions of the Company’s Amended and Restated 2004 Stock Plan and related agreements. The Transaction Committee did not make a determination as to how such

unvested equity awards were to be treated in the merger agreement at that time, but requested that the matter be raised at the next Transaction Committee meeting prior to distributing the form of merger agreement to prospective bidders.

 

On May 5, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital updated the Transaction Committee on developments in the process and advised the Transaction Committee that Financial Sponsor E, following its completion of additional due diligence, had stated that it intended to propose a purchase price meaningfully below the price reflected in its preliminary indication of interest and had expressed reluctance about expending further efforts to continue in the process. The Transaction Committee, in consultation with Barclays Capital, concluded that such financial sponsor should be excluded from further participating in the process. Dewey & LeBoeuf then reviewed with the Transaction Committee the Company’s unvested equity awards and the potential alternatives available to address such awards in the form of merger agreement to be delivered to the prospective bidders. Given that the manner in which unvested equity awards are treated could affect the price per share that participants would be willing to pay to the Company’s stockholders at closing, the Transaction Committee determined that the form of merger agreement should indicate that the successful bidder would assume the Company’s unvested equity awards (without any acceleration beyond what was required by the relevant plans or agreements relating to such equity awards), but that the participants should be informed that the Transaction Committee would consider alternative proposals from participants with respect to the treatment of the Company’s unvested equity awards in the transaction. The Transaction Committee further instructed the Company’s management to ensure that the data room contained sufficient information on the Company’s unvested equity awards to allow participants to make an informed decision or alternative proposal on the matter. The Transaction Committee briefly discussed the possibility of awarding retention bonuses for certain employees and asked management to present a proposal for the Committee’s consideration at the next Transaction Committee meeting.

 

Later on May 5, 2011, at the direction of the Transaction Committee, Barclays Capital sent a definitive bid process letter to each participant requesting that such participant submit a definitive binding proposal for a possible acquisition of the Company to Barclays Capital on or before June 2, 2011. The bid process letter specifically instructed each participant not to contact officers or employees of the Company in connection with a potential transaction.

 

On May 10, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. At the request of the Transaction Committee, Mr. Chasen summarized a proposal to award a retention bonus to certain of the Company’s employees, in an aggregate amount of $300,000, contingent upon such employee remaining employed by the Company through the closing of any sale of the Company resulting from the process. The Transaction Committee determined it appropriate to grant such a retention bonus to each such employee identified by Mr. Chasen, subject to such contingency, because such employee had made, and was expected to continue to make, important contributions to the potential sale process. Barclays Capital further advised the Transaction Committee that Financial Sponsor C had notified Barclays Capital that it was exiting the process because it was not willing to continue to participate in a sales process with multiple bidders. Barclays Capital further advised the Transaction Committee that each of Financial Sponsor F and Financial Sponsor G had notified Barclays Capital that it was exiting the process because, following its completion of additional due diligence, it believed its bid would be below the price reflected in its preliminary indication of interest and therefore unlikely to be successful.

 

On May 11, 2011, the Company’s management and Barclays Capital met with a portfolio company affiliated with Financial Sponsor D to discuss potential operational synergies between the Company and the portfolio company. Financial Sponsor D did not attend the meeting. On May 18, 2011, the Company’s management and Barclays Capital had a follow-up teleconference with Financial Sponsor D and the portfolio company to discuss potential operational synergies between the Company and the portfolio company.

 

On May 18, 2011, at the direction of the Transaction Committee, Barclays Capital forwarded a form of merger agreement and a form of guarantee to each participant, and informed each participant that its

submission of an offer should include its specific proposed changes to the form of merger agreement and form of guarantee. Barclays Capital also reminded each participant not to communicate with the Company’s management or other employees regarding such participant’s offer or any of the terms thereof.

 

On May 23, 2011, the Transaction Committee held a meeting by teleconference, at which the Company’s management, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital updated the Transaction Committee on its discussions with the prospective bidders. Barclays reported that both Financial Sponsor I and Financial Sponsor J had stated that they did not believe that they would pursue a transaction by teaming with the other or another financial sponsor whom they had not partnered with before. The Transaction Committee discussed a request by the Company’s management that the Company pay the legal fees of counsel to the management team in the event that the Company proceeded with a potential sale transaction. The Transaction Committee advised the Company’s management that the Company would pay the reasonable fees of such counsel, but reminded the Company’s management that neither the Company’s management nor such counsel should discuss any employment arrangements with any participants until the Transaction Committee authorized such discussions.

 

On May 26, 2011, the Company’s management and Barclays Capital had a teleconference with the Chief Executive Officer of a portfolio company affiliated with Providence to discuss potential operational synergies between the Company and the portfolio company. A few days later, the Company’s management and Barclays Capital had a follow-up teleconference with the Chief Executive Officer of the portfolio company to discuss potential operational synergies between the Company and the portfolio company.

 

On May 31, 2011, the Transaction Committee held a meeting by teleconference, at which Barclays Capital and Dewey & LeBoeuf participated. The Company’s management also participated at the outset of the meeting. Barclays Capital first provided an update on the status of the process, following which the Company’s management was excused from the meeting. Barclays Capital then advised the Transaction Committee of its discussions with Providence, Financial Sponsors A&B, and Financial Sponsor D, and the status of their work and potential bids. Barclays Capital advised the Transaction Committee that Providence had indicated that it remained comfortable near the low end of its previously proposed purchase price range of $45.00 to $47.00 per share, but that its final bid would likely indicate that it would require additional time to structure its equity financing. Barclays Capital further advised the Transaction Committee that Financial Sponsors A&B, as well as Financial Sponsor D, had indicated that their bids would be lower than previously indicated.

 

On June 2, 2011, Providence submitted a written final indication of interest for a possible acquisition of the Company at a purchase price of $44.00 per share in cash. The proposal represented a premium of approximately 18.4% to the Company’s closing stock price of $37.16 per share on April 18, 2011, the last trading day prior to the Company’s press release announcing that it had retained Barclays Capital as its financial advisor in response to receiving unsolicited, non-binding indications of interest in acquiring the Company. Providence’s written final indication of interest contemplated a teaming arrangement with other sources of equity financing and was subject to a number of conditions, including satisfactory completion of due diligence, negotiation of acceptable definitive documentation and receipt of acceptable debt financing. Providence also provided a proposed equity commitment letter, debt commitment letters from four viable financial institutions to provide debt financing, and proposed comments to the form of merger agreement and guarantee. Financial Sponsors A&B and Financial Sponsor D submitted oral indications of interest for a possible acquisition of the Company at valuations lower than the proposal submitted by Providence, but did not provide evidence of equity or debt financing or any proposed comments to the form of merger agreement or guarantee provided with the bid process letter. Neither Strategic Party A, Financial Sponsor I nor Financial Sponsor J submitted a final bid or an indication of interest. Financial Sponsors I and J both indicated they were willing to proceed as potential partners with another party, subject to additional confirmatory diligence, but would be unable to complete a transaction without a partner.

 

On June 3, 2011, the Transaction Committee held a meeting in Washington, D.C., without the Company’s management in attendance, to review the final indications of interest and to determine whether to proceed further in pursuing a potential sale of the Company. Barclays Capital and Dewey & LeBoeuf participated in the meeting. Dewey & LeBoeuf reviewed with the Transaction Committee its fiduciary duties in considering

the indications of interest and in considering whether or not to pursue a potential sale of the Company. Barclays Capital reviewed with the Transaction Committee the final indications of interest received from Providence, Financial Sponsors A&B and Financial Sponsor D. Barclays Capital further provided the Transaction Committee with preliminary financial analyses in respect of the various indications of interest. In particular, Barclays Capital noted, among other things, that it had decreased the terminal forward EBITDA exit multiple range used in its discounted cash flow analysis to 7.0x to 9.0x (from 8.0x to 10.0x) to reflect modifications to Barclays Capital’s understanding of the Company’s expected long term organic growth rate (beyond the horizon of the management forecasts), based on the due diligence process, feedback from the bidders, and discussions with the Transaction Committee. Dewey & LeBoeuf reviewed with the Transaction Committee the material revisions to the Company’s proposed forms of merger agreement and guarantee provided by Providence, as well as Providence’s proposed equity commitment letter and debt commitment letter. Barclays Capital further advised the Transaction Committee that Providence had requested that the Company enter into a three-week exclusivity agreement, during which time Providence could structure its equity financing and finalize the merger agreement and related transaction documents. Following such discussion, the Transaction Committee determined that it was unwilling to move forward with Financial Sponsors A&B or Financial Sponsor D due to their non-competitive and incomplete bids. The Transaction Committee further determined that it was unwilling to move forward with Providence or grant Providence exclusivity unless Providence increased its proposed purchase price and agreed to terms providing greater transaction closing certainty. The Transaction Committee instructed Barclays Capital to communicate these determinations to Providence and to report back to the Transaction Committee at its meeting scheduled for June 5, 2011.

 

Later on June 3, 2011, Barclays Capital telephoned Providence and advised it that the Transaction Committee was unwilling to move forward unless Providence increased its purchase price and agreed to terms providing greater transaction closing certainty. Later that day and over the course of the weekend, representatives of Dewey & LeBoeuf participated in teleconferences with representatives of Weil, Gotshal & Manges LLP ( “Weil” ), counsel to Providence, to discuss various issues raised by Providence in Providence’s comments on the form of merger agreement, including the amount of the proposed reverse termination fee, enforcement rights and certain closing conditions.

 

On June 5, 2011, Providence informed Barclays Capital that it was willing to increase its purchase price to $45.00 per share, which represented a premium of approximately 21.1% to the Company’s closing stock price of $37.16 per share on April 18, 2011, the last trading day prior to the Company’s press release announcing that it had retained Barclays Capital as its financial advisor in response to receiving unsolicited, non-binding proposals to acquire the Company. Providence indicated flexibility on certain terms identified by the Transaction Committee but informed Barclays Capital that, with respect to per share consideration, $45.00 per share was its best and final offer.

 

Later that evening, the Transaction Committee held a meeting by teleconference, at which Matthew Pittinsky, Chairman of the Board, and Beth Kaplan, a member of the Board, as well as Barclays Capital and Dewey & LeBoeuf, participated. Barclays Capital advised the Transaction Committee that Providence had increased its proposed purchase price to $45.00 per share, which it stated was its best and final offer. Dewey & LeBoeuf updated the Transaction Committee on its discussions with Weil regarding certain terms of the merger agreement, including the amount of the proposed reverse termination fee and certain closing conditions. Barclays Capital further advised the Transaction Committee that, if the Transaction Committee determined it appropriate to move forward, Providence had again requested a three-week exclusivity period during which it could arrange its equity financing and negotiate definitive documentation. The Transaction Committee determined it appropriate and advisable to move forward with Providence at the proposed purchase price of $45.00 per share, and instructed Dewey & LeBoeuf to prepare and negotiate a limited exclusivity agreement with Providence, which could be extended based on the achievement of certain milestones in the process. The Transaction Committee determined it appropriate to grant Providence exclusivity on this basis in an effort to induce Providence to commit its resources to promptly negotiate a transaction at the proposed purchase price of $45.00 per share embodied in Providence’s bid, which was the highest received on the date the bids were due. The Transaction Committee also delegated to Mr. Cowan the authority to extend the term

of the exclusivity agreement. In consultation with Dewey & LeBoeuf, the Transaction Committee determined that, going forward, it would be prudent for the Company’s management to participate in meetings and confirmatory due diligence calls with Providence’s potential equity financing sources to facilitate their confirmatory due diligence investigation of the Company. The Transaction Committee further determined it appropriate to permit the Company’s management to discuss employment and compensation arrangements with Providence now that the Transaction Committee had agreed to proceed with Providence on a potential sale transaction at a price that had been determined.

 

Mr. Chasen was then invited to, and did, join the meeting. Barclays Capital reviewed with Mr. Chasen the Transaction Committee’s determinations, including that Providence likely would request that the Company’s management participate in meetings and confirmatory due diligence calls with Providence’s potential equity financing sources, which the Transaction Committee would permit. Barclays Capital added that Providence likely would seek to discuss employment and compensation arrangements with the Company’s management, which the Transaction Committee would also now permit.

 

On June 6, 2011, the Company and Providence entered into an exclusivity agreement, providing exclusivity through June 27, 2011, but also providing that exclusivity would terminate on June 13, 2011 in the event the Company and Providence were unable to reach agreement on the draft merger agreement and related transaction documents on or prior to such date.

 

Between June 8, 2011 and June 13, 2011, Dewey & LeBoeuf and Weil negotiated the terms of the merger agreement, circulated principal issues lists and exchanged drafts of the merger agreement.

 

On June 13, 2011, Weil provided to Dewey & LeBoeuf a comprehensive list of the remaining issues in the draft merger agreement from Providence’s perspective, including the scope of the Company’s no-shop obligations, the amounts of and events triggering the termination fee, enforcement rights and closing conditions. Later that day, in light of the substantial progress that had been made in the negotiations with Providence, Mr. Cowan, on behalf of the Transaction Committee, agreed to extend exclusivity with Providence until June 15, 2011.

 

On June 14, 2011, Providence, management of one of Providence’s portfolio companies and the Company’s management met with Providence’s potential equity financing sources, in person and by teleconference, in order to facilitate their confirmatory due diligence investigation of the Company. Barclays Capital attended the presentation.

 

On June 14 and 15, 2011, Dewey & LeBoeuf and Weil continued to negotiate the merger agreement and the related transaction documents. On June 15, 2011, Dewey & LeBoeuf updated Mr. Cowan as to the progress of negotiations and open issues.

 

On June 15, 2011, Mr. Cowan, on behalf of the Transaction Committee, agreed to extend exclusivity until June 17, 2011. Later that evening, Dewey & LeBoeuf sent a revised draft of the form of merger agreement to Weil.

 

On June 17, 2011, Dewey & LeBoeuf and Weil discussed on a teleconference the remaining material open issues in the draft merger agreement and the transaction documents. Later that day, in light of the substantial progress that had been made in the negotiations with Providence, Mr. Cowan, on behalf of the Transaction Committee, agreed to extend exclusivity until June 20, 2011.

 

From June 17, 2011 until June 30, 2011, the Company’s in-house counsel and Dewey & LeBoeuf, on the one hand, and Providence and Weil, on the other hand, discussed and negotiated certain representations and warranties and operating covenants contained in the draft merger agreement.

 

On June 18, 2011, Barclays Capital telephoned Providence to discuss certain of the open issues in the draft merger agreement and related transaction documents.

 

On June 20, 2011, Barclays Capital and Providence continued their discussion regarding certain of the open issues in the draft merger agreement and related transaction documents. Providence informed Barclays Capital that it was unwilling to negotiate the remaining issues until Providence had further clarity on its equity

and debt financing, which would occur later in the week. Later that day, Mr. Cowan, on behalf of the Transaction Committee, agreed to extend exclusivity to June 24, 2011.

 

On June 24, 2011, Providence notified Barclays Capital that it had completed its discussions with equity financing sources and was now willing to commit to fund the entire equity commitment in the transaction. Providence further informed Barclays Capital that, due to recent negative developments in the debt financing environment, it would need all or a portion of the following week to finalize its debt financing.

 

Later that day, the Transaction Committee held a meeting by teleconference, at which Barclays Capital and Dewey & LeBoeuf participated. Barclays Capital notified the Transaction Committee of Providence’s willingness to commit to fund the entire equity commitment and provided an update on the difficulties in the current debt financing environment. Barclays Capital informed the Transaction Committee that Providence had stated that, given the increasingly difficult market conditions, one or more participants in Providence’s debt financing syndicate had indicated an unwillingness to proceed without a material renegotiation of financing terms. Barclays Capital also updated the Transaction Committee on Providence’s proposed treatment of equity awards under the merger agreement and the status of the discussions between the Company’s management and Providence relating to employment and compensation arrangements, noting that no arrangements had yet been agreed to between the parties. Dewey & LeBoeuf updated the Transaction Committee on the progress of negotiations and summarized certain open issues with respect to negotiating the merger agreement and related transaction documents, including those relating to the certainty of closing the transaction. Dewey & LeBoeuf noted that it had had several conversations with Mr. Cowan regarding the progress of negotiations and open issues during the negotiations. Later that evening, Mr. Cowan, on behalf of the Transaction Committee, agreed to extend exclusivity to June 29, 2011.

 

On June 25, 2011, Dewey & LeBoeuf, Weil, Barclays Capital and a representative of Providence negotiated the remaining open issues in the draft merger agreement and the related transaction documents. Later that day, Weil provided Dewey & LeBoeuf a revised merger agreement and revised related transaction documents.

 

On June 26, 2011, Barclays Capital and Dewey & LeBoeuf held a teleconference with Mr. Cowan to update him on the status of negotiations of the terms of the merger agreement and related transaction documents. Later that evening, Dewey & LeBoeuf sent revised drafts of the merger agreement and related transaction documents to Weil.

 

On June 28, 2011, Dewey & LeBoeuf and Weil discussed various proposed revisions to the form of merger agreement and related transaction documents. Later that day, Providence informed Barclays Capital that, following the deterioration of the global debt markets during the prior week, Providence had reconstituted its debt syndicate on less favorable terms, and that its cost of debt to finance the transaction had materially increased. Providence also noted that the amount of domestic cash on the Company’s balance sheet and other negative value drivers identified by Providence in its due diligence could result in incrementally higher acquisition costs to Providence and, from Providence’s perspective, a lower value of the business relative to Providence’s prior estimate. Barclays Capital promptly informed Mr. Cowan and Dewey & LeBoeuf of these developments. Later that evening, Barclays Capital learned of and informed Mr. Cowan and Dewey & LeBoeuf of a discrepancy (due to the double-counting of unvested restricted stock) in the calculation of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method) that the parties were using in their discussions, which, when corrected, resulted in an indicative purchase price per share of approximately $45.75, assuming the same aggregate transaction value and financing, fees and other assumptions contemplated by the Providence proposal of June 5, 2011.

 

On June 29, 2011, at the direction of Mr. Cowan, Barclays Capital and Providence discussed the calculation of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method). Barclays Capital advised Providence that the aggregate transaction value, when using the correct total number of shares outstanding (on a fully diluted basis determined using the treasury stock method), resulted in an indicative purchase price of approximately $45.75 per share. Providence informed Barclays Capital that such differential did not fully address the increased costs relating to Providence’s debt financing that had arisen since the submission of its written final indication of interest on June 2, 2011 or the

increase in the amount of cash Providence required to proceed with the transaction in light of the amount of domestic cash on the Company’s balance sheet and other negative value drivers identified by Providence based on its due diligence.

 

Later that evening, the Transaction Committee held a meeting by teleconference, at which Dewey & LeBoeuf and Potter Anderson & Corroon LLP ( “Potter Anderson” ), the Company’s Delaware counsel, participated. Dewey & LeBoeuf first updated the Transaction Committee on the developments related to the discrepancy in the calculation of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method) and the remaining open issues in the draft merger agreement. Dewey & LeBoeuf and Potter Anderson reviewed with the Transaction Committee their fiduciary duties in considering the open issues, including such discrepancy, the potential reduction in price from Providence and the terms of the merger agreement.

 

Barclays Capital then joined the meeting and advised the Transaction Committee of its recent conversations with Providence. Barclays Capital reviewed with the Transaction Committee the change in the parties’ understanding of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method) and advised the Transaction Committee that the parties’ revised understanding of the total number of shares outstanding implied a purchase price of approximately $45.75 per share, based on the aggregate transaction value and financing, fees and other assumptions contemplated by the Providence proposal of June 5, 2011. Barclays Capital further advised the Transaction Committee of the impact of such revision on Barclays Capital’s previous financial analysis, which Barclays Capital had presented to the Transaction Committee on June 3, 2011. Barclays Capital advised the Transaction Committee that such issue had been discussed with Providence and summarized such discussions for the Transaction Committee. Specifically, Providence confirmed that it agreed that it had used the incorrect total number of shares outstanding (on a fully diluted basis determined using the treasury stock method) in determining its proposed purchase price per share. However, Providence further informed Barclays Capital that the amount of domestic cash on the Company’s balance sheet, and other negative value drivers identified by Providence in its due diligence, had increased the cost of the transaction to Providence and, from Providence’s perspective, resulted in a lower value of the business. In addition, Providence further informed Barclays Capital that the global debt markets had deteriorated over the last several weeks, which resulted in Providence reconstituting its debt syndicate on less favorable terms, including with respect to expenses. Accordingly, Providence’s cost of debt had materially increased and, as a result of these increases, the lower projected amount of domestic cash and, from Providence’s perspective, the due diligence factors negatively affecting the value of the business, Providence was contemplating lowering its proposed purchase price. Providence further informed Barclays Capital that it had initially intended to reduce the purchase price by more than $0.75 per share due to these increased costs, but that Providence was willing to move forward at a price of $45.00 per share.

 

The Transaction Committee then discussed these developments in executive session with Dewey & LeBoeuf and Potter Anderson. Following such discussion, the Transaction Committee instructed Barclays Capital to inform Providence that the Transaction Committee would be willing to move forward at a purchase price of $45.75 per share. That evening, the exclusivity agreement with Providence expired.

 

On June 30, 2011, Barclays Capital informed Providence of the Transaction Committee’s decision. Providence informed Barclays Capital that, because the total costs of the transaction had materially increased, Providence’s proposed purchase price of $45.00 was its best and final offer.

 

Subsequently on June 30, 2011, Mr. Cowan had a telephone discussion with Providence and a representative from Barclays Capital. During this discussion, Providence reiterated that $45.00 was its best and final offer and informed Mr. Cowan that the increased debt costs to be incurred by Providence, as well as the amount of domestic cash on the Company’s balance sheet and other negative value drivers identified by Providence in its due diligence, which, from Providence’s perspective, resulted in a lower value of the business, had increased the cost of the transaction to Providence, and that this increase was only partially offset by the $0.75 decrease in indicative purchase price resulting from the revised calculation of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method).

Later that day, the Transaction Committee held a meeting by teleconference, at which Barclays Capital, Dewey & LeBoeuf and Potter Anderson participated. Barclays Capital advised the Transaction Committee that Providence had informed Barclays Capital and Mr. Cowan that $45.00 per share was Providence’s best and final offer. Barclays Capital summarized for the Transaction Committee the conversation between Providence and Mr. Cowan that the increased debt costs to be incurred by Providence, as well as the amount of domestic cash on the Company’s balance sheet and other negative value drivers identified by Providence in its due diligence, which, from Providence’s perspective, resulted in a lower value of the business, had increased the cost of the transaction to Providence, and that these developments were only partially offset by the $0.75 decrease in indicative purchase price resulting from the revised calculation of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method). Barclays Capital further updated the Transaction Committee on efforts by Providence to increase transaction closing certainty by further negotiating with its financing sources to extend the financing commitment expiration date into February 2012. Following such discussion, the Transaction Committee directed Dewey & LeBoeuf to work with Providence’s counsel to finalize the merger agreement and related transaction documents, and requested that Barclays Capital present its financial analysis to the Transaction Committee later that day.

 

Later that day, the Transaction Committee held another meeting by teleconference, at which Barclays Capital, Dewey & LeBoeuf and Potter Anderson participated. Barclays Capital presented financial analyses of the merger consideration to be received by the Company’s stockholders and discussed the methodologies used in such analyses, updated to reflect the correct total number of shares outstanding (on a fully diluted basis determined using the treasury stock method). Barclays Capital further advised the Transaction Committee that it was prepared to deliver to the Board its opinion that as of such date, based upon and subject to certain qualifications, limitations and assumptions, the merger consideration to be received by the Company’s stockholders was fair to such stockholders from a financial point of view. Dewey & LeBoeuf then reviewed with the Transaction Committee the terms of the merger agreement, the guarantee, and the equity and the debt commitment letters provided by Providence. The Transaction Committee then unanimously determined that the merger agreement and the transactions contemplated by the merger agreement (including the guarantee, the debt commitment letter and the equity commitment letter) were advisable, fair to, and in the best interests of, the Company’s stockholders and that it was advisable and in the best interests of the Company and the Company’s stockholders to enter into the merger agreement and consummate the transactions contemplated thereby. The Transaction Committee unanimously recommended that the Board approve and declare advisable to the Company and the Company’s stockholders the merger agreement, the merger and the transactions contemplated by the merger agreement, direct the Company to enter into and deliver the merger agreement, and recommend that the Company’s stockholders adopt the merger agreement.

 

Later that evening, the Board held a special meeting by teleconference, at which Barclays Capital, Dewey & LeBoeuf and Potter Anderson participated. Barclays Capital first reviewed with the Board the process undertaken by the Transaction Committee, and updated the Board on the various negotiations and related dynamics, including changes in the debt financing markets, the Company’s domestic cash balance and other negative value drivers identified by Providence during its due diligence, each of which resulted in higher cash costs to Providence, as well as the discrepancy in the calculation of the total number of shares outstanding (on a fully diluted basis determined using the treasury stock method), all of which Barclays Capital believed were relevant to Providence in presenting its best and final offer of $45.00 per share. Barclays Capital then reviewed with the Board Barclays Capital’s financial analyses of the merger consideration to be received by the Company’s stockholders and discussed the methodologies used in such analyses, updated to reflect the correct total number of shares outstanding (on a fully diluted basis determined using the treasury stock method). Following this presentation, Barclays rendered its written opinion to the Board that as of such date, based upon and subject to the qualifications, limitations and assumptions stated in its written opinion, the merger consideration to be received by the Company’s stockholders was fair to such stockholders from a financial point of view. Dewey & LeBoeuf then reviewed with the Board the terms of the merger agreement, the guarantee and the equity and the debt commitment letters provided by Providence. Mr. Cowan, on behalf of the Transaction Committee, then provided some additional background to the Board on the process undertaken by the Transaction Committee. Mr. Cowan further advised the Board that the Transaction Committee unanimously (i) determined that the merger agreement and the transactions contemplated thereby,

including the merger, were advisable, fair to and in the best interests of the Company and its stockholders; and (ii) recommended that the Board (a) approve and declare advisable to the Company and the Company’s stockholders the merger agreement, the merger and the transactions contemplated by the merger agreement; (b) direct the Company to enter into and deliver the merger agreement; and (c) recommend that the Company’s stockholders adopt the merger agreement. Following such presentations, the Board unanimously resolved that the merger agreement, the Merger and the other transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, on the terms and subject to the conditions set forth in the merger agreement, were fair to, and in the best interests of, the Company and the Company’s stockholders; that the execution, delivery and performance of the merger agreement by the Company, and the transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, were authorized and approved; that the merger agreement, the merger and the other transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, were advisable; and that the Board recommended that the Company’s stockholders adopt the merger agreement.

 

Late that evening, Parent, Acquisition Sub and the Company executed the merger agreement, the private equity funds affiliated with Providence and the Company executed the guarantee, the private equity funds affiliated with Providence executed the equity commitment letter, and Providence delivered to the Company a fully executed debt commitment letter.

 

On July 1, 2011, the Company and Providence issued a joint press release announcing that the Company had entered into a definitive merger agreement with an investor group led by affiliates of Providence.

 

The purpose of the merger is to enable the Company’s stockholders to realize the value of their investment in the Company through their receipt of the $45.00 per share merger consideration in cash, without interest.

 

The Transaction Committee

 

The Transaction Committee, with the assistance of its legal and financial advisors, reviewed the Company’s prospects and the near-term and long-term business trends that could affect the Company’s ability to achieve its projected results, and evaluated the proposed merger, including the terms and conditions of the merger agreement. The Transaction Committee unanimously concluded that the merger, at a price of $45.00 per share, is in the best interests of the Company and its stockholders. Accordingly, at a meeting held on June 30, 2011, the Transaction Committee unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to and in the best interests of the Company’s stockholders, and recommended that the Board (i) approve and declare advisable the merger agreement, the merger, and the other transactions contemplated by the merger agreement, (ii) direct the Company to enter into and deliver the merger agreement and (iii) recommend that the stockholders of the Company adopt the merger agreement.

 

In the course of its deliberations, the Transaction Committee considered the following substantive factors as being generally positive or favorable, each of which the Transaction Committee believed supported a decision to proceed with the merger agreement with Parent and Acquisition Sub:

 

 

 

The Transaction Committee did not believe that the Company’s current financial situation or near-term future prospects indicated a need to sell the Company. However, it believed that the proposed merger is fair to and in the best interests of the Company’s stockholders for the foregoing reasons.

 

The Transaction Committee was aware of and also considered the following risks and other factors concerning the merger agreement and the merger as being generally negative or unfavorable:

 

 

 

In addition, the Transaction Committee was aware of and considered the interests that certain of our directors and executive officers have with respect to the merger that differ from, or are in addition to, their interests as stockholders of the Company, as described in “Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page [ • ] .

 

In the course of reaching its determination and recommendation to the Board regarding the fairness of the merger to the stockholders of the Company and its decision to recommend that the Board recommend that the stockholders adopt the merger agreement, the Transaction Committee considered financial analyses presented by Barclays Capital to the Transaction Committee on June 30, 2011 concerning the Company, which analyses are summarized below under “Opinion of Barclays Capital.”

 

The foregoing discussion of the factors considered by the Transaction Committee is not intended to be exhaustive, but includes the material factors considered by the Transaction Committee. In view of the large number of factors considered by the Transaction Committee in connection with the evaluation of the merger agreement and the merger and the complexity of these matters, the Transaction Committee did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching a decision, nor did the Transaction Committee evaluate whether these factors were of equal importance. In addition, each member of the Transaction Committee may have given different weight to the various factors. The Transaction Committee’s determinations and recommendations were based upon the totality of the information considered. The Transaction Committee conducted discussions of, among other things, the factors described above, including asking questions of our management and our financial and legal advisors, and unanimously (i) determined that the merger and the other transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, are advisable, fair to, and in the best interests of, our stockholders, (ii) recommended that the Board direct the Company to enter into and deliver the merger agreement and (iii) recommended that the Board recommend that our stockholders adopt the merger agreement.

The Board

 

The Board established the Transaction Committee and empowered it to review, evaluate, negotiate and if appropriate, make a recommendation to the Board with respect to the potential sale of the Company. The Board, acting upon the unanimous recommendation of the Transaction Committee, at a meeting described above on June 30, 2011, unanimously determined (i) that the merger and the other transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, on the terms and subject to the conditions set forth in the merger agreement, are fair to, and in the best interests of, the Company and the Company’s stockholders, (ii) that the execution, delivery and performance of the merger agreement by the Company, and the transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, were authorized and approved, (iii) that the merger agreement, the merger and the other transactions contemplated by the merger agreement, and the guarantee, the debt commitment letter and the equity commitment letter, were advisable, and (iv) that the Board recommends that the Company’s stockholders adopt the merger agreement.

 

In connection with its determinations, the Board considered:

 

 

The foregoing discussion of the factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board. In view of the large number of factors considered by the Board in connection with the evaluation of the merger agreement and the merger and the complexity of these matters, the Board did not consider it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching a decision, nor did the Board evaluate whether these factors were of equal importance. In addition, each director may have given different weight to the various factors. The Board’s determinations and recommendations were based upon the totality of the information considered. The Board conducted discussions of, among other things, the factors described above, including asking questions of our management and our financial and legal advisors, and unanimously (i) determined that the merger and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth in the merger agreement, are fair to, and in the best interests of, the Company and its stockholders, (ii) authorized and approved the execution, delivery and performance of the merger agreement by the Company and the transactions contemplated by the merger agreement, (iii) declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, and (iv) recommended that the stockholders of the Company adopt the merger agreement.

 

The Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

In March of 2011, the Company engaged Barclays Capital to act as its financial advisor with respect to a possible sale of the Company and related advisory services. On June 30, 2011, Barclays Capital rendered its written opinion to the Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, from a financial point of view, the merger consideration of $45.00 per share to be offered to the stockholders of the Company in the merger was fair to the Company’s stockholders.

 

The full text of Barclays Capital’s written opinion, dated as of June 30, 2011, is attached as Annex B to this Proxy Statement. Barclays Capital’s written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays Capital in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays Capital’s opinion and the methodology that Barclays Capital used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

 

Barclays Capital’s opinion, the issuance of which was approved by Barclays Capital’s Fairness Opinion Committee, is addressed to the Board, addresses only the fairness, from a financial point of view, of the merger consideration and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the merger or any other matter. The terms of the merger were determined through arm’s-length negotiations between the Company and Parent and were approved by the Board. Barclays Capital did not recommend any specific form of consideration to the Board or that any specific form of consideration constituted the only appropriate consideration for the merger. Barclays Capital was not requested to address, and its opinion does not in any manner address, the Company’s underlying business decision to proceed with or effect the merger or to enter into or consummate the merger at any particular time now or in the future. In addition, Barclays Capital expressed no opinion on, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the consideration to be offered to the stockholders of the Company in the merger. No limitations were imposed by the Board upon Barclays Capital with respect to the investigations made or procedures followed by it in rendering its opinion.

 

In arriving at its opinion, Barclays Capital reviewed and analyzed, among other things:

 

 

In addition, Barclays Capital has had discussions with the management of the Company concerning its business, operations, assets, liabilities, financial condition and prospects and has undertaken such other studies, analyses and investigations as Barclays Capital deemed appropriate.

 

In arriving at its opinion, Barclays Capital assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays Capital without any independent verification of such information. Barclays Capital also relied upon the assurances of management of the Company that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the management forecasts, upon the advice of the Company, Barclays Capital assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company and that the Company would perform substantially in accordance with such projections. In arriving at its opinion, Barclays Capital assumed no responsibility for, and expressed no view as to, any such projections or estimates or the assumptions on which they were based. In arriving at its opinion, Barclays Capital did not conduct a physical inspection of the properties and facilities of the Company and did not make or obtain any evaluations or appraisals of the assets or liabilities of the Company. Barclays Capital’s opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, June 30, 2011. Barclays Capital assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after June 30, 2011.

 

Barclays Capital assumed the accuracy of the representations and warranties contained in the merger agreement. Barclays Capital also assumed, upon the advice of the Company, that all material governmental, regulatory and third-party approvals, consents, and releases for the merger would be obtained within the constraints contemplated by the merger agreement and that the merger would be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition, or agreement thereof. Barclays Capital did not express any opinion as to any tax or other consequences that might result from the merger, nor did Barclays Capital’s opinion address any legal, tax, regulatory or accounting matters, as to which Barclays Capital understood that the Company had obtained any such advice it deemed necessary from qualified professionals.

 

In connection with rendering its opinion, Barclays Capital performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays Capital did not ascribe a specific range of values to the shares of the Company common stock, but rather made its determination as to the fairness, from a financial point of view, to the holders of Company common stock of the merger consideration on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

 

In arriving at its opinion, Barclays Capital did not attribute any particular weight to any single analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the merger. Accordingly, Barclays Capital believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

 

The following is a summary of the material analyses used by Barclays Capital in preparing its opinion for the Board. Certain of the analyses summarized below include information presented in tabular format. In order to understand fully the methodologies used by Barclays Capital and the results of its financial, comparative and other analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial, comparative and other analyses. In performing its analyses, Barclays Capital made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company or any other parties to the merger. None of the Company, Parent, Acquisition Sub, Barclays Capital or any other person assumes responsibility if future results are materially different from those presented below

or reflected in the management forecasts. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable or unfavorable than as set forth below. In addition, analyses relating to the value of the businesses do not purport to be appraisals or to reflect the prices at which the businesses could actually be sold.

 

Selected Comparable Company Analysis

 

In order to assess how the public market values shares of publicly traded companies similar to the Company, Barclays Capital reviewed and compared specific financial and operating data relating to the Company with selected companies in the software industry (commonly referred to as Enterprise Resource Planning ( “ERP” ) companies), deemed relevant in comparison to the Company. The selected comparable companies were: Blackbaud Inc., Microsoft Corporation, Oracle Corporation, Deltek, Inc., SAP AG, Sage Group PLC and Tyler Technologies Inc.

 

Barclays Capital calculated and compared various financial multiples and ratios of the Company and the selected companies. As part of its selected comparable company analysis, Barclays Capital calculated, and analyzed, among other things, each company’s ratio of:

 

 

The enterprise value of each selected company was obtained by adding its short- and long-term debt to the sum of the market value of its common equity and the book value of any minority interest, and subtracting its cash and cash equivalents. The adjusted EBITDA of each selected company was obtained by taking its earnings before interest, taxes, depreciation and amortization, adjusted to exclude stock-based compensation and, in the case of the Company, further adjusted to include the impact of revenue adjustments (net of related costs and adjustments) and exclude one-time expenses related to merger and acquisition activity ( “Adjusted EBITDA” ). All of these calculations were performed, and based on publicly available financial data (including Wall Street research estimates) and closing prices, as of June 29, 2011. The results of this selected comparable company analysis are summarized below:

 

 

Barclays Capital selected the companies listed above because their businesses and operating profiles are reasonably similar to that of the Company. However, because of the inherent differences between the business, operations and prospects of the Company and those of the selected companies, Barclays Capital believed that it was inappropriate to, and therefore Barclays Capital did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays Capital also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of the Company and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between the Company and the companies included in the selected company analysis.

Based upon these judgments, Barclays Capital selected a range of 10.0x to 12.0x multiples of EV/Adj. EBITDA and a range of 18.0x to 22.0x multiples of Price/Adj. EPS. Barclays Capital then applied these multiples ranges to Company management’s estimates of calendar year 2011 Adj. EBITDA, which equaled $136 million, and of calendar year 2011 Adj. EPS, which equaled $1.83, respectively, to calculate ranges of implied prices per share of the Company. The following summarizes the result of these calculations:

 

 

Barclays Capital noted that on the basis of the selected comparable company analysis, the merger consideration was above each of the two ranges of implied values per share calculated.

 

Barclays Capital also considered and presented to the Board similar metrics for certain other companies in the software business that are commonly referred to as Software as a Service ( “SaaS” ) companies. Blackboard’s business model is more comparable from a growth and profitability standpoint to that of the ERP companies than SaaS companies, so Barclays Capital did not view these companies as directly relevant to the Company. They were presented to the Board as part of a discussion highlighting the differences between Blackboard’s business model and the SaaS models, and not as part of any financial analysis conducted by Barclays Capital for purposes of rendering its opinion.

 

Selected Precedent Transaction Analysis

 

Barclays Capital reviewed and compared the purchase prices and financial multiples paid in selected other transactions in the software industry that Barclays Capital deemed relevant, based on its experience with merger and acquisition transactions. Barclays Capital chose such transactions based on, among other things, the similarity of the applicable target companies in the transactions to the Company with respect to the size, mix, margins and other characteristics of their businesses, as well as their relative prospects for growth.

 

The following table sets forth the transactions analyzed based on such characteristics and the results of such analysis:

 

As part of its analysis of precedent transactions involving companies in the software industry, Barclays Capital calculated and analyzed, among other things, each target company’s ratio of:

 

 

The enterprise value of each selected comparable company was obtained by adding its short- and long-term debt to the sum of the market value of its common equity and the book value of any minority interest, and subtracting its cash and cash equivalents. All of these calculations were performed based on publicly available financial data (including Wall Street research estimates). The results of this precedent transaction company analysis are summarized below:

 

 

The reasons for and the circumstances surrounding each of the selected comparable transactions analyzed were diverse and there are inherent differences between the businesses, operations, financial conditions and prospects of the Company and the companies included in the comparable transaction analysis. Accordingly, Barclays Capital believed that a purely quantitative comparable transaction analysis would not be particularly meaningful in the context of considering the merger. Barclays Capital therefore made qualitative judgments concerning differences between the characteristics of the selected comparable transactions and the merger which would affect the acquisition values of the selected target companies and the Company.

 

Based upon these judgments, Barclays Capital selected a range of 2.5x to 3.5x multiples of EV/Revenue and a range of 9.5x to 12.0x multiples of EV/Adj. EBITDA. Barclays Capital then applied these multiples ranges to Company management’s estimate of calendar year 2011 revenue, which equaled $540 million, and of calendar year 2011 Adj. EBITDA, respectively, to calculate ranges of implied prices per share of the Company. The following summarizes the results of these calculations:

 

 

Barclays Capital noted that the merger consideration was within the EV/Revenue multiples range of implied values per share and exceeded the EV/Adj. EBITDA multiples range of implied values per share.

 

Barclays Capital also considered and discussed with the Board a group of higher growth software companies that Barclays Capital viewed as less relevant to Blackboard from a growth and profitability standpoint. These companies were presented to the Board as part of a discussion highlighting the impact of size and growth characteristics on valuation, and not as part of any financial analysis conducted by Barclays Capital for purposes of rendering its opinion.

 

Discounted Cash Flow Analysis

 

In order to estimate the present value of the Company common stock, Barclays Capital performed a discounted cash flow analysis of the Company. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a range of discount rates that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.

 

To calculate the estimated enterprise value of the Company using the discounted cash flow method, Barclays Capital added the present value of (i) the Company’s after-tax adjusted unlevered free cash flows for the second half of calendar year 2011 and for calendar years 2012 through 2015 to (ii) the “terminal value” of

the Company as of December 31, 2015, in each case based on the management forecasts. The present value of the after-tax adjusted unlevered free cash flows and “terminal value” were calculated using a range of discount rates from 11.0% to 13.0%, which range was selected based on an analysis of the weighted average cost of capital of the Company. The after-tax adjusted unlevered free cash flows were calculated by taking the tax-affected earnings before interest and tax expense (adjusted to include expenses resulting from stock-based compensation), then adding depreciation and amortization, subtracting capital expenditures and adjusting for changes in working capital. The residual value of the Company at the end of the forecast period, or “terminal value,” was estimated by selecting a range of exit multiples for the period ending December 31, 2015 of 7.0x to 9.0x , implying a range of perpetuity growth rates of approximately 3.0% to 6.5%. The range of exit multiples was derived by both analyzing the results from the selected comparable company analysis and considering the long term growth prospects for the Company and then applying such range to Company management’s estimate of calendar year 2016 Adj. EBITDA. Barclays Capital then calculated a range of implied prices per share of the Company by subtracting estimated net debt as of June 30, 2011 as provided by Company management from the estimated enterprise value using the discounted cash flow method and dividing such amount by the fully diluted number of shares of Company Common Stock. The range of the implied prices per share that resulted from these calculations was $40.81 to $52.48.

 

Barclays Capital noted that on the basis of the discounted cash flow analysis, the merger consideration was within the range of implied values per share calculated using the management forecasts.

 

General

 

Barclays Capital is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Board selected Barclays Capital because of its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, as well as substantial experience in transactions comparable to the merger.

 

Barclays Capital is acting as financial advisor to the Company in connection with the proposed transaction. As compensation for its services in connection with the proposed transaction, the Company owed Barclays Capital a fee of $2 million upon the delivery of Barclays Capital’s opinion. Additional compensation of approximately $12-13 million is expected to become payable to Barclays Capital on completion of the proposed transaction. In addition, the Company has agreed to reimburse Barclays Capital for reasonable out-of-pocket expenses incurred in connection with the proposed transaction and to indemnify Barclays Capital for certain liabilities that may arise out of its engagement by the Company and the rendering of Barclays Capital’s opinion. Since January 1, 2009, Barclays Capital has performed various investment banking and financial services for Providence and certain of its portfolio companies and has received fees for such services in an aggregate amount of approximately $33.4 million. Such services include having acted as financial advisor in connection with merger and acquisition transactions, arranger, bookrunner and lender in connection with capital raising transactions and underwriter, initial purchaser and placement agent for equity and debt offerings, in each case involving Providence or these portfolio companies. Barclays Capital may perform from time to time in the future various investment banking and financial services for the Company, Providence and certain of its portfolio companies and affiliates and expects to receive customary fees for such services.

 

Barclays Capital and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business, Barclays Capital and affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of the Company and certain portfolio companies of Providence for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

 

The Company does not, as a matter of course, publicly disclose financial forecasts as to future financial performance, earnings or other results as set forth below and is especially cautious of making financial forecasts due to the unpredictability of the underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction involving the Company, the Company made available to Providence and its advisors, other potential purchasers and their advisors, the Transaction Committee, the Board and/or Barclays Capital, as applicable, certain non-public financial forecasts that were prepared by management of the Company (or derived from such forecasts by Barclays Capital, as described below) and not for public disclosure.

 

A summary of these financial forecasts is included solely to give stockholders access to the information that was made available to Providence and its advisors, other potential purchasers and their advisors, the Transaction Committee, the Board and/or Barclays Capital, as described below, and is not included in this proxy statement in order to influence you to make any investment decision with respect to the merger, or to influence your decision whether to vote for or against the proposal to adopt the merger agreement. The inclusion of this information should not be regarded as an indication that the Transaction Committee, the Board, their advisors or any other person considered, or now considers, it to be material or to be a reliable prediction of actual future results. Our management’s internal financial forecasts, upon which these financial forecasts were based, are subjective in many respects. There can be no assurance that these financial forecasts will be realized or that actual results will not be significantly higher or lower than forecasted. The financial forecasts cover multiple years and such information by its nature becomes subject to greater uncertainty with each successive year. As a result, the inclusion of the financial forecasts in this proxy statement should not be relied on as necessarily predictive of actual future events. The financial forecasts and summary information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC.

 

In addition, the financial forecasts were not prepared with a view toward public disclosure or toward complying with U.S. generally accepted accounting principles, or “GAAP,” the published guidelines of the SEC regarding projections and the use of measures not prepared in accordance with GAAP, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

 

These financial forecasts were based on numerous variables, estimates and assumptions that are inherently uncertain and may be beyond the control of the Company, and which may prove to have been, or may no longer be, accurate. Important factors that may affect actual results and cause actual results to differ materially from these financial forecasts include, but are not limited to, risks and uncertainties relating to the Company’s business (including its ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, the regulatory environment, general business and economic conditions, market and financial conditions, various risks set forth in the Company’s reports filed with the SEC, and other factors described or referenced under “Cautionary Statement Concerning Forward-Looking Information” beginning on page [ • ] . In addition, the forecasts also reflect assumptions that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for the Company’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. The forecasts do not take into account any circumstances, transactions or events occurring after the date they were prepared. Accordingly, there can be no assurance that these financial forecasts will be realized or that the Company’s future financial results will not materially vary from these financial forecasts.

 

No one has made or makes any representation to any stockholder or anyone else regarding, nor assumes any responsibility for the validity, reasonableness, accuracy or completeness of, the information included in the financial forecasts set forth below. Readers of this proxy statement are cautioned not to rely on the forecasted financial information. Some or all of the assumptions which have been made regarding, among other things, the timing of certain occurrences or impacts, may have changed since the date such forecasts were made. We have not updated and do not intend to update or otherwise revise the financial forecasts, even in the short

term, to reflect circumstances existing after the date when made or to reflect the occurrence of future events, including the merger contemplated by the merger agreement. Further, the financial forecasts do not take into account the effect of any failure of the merger to occur and should not be viewed as accurate or continuing in that context. The Company has made no representation to Providence, Parent or Acquisition Sub or any other person in the merger agreement or otherwise, concerning these financial forecasts.

 

The financial forecasts are forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted. For information on factors that may cause the Company’s future financial results to materially vary, see “Cautionary Statement Concerning Forward-Looking Information” on page [ • ] .

 

The financial forecasts included in this proxy statement include the following non-GAAP financial measures: adjusted non-GAAP revenue, adjusted non-GAAP EBITDA, adjusted non-GAAP EBITDA margin and adjusted unlevered free cash flow. The Company (or Barclays Capital, as described below) made this information available to Providence and its advisors, other potential purchasers and their advisors, the Transaction Committee, the Board and/or Barclays Capital, as applicable, because the Company believes that these measures may be useful in evaluating, on a prospective basis, the Company’s potential operating performance and cash flow. In addition, the Company’s internal financial reporting and forecasts, including information provided to the Transaction Committee and the Board, contain non-GAAP measures. Adjusted non-GAAP revenue, adjusted non-GAAP EBITDA and adjusted non-GAAP EBITDA margin were presented to assist in analyzing the Company’s prospective performance without the effects of certain unusual or nonrecurring items. Specifically, the Company’s adjusted non-GAAP revenue excludes certain impacts of acquisitions by including deferred revenue of entities the Company acquired that would have been recognized but for GAAP’s purchase accounting treatment requiring the elimination of this deferred revenue upon acquisition. The Company’s adjusted non-GAAP EBITDA includes the deferred revenue adjustment described above and excludes certain transition, integration and transaction-related expense items resulting from acquisitions, interest income, interest expense, depreciation and amortization, stock-based compensation, amortization or impairment of intangibles, other income (expense) net, translation gains or losses related to foreign exchange, and income taxes. The Company’s adjusted unlevered free cash flow was presented to assist in estimating the Company’s prospective cash generated by operations after capital expenditures and before debt servicing costs and other effects of leverage and includes non-cash expenses resulting from stock-based compensation, which were treated as if they were cash expenses for purposes of calculating adjusted unlevered free cash flow. A material limitation associated with the use of the above non-GAAP financial measures is that they have no standardized measurement prescribed by GAAP and may not be comparable with similar non-GAAP financial measures used by other companies. The non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

 

In March 2011, the Company reviewed information regarding its 2010 financial results and prepared a preliminary long-term plan for 2011 through 2015, which was provided to the Board and to Barclays Capital in connection with the Board’s initial evaluation of whether to proceed with exploring the feasibility of a potential sale transaction. The following is a summary of such March 2011 prospective financial information.

 

 

Barclays Capital derived adjusted unlevered free cash flow by adjusting forecasts and estimates relating to unlevered free cash flows prepared by the Company (and made available to Barclays Capital) to include non-cash expenses resulting from stock-based compensation, which were treated as if they were cash expenses for purposes of calculating adjusted unlevered free cash flow, and provided the adjusted unlevered free cash flow to the Board. In deriving the adjusted unlevered free cash flow information, Barclays Capital relied on forecasts and estimates prepared by the Company and did not prepare any independent forecasts or estimates

but did adjust such forecasts and estimates as described above. The adjusted unlevered free cash flow information is summarized below.

 

 

 

 

Following the Board’s decision to proceed with exploring the feasibility of a potential sale transaction, in April 2011 the Company prepared a more detailed plan for 2011 through 2015 which was provided to the Transaction Committee, the Board and Barclays Capital. In April 2011, representatives from the Company met with representatives from several prospective bidders, including Providence, and shared the information regarding the Company’s 2010 financial results and financial forecasts for the years 2011 through 2015 as part of the Company’s management presentations to each prospective bidder. The same financial forecasts were provided to prospective bidders following the management presentations. The following is a summary of such April 2011 prospective financial information.

 

 

Barclays Capital derived updated adjusted unlevered free cash flow by adjusting the forecasts and estimates relating to unlevered free cash flows prepared by the Company (and made available to Providence and its advisors, other potential purchasers and their advisors and Barclays Capital) to include non-cash expenses resulting from stock-based compensation, which were treated as if they were cash expenses for purposes of deriving adjusted unlevered free cash flow, and provided the adjusted unlevered free cash flow to the Transaction Committee and the Board. In deriving this adjusted unlevered free cash flow information, Barclays Capital relied on forecasts and estimates prepared by the Company and did not prepare any independent forecasts or estimates but did adjust such forecasts and estimates as described above. The adjusted unlevered free cash flow information is summarized below.

 

 

 

 

Certain Effects of the Merger

 

If the merger agreement is adopted by our stockholders and the other conditions to the closing of the merger are either satisfied or waived and the merger is consummated as contemplated by the merger agreement, Acquisition Sub will be merged with and into the Company, upon the terms and subject to the conditions set forth in the merger agreement, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent.

Following the merger, the entire equity in the surviving corporation will be indirectly owned by Providence (other than any equity purchased by institutional co-investors and members of our management team who have the opportunity to invest directly or indirectly in Parent and who choose to make that investment). If the merger is completed, Providence will be the beneficiary (together with institutional co-investors and members of our management team who have the opportunity to invest directly or indirectly in Parent and who choose to make that investment) of our future earnings and growth, if any, and will be entitled to vote on corporate matters affecting the Company following the merger. Similarly, Providence (together with institutional co-investors and members of our management team who have the opportunity to invest directly or indirectly in Parent and who choose to make that investment) will also bear the risks of ongoing operations, including the risks of any decrease in our value after the merger and the operational and other risks related to the incurrence by the surviving corporation of significant additional debt as described below under “Financing of the Merger; Equity Financing; Debt Financing.”

 

In connection with the merger, certain members of the Company’s management will receive benefits and be subject to obligations in connection with the merger that are different from, or in addition to, the benefits and obligations of our stockholders generally, as described in more detail below under “Interests of the Company’s Directors and Executive Officers in the Merger.” The incremental benefits may include, among others, continuing as executive officers or key employees of the surviving corporation, the receipt of equity interests of Parent and entry into new employment arrangements with the surviving corporation or its affiliates.

 

The Company common stock is currently registered under the Exchange Act and is quoted on NASDAQ under the symbol “BBBB.” As a result of the merger, the Company will be a privately-held corporation, and there will be no public market for its common stock. After the merger, the Company common stock will cease to be quoted on NASDAQ and price quotations with respect to sales of shares of the Company common stock in the public market will no longer be available. In addition, registration of the Company common stock under the Exchange Act is expected to be terminated.

 

At the effective time, the directors of Acquisition Sub will become the directors of the surviving corporation and the current officers of the Company will become the officers of the surviving corporation. Upon consummation of the merger, the certificate of incorporation and bylaws of the surviving corporation will be amended and restated in accordance with the merger agreement.

 

Effects on the Company if the Merger is not Completed

 

If the merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares of Company common stock pursuant to the merger agreement. Instead, we will remain a public company and the Company common stock will continue to be registered under the Exchange Act and quoted on NASDAQ. In addition, if the merger is not completed, we expect that our management will operate our business in a manner similar to that in which it is being operated today and that our stockholders will continue to be subject to the same risks and opportunities to which they currently are subject, including, among other things, the nature of the industry on which our business largely depends, and general industry, economic, regulatory and market conditions.

 

If the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Company common stock. In the event the merger is not completed, our Board will continue to evaluate and review our business operations, prospects and capitalization, make such changes as are deemed appropriate and seek to identify acquisitions, joint ventures or strategic alternatives to enhance stockholder value. If the merger agreement is not adopted by our stockholders, or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely impacted.

 

If the merger agreement is terminated under certain circumstances, we will be obligated to pay Parent a termination fee of $49,112,000. Parent will be obligated to pay us the reverse termination fee of $106,409,000 if the merger agreement is terminated under certain other circumstances. For a description of the circumstances triggering payment of these termination fees, see “The Merger Agreement — Termination Fees; Expenses.”

 

Parent has obtained an equity financing commitment letter from the Providence Funds and Acquisition Sub has obtained debt financing commitments from the initial lenders (identified below under “Debt Financing” ) in connection with the transactions contemplated by the merger agreement in an aggregate amount of approximately of $2.0 billion. These funds, in addition to the Company’s cash, are expected to be sufficient to pay merger consideration in the amount of approximately $1.64 billion to our stockholders, to repay outstanding indebtedness and to pay fees and expenses in connection with the merger, the financing arrangements and the related transactions. These equity and debt financings are subject to the satisfaction of the conditions set forth in the commitment letters pursuant to which the financing will be provided.

 

We believe that the amounts committed under the commitment letters will be sufficient to complete the merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, one or more of the parties to the commitment letters fails to fund the financing or if the conditions to such commitments are not met. Although obtaining the proceeds of any financing, including financing under the commitment letters, is not a condition to the completion of the merger, the failure of Parent and Acquisition Sub to obtain any portion of the committed financing (or alternative financing) is likely to result in the failure of the merger to be completed. In that case, Parent may be obligated to pay the Company a fee of $106,409,000, as described under “The Merger Agreement — Termination Fees; Expenses.”

 

Equity Financing

 

On June 30, 2011, the Providence Funds entered into an equity financing commitment letter with Parent (the “equity commitment letter” ) pursuant to which the Providence Funds committed to contribute to Parent, at or prior to the consummation of the merger, up to $850,000,000 in the aggregate in cash, in exchange for which the Providence Funds will receive certain securities of Parent.

 

The equity commitment of the Providence Funds is subject to the following conditions:

 

 

The obligation of the Providence Funds to fund the equity commitment shall automatically and immediately terminate upon the earliest to occur of:

 

 

The Company is an express third-party beneficiary of the equity financing commitment letter and has the right to specific performance if (a) each of the mutual closing conditions and the conditions to the obligations of Parent and Acquisition Sub under the merger agreement have been satisfied or waived (subject to certain exceptions), (b) the debt financing has been funded, or will be funded at the closing if the equity financing is funded at the closing, (c) Parent or Acquisition Sub has failed to consummate the merger on the date the certificate of merger is required to be filed (which we refer to as the “required closing date” ), and (d) the

Company has confirmed in writing that if both the equity financing and the debt financing were funded, the closing will occur.

 

In addition, Parent expects certain institutional co-investors and the Company’s management to make an equity investment at the effective time, although any such investment is not a condition to the closing of the transactions contemplated by the merger agreement. While there has been no agreement as to the amount of any equity interests to be acquired by the Company’s management, Parent estimates that this amount is likely to be between $10 million and $20 million. Any acquisition of equity interests by the Company’s management would have the effect of reducing the amount of the equity financing to be funded by the Providence Funds.

 

Debt Financing

 

In connection with the entry into the merger agreement, Acquisition Sub received a debt commitment letter, dated June 30, 2011 (the “debt commitment letter” ), from Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas and Morgan Stanley Senior Funding, Inc. (collectively, the “debt commitment parties” ). The debt commitment letter provides an aggregate of $1,150 million in debt financing to Acquisition Sub, and upon consummation of the merger, the Company, consisting of a $700 million senior secured first lien term loan facility (with the ability to upsize the facility by $80 million if 100% of the outstanding equity interests of a portfolio company of Providence (the “portfolio company” ) are contributed to the Company (the “additional commitment” )) (the “first lien term facility” ), a $100 million first lien senior secured revolving credit facility (the “first lien revolving facility,” and together with the first lien term facility, the “first lien facilities” ) and a $350 million second lien senior secured term loan facility (the “second lien term facility,” and together with the first lien facilities, the “credit facilities” ). The first lien term facility will be drawn at closing to finance a portion of the merger, including any refinancing of existing indebtedness of the Company and its subsidiaries and the payment of any fees and expenses incurred in connection with the merger and, (x) to the extent necessary to fund original issue discount or upfront fees in connection with any of the credit facilities and (y) in an aggregate amount not to exceed $10 million, the first lien revolving facility may be utilized at closing, in addition to proceeds from the other credit facilities. In addition, the first lien revolving facility may be utilized to issue or rollover letters of credit at closing. The second lien term facility will be drawn at closing to finance a portion of the merger, including any refinancing of existing indebtedness of the Company and its subsidiaries and the payment of any fees and expenses incurred in connection with the merger.

 

The debt commitment parties may invite other banks, financial institutions and institutional lenders to participate in the debt financing described in the debt commitment letter and to undertake a portion of the commitments to provide such debt financing all in accordance with the terms set forth in the debt commitment letter.

 

Interest under the first lien term facility will be payable, at the option of Acquisition Sub, and upon consummation of the merger, the Company, either at a base rate (based on the highest of the prime rate, 0.50% in excess of the overnight federal funds rate and the one-month adjusted LIBOR rate (subject to a floor of 1.50%) plus 1.00% per annum) plus 3.75% or a LIBOR-based rate (subject to a floor of 1.50%) plus 4.75% and will be payable at the end of each interest period set forth in the credit agreement (but at least every three months). Interest under the first lien revolving facility will be payable, at the option of Acquisition Sub, and upon consummation of the merger, the Company, either at a base rate (based on the highest of the prime rate, 0.50% in excess of the overnight federal funds rate and the one-month adjusted LIBOR rate plus 1.00% per annum) plus 3.50% or a LIBOR-based rate plus 4.50% (subject to step downs to be agreed based on meeting a net senior secured leverage ratio to be provided for in the credit agreement) and will be payable at the end of each interest period set forth in the credit agreement (but at least every three months). Interest under the second lien term facility will be payable, at the option of Acquisition Sub, and upon consummation of the merger, the Company, either at a base rate (based on the highest of the prime rate, 0.50% in excess of the overnight federal funds rate and the one-month adjusted LIBOR rate (subject to a floor of 1.50%) plus 1.00% per annum) plus 7.00% or a LIBOR-based rate (subject to a floor of 1.50%) plus 8.00% and will be payable at the end of each interest period set forth in the credit agreement (but at least every three months). The first lien

term loans will mature seven years from the effective date of the merger, the first lien revolving facility will mature five years from the effective date of the merger and the second lien term loans will mature eight years from the effective date of the merger.

 

The borrower under the credit facilities will be Acquisition Sub and upon consummation of the merger, the rights and obligations under the credit facilities will be assumed by the Company as the surviving corporation. The credit facilities will be guaranteed, subject to certain agreed upon exceptions, on a joint and several basis by the direct parent of the Company and each direct and indirect U.S. subsidiary of the Company. The first lien facilities will be secured, subject to certain agreed upon exceptions, by a perfected first priority security interest in substantially all the assets of the borrower and guarantors. The second lien term facility will be secured, subject to certain agreed upon exceptions, by a perfected second priority security interest in substantially all of the assets of the borrower and guarantors.

 

Conditions

 

The facilities contemplated by the debt commitment letter are subject to certain closing conditions, including, without limitation (in each case, subject to exceptions):

 

 

 

The final termination date for the debt commitment letter is the earliest of (a) February 10, 2012, (b) the termination of the merger agreement and (c) the consummation of the merger with or without the funding of the debt financing.

 

Although the debt financing described in this proxy statement is not subject to due diligence or a “market out” provision, which would have allowed lenders not to fund their commitments if certain conditions in the financial markets prevail, there is still a risk that the debt financing may not be funded when required. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available as anticipated. Except as described herein, there is no plan or arrangement regarding the refinancing or repayment of the debt financing.

 

Financing Cooperation.   The Company has agreed to, and has agreed to cause its subsidiaries to, at Parent’s reasonable request and sole expense, use reasonable best efforts to cooperate with Parent in connection with the financing, subject to certain limitations, including using reasonable best efforts to:

 

 

Parent and Acquisition Sub have agreed to ensure that such requested cooperation does not unreasonably interfere with the ongoing business or operations of the Company or any subsidiary of the Company.

 

Neither the Company nor any subsidiary of the Company will be required to commit to take any action that is not contingent upon the closing, would be effective prior to the effective time, or would encumber any assets of the Company or any of its subsidiaries prior to the effective time.

 

Neither the Company nor any of its subsidiaries will be required to (i) take any action that would result in a breach of any contract or subject it to actual or potential liability, (ii) bear any cost or expense, or (iii) pay any commitment or other fee or make any other payment or incur any other liability or provide or agree to provide any indemnity prior to the effective time.

 

Neither the Company nor any of its subsidiaries, nor any of their respective directors or officers, will (i) be required to take any action in the capacity as a member of the Board or a member of the board of directors of any of the Company’s subsidiaries to authorize or approve the financing (or any alternative financing), (ii) have any liability or any obligation under any definitive financing agreement or any related document or other agreement or document related to the financing (or alternative financing), other than any such liability or obligation of the surviving corporation and its subsidiaries following the merger, or (iii) be required to incur any other liability in connection with the financing (or any alternative financing), other than any other liability incurred by the surviving corporation and its subsidiaries following the merger.

 

Parent will, at the Company’s request, reimburse the Company for all reasonable and documented costs, including all reasonable and documented out-of-pocket fees and expenses of counsel and other advisors, incurred by the Company or any of its subsidiaries in connection with such cooperation. Parent will indemnify and hold harmless the Company and its subsidiaries and their respective affiliates and representatives against any and all costs and expenses, judgments, fines, claims, losses, penalties, damages, interest, awards and liabilities directly or indirectly suffered or incurred in connection with the financing.

 

Pursuant to the guarantee delivered by the Providence Funds (the “guarantors” ) in favor of the Company, dated June 30, 2011 (the “guarantee” ), the guarantors have agreed to guarantee, up to a maximum aggregate amount of $111,409,000, their respective percentages (determined based upon the relative size of their equity commitments to Parent) of the obligations of Parent under the merger agreement to pay, under certain circumstances, the reverse termination fee and the obligations of Parent and Acquisition Sub to reimburse certain expenses.

 

The guarantee will terminate on the earliest of (i) the consummation of the merger, (ii) the termination of the merger agreement under circumstances in which Parent would not be obligated to pay the termination fee and (iii) the date that is 12 months after any termination of the merger agreement in circumstances where the reverse termination fee is payable to the Company, unless, prior to the date that is 12 months after any termination, the Company has provided a written claim for payment of any guaranteed obligation to Parent, Acquisition Sub or any guarantor alleging that fees or reimbursements are owed, in which case the guarantee will terminate upon the final resolution of such claim. However, if the Company or any of its controlled affiliates asserts a claim against a guarantor other than as permitted under the guarantee, the obligations of such guarantor under the guarantee will immediately terminate and be null and void, subject to a three business day cure period during which such claim may be withdrawn, if such guarantor has previously made any payments under the guarantee, the Company shall promptly return all such payments and such guarantor will no longer have any liability under the guarantee with respect to the transactions contemplated by the merger agreement, the equity financing commitment letter or the guarantee.

 

In considering the recommendation of our Board with respect to the merger agreement, you should be aware that certain of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally, as more fully described below. Our Board was aware of these interests and considered them, among other matters, in reaching its decision to approve the merger agreement and recommend that the Company’s stockholders vote in favor of adopting the merger agreement. See “Background of the Merger” and “Purpose of and Reasons for the Merger; Recommendation of the Transaction Committee and Our Board” for a further discussion of these matters.

 

Employment Agreements

 

We have previously entered into employment agreements with Messrs Chasen, Kinzer, Small and Walsh as described below.

 

Mr. Chasen, our chief executive officer and president, serves pursuant to the terms of an employment agreement dated September 25, 2009. The initial term of Mr. Chasen’s agreement began on September 25, 2009 and continues until June 30, 2013. Upon expiration of the initial term, the agreement automatically extends until terminated in accordance with its terms. Under the agreement, Mr. Chasen’s base salary is subject to periodic review and adjustment by the Compensation Committee of the Board. He also participates in our annual cash incentive bonus plan. If we terminate Mr. Chasen’s employment without cause (as defined in the agreement), or Mr. Chasen terminates his employment with good reason (as defined in the agreement), then upon the signing of a release and following the lapse of the non-revocation period, we would be required to pay him a lump-sum amount equal to $999,999 less applicable taxes and withholdings within 30 days following the effective date of termination and additional payments of $999,999 less applicable taxes and withholdings on each of the next two succeeding anniversaries of the date of his termination. During his employment with us and for three years following the termination of his employment, Mr. Chasen will be subject to certain non-solicitation and non-competition restrictions. In the event that Mr. Chasen’s termination occurs within the two year period following a “Section 409A Change in Control Event” (as defined in the agreement), the aggregate amount of the three installments of the severance payments shall be made to Mr. Chasen in a lump sum within 30 days following Mr. Chasen’s termination of employment and upon his signing of a release and following the lapse of the non-revocation period. In the event of a change in control, we have agreed to reimburse Mr. Chasen for the sum of (i) the excess, if any, of actual excise taxes imposed under Section 280G and Section 4999 of the Code over any such excise taxes he would have owed had his restricted stock units vested ratably on a monthly basis until June 30, 2013, and (ii) any federal and state income, employment, excise and other taxes payable by him as a result of any reimbursements for Section 280G and Section 4999 excise taxes, up to a maximum reimbursement amount of $1,000,000.

 

Mr. Kinzer, our chief financial officer, serves pursuant to the terms of an employment agreement dated August 9, 2010. The initial term of the agreement is one year, and unless terminated pursuant to its terms, the agreement renews automatically for additional one-year terms unless either we or Mr. Kinzer provides notice of non-renewal within 30 days of the applicable renewal term. Under the agreement, Mr. Kinzer’s annual base salary is subject to periodic review and adjustment by our Board. He is also eligible to receive an annual bonus based on performance targets set by our Board and participates in our annual cash incentive bonus plan. If we terminate Mr. Kinzer’s employment without cause (as defined in the agreement), or Mr. Kinzer terminates his employment with good reason (as defined in the agreement), then upon Mr. Kinzer’s signing of a release and following the lapse of the non-revocation period we would be required to pay to Mr. Kinzer his then-current annual base salary for 12 months in a lump sum payment and pay for up to 12 months’ COBRA premiums, plus he would be entitled to any earned bonus for a completed calendar year if Mr. Kinzer is terminated without cause or terminates his employment for good reason after the end of a calendar year but prior to receiving his earned bonus for such completed calendar year. During his employment with us and for one year following the termination of his employment, Mr. Kinzer will remain subject to certain non-solicitation and non-competition restrictions.

Mr. Small, our chief business officer, chief legal officer and secretary, serves pursuant to the terms of an employment agreement dated January 26, 2004. Mr. Small’s agreement was amended as of October 18, 2008 in order to comply with the terms of Section 409A of the U.S. Internal Revenue Code of 1986, as amended. The initial term of the agreement was two years, and unless terminated pursuant to its terms, the agreement renews automatically for additional one-year terms unless either we or Mr. Small provides notice of non-renewal within 30 days of the applicable renewal term. Under the agreement, Mr. Small’s annual base salary is subject to periodic review and adjustment by our Board. He is also eligible to receive an annual bonus based on performance targets set by our Board and participates in our annual cash incentive bonus plan. If we terminate Mr. Small’s employment without cause (as defined in the agreement), he terminates his employment for good reason (as defined in the agreement) or his employment agreement is not renewed, then upon Mr. Small’s signing of a release and following the lapse of the non-revocation period Mr. Small would be entitled to a cash payment equal to one year of his annual base salary, plus any earned bonus through the end of the then-current quarter, in a lump sum. He would be further entitled, at our cost, to continue to participate in all group insurance, life insurance, health and accident, disability and other employee benefit plans, programs and arrangements, other than bonus plans or stock option plans, for a period of 12 months.

 

Mr. Walsh, our vice president of finance and accounting, serves pursuant to the terms of an employment agreement dated June 8, 2010. The initial term of the agreement is one year, and unless terminated pursuant to its terms, the agreement renews automatically for additional one-year terms unless either we or Mr. Walsh provides notice of non-renewal within 30 days of the applicable renewal term. Under the agreement, Mr. Walsh’s annual base salary is subject to periodic review and adjustment by our Board. He is also eligible to receive an annual bonus based on performance targets set by our Board and participates in our annual cash incentive bonus plan. If we terminate Mr. Walsh’s employment without cause (as defined in the agreement), or Mr. Walsh terminates his employment with good reason (as defined in the agreement), then upon Mr. Walsh’s signing of a release and following the lapse of the non-revocation period we would be required to pay to Mr. Walsh his then-current annual base salary for six months in accordance with our regular payroll practices and pay for up to six months’ COBRA premiums, plus he would be entitled to any earned bonus for a completed calendar year if Mr. Walsh is terminated without cause or terminates his employment for good reason after the end of a calendar year but prior to receiving his earned bonus for such completed calendar year. During his employment with us and for one year following the termination of his employment, Mr. Walsh will remain subject to certain non-solicitation and non-competition restrictions.

 

Equity Awards

 

Stock Options

 

As of July 12, 2011, there were approximately 1,443,966 shares of Company common stock subject to Company options granted under the Company’s equity incentive plans to current executive officers and directors, of which 944,939 shares were vested and unexercised and 499,027 shares were unvested. Under the merger agreement, we have agreed to adopt such resolutions and take such other actions as may be required to provide that, except as may otherwise be set forth in a separate written agreement entered into after the date of the merger agreement, but prior to the effective time, between Parent or its affiliates, the Company and a holder of an option to purchase shares of Company common stock (a “Company option” ), each vested and unvested Company option outstanding immediately prior to the effective time (each, an “outstanding option” ) will be converted into the right to receive, after the effective time, in exchange for the cancellation of such outstanding option, an amount in cash, without interest and subject to the applicable tax withholding, equal to (a) the amount, if any, by which (i) the merger consideration exceeds (ii) the per share exercise price of such outstanding option, multiplied by (b) the number of shares of Company common stock subject to such outstanding option immediately prior to the effective time. Outstanding options with an exercise price per share that equals or exceeds the merger consideration will be cancelled and terminated at the effective time with no payment or other consideration paid to the holder thereof and the holder will have no rights with respect to such outstanding options. The applicable Company equity plan and/or the Company option agreements approved by the Compensation Committee of the Board for the named executive officers provide for 12 months’ acceleration of vesting in the event of a change-in-control. In addition, the named executive

officers are entitled to: (1) full acceleration of vesting in the event that they are terminated or constructively terminated within 12 months of a change-in-control; and (2) 12 months’ acceleration of vesting if, other than in connection with a change-in-control, their employment is terminated without cause or due to death or disability.

 

Restricted Stock

 

As of July 12, 2011, there were approximately 338,330 shares of unvested restricted stock held by the Company’s current executive officers under the Company’s equity incentive plans. Under the merger agreement, we have agreed to adopt such resolutions and take such other actions as may be required to provide that, except as may otherwise be set forth in a separate written agreement entered into after the date of the merger agreement, but prior to the effective time, between Parent or its affiliates, the Company and a holder of restricted stock, (a) any shares of unvested restricted common stock of the Company as of the effective time will be subject to twelve months of accelerated vesting in accordance with the terms of the applicable Company equity plan and award agreement, except that any holder that is not a member of the surviving corporation’s leadership team will have all unvested shares of restricted stock held immediately prior to the effective time accelerated and fully vested at the effective time (each, an “accelerated Company share” ), (b) each accelerated Company share will be converted into the right to receive an amount in cash, without interest and subject to the applicable tax withholding, equal to the merger consideration, in exchange for the cancellation of such accelerated Company share, payable promptly after the effective time and (c) each share of Company common stock that constitutes unvested restricted stock of the Company immediately prior to the effective time (after giving effect to the acceleration in (a) above) (each, an “unvested Company share” ), will be converted into the right to receive a cash amount equal to the merger consideration, subject to the same forfeiture provisions applicable to such unvested Company share immediately prior to the effective time, payable to the holder within two business days following the date on which the applicable forfeiture provisions lapse and subject to the applicable tax withholding, except that any condition related to continued employment shall be deemed to refer to employment with the surviving corporation or its affiliates. The applicable Company equity plan and/or the restricted stock agreements approved by the Compensation Committee of the Board for the named executive officers provide for 12 months’ acceleration of vesting in the event of a change-in-control. In addition, the named executive officers are entitled to: (1) full acceleration of vesting in the event that they are terminated or constructively terminated within 12 months of a change-in-control; and (2) 12 months’ acceleration of vesting if, other than in connection with a change-in-control, their employment is terminated without cause or due to death or disability.

 

Restricted Stock Units

 

As of July 12, 2011, there were approximately 120,000 shares of unvested restricted stock units held by the Company’s current executive officers and directors under the Company’s equity incentive plans, and Michael Chasen was the only person holding such restricted stock units. Under the merger agreement, we have agreed to adopt such resolutions and take such other actions as may be required to provide that each vested and unvested Company restricted stock unit outstanding immediately prior to the effective time will be converted into the right to receive, after the effective time, in exchange for the cancellation of such Company restricted stock unit, an amount in cash, without interest and subject to the applicable tax withholding, equal to (a) the merger consideration, multiplied by (b) the number of shares of Company common stock subject to such outstanding restricted stock unit immediately prior to the effective time.

 

The table below sets forth (i) the number of outstanding options held by the named executive officers and directors, (ii) the estimated values of the cash-out of the outstanding options, (iii) the number of shares of restricted stock held by the named executive officers, (iv) the number of shares of restricted stock that will be accelerated pursuant to the merger agreement, (v) the estimated values of the cash-out of the accelerated restricted stock, (vi) the estimated values of the cash-out of the remaining restricted stock, (vii) the number of restricted stock units outstanding, (viii) the estimated value of the cash-out of the restricted stock units, and (ix) the total value of the cash-out of all of the equity awards. The calculations are based on (i) an assumed closing date of October 1, 2011, including with respect to calculating the portion of equity awards subject to

acceleration of vesting (assuming continued vesting of the equity and assuming that all Company options and unvested shares of restricted stock remain outstanding on such date), (ii) the price per share of $45.00, and (iii) the equity holdings of the named executive officers and directors as of July 12, 2011 (assuming no vesting of awards or exercises of Company options after July 12, 2011).

 

 

 

 

New Arrangements with Blackboard Executive Officers and Other Key Employees

 

As of the date of this proxy statement, none of the Company’s executive officers or other key employees has entered into amendments or modifications to his or her existing employment agreement with the Company in connection with the merger, nor has any entered into any employment or other agreement with Parent or its affiliates. In addition, while it is expected that executive officers and other key employees will hold equity interests in Parent following the merger, none of these individuals has reached any agreement with the Company or Parent as to the amount, terms or conditions of any such equity interests.

Potential Payments upon Termination or Change-in-Control

 

The table below reflects the compensation and benefits that will or may be paid or provided to each of the named executive officers in connection with the merger in the circumstances described below. The named executive officers include the former Chief Financial Officer and a former named executive officer as described below. Severance payments have been calculated based on the named executive officer’s current base salary and target bonus opportunity. Regardless of the manner in which a named executive officer’s employment terminates, the executive is entitled to receive amounts already earned during his term of employment, such as base salary earned through the date of termination. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement. Some of these assumptions are based on information currently available and, as a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. Further, calculations are based on (i) an assumed closing date of October 1, 2011, including with respect to calculating the portion of equity awards subject to acceleration of vesting (assuming continued vesting of the equity and assuming that all Company options and unvested shares of restricted stock remain outstanding on such date), (ii) the price per share of $45.00, (iii) the equity holdings of the named executive officers as of July 12, 2011 (assuming no vesting of awards or exercises of Company options after July 12, 2011), and (iv) the termination of the named executive officers without cause or for good reason immediately following a change in control on October 1, 2011.

 

Golden Parachute Compensation

 

 

 

 

Indemnification and Insurance

 

Following the closing of the merger, Parent shall, and shall cause the surviving corporation and its subsidiaries to, fulfill and honor the obligations of the Company and its subsidiaries with respect to all rights to indemnification, advancement of expenses and exculpation by the Company in favor of each individual who is or was an officer or director of the Company or any subsidiary of the Company at any time prior to the effective time as provided for in the Company’s organizational documents and as provided in certain indemnification agreements between the Company and such persons.

 

The merger agreement further provides that Parent shall cause to be maintained through the sixth anniversary of the effective time the existing directors’ and officers’ liability insurance coverage (provided that Parent shall not be obligated to expend in any one year an amount in excess of 300% of the annual premiums currently paid by the Company for such insurance). In lieu of such coverage, the Company may obtain prior to the effective time a prepaid “tail” policy on the existing policy of directors’ and officers’ liability insurance maintained by the Company for a period ending no earlier than the sixth anniversary of the effective time (provided that, with respect to such “tail” policy, the Company shall not expend in excess of 300% of the annual premiums paid by the Company for its current directors’ and officers’ liability insurance policy).

 

Director Compensation

 

The Board approved, upon the recommendation of the Compensation Committee, additional retainer fees to be paid to the chairperson and members of the Transaction Committee in recognition of the additional time commitment required of the members of the Transaction Committee. The chair of the Transaction Committee is to be paid a retainer of $35,000. Non-chair members of the Transaction Committee are to be paid a retainer of $25,000 each.

 

The merger will be accounted for under the purchase method of accounting as a “purchase transaction” for financial accounting purposes, in accordance with GAAP.

 

The following discussion summarizes certain material U.S. federal income tax considerations that may be relevant to U.S. Holders (as defined below) of our common stock whose shares will be converted into cash in the merger and who will not own (actually or constructively) any shares of the Company’s common stock after the merger. This discussion is based on the Internal Revenue Code of 1986, as amended (which we refer to as the “Code” ), Treasury regulations, administrative decisions and rulings of the Internal Revenue Service (which we refer to as the “IRS” ), court decisions, and other applicable authorities, all as in effect as of the date hereof, all of which are subject to change (possibly with retroactive effect) and all of which are subject to

differing interpretation, which could result in U.S. federal income tax consequences different from those discussed below.

 

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to beneficial holders of Company common stock in light of their particular circumstances or to persons subject to special treatment under the federal income tax laws. In particular, this discussion deals only with persons that beneficially hold shares of Company common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). Except as expressly provided below, this discussion does not address the tax treatment of special classes of persons, such as banks, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, traders in securities, regulated investment companies, real estate investment trusts, persons holding shares of our common stock as part of a hedge, straddle or other risk reduction, constructive sale, conversion transaction, or other integrated transaction, U.S. expatriates, U.S. Holders whose functional currency is not the U.S. dollar, U.S. Holders who exercise appraisal rights, U.S. Holders that beneficially own stock of Parent, and persons who acquired shares of our common stock as compensation, pursuant to the exercise of Company options or otherwise in connection with the performance of services to the Company or any of its affiliates. Furthermore, this discussion does not address any state, local or non-U.S. tax considerations or alternative minimum tax or non-U.S. federal income tax considerations.

 

For purposes of the following discussion, a “U.S. Holder” means a beneficial owner of our common stock that is (i) a citizen or resident of the United States; (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if (1) a United States court is able to exercise primary supervision over the administration of such trust and one or more United States persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a United States person.

 

If a partnership, or an entity treated as a partnership for federal income tax purposes, holds shares of our common stock, the federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. This discussion does not address the tax treatment of partnerships or persons who hold their shares of common stock through partnerships for U.S. federal income tax purposes. A partner in a partnership holding shares of our common stock should consult its tax advisor regarding the consequences to them of the merger.

 

EACH HOLDER OF OUR COMMON STOCK IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR REGARDING THE SPECIFIC U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.

 

The exchange of shares of our common stock for cash pursuant to the merger generally will be a taxable transaction to U.S. Holders for U.S. federal income tax purposes. A. U.S. Holder of our common stock that exchanges such common stock in the merger for cash should recognize capital gain or loss equal to the difference, if any, between the amount of cash received in the merger (determined before the deduction of any applicable withholding taxes) in exchange for such common stock and the U.S. Holder’s adjusted basis in such common stock. Gain or loss should be determined separately for each identifiable block of shares of our common stock (generally, such stock acquired at different prices or at different times). Such gain or loss should be capital gain or loss and should be long-term capital gain or loss if the U.S. Holder’s holding period for such shares is more than one year at the time of the merger. The deductibility of capital losses is subject to certain limitations.

 

Cash payments received by a U.S. Holder in exchange for such U.S. Holder’s common stock in the merger may be subject to information reporting, and may be subject to backup withholding at the applicable rate (currently 28%), unless the U.S. Holder or other payee (i) provides a valid taxpayer identification number on IRS Form W-9 (or other appropriate withholding form) and complies with certain certification procedures or (ii) otherwise establishes an exemption from backup withholding. Backup withholding is not an additional United States federal income tax, rather any amounts withheld may be credited against the U.S. Holder’s

federal income tax liability, and if the backup withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

 

The discussion set forth above is included for general information only. Each beneficial owner of shares of the Company’s common stock should consult his, her or its own tax advisor as to the United States federal income tax consequences of the merger, as well as the effects of state, local and non-United States tax laws or any other United States federal tax laws.

 

In connection with the merger, we are required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies, including: (i) filing the certificate of merger with the Secretary of State of the State of Delaware in accordance with the DGCL after the adoption of the merger agreement by our stockholders; and (ii) complying with U.S. federal securities laws.

 

In addition, under the HSR Act, and the related rules and regulations that have been issued by the FTC, certain transactions having a value above specified thresholds may not be consummated until specified information and documentary material have been furnished to the FTC and the DOJ and certain waiting period requirements have been satisfied. The requirements of the HSR Act apply to the acquisition of shares of Company common stock in the merger. The notification and report forms were filed by Parent and the Company with the FTC and DOJ on July 7, 2011.

 

At any time before or after consummation of the merger, notwithstanding the early termination of the waiting period under the HSR Act, the DOJ, the FTC or state or foreign antitrust and competition authorities could take such action under applicable antitrust laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of the Company or Parent. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

 

There can be no assurance that the merger will not be challenged on antitrust grounds or, if such a challenge is made, that the challenge will not be successful. Similarly, there can be no assurance that the Company or Parent will obtain the regulatory approvals necessary to consummate the merger or that the granting of these approvals will not involve the imposition of conditions to the consummation of the merger or require changes to the terms of the merger. These conditions or changes could result in the conditions to the merger not being satisfied prior to the end date (which is described in “The Merger Agreement — Termination of the Merger Agreement” beginning on page [ • ] ) or at all.

 

If the merger is completed, the Company’s common stock will be delisted from NASDAQ and deregistered under the Exchange Act. Following the merger, the Company will no longer be an independent public company.

 

On July 7, 2011, a purported class action relating to the transactions contemplated by the merger agreement was filed in the Delaware Chancery Court against the Company, the Board, Providence, Parent and Acquisition Sub entitled Astor BK Realty v. Michael L. Chasen, et. al. On July 8, 2011, a purported class action relating to the transactions contemplated by the merger agreement was filed in the Superior Court for the District of Columbia against the Company, the Board, Providence, Parent and Acquisition Sub entitled Leroy Pogodzinski v. Blackboard Inc. et. al. On July 19, 2011, a purported class action relating to the transactions contemplated by the merger agreement was filed in the Superior Court for the District of Columbia against the Company, the Board, Providence, Parent and Acquisition Sub entitled Eve Wachsler v. Blackboard Inc. et. al.

 

The lawsuits generally allege that the Board breached its fiduciary duties by, among other things, approving the transactions contemplated by the merger agreement, which allegedly were financially unfair to

the Company and its public stockholders, and agreeing to provisions in the merger agreement that will allegedly prevent the Board from considering other offers. The lawsuits further allege that certain defendants aided and abetted these breaches. The lawsuits seek unspecified damages and equitable relief, including an injunction halting the transaction or rescission of the transaction as applicable. The Company believes the allegations in the lawsuits are without merit and intends to vigorously defend these matters.

 

One of the conditions to the closing of the merger is that no injunction shall have been issued by a court of competent jurisdiction that shall be continuing that prohibits the consummation of the merger. If any plaintiff is successful in obtaining an injunction prohibiting the completion of the merger on the agreed-upon terms, then such injunction may delay the commencement of the marketing period, prevent the merger from becoming effective, or from becoming effective within the expected time frame.

 

This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by our Board for use at our special meeting of stockholders to be held at [ • ] , local time, on [ • ] , 2011, at [ • ] , and at any adjournments or postponements of the meeting. The purpose of the special meeting is to consider and vote on the following proposals:

 

 

At this time, we know of no other matters to be submitted to our stockholders at the special meeting. If any other matters properly come before the special meeting or any adjournment or postponement of the special meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent in accordance with their judgment.

 

Our stockholders must adopt the merger agreement for the merger to occur. If the stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about [ • ] , 2011.

 

Acting upon the unanimous recommendation of the transaction committee of the Board composed entirely of independent directors (which we refer to as the “Transaction Committee” ), our Board, at a meeting held on June 30, 2011, unanimously (i) determined that the merger and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth in the merger agreement, are fair to, and in the best interests of, the Company and its stockholders, (ii) authorized and approved the execution, delivery and performance of the merger agreement by the Company and the transactions contemplated by the merger agreement, (iii) declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable, and (iv) recommended that the stockholders of the Company adopt the merger agreement. For a discussion of the material factors considered by our Board in reaching its conclusions, see “The Merger — Purpose of and Reasons for the Merger; Recommendation of the Transaction Committee and Our Board.”

 

Our Board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement, “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies and “FOR” the approval, on a non-binding advisory basis, of the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

The holders of record of the Company’s common stock as of the close of business on [ • ] , 2011, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were [ • ]  shares of Company common stock outstanding.

 

A quorum of stockholders is necessary to hold a valid special meeting. The presence at the special meeting of the holders of a majority of the shares of Company common stock issued and outstanding as of the

close of business on the record date, in person or by proxy, will constitute a quorum for purposes of the special meeting.

 

Shares of Company common stock held by persons attending the special meeting but not voting, or shares for which the Company has received proxies with respect to which holders have abstained from voting, will be considered abstentions. For purposes of determining the presence or absence of a quorum, abstentions and properly executed “broker non-votes” (where a broker, bank or other nominee does not have discretionary authority to vote on a matter, as described in more detail below under “Voting of Proxies” ) will be counted as present.

 

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock outstanding on the record date that are entitled to vote at the special meeting. Each outstanding share of Company common stock on the record date entitles the holder to one vote at the special meeting. Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and entitled to vote on the matter. Approval of the non-binding advisory proposal regarding the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger requires the affirmative vote of the holders of a majority of shares of Company common stock present in person or represented by proxy at the special meeting and voting on the matter.

 

If a Company stockholder fails to vote or abstains from voting, it will have the same effect as a vote “AGAINST” adoption of the merger agreement. A failure to vote will have no effect on the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies, but an abstention will have the same effect as a vote “AGAINST” such proposal. A failure to vote or an abstention will have no effect on the proposal to approve certain “golden parachute” compensation. Each “broker non-vote” will also have the same effect as a vote against adoption of the merger agreement, but will have no effect on the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies or the proposal to approve certain “golden parachute” compensation. The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on the Company. Therefore, if the merger is approved by our stockholders and completed, the “golden parachute” compensation will still be paid to the named executive officers if and when due even if a majority of the shares of Company common stock present in person or by proxy at the special meeting and voting on the matter do not vote in favor of the related proposal.

 

As of the close of business on [ • ] , 2011, the record date, the Company’s directors and executive officers held and are entitled to vote, in the aggregate, [ • ]  shares of Company common stock (excluding Company options and restricted stock units), representing approximately [ • ] % of the aggregate Company common stock outstanding as of the record date. The directors and executive officers of the Company intend to vote their shares “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies and “FOR” the approval, on a non-binding advisory basis, of the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

If your shares are registered in your name, you may cause your shares to be voted by returning a signed proxy card or you may vote in person at the special meeting. Additionally, you may submit a proxy authorizing the voting of your shares over the Internet at [ • ] or telephonically by calling [ • ] . Proxies submitted over the Internet or by telephone must be received by [ • ] , Eastern time, on [ • ] , 2011. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a

proxy over the Internet or telephone. Based on your Internet and telephone proxies, the proxy holders will vote your shares according to your directions.

 

If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares are registered in your name, you are encouraged to sign and return the enclosed proxy card even if you plan to attend the special meeting in person.

 

Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. If your proxy card is properly executed, but no instructions are indicated on your proxy card, your shares of common stock will be voted in accordance with the recommendation of the Board to vote “FOR” the adoption of the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies and “FOR” the approval, on a non-binding advisory basis, of the “golden parachute” compensation that will or may be received by certain executive officers of the Company in connection with the merger.

 

If your shares are held in “street name” through a broker, bank or other nominee, you should instruct your broker, bank or other nominee how to vote your shares using the instructions provided by your broker, bank or other nominee. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee and they can give you directions on how to vote your shares. If you do not provide voting instructions to your broker, bank or other nominee, your shares will not be voted on any proposal on which your broker, bank or other nominee does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker, bank or other nominee can register your shares as being present at the meeting for purposes of determining the presence of a quorum but will not be able to vote on matters for which specific authorization is required. Organizations who hold shares in “street name” for customers may not exercise their voting discretion with respect to the approval of non-routine matters such as the proposal to adopt the merger agreement. If you do not instruct your broker, bank or other nominee how to vote, or do not attend the special meeting and vote in person with a legal proxy from your broker, bank or other nominee, it will have the same effect as if you voted “AGAINST” adoption of the merger agreement, but will have no effect on the adjournment proposal or the “golden parachute” compensation proposal.

 

PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD. IF THE MERGER IS COMPLETED, SEPARATE INSTRUCTIONS AND A LETTER OF TRANSMITTAL WILL BE MAILED TO YOU IF YOU ARE A STOCKHOLDER OF RECORD THAT WILL ENABLE YOU TO RECEIVE THE MERGER CONSIDERATION IN EXCHANGE FOR YOUR COMPANY STOCK CERTIFICATES.

 

You have the right to change or revoke your proxy at any time before the vote taken at the special meeting by:

 

 

Please note that if you hold your shares in “street name” through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to vote your shares, the above-described options for changing your vote do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to change your vote.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting of the time, date and place, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote, of the adjourned meeting. We are required to give notice, however, if a new record date is set for the adjourned meeting, or if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed. Adjournment of the special meeting to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement requires the affirmative vote of the holders of at least a majority of the voting power of the Company’s common stock present, in person or by proxy, and entitled to vote at the special meeting, whether or not a quorum is present. In addition, at any time prior to convening the special meeting, the special meeting may be postponed without the approval of the Company’s stockholders. If postponed, the Company will publicly announce the new meeting date. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

Stockholders are entitled to appraisal rights under the DGCL in connection with the merger. This means that you are entitled to have the fair value of your shares of Company common stock determined by the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery” ) in accordance with the DGCL and to receive payment based on that valuation in lieu of receiving the merger consideration, but only if you comply with the relevant requirements of the DGCL, which are summarized on page [ • ] of this proxy statement. The ultimate amount you receive in an appraisal proceeding may be less than, equal to or more than the amount you would have received under the merger agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to the Company before the vote is taken on the merger agreement, you must not vote in favor of the proposal to adopt the merger agreement and you must continuously hold your shares of Company common stock from the date you make the demand for appraisal through the effective date of the merger. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. See “Appraisal Rights” and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex C to this proxy statement. If you hold your shares of Company common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or nominee. In view of the complexity of the DGCL, stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 

This proxy solicitation is being made by and paid for by the Company on behalf of the Board. In addition to soliciting stockholders by mail, we may request banks, brokers and other custodians, nominees and fiduciaries to solicit their customers who have our stock registered in the names of a nominee and, if so, will reimburse such banks, brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs. Solicitation by our directors, officers and employees, without additional compensation, may also be made of some stockholders in person or by mail, telephone or email following the original solicitation. The Company has retained Okapi Partners to assist it in the solicitation of proxies for the special meeting and will pay Okapi Partners a fee of approximately $25,000 plus certain costs associated with additional services, if required. We also have agreed to reimburse Okapi Partners for out-of-pocket expenses and to indemnify them against certain losses arising out of its proxy solicitation services.

 

The Board knows of no other matters to be brought before the special meeting. If any other matters are properly brought before the special meeting, the persons appointed in the accompanying proxy intend to vote the shares represented thereby in accordance with their best judgment on such matters, under applicable laws.

 

If you have more questions about the merger, need assistance in submitting your proxy or voting your shares, or need additional copies of this proxy statement or the enclosed proxy card, you should contact us in writing at Blackboard Inc., 650 Massachusetts Avenue NW, 6th Floor, Washington, D.C. 20001, Attention: Corporate Secretary, or by telephone at (202) 463-4860. You may also contact the Company’s proxy solicitor, Okapi Partners, at 437 Madison Avenue, 28th Floor, New York, NY 10022, or by telephone at (212) 297-0720 or toll free at (855) 208-8902.

 

This section of the proxy statement summarizes material provisions of the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We encourage you to read carefully the merger agreement in its entirety, as the rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement.

 

The merger agreement and this summary of its terms have been included to provide you with information regarding its terms. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the merger agreement and described in this summary. The merger agreement contains representations and warranties made by and to the Company, Parent and Acquisition Sub as of specific dates. The statements embodied in those representations and warranties were made for purposes of that contract between the parties and are subject to qualifications and limitations agreed by the parties in connection with negotiating the terms of that contract. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue because of a change in circumstances or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and in some cases were qualified by disclosures that may be made by each party to the other, which disclosures are not reflected in the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

 

The merger agreement provides that, at the effective time, Acquisition Sub, a wholly owned subsidiary of Parent, will merge with and into the Company, upon the terms and subject to the conditions set forth in the merger agreement. After the merger, the Company will continue as the surviving corporation in the merger as a wholly owned subsidiary of Parent. As the surviving corporation, the Company will continue to exist following the merger.

 

The surviving corporation will be a privately held corporation and the Company’s current stockholders, other than any institutional co-investors and Company executive officers and other key employees who will hold an ownership interest in the surviving corporation, will cease to have any ownership interest in the surviving corporation or rights as Company stockholders. Therefore, such current stockholders will not participate in any future earnings or growth of the surviving corporation and will not benefit from any appreciation in value of the surviving corporation.

 

Upon consummation of the merger, the directors of Acquisition Sub will be the initial directors of the surviving corporation, and the officers of the Company will be the initial officers of the surviving corporation. All directors and officers of the surviving corporation will hold their positions until their successors are duly elected or appointed and qualified or their earlier resignation or removal. As a result of the merger, the certificate of incorporation of the Company will be amended and restated in accordance with the merger agreement. The bylaws of the Company will be amended as a result of the merger to conform to those of Acquisition Sub immediately prior to the consummation of the merger. The certificate of incorporation and bylaws as so amended will be the certificate of incorporation and bylaws of the surviving corporation.

Following the completion of the merger, the Company’s shares of common stock will be delisted from NASDAQ and deregistered under the Exchange Act, and cease to be publicly traded.

 

Effective Time

 

The closing of the merger will occur on the later of (i) the date two business days after the earliest date as of which each of the closing conditions (described in “Conditions to the Completion of the Merger” below) has been satisfied or waived, and (ii) the final day of the marketing period. The merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at such later time as may be jointly designated by Parent and the Company and specified in the certificate of merger), which we refer to as the “effective time.” We expect to complete the merger as promptly as practicable after our stockholders adopt the merger agreement (assuming the prior satisfaction of the other closing conditions to the merger and the end of the marketing period as described below).

 

Marketing Period

 

The term “marketing period” means the first period of 20 consecutive business days commencing after (i) June 30, 2011 during which Parent shall have received certain financial statements, pro forma financial statements and other financial, business and other pertinent information relating to the Company and its subsidiaries of the type that would be required by the applicable SEC requirements for registered public offerings of non-convertible debt securities and such other pertinent and customary information regarding the Company and its subsidiaries as may reasonably be requested by Parent, to the extent the same is of the type and form customarily included in a Rule 144A offering memorandum for private placements of non-convertible high yield debt securities, and meets certain other requirements, which we refer to as the “required financial information,” and (ii) the date that the definitive proxy statement has been mailed to holders of Company common stock, and ending on the earlier of (i) the date 20 consecutive business days throughout and at the end of which (a) Parent has all of the required financial information, and (b) each of the following closing conditions is satisfied or has been waived, assuming that such conditions were applicable at any time during such 20 business day period:

 

 

and (ii) the date on which the debt financing is obtained.

 

If the Company in good faith believes it has delivered the required financial information to Parent, it may deliver to Parent a written notice to that effect, specifying the date on which it believes it completed the delivery of the required financial information, and the marketing period will be deemed to have commenced on the date specified in that notice unless (i) Parent reasonably determines that the Company has not completed delivery of the required financial information and (ii) within three days after the delivery of such

notice by the Company, Parent delivers a written notice to the Company to that effect, stating with reasonable specificity which required financial information the Company has not delivered.

 

The marketing period will exclude the periods beginning on and including August 20, 2011 through and including September 5, 2011 and beginning on and including December 17, 2011 through and including January 2, 2012 and will not be deemed to have commenced if, after the date of the merger agreement and prior to the completion of the marketing period:

 

 

If a mutual closing condition or a condition to the obligations of Parent and Acquisition Sub under the merger agreement has not been satisfied and the failure to satisfy such condition results from the failure of Parent or Acquisition Sub to use its required efforts to consummate the merger and the other transactions contemplated by the merger agreement or otherwise comply with its obligations under the merger agreement, such condition shall be deemed satisfied for purposes of clause “(b)” of this definition of marketing period (as set forth above), however, this sentence shall not be deemed to require Parent and Acquisition Sub to consummate the merger unless such mutual closing conditions and conditions to the obligations of Parent and Acquisition Sub under the merger agreement have been satisfied.

 

Except as noted below, each share of Company common stock issued and outstanding immediately prior to the effective time will be automatically converted at the effective time into the right to receive $45.00 in cash, which we refer to as the “merger consideration,” without interest and less any applicable withholding taxes. The following shares of Company common stock will not receive the merger consideration:

 

 

At the effective time, each holder of a certificate formerly representing any shares of Company common stock (or evidence of shares in book-entry form) (other than shares of Company common stock for which appraisal rights have been properly demanded, perfected and not withdrawn or lost under Section 262 of the DGCL) will no longer have any rights with respect to such shares of Company common stock, except for the right to receive the merger consideration upon surrender thereof. See “Appraisal Rights” below.

 

Prior to the effective time, Parent (after consultation with and approval of the Company) shall select a reputable bank or trust company to act as paying agent (the “paying agent” ) with respect to the merger. At or immediately following the effective time, Parent shall cause to be paid to the paying agent, in cash, an amount sufficient to pay the merger consideration to holders of shares of Company common stock.

 

As promptly as reasonably practicable after the effective time, Parent will cause the paying agent to mail to each holder of record of shares of Company common stock a letter of transmittal and instructions advising such holders how to surrender their certificates for the merger consideration. The paying agent, upon receipt of a certificate or book-entry share, together with, in the case of certificates, a completed and executed letter of transmittal, or in the case of book-entry shares, an “agent’s message,” will pay the holder of such certificates or book-entry shares the merger consideration in respect of such shares. The certificate or book-entry shares so surrendered will be cancelled. No interest will be paid or will accrue on any merger consideration payable. The surviving corporation will reduce the amount of any merger consideration paid to you by any applicable withholding taxes. You should not forward your stock certificates to the paying agent without an executed letter of transmittal, and you should not return your stock certificates with the enclosed proxy.

 

At the effective time, we will close our stock transfer books and there will be no transfers on the stock transfer books of the surviving corporation of shares of Company common stock that were outstanding immediately prior to the effective time. If, after the effective time, any person presents to the surviving corporation, Parent or the paying agent any certificates or any transfer instructions relating to shares cancelled in the merger, such person will be given a copy of the letter of transmittal and instructed to comply with the instructions in that letter of transmittal in order to receive the merger consideration to which such person may be entitled.

 

Any portion of the merger consideration deposited with the paying agent that remains unclaimed by former stockholders of the Company for one year after the effective time will be delivered to the surviving corporation if requested by the surviving corporation. Former stockholders who have not complied with the payment procedures shall thereafter be entitled to look to Parent and the surviving corporation for payment of the merger consideration upon surrender of their certificates or book-entry shares, and Parent and the surviving corporation will be responsible for the payment of such amounts. Parent, the paying agent and the surviving

corporation will not be liable to any holder of a certificate or book-entry share for any amount properly paid to a public official pursuant to any applicable abandoned property or escheat law.

 

If any certificate is lost, stolen or destroyed, the stockholder will have to make an affidavit to that fact and, if required by the surviving corporation, post a bond in customary and reasonable amount as indemnification against any claim that may be made against it with respect to such certificate in order for the paying agent to deliver the applicable merger consideration with respect to such lost, stolen or destroyed certificate.

 

Parent and the surviving corporation will bear and pay any and all charges and expenses, including those of paying agent, incurred in connection with the payment for shares of Company common stock.

 

The merger agreement provides that, as soon as reasonably practicable after the date of the merger agreement, the Company will adopt resolutions and take all other action necessary to provide that:

 

 

 

After the effective time, the Company equity plans shall be terminated and no such Company option, restricted Company shares or Company restricted stock units shall be outstanding.

 

The Company makes various representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications. The Company’s representations and warranties relate to, among other things:

 

 

 

Material Adverse Effect Definition

 

Many of our representations and warranties are qualified by a material adverse effect standard. For purposes of the merger agreement, “material adverse effect” means any change, effect, event or occurrence that (i) is, or would reasonably be expected to be, materially adverse to the business, operations or financial condition of the Company and its subsidiaries, taken as a whole, or (ii) would reasonably be expected to prevent or materially impair or delay the consummation of the transactions contemplated by the merger agreement. However, none of the following shall be deemed either alone or in combination to constitute, and none of the following shall be taken into account in determining whether there has been, is or would reasonably be expected to be a material adverse effect:

 

 

You should be aware that these representations and warranties are made by the Company to Parent and Acquisition Sub, may be subject to important limitations and qualifications agreed to by Parent and Acquisition Sub, may or may not be accurate as of the date they were made and do not purport to be accurate as of the date of this proxy statement.

 

The merger agreement also contains various representations and warranties made by Parent and Acquisition Sub that are subject, in some cases, to specified exceptions and qualifications. The representations and warranties relate to, among other things:

 

 

 

Under the merger agreement, the Company has agreed that, except (i) to the extent Parent consents in writing (which consent shall not be unreasonably withheld, conditioned or delayed), (ii) as set forth in disclosure schedules to the merger agreement, (iii) as required, contemplated or permitted by the merger agreement, (iv) as may be necessary to carry out the transactions contemplated by the merger agreement, or (v) as may be required to comply with any legal requirements, the Company will, and will cause each of its subsidiaries to:

 

 

The Company has also agreed that, except (i) to the extent Parent consents in writing (which consent, subject to limited exceptions, shall not be unreasonably withheld, conditioned or delayed), (ii) as set forth in disclosure schedules to the merger agreement, (iii) as required, contemplated or permitted by the merger agreement, (iv) as may be necessary to carry out the transactions contemplated by the merger agreement, or (v) as may be required to comply with any legal requirements, it will not, and will not permit any of its subsidiaries to:

 

 

 

 

The Company has agreed that it and its subsidiaries will not, and the Company will instruct and use its reasonable best efforts to cause its representatives not to:

 

 

The Company has agreed that any violation of the restrictions set forth above by any subsidiary or representative of the Company will be a breach of the merger agreement by the Company.

 

Notwithstanding the aforementioned restrictions, if, at any time prior to the adoption of the merger agreement by the Company’s stockholders, (i) the Company has received a written inquiry or alternative acquisition proposal from a third party that the Board or any Board committee determines in good faith to be bona fide, (ii) the Board or any Board committee determines in good faith, after consultation with its financial advisor and outside legal counsel, that such inquiry or alternative acquisition proposal constitutes or would reasonably be expected to result in a superior proposal (as defined below), (iii) the Board or any Board committee determines in good faith, after consultation with its financial advisor and outside legal counsel, that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties under applicable legal requirements and (iv) such inquiry or alternative acquisition proposal did not result from a material breach of the non-solicitation provision contained in the merger agreement by the Company, any subsidiary of the Company or any of the Company’s representatives, then the Company and its subsidiaries and representatives may (a) engage in any discussions or negotiations regarding such inquiry or alternative acquisition proposal with the third party making such inquiry or alternative acquisition proposal and (b) provide the third party making such inquiry or alternative acquisition proposal with any non-public or other information regarding the Company, any subsidiary of the Company or any other matter. The Company has agreed that (1) prior to engaging in any such discussions, the Company will give Parent written notice of its intention to engage in discussions or negotiations with, or furnish material non-public information to, such third party, (2) prior to providing any material non-public information to such third party, the Company will enter into an acceptable confidentiality agreement with such third party, and (3) prior to providing any material non-public information to such third party, the Company will make any such material non-public information available to Parent.

 

The Company has agreed to, as promptly as practicable (but, in any event, within 24 hours), notify Parent in writing of the receipt of (i) any alternative acquisition proposal, (ii) any request for non-public information in connection with any alternative acquisition proposal or (iii) any request for discussions or negotiations relating to any alternative acquisition proposal. The notice must indicate the identity of the person making such alternative acquisition proposal and the material terms and conditions of such alternative acquisition

proposal. The Company has agreed to keep Parent informed of any material developments with respect to any such alternative acquisition proposal.

 

For purposes of the merger agreement, an “alternative acquisition proposal” is any inquiry from any third party relating to, or any proposal or offer from any such third party for, any (a) merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution, share exchange or similar transaction, whether in a single transaction or a series of related transactions, pursuant to which any person would own, directly or indirectly, 20% or more of the outstanding equity securities of the Company or of the surviving entity in any such transaction or the resulting direct or indirect parent of the Company or such surviving entity, (b) any purchase (including by means of a tender offer, exchange offer or otherwise), in each case, whether in a single transaction or a series of related transactions, that results or, if consummated, would result in any person(s) owning, directly or indirectly, 20% or more of the outstanding shares of the capital stock of the Company or (c) any direct or indirect acquisition or purchase by any person from the Company or any subsidiary of the Company in any manner, in each case, whether in a single transaction or a series of related transactions, of assets (including capital stock of any Company subsidiaries) representing 20% or more of the consolidated assets or the consolidated revenues of the Company, other than the merger.

 

For purposes of the merger agreement, a “superior proposal” means any bona fide alternative acquisition proposal (except that, for purposes of the definition of superior proposal, the references in the definition of alternative acquisition proposal to “20%” will be replaced by “51%”) made in writing that is determined in good faith by the Board, after consultation with the Company’s outside legal and financial advisors, to be (i) reasonably capable of being consummated and (ii) more favorable to the holders of Company common stock, from a financial point of view, than the merger, taking into account any factors that the Board deems appropriate, including (to the extent deemed by the Board to be appropriate for consideration) any changes to the financial and other terms of the merger agreement proposed by Parent to the Company.

 

The merger agreement also required the termination of any existing solicitations, discussions or negotiations with any persons regarding an alternative acquisition proposal that were being conducted before the merger agreement was signed.

 

The Board has resolved to recommend that our stockholders adopt the merger agreement. Under the merger agreement, the Board (or any Board committee) is not permitted to: (i)(A) withdraw or qualify, change or modify, in a manner adverse to Parent, or publicly propose to withdraw or qualify, change or modify, in a manner adverse to Parent, the Board recommendation in favor of the merger agreement; (B) publicly recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any alternative acquisition proposal; or (C) fail to include the Board recommendation in favor of the merger agreement in this proxy statement (we refer to any action described in this clause “(i)” as a “recommendation change” ); or (ii) approve or publicly recommend, or publicly propose to approve or recommend, or cause or permit the Company or any of its subsidiaries to execute or enter into with any person that makes an alternative acquisition proposal, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement or other similar agreement related to any alternative acquisition proposal (other than any acceptable confidentiality agreement) (each such agreement, an “acquisition agreement” ).

 

Notwithstanding the above restrictions or anything else contained in the merger agreement to the contrary, at any time prior to obtaining the Company stockholder approval, the Board may, if it determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to take such action would reasonably be expected to be inconsistent with its fiduciary duties under applicable legal requirements, (i) make a recommendation change in response to (A) a superior proposal that did not result from a material breach by the Company or its subsidiaries or representatives of the non-solicitation provisions of the merger agreement or (B) an intervening circumstance (as defined below), and (ii) in response to a superior proposal that did not result from a material breach of the non-solicitation provision of the merger agreement by the Company or its subsidiaries or representatives, cause the Company to terminate the merger agreement.

A recommendation change due to an intervening circumstance may not be made unless (i) the Company has delivered to Parent a written notice advising Parent that the Board intends to effect a recommendation change as a result of an intervening circumstance and specifying the reasons therefor and describing such intervening circumstance in reasonable detail, (ii) at least three business days have elapsed following the delivery of such notice of recommendation change, (iii) during such three business day period, if requested by Parent, the Company has negotiated in good faith with Parent in an attempt to make such adjustments to the terms and conditions of the merger agreement as would enable the Board to determine not to effect a recommendation change, and (iv) the Board has in good faith taken into account any changes to the terms and conditions of the merger agreement and the guarantee that are reflected in any proposed definitive amendments that were countersigned by Parent, Acquisition Sub and the guarantors, as applicable, and delivered by Parent to the Company during such three business day period.

 

For purposes of the merger agreement, “intervening circumstance” means any change, event, development or circumstance that occurs or exists prior to the obtaining of the Company stockholder approval and that the Board determines in good faith makes it appropriate to consider a recommendation change.

 

A recommendation change in response to a superior proposal may not be made unless, (a) the Company has delivered to Parent a written notice advising Parent that the Board intends to make a recommendation change and/or terminate the merger agreement specifying the material terms and conditions of such superior proposal and the identity of the person making such superior proposal, accompanied by a copy of the then-current form of any acquisition agreement, merger agreement or similar agreement with respect to such superior proposal that the Company has received from the person that made such superior proposal, together with copies of any commitment letters or similar material documents received by the Company with respect to any financing for such superior proposal; (b) at least three business days have elapsed following the delivery of such notice of superior proposal; (c) during such three business day period following the delivery of such notice of superior proposal, if requested by Parent, the Company has negotiated in good faith with Parent in an attempt to make such adjustments to the terms and conditions of the merger agreement and the guarantee as would enable the Board to determine not to make a recommendation change and/or terminate the merger agreement; and (d) the Board has in good faith taken into account any changes to the terms and conditions of the merger agreement and the guarantee that are reflected in any proposed definitive amendments thereto that were countersigned by Parent, Acquisition Sub and the guarantors, as applicable, and were delivered by Parent to the Company during such three business day period. In the event there is an amendment to the financial or material terms of such superior proposal, a new notice of superior proposal is required, except that the applicable time period for purposes of the foregoing is reduced to 48 hours from three business days.

 

In order to enter into an alternative acquisition agreement with respect to a superior proposal, we must terminate the merger agreement in accordance with the terms of the merger agreement. See “Termination of the Merger Agreement” and “Termination Fees; Expenses” below.

 

Notwithstanding these restrictions, subject to certain conditions, our Board may make certain disclosures contemplated by the securities laws or other applicable laws.

 

If (i) any public announcement regarding an alternative acquisition proposal is made by the Company or the person making such alternative acquisition proposal, (ii) within three business days following such public announcement, Parent delivers to the Company in writing a request that the Board expressly publicly reaffirm the Board recommendation in favor of the merger agreement (the parties having agreed that Parent may make only two such requests in the aggregate during the term of the merger agreement), (iii) the Board does not expressly publicly reaffirm the Board recommendation in favor of the merger agreement during the period of ten business days following the delivery to the Company of such request and (iv) the Board does not make a recommendation change during such ten business day period, then, solely for purposes of the applicable termination provision of the merger agreement, the Company will be deemed to have made a recommendation change on the last day of such ten business day period.

 

The merger agreement requires the Board to, as promptly as reasonably practicable following the date the SEC staff advises the Company that it has no further comments on the proxy statement or that the Company may commence mailing the proxy statement, but in no event later than five business days after such date, establish a record date for, duly call and give notice of, and, take all reasonable action necessary to convene and hold, a meeting of holders of Company common stock to obtain the Company stockholder approval required for the adoption of the merger agreement, and, unless the Board has effected a recommendation change in accordance with the merger agreement, (i) the Company shall use its reasonable best efforts to solicit proxies in favor of the adoption of the merger agreement, and (ii) the Company shall include the Board recommendation in the proxy statement. In addition, under certain circumstances, the Company is permitted to adjourn or postpone the Company stockholder meeting, and Parent is permitted to cause us to adjourn the Company stockholder meeting.

 

Each of the Company, Parent and Acquisition Sub has agreed to (i) promptly make and effect all registrations, filings and submissions required to be made or effected by it pursuant to the HSR Act, the Exchange Act and other applicable legal requirements with respect to the merger and (ii) use reasonable best efforts to cause to be taken, on a timely basis, all other actions necessary or appropriate for the purpose of consummating and effectuating the transactions contemplated by the merger agreement.

 

The Company, Parent and Acquisition Sub have agreed to use reasonable best efforts to:

 

 

Each of the parties to the merger agreement, as applicable, has agreed to cause to be prepared and filed as promptly as practicable (in any event within ten days after the date of the merger agreement) a notification and report form pursuant to the HSR Act.

 

The Company, Parent and Acquisition Sub have agreed to notify each other promptly upon receipt of any communication from any governmental entity or court in connection with the merger or any of the other transactions contemplated by the merger agreement and to keep the other parties informed as to the status of any such request, inquiry, investigation, action or legal proceeding. The Company, Parent and Acquisition Sub have also agreed to consult and cooperate with one another and will consider in good faith the views of one another in connection with any analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal made or submitted in connection with any such request, inquiry, investigation or legal proceeding.

 

To the extent necessary in order to obtain any needed consents or approvals from, and avoid any actions by, any governmental entity, or to otherwise permit the merger to be consummated on a timely basis, Parent has agreed to (in each case, conditioned on consummation of the merger):

 

 

 

Each of Parent and Acquisition Sub has agreed to, and Parent has agreed to cause Acquisition Sub to, use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to arrange and obtain the proceeds of the debt and equity financing, which we refer to collectively as the “financing,” on the terms and conditions set forth in the debt commitment letter and equity commitment letter, which we refer to collectively as the “commitment letters” (or on terms more favorable in the aggregate to Parent and Acquisition Sub), including the execution and delivery of all instruments and documents as may be reasonably required thereunder. Without limiting the generality of the foregoing, each of Parent and Acquisition Sub has agreed to, and Parent has agreed to cause Acquisition Sub to: