DBTK Double-Take Software (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Rule 14a-101)

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

o   Preliminary Proxy Statement

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

þ   Definitive Proxy Statement

 

o   Definitive Additional Materials

 

o   Soliciting Material Pursuant to §240.14a-12

 

DOUBLE-TAKE SOFTWARE, INC

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Common stock, par value $0.001

 

 

 

21,225,190 shares of common stock issued and outstanding, 1,789,983 options to purchase shares of common stock with a per share exercise price less than the per share merger consideration of $10.55 per share of common stock, and 548,778 restricted share units.

 

 

Solely for the purpose of calculating the filing fee, the underlying value of the transaction was calculated as the sum of: (a) 21,225,190 shares of common stock multiplied by $10.55 per share; (b) 1,789,983 options to purchase shares of common stock multiplied by $7.24 (which is the difference between $10.55 and the weighted average exercise price for the options of $3.31 per share) and (c) 548,778 restricted stock units multiplied by $10.55 per restricted stock unit. The filing fee was determined by multiplying $0.00007130 by the maximum aggregate value of the transaction as determined in accordance with the preceding sentence.

 

 

$242,674,839.32

 

 

$17,302.72

 

o   Fee paid previously with preliminary materials.

 

 

 

$17,300.79

 

 

Schedule 14A

 

 

Registrant

 

 

June 2, 2010

 

June 18, 2010

 

Dear Stockholder:

 

The board of directors of Double-Take Software, Inc., a Delaware corporation, has approved a merger agreement providing for the acquisition of Double-Take Software by Vision Solutions, Inc., a company controlled by a private equity fund affiliated with Thoma Bravo, LLC. If the merger contemplated by the merger agreement is completed, you will be entitled to receive $10.55 in cash, without interest, less any applicable withholding taxes, for each share of our common stock owned by you (unless you have properly exercised your appraisal rights with respect to such shares).

 

At a special meeting of our stockholders, you will be asked to consider and vote upon a proposal to adopt the merger agreement and 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 approve the proposal to adopt the merger agreement. The special meeting is to be held on July 22, 2010 at 4:00 p.m. EDT, at The Harvard Club of Boston, located at 374 Commonwealth Avenue, Boston, Massachusetts, 02215.

 

Our board of directors has determined that the merger is advisable and in the best interests of Double-Take Software and its stockholders and approved and declared advisable the merger agreement and the merger and the other transactions contemplated by the merger agreement. The board of directors of Double-Take Software recommends that you vote “FOR” approval of the proposal to adopt the merger agreement and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Your vote is very important.   Whether or not you plan to attend the special 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 the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote will have the same effect as a vote against approval of the proposal to adopt the merger agreement.

 

If your shares of common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of common stock, following the instructions provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of common stock FOR approval of the proposal to adopt the merger agreement will have the same effect as voting against the proposal to adopt the merger agreement.

 

The accompanying proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and its annexes, including the merger agreement, carefully. You may also obtain additional information about Double-Take Software from documents we have filed with the Securities and Exchange Commission.

 

If you have any questions or need assistance voting your shares of common stock, please call The Altman Group, our proxy solicitor, toll-free at (866) 304-2060.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

Dean Goodermote
Chairman, Chief Executive Officer and President

 

The proxy statement is dated June 18, 2010, and is first being mailed to our stockholders on or about June 22, 2010.

 

 

 

 

DOUBLE-TAKE SOFTWARE, INC.
257 Turnpike Road, Suite 210
Southborough, MA 01772

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
July 22, 2010

 

To the Stockholders of Double-Take Software, Inc.:

 

A special meeting of stockholders of Double-Take Software, Inc., a Delaware corporation (“Double-Take Software,” “we,” “us” or “our”), will be held at The Harvard Club of Boston, located at 374 Commonwealth Avenue, Boston, Massachusetts, 02215 on July 22, 2010, beginning at 4:00 p.m. EDT, for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of May 17, 2010, as it may be amended from time to time, which we refer to as the merger agreement, by and among Double-Take Software, Vision Solutions, Inc., a Delaware corporation, which we refer to as Parent, and HA Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.

 

2. To consider and 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 approve the proposal to adopt the merger agreement.

 

3. To transact any other business that may properly come before the special meeting, or any adjournment or postponement of the special meeting, by or at the direction of the board of directors of Double-Take Software.

 

Only stockholders of record of our common stock as of the close of business on June 18, 2010, will be entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. All stockholders of record are cordially invited to attend the special meeting in person.

 

Your vote is very important, regardless of the number of shares of common stock you own.

 

The merger cannot be completed unless the merger agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of common stock entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares of common stock will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by phone or the Internet, your shares of common stock will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

If you are a stockholder of record, voting in person at the special meeting will revoke any proxy previously submitted. If you hold your shares of common stock through a bank, brokerage firm or other nominee, you should follow the instructions provided by your banker, brokerage firm or other nominee in order to vote.

 

Our board of directors has unanimously determined that the merger is advisable and in the best interests of Double-Take Software and its stockholders and approved and declared advisable the merger agreement and the merger and the other transactions contemplated by the merger agreement. Our board of directors 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.

 

Only stockholders of record or their duly authorized proxies have the right to attend the special meeting. To gain admittance, you must present valid photo identification, such as a driver’s license or passport. If your shares of common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of the common stock and valid photo identification. If you are the representative of a corporate or institutional stockholder, you must present valid photo

identification along with proof that you are the representative of such stockholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

 

Stockholders 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 common stock of Double-Take Software if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all the requirements of Delaware law, which are summarized in the accompanying proxy statement and provided in their entirety on Annex D of the accompanying proxy statement.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL 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 THE INTERNET. IF YOU ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.

 

By Order of the Board of Directors,

 

DEAN GOODERMOTE
Chairman, Chief Executive Officer and President

Dated: June 18, 2010

Southborough, Massachusetts

 

TABLE OF CONTENTS

 

 

SUMMARY TERM SHEET

	•	pay our stockholders (and holders of our other equity-based interests) the amounts due to them under the merger agreement; and
	•	pay fees and expenses related to the merger and the debt that will finance the merger,

	•	up to $240 million from a senior secured term loan facility to be obtained by Parent, a portion (approximately $79.9 million) of which will also be used to refinance the existing indebtedness of Parent; and
	•	approximately at least $88.6 million of cash on hand of the Company and approximately at least $21.2 million of cash on hand of Parent.

	•	the vesting and cash-out of all vested and unvested stock options and unvested restricted stock units held by our executive officers;
	•	the cash-out of all vested stock options held by our directors;
	•	pursuant to employment and severance agreements with our executive officers, the payment of severance payments in the event of a termination of employment without cause, whether before or after the merger; and
	•	the payment of amounts to our executive officers under our Executive Bonus Plan.

	•	Common Stock.   At the effective time of the merger, or effective time, each share of common stock issued and outstanding (except for certain shares held by the Company, Parent and Merger Sub, and their indirect and direct wholly-owned subsidiaries, and shares held by stockholders who have properly exercised their appraisal rights) will convert into the right to receive the per share merger consideration of $10.55 in cash, without interest, less any applicable withholding taxes.

	•	Options.   At the effective time, each outstanding option will be cancelled and converted into the right to receive an amount in cash equal to (x) the number of shares of the common stock subject to such option, multiplied by (y) the excess (if any) of the per share merger consideration over the exercise price per share of such option, without interest, less any applicable withholding taxes.
	•	Restricted Stock Units.   Except as provided below, at the effective time, each outstanding restricted stock unit will be cancelled and converted into the right to receive an amount in cash equal to (x) the number of shares of the common stock subject to such restricted stock unit, multiplied by (y) the per share merger consideration, without interest, less any applicable withholding taxes. Certain restricted stock units granted on May 13, 2010 to our non-employee directors as part of their 2010 annual compensation will be cancelled without any consideration therefor in the event that the effective time occurs by the termination date contained in the merger agreement.

	•	by either Parent or the Company, if:

	•	the merger has not been consummated by September 14, 2010, which date may be extended until October 14, 2010 in the event that the closing conditions relating to antitrust clearances have not been satisfied by such time, which date (as it may be extended) we refer to as the termination date (but, the right to terminate will not be available to a party if the failure to consummate the merger prior to the termination date was caused by the actions or omissions of such party, nor will this right to terminate be available at any time during which any legal proceeding relating to the merger agreement is pending between Parent and the Company);

	•	our stockholders have not adopted the merger agreement at a stockholders meeting at which a vote has been taken on the merger agreement; or
	•	a governmental authority of competent jurisdiction shall have enacted a law that is in effect at the time of such termination that renders the merger illegal or issued a permanent, final and non-appealable injunction, ruling, decree or order that prohibits the merger in the United States or any state thereof.

	•	by the Company, if:

	•	the Company is not in material breach of its covenants under the merger agreement and Parent and/or Merger Sub have materially breached or failed to perform any of their respective covenants in the merger

		agreement and have failed to cure such material breach or failure to perform within thirty calendar days after Parent and Merger Sub have received written notice of such breach from the Company, provided that such cure period shall not apply in respect of Parent’s obligation to consummate the closing of the merger in accordance with the terms of the merger agreement;

	•	at any time prior to the adoption of the merger agreement by our stockholders, in order to enter into an alternative acquisition agreement with respect to a superior proposal, provided that (i) concurrently with the termination of the merger agreement, we pay to Parent the termination fee discussed under “The Merger Agreement — Termination Fees” beginning on page 66 and (ii) we have complied with certain of our obligations in the merger agreement, including our obligation to negotiate with Parent in good faith (to the extent Parent desires to negotiate) for three business days prior to termination to make adjustments in the terms and conditions of the merger agreement so that such superior proposal would cease to constitute a superior proposal; or
	•	the conditions to the obligations of Parent and Merger Sub have been satisfied (other than those conditions that (i) by their nature are to be satisfied at the closing and that would be capable of being satisfied if there were a closing or (ii) have not been satisfied as a result of Parent or Merger Sub’s breach or failure to perform any of their respective covenants in the merger agreement) and Parent has failed to consummate the merger within one business day of the satisfaction of such conditions.

	•	by Parent, if:

	•	Parent is not in material breach of its covenants under the merger agreement and the Company has materially breached or failed to perform any of its covenants in the merger agreement and has failed to cure such material breach or failure to perform within thirty calendar days after the Company has received written notice of such breach from the Parent;
	•	at any time prior to the adoption of the merger agreement by our stockholders, any of the following “trigger events” has occurred:

	•	the board of directors has effected a change in the recommendation of the board of directors, or the board recommendation (provided, that Parent’s right to terminate the merger agreement pursuant to this provision will expire ten business days after the last date upon which the board of directors makes such recommendation change);
	•	a tender or exchange offer for the common stock that would, if consummated in accordance with its terms, constitute a competing acquisition transaction, has been commenced by a person unaffiliated with Parent and, within ten business days after the public announcement of the commencement of any takeover proposal, the Company has not issued a public statement reaffirming the recommendation of the board of directors and recommending that the Company’s stockholders reject that takeover proposal and not tender any shares of the common stock into such tender or exchange offer;
	•	the Company has materially breached the Company’s obligations arising under the no solicitation covenant (other than an immaterial or inadvertent breach that would not reasonably be expected to result in a takeover proposal); or
	•	the Company enters into an alternative acquisition agreement with respect to any takeover proposal (other than an acceptable confidentiality agreement).

	•	the Company may be obligated to reimburse the out-of-pocket fees and expenses of Parent and Merger Sub up to $1,500,000 and pay a termination fee of $7,265,410 (less any fees and expenses previously reimbursed, if any), which we refer to as the Company termination fee; or
	•	Parent may be obligated to pay the Company a termination fee of either $14,530,820 or $24,218,034, which we refer to as the Parent termination fee. The Guarantor has agreed to guarantee the obligation of Parent to pay the Parent termination fee pursuant to the limited guarantee as discussed in “The Merger — Limited Guarantee” beginning on page 46.

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Company stockholder. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully. 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 76.

 

 

 

 

 

 

This proxy statement contains certain “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Words such as “expect(s)”, “feel(s)”, “believe(s)”, “will”, “may”, “anticipate(s)”, “intend(s)” and similar expressions are intended to identify such forward-looking statements. These statements include, but are not limited to, the expected timing of the acquisition; the availability of the financing under the debt commitment letter; the ability of Parent and the Company to close the acquisition; the performance of the parties under the terms of the merger agreement and related transaction documents; and statements regarding future performance. All of such information and statements are subject to certain risks and uncertainties, the effects of which are difficult to predict and generally beyond the control of the Company, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this proxy statement. Investors are also urged to carefully review and consider the various disclosures in the Company’s SEC periodic and interim reports, including but not limited to its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010 and Current Reports on Form 8-K filed from time to time by the Company, and the following factors:

 

 

Consequently, all of the forward-looking statements we make in this document are qualified by the information contained or incorporated by reference herein, including, but not limited to, (a) the information contained under this heading and (b) the information contained under the headings “Risk Factors” and in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-Q and 10-K (see “Where You Can Find More Information” beginning on page 76). We are under no obligation to publicly release any revision to any forward-looking statement contained or incorporated herein to reflect any future events or occurrences.

 

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

 

Double-Take Software, Inc.

257 Turnpike Road, Suite 210

Southborough, Massachusetts 01772

(877) 335-5674

 

The Company, a Delaware corporation with its headquarters in Southborough, Massachusetts, is a leading provider of affordable software for recoverability, including continuous data replication, application availability and system state protection. Double-Take Software products and services enable customers to protect and recover business-critical data and applications such as Microsoft Exchange, SQL, and SharePoint in both physical and virtual environments. With its unparalleled partner programs, technical support, and professional services, Double-Take Software is the solution of choice for more than nineteen thousand customers worldwide, from SMEs to the Fortune 500. Information about Double-Take Software’s products and services can be found at www.doubletake.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also “Where You Can Find More Information” beginning on page 76. Our common stock is publicly traded on Nasdaq under the symbol “DBTK”.

 

Vision Solutions, Inc.

15300 Barranca Parkway

Irvine, California 92618

(949) 253-6500

 

Vision Solutions, Inc., or Parent, is a Delaware corporation, and a leading provider of high availability, disaster recovery and system management solutions for IBM Power Systems ^® . Vision Solutions supports its worldwide customers in achieving their business goals through its leading-edge technologies and its global network of partners. Vision Solutions is headquartered in Irvine, California with offices worldwide, and is a company controlled by a private equity fund affiliated with Thoma Bravo, LLC. For more information, visit www.visionsolutions.com. Vision Solutions’ website address is provided as an inactive textual reference only. The information contained on its website is not incorporated into, and does not form a part of, this proxy statement.

 

HA Merger Sub, Inc.

c/o Vision Solutions, Inc.

15300 Barranca Parkway

Irvine, California 92618

(949) 253-6500

 

HA Merger Sub, Inc., or Merger Sub, is a Delaware corporation that was formed by Parent solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement. Merger Sub is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the board of directors for use at the special meeting to be held on July 22, 2010, starting at 4:00 p.m. EDT, at The Harvard Club of Boston, located at 374 Commonwealth Avenue, Boston, Massachusetts, 02215, or at any postponement or adjournment thereof. At the special meeting, holders of our common stock will be asked to approve the proposal to adopt the merger agreement and to approve the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

 

Our stockholders must approve the proposal to adopt the merger agreement in order for the merger to occur. If our stockholders fail to approve the proposal to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

 

We have fixed the close of business on June 18, 2010 as the record date for the special meeting, and only holders of record of common stock on the record date are entitled to vote at the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you owned shares of common stock at the close of business on the record date. On the record date, there were 21,225,190 shares of common stock outstanding and entitled to vote. Each share of common stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the shares of common stock outstanding at the close of business on the record date and entitled to vote, present in person or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting. Shares of common stock represented at the special meeting but not voted, including shares of common stock for which a stockholder directs an “abstention” from voting will be counted for purposes of establishing a quorum. Broker non-votes will not be counted as present for purposes of determining whether a quorum is present. A quorum is necessary to transact business at the special meeting. Once a share of common stock is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment of the special meeting. However, if a new record date is set for an adjourned special meeting, then a new quorum will have to be established. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned to solicit additional proxies.

 

Only stockholders of record or their duly authorized proxies have the right to attend the special meeting. To gain admittance, you must present valid photo identification, such as a driver’s license or passport. If your shares of the common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of the common stock and valid photo identification. If you are the representative of a corporate or institutional stockholder, you must present valid photo identification along with proof that you are the representative of such stockholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

 

Approval of the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock. For the proposal to adopt the merger agreement, you may vote “FOR” , “AGAINST” or “ABSTAIN” . Abstentions will not be counted as votes cast in favor of the proposal to adopt the merger agreement, but will count for the purpose of determining whether a quorum is present. If you fail to submit a proxy or to vote in person at the special meeting, or abstain, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

The proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy at the special meeting and entitled to vote, as the case may be, whether or not a quorum is present. For the proposal to adjourn the special meeting, if necessary or appropriate, you may vote “FOR” , “AGAINST” or “ABSTAIN” . For purposes of this proposal, if you have given a proxy and abstained on this proposal, this will have the same effect as if you voted “AGAINST” the proposal, and if your shares of common stock are held in street name through a bank, brokerage firm or other nominee and you fail to direct your bank or brokerage how to vote, it will have no effect on the proposal to adjourn the special meeting, if necessary or appropriate.

 

If your shares of the common stock are registered directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares of common stock, the “stockholder of record.” This proxy statement and proxy card have been sent directly to you by the Company.

 

If your shares of common stock are held in street name through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of your shares of common stock. In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of common stock, the stockholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares by following their instructions for voting.

 

Brokers who hold shares in street name for customers only have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approving non-routine matters — this is known as a “broker non-vote”. Both the proposal to adopt the merger agreement and the proposal to adjourn the special meeting are considered non-routine matters. As a result, absent specific instructions from the beneficial owner of such shares of common stock, brokers are not empowered to vote those shares of common stock.

 

If you fail to direct your bank or brokerage how to vote your shares for both of the proposals, your shares will not be counted for purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, and will have no effect on the proposal to adjourn the special meeting.

 

If you fail to direct your bank or brokerage how to vote your shares for the proposal to adopt the merger agreement, but you do give direction for how to vote your shares for the proposal to adjourn the special meeting, your shares will be counted for the purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

If you fail to direct your bank or brokerage how to vote your shares for the proposal to adjourn the special meeting, but you do give direction for how to vote your shares for the proposal to adopt the merger agreement, your shares will be counted for the purposes of determining a quorum, but will have no effect on the proposal to adjourn the special meeting if a quorum is present and will have the same effect as an “ABSTENTION” for the proposal to adjourn the special meeting if a quorum is not present.

 

If you are a stockholder of record, you may have your shares of the common stock voted on matters presented at the special meeting in any of the following ways:

 

 

 

If you are not a stockholder of record, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when submitting a proxy over the Internet or by telephone. Please be aware that if you submit a proxy over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible.

 

Please refer to the instructions on your proxy or voting instruction card to determine the deadlines for submitting a proxy over the Internet or by telephone. If you choose to have your shares voted at the special meeting by mailing a proxy card, your proxy card must be filed with the Corporate Secretary of the Company by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the per share merger consideration in exchange for your stock certificates.

 

If you submit a proxy, regardless of the method you choose, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, or your proxies, will vote your shares of the common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

 

If you properly sign your proxy card but do not mark the boxes showing how your shares of common stock should be voted on a matter, the shares of common stock represented by your properly signed proxy will be voted “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.

 

If you have any questions or need assistance voting your shares, please call The Altman Group, our proxy solicitor, toll-free at (866) 304-2060.

 

IT IS IMPORTANT THAT YOU PROMPTLY SUBMIT A PROXY TO HAVE YOUR SHARES OF COMMON STOCK VOTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL 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 THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

 

As of June 18, 2010, the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 353,843 shares of common stock (not including any shares of common stock deliverable upon exercise or conversion of any options or restricted stock units), representing 1.7% of the outstanding shares of common stock.

 

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person by appearing at the special meeting. If your shares of common stock are held in “street name” by your broker, you should instruct your broker on how to vote your shares of common stock using the instructions provided by your broker. If you fail to submit a proxy or to vote in person at the special meeting, or do not provide your broker with instructions, your shares of common stock will not be voted on the proposal to adopt the merger agreement, which will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, and your shares of common stock will not have an effect on the proposal to adjourn the special meeting.

 

You have the right to revoke a proxy, whether delivered by telephone, over the Internet, or by mail, at any time before it is exercised, by submitting another proxy again at a later date through any of the methods available to you, by giving written notice of revocation to our Corporate Secretary, which must be filed with the Corporate Secretary by the time the special meeting begins, or by attending the special meeting and voting in person. If you instructed your broker on how to vote your shares of common stock, you may revoke your proxy by using the instructions provided by your broker.

 

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned meeting, any adjournment may be made without notice (if the adjournment is not for more than thirty days and a new record date has not been fixed). Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s 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.

 

We are working towards completing the merger as soon as possible. Assuming timely satisfaction of necessary closing conditions, we anticipate that the merger will be completed by the end of the third quarter of 2010. If our stockholders vote to approve the proposal to adopt the merger agreement, the merger will become effective as promptly as practicable following the satisfaction or waiver of the other conditions to the merger.

 

Stockholders are entitled to appraisal rights under the DGCL in connection with the merger. This means that you are entitled to have the value of your shares of common stock determined by the Delaware Court of Chancery and to receive payment based on that valuation if you properly exercise your appraisal rights. 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 and you must not vote in favor of the proposal to adopt the merger agreement. Your failure to follow exactly the procedures specified under the DGCL may result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 72 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex D to this proxy statement. If you hold your shares of the common stock through a bank, brokerage firm 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 the nominee. In view of the complexity of the DGCL, stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 

The expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will by borne by us. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

We have engaged The Altman Group to assist in the solicitation of proxies for the special meeting. The Company estimates that it will pay The Altman Group a fee of approximately $9,000, plus customary administrative fees for expenses related to calls made to or received from our stockholders. We will reimburse The Altman Group for reasonable out-of-pocket expenses and will indemnify The Altman Group and its affiliates against certain claims, liabilities, losses, damages and expenses.

 

We may also reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of common stock for their expenses in forwarding soliciting materials to beneficial owners of the common stock and in obtaining voting instructions from those owners.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call The Altman Group, our proxy solicitor, toll-free at (866) 304-2060.

 

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

The merger agreement provides that Merger Sub will merge with and into the Company. The Company will be the surviving corporation in the merger and will continue to do business following the merger. As a result of the merger, the Company will cease to be a publicly traded company. You will not own any shares of the capital stock of the surviving corporation.

 

In the merger, each outstanding share of common stock (other than shares of common stock held by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, and in each case not held on behalf of third parties, shares of common stock held by stockholders who have properly exercised appraisal rights under the DGCL with respect to such shares, if any, and common stock owned by the Company or any of its direct or indirect wholly owned subsidiaries, which we refer to collectively as the excluded shares) will be converted into the right to receive the per share merger consideration, less any applicable withholding taxes.

 

The board of directors 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 of directors with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of the Company. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 46.

 

Our board of directors and senior management regularly review our business plans and strategic opportunities. As part of this review, factors they have considered include the Company’s competitive market position; growth and revenue potential; and the viability of potential strategic alternatives, such as acquisitions, expansion of product offerings and potential merger or sale.

 

From time to time over the last two years, we have received unsolicited inquiries and preliminary indications of interest from a number of parties regarding opportunities to engage in strategic transactions. On several occasions, the Company has also entered into confidentiality agreements to allow for the sharing of non-public information. The below description does not reflect all of those discussions, but is focused on those events that ultimately led the Company to enter into the merger agreement.

 

In March 2008, a representative of BofA Merrill Lynch informed Dean Goodermote, the President, Chief Executive Officer and Chairman of the Company’s board of directors, that Scott Crabill of Thoma Bravo was interested in meeting Mr. Goodermote. Mr. Goodermote and Mr. Crabill spoke by telephone and agreed to meet in person on March 13, 2008 in Boston. At that meeting, Mr. Crabill described Thoma Bravo and Parent to Mr. Goodermote and indicated to Mr. Goodermote that Thoma Bravo thought a business combination of the Company with Parent should be explored, whether surviving as a public company or, more likely, a private company, although no specific proposal was made. Mr. Goodermote and Mr. Crabill agreed to keep in touch.

 

At a regularly scheduled meeting of the Company’s board of directors in April 2008, Mr. Goodermote relayed to the board of directors his conversation with Mr. Crabill. After discussion, the board of directors determined not to pursue a possible transaction at that time. In the spring of 2008, Mr. Goodermote met with Mr. Crabill and Seth Boro, also of Thoma Bravo. At that meeting, Mr. Goodermote informed Messrs. Crabill and Boro of the board of directors’ position. Mr. Crabill suggested that Mr. Goodermote meet with Parent’s management so that he could

learn more about Parent. On October 1, 2008, Mr. Goodermote met with Nicolaas Vlok, President and Chief Executive Officer of Parent and Don Scott, Executive Vice President and Chief Financial Officer of Parent, for that purpose.

 

On October 6, 2008, the Company released preliminary results for the third quarter of 2008, which reflected an expectation of lower than expected revenues for the third quarter of 2008. In addition, the worldwide financial crisis and stock market downturn at that time contributed to unusually depressed stock prices of many companies, including the Company’s. In light of this and the board of directors’ continued analysis of the Company’s strategic position, in November 2008 the board of directors adopted a shareholder rights plan with a one year term to deter coercive or unfair offers to acquire the Company. The board of directors also determined to continue to actively review strategic matters on an ongoing basis.

 

In November 2008 representatives from a private equity firm focused on the technology industry, or Interested Party A, contacted Mr. Goodermote to express preliminary interest in a possible strategic transaction, and Mr. Goodermote had a preliminary conference call with them on November 6, 2008. Mr. Goodermote and Ashoke Goswami, who was then a member of the Company’s board of directors, met with representatives of Interested Party A to discuss Interested Party A’s interest in the Company. Interested Party A made no specific proposal at that time, but the representatives of Interested Party A continued to contact Mr. Goodermote from time to time to discuss the general possibility of pursuing a strategic transaction. In September 2009, Interested Party A and the Company executed a confidentiality agreement with a “standstill” provision that prevented Interested Party A from acquiring more than a specified percentage of the Company’s securities without the Company’s consent. General discussions with Interested Party A continued from time to time through March 2010, with a meeting in September 2009, and calls in September 2009, October 2009, November 2009, February 2010 and March 2010.

 

On December 1, 2008, Mr. Crabill informed Mr. Goodermote that a fund affiliated with Thoma Bravo had been acquiring shares of common stock of the Company in the open market and would be filing shortly a Schedule 13D indicating its ownership position. Later that day, the fund affiliated with Thoma Bravo filed a Schedule 13D indicating that it then owned approximately 7% of the outstanding common stock of the Company. Mr. Crabill continued to express interest in exploring a strategic transaction with the Company. As reflected in amendments to the Schedule 13D, the fund affiliated with Thoma Bravo continued to acquire the common stock of the Company through open market purchases until February 2009 and began to reduce its holdings in May 2009. On September 22, 2009, the fund affiliated with Thoma Bravo filed an amendment to its Schedule 13D indicating that it held less than 5% of the outstanding common stock of the Company.

 

In late January 2009, Mr. Crabill requested a meeting with Mr. Goodermote on February 13, 2009 in Boston. However, on February 10, 2009, Mr. Goodermote and S. Craig Huke, the Company’s Vice President and Chief Financial Officer, were in San Francisco on a previously scheduled trip and met with Messrs. Boro and Crabill and Orlando Bravo, also of Thoma Bravo. Also present at the meeting was a representative of the Company’s outside investor relations firm, Sapphire Communications. At the February 13, 2009 meeting, Messrs. Boro, Crabill and Bravo reiterated their interest in acquiring the Company and said that Thoma Bravo would consider making an offer of $8.50 per share for all of the Company’s outstanding common stock. They then asked Mr. Goodermote to discuss with the Company’s board of directors whether the board of directors was interested in receiving a proposal at $8.50 per share.

 

On February 18, 2009, at a regularly scheduled meeting of the Company’s board of directors, Mr. Goodermote reported on his discussions with the representatives of Thoma Bravo. Representatives of Thomas Weisel Partners, an investment banking firm that from time to time had advised the Company on financial matters, including the Company’s initial public offering, follow-on offering and potential acquisition activities, joined the meeting and discussed with the board of directors several specific issues to be addressed in the board of directors’ analysis. The representatives of Thomas Weisel Partners reviewed with the board of directors the proposed offer of $8.50 per share and discussed with the board of directors its preliminary views on the attractiveness of the offer. The board of directors discussed the implications of the advice they had received, their views of near and long-term value for stockholders, the possible response to the contacts from Thoma Bravo and the ongoing interest of other parties. The board of directors reached a unanimous view that the indication of interest from Thoma Bravo was inadequate, and directed that its view be conveyed to Thoma Bravo when its representatives next contacted the Company. On

February 27, 2009, Mr. Crabill contacted Mr. Goodermote and Mr. Goodermote informed him of the board of directors’ view.

 

On March 4, 2009, Messrs. Crabill and Bravo, who were in Boston on another matter, met with Mr. Goodermote. Messrs. Crabill and Bravo again reiterated what they thought were the benefits of a strategic transaction with Thoma Bravo. They did not discuss a possible higher offer. Mr. Goodermote again informed them that the board of directors was not interested in pursuing a transaction at the price indicated.

 

On May 12, 2009, at a regularly scheduled meeting of the board of directors, the board of directors considered a number of market opportunities, including with respect to cloud computing. BofA Merrill Lynch, an investment banking firm that from time to time had advised the Company on various matters, including the Company’s previous adoption of a shareholder rights plan, joined the board of directors meeting to discuss cloud computing opportunities and also to provide the board of directors with an update on mergers and acquisition activity in the markets in which the Company operates. BofA Merrill Lynch also discussed with the board of directors whether the Company’s relatively small size made it less likely that the most active strategic buyers would be interested in pursuing an acquisition of the Company.

 

On May 20, 2009, during a previously scheduled trip to San Francisco, Mr. Goodermote met with Messrs. Boro, Bravo and Crabill. Given Thoma Bravo’s ownership position in the Company, Mr. Goodermote viewed the meeting as being one with a significant investor, and there was little discussion of a strategic transaction. However, the representatives of Thoma Bravo did suggest again that the Company consider a transaction with Parent on unspecified terms. Mr. Goodermote did not discuss material non-public information with the representatives of Thoma Bravo given that Thoma Bravo had not yet entered into a confidentiality agreement with the Company.

 

On October 20, 2009, the Company’s board of directors held a regular meeting. At that meeting, the board of directors conducted one of its periodic reviews of the Company’s strategic position and alternatives available to the Company and reviewed with each of Thomas Weisel Partners and BofA Merrill Lynch strategic alternatives available to the Company and defensive measures the Company might consider. The board of directors continued its ongoing strategic review of the Company’s position in the marketplace, and in connection therewith determined not to take further action at that time with respect to the Company’s expiring shareholder rights plan, and to further increase its focus on strategic alternatives available to the Company, considering among other factors the Company’s market position and growth opportunities.

 

On January 11, 2010, a representative of a private equity firm, or Interested Party B, contacted Mr. Goodermote to express interest in a possible strategic transaction. After executing a confidentiality agreement with a standstill provision, representatives of Interested Party B, Mr. Goodermote and Erin Silva, Executive Assistant to Mr. Goodermote, had a preliminary conference call. Mr. Goodermote met with the representatives of Interested Party B on February 8, 2010 in San Francisco to discuss the Company’s business and prospects and to explore in more detail Interested Party B’s interest in a possible transaction.

 

On February 9, 2010, Messrs. Goodermote and Huke met with Messrs. Crabill and Boro. Messrs. Goodermote and Huke reviewed public information about the Company with Messrs. Crabill and Boro, who reiterated that Thoma Bravo was still interested in a strategic transaction with the Company. They requested Messrs. Goodermote and Huke to advise Thoma Bravo if the board of directors wanted Thoma Bravo to make a proposal. Messrs. Crabill and Boro also provided information on Parent.

 

On February 15, 2010, the Company’s board of directors held a special telephonic meeting to discuss its ongoing review of strategic alternatives. In advance of the meeting, the board of directors also had been provided with materials from Thomas Weisel Partners regarding potential defensive measures. At the meeting, at the request of the board of directors and in furtherance of this review representatives from BofA Merrill Lynch reviewed with the board of directors an overview of general market conditions and the Company’s relative competitive position, including the market’s perception of the Company’s growth strategy. A representative of BofA Merrill Lynch also informed the board of directors that it, at the board of directors direction, would soon be completing a strategic analysis for the board of directors’ consideration. The board of directors also then continued its discussion from the October 2009 meeting of possible defensive measures, including the potential renewal of the Company’s then-recently-expired shareholder rights plan. The board of directors took no formal action on this or any other potential defensive measure, however.

On February 23, 2010, the Company’s board of directors held another special telephonic meeting to continue its review of the Company’s strategic alternatives. In advance of the meeting, the board of directors also had been provided with materials from Thomas Weisel Partners regarding strategic matters. At the meeting, representatives from BofA Merrill Lynch reviewed with the board of directors potential strategic alternatives available to the Company, including among other options remaining independent or entering into a potential transaction with a strategic or financial buyer. BofA Merrill Lynch also reviewed and discussed specific potential acquirors and financial sponsors, preliminary selected financial analyses relating to the Company and a proposed process for pursuing a transaction should the board of directors desire to do so.

 

On March 4, 2010, Mr. Goodermote and Ms. Silva had a telephone conference with representatives of Interested Party B to discuss Interested Party B’s continued interest in a transaction with the Company. In response to a question, Mr. Goodermote informed the representatives of Interested Party B that the board of directors had made no decision to sell the Company but that the board of directors would give consideration to offers that were received.

 

On March 9, 2010, Parent and Thoma Bravo submitted an unsolicited, non-binding indication of interest to combine the Company with Parent in an all cash transaction at a price of $10.00 per share without any express financing contingency.

 

On March 10, 2010, the Company’s board of directors held a regular meeting at the Company’s offices in Southborough, Massachusetts. At the meeting, Mr. Goodermote provided the board of directors with copies of the indication of interest from Thoma Bravo and also updated them on the status of the inquiries from the other interested parties mentioned above. Representatives of BofA Merrill Lynch and Thomas Weisel Partners joined the meeting by telephone and reviewed various strategic alternatives and discussed several alternative courses of action, including, among others, remaining independent or entering into a potential transaction with a strategic or financial buyer. The board of directors then discussed the Company’s market position and prospects, the indications of interest and other inquiries that had been received to date and various other relevant matters. BofA Merrill Lynch and Thomas Weisel Partners also reviewed and discussed specific potential acquirors and financial sponsors and a proposed process for pursuing a transaction. After discussion, the board of directors authorized Mr. Goodermote to engage each of BofA Merrill Lynch and Thomas Weisel Partners to conduct a targeted process for evaluating the identified potential counterparties’ level of interest in a possible transaction and to assemble the information needed to assess the stockholders’ best interests. The board of directors further emphasized that while it was making no decision at that time on a particular course of action, the board of directors believed that exploration of alternatives was warranted in light of various factors, including the Company’s current prospects, long-term growth potential and the interest expressed to date by multiple private equity firms. In particular, the board of directors did not decide at that time to move forward on the basis of the indication of interest from Thoma Bravo. At the board of directors’ direction, the Company negotiated and signed engagement letters with each of BofA Merrill Lynch and Thomas Weisel Partners by mid-April 2010.

 

On March 11, 2010, representatives of Interested Party B had a conference call with Mr. Goodermote and Ms. Silva. Interested Party B indicated that it would be submitting a formal letter expressing its interest in a transaction with the Company. On March 16, 2010, Interested Party B submitted an unsolicited, non-binding indication of interest to the Company to acquire the Company in an all cash transaction at a price of $10.25 per share. Mr. Goodermote forwarded Interested Party B’s indication of interest to the board of directors on March 17, 2010.

 

On March 17, 2010, Mr. Goodermote informed Mr. Crabill that the board of directors was not prepared to move forward with them at the $10.00 per share price reflected in Thoma Bravo’s and Parent’s indication of interest. Mr. Crabill informed Mr. Goodermote that he believed that Thoma Bravo and Parent had room to increase the price reflected in their indication of interest. Mr. Crabill asked if the board of directors had a price in mind and Mr. Goodermote informed him that it did not. Mr. Crabill asked if Thoma Bravo and Parent could conduct more due diligence on the Company, and Mr. Goodermote informed him that they could if they would enter into a confidentiality agreement with a standstill provision. The parties subsequently entered into a confidentiality agreement with a standstill, and a meeting was scheduled for March 25, 2010.

On March 22, 2010, Mr. Goodermote informed a representative of Interested Party B that he had circulated its proposal to the board of directors and that at this time the board of directors was not prepared to move forward with it at the price reflected in their indication of interest. The representative of Interested Party B suggested that Mr. Goodermote should consider meeting with one of Interested Party B’s portfolio companies to consider a transaction with that company.

 

On March 25, 2010, representatives of the Company, including Messrs. Goodermote and Huke, Ms. Silva, David Demlow, the Company’s Chief Technology Officer, Robert Beeler, the Company’s Vice President of Engineering, and Christian Tate, the Company’s Vice President of Marketing, met with representatives of Thoma Bravo, including Messrs. Boro and Crabill, and representatives of Parent, including Messrs. Vlok and Scott, Alan Arnold, Executive Vice President and Chief Technology Officer, and Marcel Bernard, the Chairman of the Board of Parent and an operating partner of Thoma Bravo. During the meeting, the Company shared limited non-public information concerning the Company, discussed the Company’s business and prospects and provided limited financial data, all under the confidentiality agreement.

 

On April 1, 2010, the Company’s board of directors held a special telephonic meeting to continue its evaluation of strategic matters, as well as to review the Company’s preliminary results for the first quarter of 2010. Representatives from BofA Merrill Lynch and Thomas Weisel Partners participated in the meeting and provided updated information to the board of directors on various strategic alternatives and potential transaction candidates, including the parties contacted by them to date. The board of directors then discussed various matters, including the business outlook for the remainder of 2010 and through 2012 and risks and opportunities associated with the Company’s market and competitive position; possible acquisition and merger scenarios; and the recent expressions of interest, including valuations, from private equity firms. A representative from Hogan Lovells US LLP, or Hogan Lovells, the Company’s outside legal counsel, advised the board of directors of its fiduciary duties in light of the strategic alternatives under consideration, and noted that memoranda addressing these matters had been previously distributed to the board of directors. The board of directors discussed the Company’s outlook and the progress and degree of commitment expressed by each party that had submitted an indication of interest, and determined that exploring further the interest from Thoma Bravo and Parent, who were judged most likely to move to a final offer promptly that could be considered by the board of directors, was in the Company’s best interest. The board of directors authorized Mr. Goodermote to direct BofA Merrill Lynch and Thomas Weisel Partners to contact Thoma Bravo and Parent to discuss their willingness to increase their $10.00 per share offer and whether a definitive agreement for a transaction with a “go-shop” provision allowing the Company to continue to solicit alternative acquisition proposals for a period after entering into the definitive agreement could be entered into in an expedited manner. Notwithstanding, the board of directors also made clear that it still was making no final decision at that time on a particular course of action.

 

Over the next several days, and at the direction of the board of directors, representatives from BofA Merrill Lynch and Thomas Weisel Partners contacted representatives of Thoma Bravo to further explore the possibility of a potential transaction and to discuss due diligence, timing and process. Mr. Goodermote and Mr. Crabill also had a conference call on April 2, 2010, to discuss the overall process. Representatives of Thoma Bravo made numerous due diligence requests, and the Company provided access to a virtual data room containing due diligence materials. Senior management and other Company representatives participated in calls on an ongoing basis with representatives of Parent and occasionally representatives of Thoma Bravo regarding due diligence through the conclusion of the process.

 

On April 6, 2010, the Company’s board of directors held a special telephonic meeting to continue its discussions of strategic alternatives. Mr. Goodermote reported that Parent with the support of Thoma Bravo continued to express interest in a possible strategic transaction and was engaged in due diligence on an accelerated basis, though it appeared unlikely that Parent and Thoma Bravo would be prepared to make a final offer as quickly as the board of directors had requested. He further reported that the Company’s senior management and financial advisors were continuing to contact, and have discussions with, other potential strategic parties. That same day, Hogan Lovells provided an initial draft of a merger agreement to Kirkland & Ellis LLP, or Kirkland, counsel to Parent and Thoma Bravo.

 

At the direction of the board of directors, beginning in early April, representatives of BofA Merrill Lynch and Thomas Weisel Partners contacted 28 parties, including strategic and financial parties, to assess their interest in a

transaction with the Company. In total by mid-April, the Company executed confidentiality agreements, and had due diligence contacts of varying degrees, with eight of the parties contacted by BofA Merrill Lynch and Thomas Weisel Partners, including Thoma Bravo and Parent, who are considered as one party, and Interested Parties A and B and Interested Parties C and D, who are discussed in more detail below. The parties who executed confidentiality agreements held meetings or conference calls with senior management of the Company and were provided with limited access to the Company’s data room. Four of the eight parties ultimately decided not to continue to the point of submitting indications of interest. Those parties that ultimately submitted indications of interest were provided more complete access. Company representatives also held discussions and entered into confidentiality agreements with several companies that the Company saw as potential acquisition candidates, and with one other public company that might have been a candidate for a “merger of equals” type of transaction.

 

From April 7 to 9, 2010, representatives of BofA Merrill Lynch contacted Interested Party B to gauge its continued interested in the process, as well as the interest of its portfolio company. The Company entered into a confidentiality agreement with the portfolio company, but on April 19, 2010, Interested Party B withdrew from the process, and its portfolio company eventually withdrew at a later date.

 

On April 9, 2010, the Company’s board of directors held a special telephonic meeting to continue discussions regarding the Company’s strategic alternatives, as well as to discuss the Company’s financial performance for the first quarter of 2010 and prospects for the balance of 2010. At the meeting, the board of directors discussed and approved a draft press release announcing preliminary first quarter financial results and the receipt of unsolicited indications of interest and approved plans for issuing the press release and responding to inquiries. The board of directors also discussed developments regarding its strategic alternatives review, including progress on due diligence, the form of the initial draft of a merger agreement and contacts with potential strategic partners and merger and acquisition candidates.

 

On April 9, 2010, Kirkland provided initial comments on the draft merger agreement, which reflected significant differences on critical terms of the merger agreement, including with respect to the scope of the representations and warranties, the removal of the “go-shop” provision that had been part of the initial draft, the size of the fee that the Company must pay in the event of certain terminations, limitations on the Company’s ability to consider superior proposals, and limited recourse against Parent for breach of the merger agreement, among other provisions. On April 12, 2010, Hogan Lovells and Kirkland had a telephone conference to review these and other issues.

 

On April 12, 2010, the Company issued a press release announcing its preliminary financial results for the first quarter of 2010 and reporting that it had received unsolicited, non-binding, written conditional indications of interest to acquire the Company at a premium to recent trading prices and that it was reviewing those and other possible strategic transactions.

 

On April 13, 2010, a representative from Interested Party A contacted a representative from BofA Merrill Lynch by telephone to advise that it intended to submit an indication of interest to acquire the Company’s outstanding common stock for a price of $10.50 per share. They also discussed due diligence and possible management meetings. On April 14, 2010, Interested Party A submitted a non-binding written offer to acquire the Company’s outstanding common stock for a price of $10.50 per share in cash, subject to extensive due diligence and other conditions. The Company then provided Interested Party A with access to a virtual data room and a copy of a draft merger agreement in the same form initially sent to Kirkland.

 

On April 14, 2010, the Company’s board of directors held another special telephonic meeting to continue discussing strategic alternatives. Mr. Goodermote updated the board of directors on developments, including parties contacted, confidentiality agreements executed, meetings scheduled and feedback received. The board of directors also considered the degree to which the Company’s stock price prior to the April 12th press release regarding receipt of indications of interest was an appropriate measure of or input to the value of a potential transaction relative to the Company’s recent trading prices. It also discussed the importance of engaging in a sufficient process of considering alternative potential transactions and other actions to maximize value for Company stockholders were the Company to engage in a transaction. A representative from Hogan Lovells discussed the status of negotiations on the draft merger agreement with Parent and Thoma Bravo and their counsel, Kirkland.

On April 16, 2010, Interested Party C, another private equity firm, submitted a non-binding written offer to acquire the Company’s outstanding common stock for a price of $10.55 per share in cash, subject to extensive due diligence and other conditions. That party had previously executed a confidentiality agreement with the Company on April 5, 2010. A representative of Thomas Weisel Partners contacted Interested Party C by phone to discuss the non-binding written offer, and to bring to the attention of Interested Party C an error in its assumptions on the fully diluted share count. On April 17, 2010, Interested Party C revised its indication of interest to $10.47 per share due to an error in its original assumptions about the Company’s fully-diluted share count. After receiving the letter, the Company held management discussions with Interested Party C and provided access to a virtual data room and a draft merger agreement in the same form initially sent to Kirkland. Also on April 17, 2010, Interested Party D, another private equity firm, executed a confidentiality agreement with the Company and was provided limited access to a virtual data room.

 

On April 19, 2010, the Company’s board of directors held another special meeting to discuss the latest developments. Representatives from BofA Merrill Lynch and Thomas Weisel Partners updated the board of directors on the status of discussions with potential strategic partners. They also described for the board of directors the timeline and process that was outlined to all interested parties to ensure equal opportunity to make an offer based on the same information. On the same date, Hogan Lovells submitted a revised draft merger agreement to Kirkland and received a high-level list of issues from Interested Party A on the draft merger agreement.

 

On April 20 and 21, 2010, representatives of the Company, Parent and Thoma Bravo held various meetings in Indianapolis, Indiana to allow Parent and Thoma Bravo to conduct additional due diligence and meet with management. Among other attendees, Messrs. Goodermote, Beeler, Demlow and Huke and Daniel Jones, Vice President of Worldwide Sales of the Company, attended some of the meetings; Messrs. Vlok and Scott attended some of the meetings; and Mr. Boro of Thoma Bravo attended some of the meetings. After the in person meetings in Indianapolis, the parties continued to hold diligence calls among representatives of the parties.

 

On April 21, 2010, representatives from Hogan Lovells and Kirkland discussed the draft merger agreement by telephone. On April 24, 2010, Kirkland provided further comments on the draft merger agreement.

 

On April 23, 2010, Interested Party D submitted a non-binding letter of intent to acquire the Company at a price range of $10.25-10.75 per share in cash, subject to extensive due diligence. The following day, the Company provided Interested Party D with complete access to the virtual data room and a draft merger agreement in the same form as initially provided to the other parties.

 

On April 26, 2010, Thoma Bravo and Parent submitted a revised proposal with a price of $10.50 per share, an increase of $0.50 per share from their initial proposal. They also provided copies of draft financing commitment letters and a list of open issues.

 

That same day, the Company’s board of directors held another special telephonic meeting to continue discussions regarding its strategic review process. Representatives of BofA Merrill Lynch and Thomas Weisel Partners updated the board of directors on progress with the four remaining active parties who had submitted indications of interest. With the recent increase in Thoma Bravo’s bid, the financial advisors noted that all four offers were of approximately the same value. However, as of that date only Thoma Bravo and Parent had engaged accountants in an earnings review, engaged attorneys for substantive diligence and contract negotiations, held numerous meetings with management and otherwise engaged in diligence activities pursuant to the financial advisors’ requested timeline and provided financing commitment letters. A representative from Hogan Lovells advised the board of directors further on its fiduciary duties in the context of its consideration of alternatives. After further discussion on the status of several specific acquisition or merger candidates, valuation issues, the recent trading prices of the Company’s stock and the business outlook, the board of directors determined that it was in the best interest of the Company and its stockholders to continue discussions under way with all interested parties, as well as continue to explore possible alternatives.

 

On April 27, 2010, representatives of the Company’s senior management, Hogan Lovells, Thoma Bravo and Kirkland held a conference call to discuss the draft merger agreement. The following day, representatives from Hogan Lovells and Kirkland held a conference call to further discuss the draft merger agreement.

On April 30, 2010, the Company’s senior management met with representatives of Interested Party A in Boston to discuss the Company’s business. That same day, Hogan Lovells provided Kirkland with draft disclosure schedules and a revised draft of the merger agreement.

 

On May 1, 2010, Kirkland sent a revised draft of the merger agreement to Hogan Lovells. The revised draft reflected significant modification of initial positions taken by Parent and Thoma Bravo, but continued to reflect differences on the scope of representations and warranties, covenants, the size of the respective termination fees and certain other provisions.

 

On May 2, 2010, the Company’s board of directors held another special telephonic meeting to continue discussions regarding strategic alternatives. Representatives of BofA Merrill Lynch and Thomas Weisel Partners proposed that the Company send a letter to all active parties to request submission of best and final offers by May 10th, together with financing commitments, contract terms and remaining diligence needs. The Company’s financial advisors noted that such an approach would allow the board of directors to effectively consider its alternatives and enhance its ability to evaluate price and deal certainty. After thorough discussion, the board of directors approved the approach and set May 10th as the deadline for final offers. A representative of Hogan Lovells also reviewed with the board of directors the latest draft merger agreement received from Kirkland, copies of which had been provided to each board member, and the status of negotiations with other parties.

 

On May 3, 2010, at the direction of the board of directors, the financial advisors submitted letters to all remaining interested parties requesting best and final bids no later than May 10, 2010. That same day, Interested Party D formally withdrew from the bid process; Interested Party C held meetings with Mr. Goodermote and other Company representatives to discuss various matters about the Company’s business; and Hogan Lovells and Kirkland held a conference call to discuss open issues on the draft merger agreement.

 

On May 4, 2010, Hogan Lovells and counsel for Interested Party C held a conference call to discuss the draft merger agreement. Over the next several days, Hogan Lovells exchanged drafts of the merger agreement with counsel for Interested Party C, as well as Kirkland.

 

On May 5, 2010, a representative from Interested Party C contacted a representative of Thomas Weisel Partners to indicate that it expected its final price to be below $10.00 per share and that it did not believe that it would be able to submit a best and final bid on May 10, 2010.

 

On May 8, 2010, the Company’s board of directors held another special telephonic meeting to continue discussions regarding its strategic alternatives. The board of directors discussed with its financial advisors the status of the potential bidders and expectations regarding the bids that may be received by the May 10 deadline. A representative from Hogan Lovells also updated the board of directors on the status of merger agreement negotiations and open issues.

 

On May 10, 2010, the bid deadline, the Company received two bids. Interested Party C submitted a bid to acquire the Company at a price of $9.30 per share, without a draft of the merger agreement. The bid remained subject to further due diligence, including customer, partner and management reference checks, a quality of earnings review and completion of legal review, and provided for a 20-day exclusivity period.

 

Parent, with the support of Thoma Bravo, submitted a bid of $10.50 per share on that date. Along with the bid, it submitted a substantially final definitive merger agreement and signed financing commitment letters from Jefferies Finance LLC that provided debt financing of up to $240 million through a senior secured term loan facility and a revolving credit facility, unfunded at closing, of $15 million. The bid also confirmed that all significant due diligence had been completed and that there were no financing contingencies or additional stockholder or limited partner approvals required.

 

On May 13, 2010, Interested Party A submitted a written non-binding offer to acquire the Company for cash at a price of $10.50 per share, subject to an additional 30 days to complete due diligence and definitive agreements.

 

That same day, the Company’s board of directors held a regularly scheduled in-person meeting in Boston, immediately following the Company’s 2010 annual stockholders’ meeting. The Company’s financial advisors summarized for the board of directors the three final bids received. The board of directors compared the terms of the various bids and the relative premiums compared to the pre-April 12th trading price. The board of directors also

discussed other alternatives available to the Company and the relative range of values that stockholders could reasonably achieve — including though an immediate sale for cash, a sale in the future, an acquisition by the Company and termination of the current sale process altogether and continuation as a stand-alone public company. A representative of Hogan Lovells also summarized the significant terms of the draft merger agreement with Parent, copies of which had been previously provided to each board member, and discussed open and outstanding items with the board of directors. The board of directors also noted that Interested Party A and Interested Party C had been given extensive time to conduct due diligence and had not fully engaged in a diligence process, noting, in particular, the limited diligence that it appeared had been conducted by counsel or outside accountants. After extensive discussion, the board of directors decided to move forward with the most active bidder — Thoma Bravo and Parent — to reach agreement at a price above the last offer to the extent possible, subject to satisfactory completion of documentation and resolution of any outstanding issues. The board of directors instructed the Company’s senior management, financial and legal advisors to proceed on that basis.

 

On May 14, 2010, another potential strategic bidder contacted Mr. Goodermote by telephone to express possible interest in a strategic transaction and request an opportunity to conduct due diligence. Mr. Goodermote reminded the potential bidder that the Company was already actively reviewing indications of interest, as previously disclosed in the Company’s April 12, 2010 press release, and that the bidder would have to act very quickly if it wished to participate in any process. That potential strategic bidder declined an invitation to receive a diligence briefing that same day and scheduled a call for May 17. Representatives of BofA Merrill Lynch also contacted the bidder over the weekend to gauge its level of seriousness.

 

On May 15, 2010, Mr. Goodermote contacted Mr. Vlok of Parent to communicate the board of directors’ request to raise the offer price.

 

On May 14-16, representatives of Hogan Lovells and Kirkland continued to finalize the draft merger agreement and disclosure schedules.

 

On May 16, 2010, Thoma Bravo and Parent submitted a revised bid to acquire the Company for cash at a price of $10.55 per share, $0.05 per share higher than its previous offer. They also agreed to the Company’s request for a lower Company termination fee in the merger agreement

 

That same day, the Company’s board of directors held another special meeting to continue discussing strategic alternatives, including whether to accept the increased offer from Thoma Bravo and Parent. At the meeting, Mr. Goodermote summarized for the board of directors the progress made since the last meeting, including his calls with Mr. Vlok of Parent and the call from the strategic bidder received on May 14. Representatives of BofA Merrill Lynch relayed its discussions with the representative of the strategic bidder, and they indicated that the individual who contacted the Company was not a member of the bidder’s most senior management group and that the bidder’s interest level did not appear to be high. At Mr. Goodermote’s request, a representative from Hogan Lovells summarized for the board of directors the draft merger agreement, including the significant changes negotiated with Parent and Thoma Bravo, which included a lower termination fee, and further noted that the board of directors had received a copy of the draft merger agreement in presumptive final form. The representatives of each of BofA Merrill Lynch and Thomas Weisel Partners delivered their respective oral opinions that, as of the date of the opinion, the offer price of $10.55 to be received by holders of the Company’s common stock (other than Parent and its affiliates) pursuant to the merger was, from a financial point of view, fair to such holders, subject to the assumptions and qualifications described in their respective opinions. Each of BofA Merrill Lynch and Thomas Weisel Partners subsequently delivered its written opinion, dated May 16, 2010, confirming its oral opinion. The full text of BofA Merrill Lynch’s and Thomas Weisel Partners’ written opinions, which describe the assumptions made, general procedures followed, factors considered and the limitations on the scope of review conducted by BofA Merrill Lynch and Thomas Weisel Partners, respectively, in rendering their respective opinions, are attached as Annex B and Annex C , respectively. The board of directors was also aware at that time of the fee arrangements with BofA Merrill Lynch and Thomas Weisel Partners. After extensive discussion, the board of directors unanimously determined that the merger is advisable and in the best interests of the Company and its stockholders; authorized, adopted, approved and declared advisable the merger, the merger agreement and the transactions contemplated thereby; authorized execution of the merger agreement; resolved that the merger agreement be

submitted to the stockholders of the Company for adoption; and recommended that the stockholders of the Company vote to adopt the merger agreement.

 

On May 17, 2010, Parent, Merger Sub and the Company executed the merger agreement and an affiliate of Thoma Bravo executed the limited guarantee, and the Company issued a press release announcing execution of the merger agreement.

 

In reaching its decision to approve the merger, adopt the merger agreement and recommend that our stockholders vote “FOR” adoption of the merger agreement, the board of directors, in addition to drawing on its own experience and expertise and knowledge of the Company and its business, consulted with senior management, outside legal counsel and financial advisors. The following discussion includes the material reasons and factors considered by the board of directors in making its recommendation:

 

 

 

 

 

 

 

 

 

The board of directors also considered a variety of potentially negative factors in its deliberations concerning the merger agreement and the merger, including the following (not in any relative order of importance):

 

 

 

The foregoing discussion of the information and factors considered by the board of directors is not intended to be exhaustive, but includes the material factors considered by the board of directors. In view of the variety of factors considered in connection with its evaluation of the merger, the board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The board of directors based its recommendation on the totality of the information presented.

 

The board of directors 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 of directors with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of the Company. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 46.

 

Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated

 

The Company has retained BofA Merrill Lynch to act as the Company’s financial advisor in connection with the merger. BofA Merrill Lynch is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Company selected BofA Merrill Lynch to act as the Company’s financial advisor in connection with the merger on the basis of BofA Merrill Lynch’s experience in transactions similar to the merger and its reputation in the investment community.

 

On May 16, 2010, at a meeting of the board of directors held to evaluate the merger, BofA Merrill Lynch delivered to the board of directors an oral opinion, which was confirmed by delivery of a written opinion dated May 16, 2010, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the opinion, the per share merger consideration to be received by holders of common stock (other than Parent and its affiliates) in the merger was fair, from a financial point of view, to such holders.

 

The full text of BofA Merrill Lynch’s written opinion to the board of directors, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to the board of directors for the benefit and use of the board of directors in connection with and for purposes of its evaluation of the per share merger consideration from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger.

 

In connection with rendering its opinion, BofA Merrill Lynch:

 

(1) reviewed certain publicly available business and financial information relating to the Company;

 

(2) reviewed certain internal financial and operating information with respect to the business, operations and prospects of the Company furnished to or discussed with BofA Merrill Lynch by the management of the Company, including certain financial forecasts relating to the Company prepared by the management of the Company (which financial forecasts are referred to as the company forecasts);

 

(3) discussed the past and current business, operations, financial condition and prospects of the Company with members of senior management of the Company;

 

(4) reviewed the trading history for the common stock and a comparison of that trading history with the trading histories of other companies BofA Merrill Lynch deemed relevant;

 

(5) compared certain financial and stock market information of the Company with similar information of other companies BofA Merrill Lynch deemed relevant;

 

(6) compared certain financial terms of the merger to financial terms, to the extent publicly available, of other transactions BofA Merrill Lynch deemed relevant;

 

(7) considered the fact that the Company publicly announced it had received preliminary indications of interest and the results of BofA Merrill Lynch’s efforts on behalf of the Company to solicit, at the direction of the Company, indications of interest and definitive proposals from third parties with respect to a possible acquisition of the Company;

 

(8) reviewed a draft, dated May 16, 2010, of the merger agreement, or the draft agreement; and

 

(9) performed such other analyses and studies and considered such other information and factors as BofA Merrill Lynch deemed appropriate.

In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the management of the Company that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the company forecasts, BofA Merrill Lynch was advised by the Company, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company. BofA Merrill Lynch did not make or was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor did it make any physical inspection of the properties or assets of the Company. BofA Merrill Lynch did not evaluate the solvency or fair value of the Company or Parent under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of the Company, 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 and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on the Company or the contemplated benefits of the merger. BofA Merrill Lynch also assumed, at the direction of the Company, that the final executed merger agreement would not differ in any material respect from the draft agreement.

 

BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects of the merger (other than the per share merger consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the merger. BofA Merrill Lynch’s opinion was limited to the fairness, from a financial point of view, of the per share merger consideration to be paid to the holders of common stock (other than Parent and its affiliates) and no opinion or view was expressed with respect to any consideration received in connection with the merger by the holders of any other class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the merger, or class of such persons, relative to the per share merger consideration. Furthermore, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the merger. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the merger. Except as described above, the Company imposed no other limitations on the investigations made or procedures followed by BofA Merrill Lynch in rendering its opinion.

 

BofA Merrill Lynch’s opinion was rendered for the benefit and use of the board of directors (in its capacity as such) in connection with and for purposes of its evaluation of the merger.

 

BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. As the Company was aware, the credit, financial and stock markets have been experiencing unusual volatility and BofA Merrill Lynch expressed no opinion or view as to any potential effects of such volatility on the Company, Parent, their respective affiliates or the merger. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by BofA Merrill Lynch’s Americas Fairness Opinion (and Valuation Letter) Review Committee.

 

The following represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to the board of directors in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.

Company Financial Analyses

 

Selected Publicly Traded Companies Analysis.   BofA Merrill Lynch reviewed publicly available financial and stock market information for the Company and the following nine publicly traded companies in the software industry that BofA Merrill Lynch deemed relevant:

 

 

BofA Merrill Lynch reviewed, among other things, per share equity values, based on closing stock prices on May 14, 2010 (except for Novell, Inc., the stock price of which was fixed as of close of March 2, 2010 before public announcement of the acquisition offer by Elliott Associates, L.P.), of the selected publicly traded companies as a multiple of calendar year 2011 estimated cash earnings per share, commonly referred to as EPS. BofA Merrill Lynch also reviewed enterprise values of the selected publicly traded companies (calculated by taking the fully diluted equity values of such companies based on their closing stock prices on May 14, 2010 (except for Novell, Inc., the stock price of which was fixed as of close of March 2, 2010 before public announcement of the acquisition offer by Elliott Associates, L.P.), plus debt, preferred stock and minority interests, less cash and cash equivalents) as a multiple of calendar year 2010 estimated revenue. BofA Merrill Lynch then applied a range of selected multiples of calendar year 2011 estimated cash EPS derived from the selected publicly traded companies to corresponding data of the Company provided by the management of the Company and applied a range of selected multiples of calendar year 2010 estimated revenue derived from the selected publicly traded companies to corresponding data of the Company provided by the management of the Company. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates. Estimated financial data of the Company were based on the company forecasts. This analysis indicated the following implied per share equity value reference ranges for the Company (rounded to the nearest $0.25), as compared to the per share merger consideration:

 

 

No company used in this analysis is identical or directly comparable to the Company. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which the Company was compared.

 

Selected Precedent Transactions Analysis.   BofA Merrill Lynch reviewed, to the extent publicly available, financial information relating to the following 12 selected transactions involving companies in the software industry that BofA Merrill Lynch deemed relevant with particular attention paid to selected precedent transactions involving

targets with estimated revenue growth for the next-twelve-month period following announcement of the transaction, based on industry analyst research, of less than 10%:

 

 

BofA Merrill Lynch reviewed, among other things, per share offer values of the selected precedent transactions as a multiple of the target company’s estimated cash EPS for the last-twelve-month period prior to the month in which the transaction was announced and the next-twelve-month period after the month in which the transaction was announced. BofA Merrill Lynch also reviewed, among other things, transaction values (calculated as the enterprise values of the target company, being the fully diluted equity value implied for the target company based on the consideration payable in the selected transaction, plus debt, preferred stock and minority interests, less cash and cash equivalents) as a multiple of the target company’s estimated revenue for the last-twelve-month period prior to the month in which the transaction was announced and the next-twelve-month period after the month in which the transaction was announced. BofA Merrill Lynch then applied a range of selected multiples of calendar year 2011 estimated cash earnings per share, or EPS, derived from the selected transactions to the Company’s calendar year 2011 estimated cash net income and applied a range of selected multiples of calendar year 2010 estimated revenue derived from the selected transactions to corresponding data from the Company. Estimated financial data of the selected transactions were based on publicly available information. Estimated financial data of the Company were based on the company forecasts. This analysis indicated the following implied per share equity value reference ranges for the Company (rounded to the nearest $0.25), as compared to the per share merger consideration:

 

 

No company, business or transaction used in this analysis is identical or directly comparable to the Company or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which the Company and the merger were compared.

 

Discounted Cash Flow Analysis.   BofA Merrill Lynch performed a discounted cash flow analysis of the Company to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that the Company could generate during the Company’s last three fiscal quarters of 2010 and the fiscal years 2011 through 2015 based on the company forecasts. BofA Merrill Lynch calculated terminal values for the Company by applying terminal forward multiples of 1.00x to 1.50x to the Company’s fiscal year 2015 revenue. The cash flows and terminal values were then discounted to present value as of March 31, 2010 using discount rates ranging from 13%

to 15%. This analysis indicated the following implied per share equity value reference ranges for the Company (rounded to the nearest $0.25), as compared to the per share merger consideration:

 

 

Other Factors

 

In rendering its opinion, BofA Merrill Lynch also reviewed and considered other factors, including:

 

 

Miscellaneous

 

As noted above, the discussion set forth above is a summary of the material financial analyses presented by BofA Merrill Lynch to the board of directors in connection with its opinion and is not a comprehensive description of all analyses undertaken by BofA Merrill Lynch in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Merrill Lynch believes that its analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynch’s analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

 

In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company and Parent. The estimates of the future performance of the Company and Parent in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view, of the per share merger consideration and were provided to the board of directors in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual values of the Company and Parent.

 

The type and amount of consideration payable in the merger was determined through negotiations between the Company and Parent, rather than by any financial advisor, and was approved by the board of directors. The decision

to enter into the merger agreement was solely that of the board of directors. As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by the board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of the board of directors or management with respect to the merger or the per share merger consideration.

 

The Company has agreed to pay BofA Merrill Lynch for its services in connection with the merger an aggregate fee currently estimated to be approximately $1.535 million, a portion of which was payable upon the rendering of BofA Merrill Lynch’s opinion and a significant portion of which is contingent on the completion of the merger. The Company also has agreed to reimburse BofA Merrill Lynch for its reasonable expenses incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch, any controlling person of BofA Merrill Lynch and each of their respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under the federal securities laws.

 

BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Merrill Lynch and its affiliates invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in the equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, Parent and certain of their respective affiliates.

 

Opinion of Thomas Weisel Partners LLC

 

In April 2010, the Company hired Thomas Weisel Partners to act as its financial advisor in connection with the merger. On May 16, 2010, Thomas Weisel Partners delivered to the board of directors its oral opinion that, as of that date, the per share merger consideration to be received by holders of the common stock (other than Parent and its affiliates) pursuant to the merger was fair to such holders from a financial point of view. Thomas Weisel Partners later delivered its written opinion, dated May 16, 2010, confirming its oral opinion.

 

The Company determined the consideration it would receive in the transaction through negotiations with Parent. Except as described below, the Company did not impose any limitations on Thomas Weisel Partners with respect to the investigations made or procedures followed in rendering its opinion. Further, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the merger.

 

The full text of the written opinion that Thomas Weisel Partners delivered to the board of directors is attached as Annex C to this proxy statement. The Company’s stockholders should read this opinion carefully and in its entirety. However, the following summary of the Thomas Weisel Partners opinion has been included in this proxy statement, which is qualified in its entirety by reference to the full text of the opinion attached as Annex C.

 

Thomas Weisel Partners has directed its opinion to the board of directors. The opinion does not constitute a recommendation to stockholders as to how to vote with respect to the merger. The opinion addresses only the financial fairness of the per share merger consideration to be received by holders of the common stock (other than Parent and its affiliates) pursuant to the merger, as of the date of the opinion. It does not address the relative merits of the merger or any alternatives to the merger. Further, it does not address the Company’s underlying decision to proceed with or effect the merger. Moreover, it does not address the fairness of the amount or nature of any compensation to be paid or payable to any of our officers, directors or employees, or class of such persons, in connection with the merger, whether relative to the consideration to be received by our stockholders or otherwise.

In connection with its opinion, Thomas Weisel Partners:

 

(1) reviewed certain publicly available financial and other data with respect to the Company, including the consolidated financial statements for recent years and interim periods to March 31, 2010 and certain other relevant financial and operating data relating to the Company made available to Thomas Weisel Partners from published sources and from the internal records of the Company;

 

(2) reviewed the financial terms and conditions of the May 14, 2010 draft of the merger agreement furnished to Thomas Weisel Partners and related agreements and documents furnished to Thomas Weisel Partners;

 

(3) reviewed certain publicly available information concerning the trading of, and the trading market for, the common stock;

 

(4) compared the Company from a financial point of view with certain other companies which Thomas Weisel Partners deemed to be relevant;

 

(5) considered the financial terms, to the extent publicly available, of selected recent business combinations which Thomas Weisel Partners deemed to be comparable, in whole or in part, to the merger;

 

(6) reviewed and discussed with representatives of the management of the Company certain information of a business and financial nature regarding the Company, furnished to Thomas Weisel Partners by them, including financial forecasts and related assumptions of the Company;

 

(7) made inquiries regarding and discussed the merger and the merger agreement and other matters related thereto with the Company’s outside legal counsel; and

 

(8) performed such other analyses and examinations as Thomas Weisel Partners deemed appropriate.

 

In preparing its opinion, Thomas Weisel Partners did not assume any obligation to independently verify the information referred to above. Instead, with the Company’s consent, Thomas Weisel Partners relied on the information being accurate and complete in all material respects. Thomas Weisel Partners also made the following assumptions, in each case with the Company’s consent:

 

 

In addition, for purposes of Thomas Weisel Partners’ opinion:

 

 

The following represents a brief summary of the material financial analyses performed by Thomas Weisel Partners in connection with providing its opinion to the Company’s board of directors. Some of the summaries of financial analyses performed by Thomas Weisel Partners include information presented in tabular format. In order to fully understand the financial analyses performed by Thomas Weisel Partners, the Company’s stockholders should read the tables together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Thomas Weisel Partners.

 

Comparable Company Analysis.   Based on public and other available information, Thomas Weisel Partners calculated the multiples of enterprise value, which Thomas Weisel Partners defined as equity value, plus debt, preferred stock and minority interests, less cash and cash equivalents, to estimated calendar year 2010 and 2011 revenues and earnings before interest, taxes, stock-based compensation, depreciation and amortization (EBITDA) for selected companies in the software industry. In addition, Thomas Weisel Partners calculated the multiples of per share equity values, based on closing stock prices on May 14, 2010 (except for Novell, Inc., the stock price of which was fixed as of close of March 2, 2010, before public announcement of the acquisition offer by Elliott Associates, L.P.), for these same companies to estimated calendar year 2010 and 2011 earnings per share (EPS), commonly referred to as price-to-earnings ratio (P/E). Thomas Weisel Partners also calculated the multiples of P/E for these companies to their long-term EPS growth rate, which growth rate was provided by public, independent sources, commonly referred to as price-to-earnings to growth rate (P/E/G). Thomas Weisel Partners believes that the nine companies listed below have products similar to those of the Company, but noted that none of these companies have the same management, composition, size, operations, financial profile, or combination of businesses as the Company:

 

 

The following table sets forth the multiples indicated by this analysis, the multiples implied by the proposed merger and the implied per share values based upon third and first quartile metrics respectively:

 

 

While the comparable company analysis compared the Company to nine companies in the software industry, Thomas Weisel Partners did not include every company that could be deemed to be a participant in this same industry, or in the specific sectors of this industry.

 

Comparable Transactions Analysis.   Based on public and other available information, Thomas Weisel Partners calculated the multiples of enterprise value to last-twelve-months (LTM) and next-twelve-months (NTM) revenues and LTM and NTM EBITDA and equity value to LTM and NTM net income for the Company implied in the following selected fourteen comparable acquisitions of software companies of similar transaction size and with similar financial profile that have been consummated or announced since January 1, 2006:

 

The following table sets forth the multiples indicated by this analysis, the multiples implied by the proposed merger and the implied per share values based upon third and first quartile metrics:

 

 

No company or transaction used in the comparable company or comparable transactions analyses is identical to the Company or the merger. Accordingly, an analysis of the results of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the companies and transactions to which the Company and the merger, respectively, are being compared.

 

Discounted Cash Flow Analysis.   Thomas Weisel Partners used financial cash flow forecasts of the Company for the last two fiscal quarters of 2010 and the calendar years 2011 through 2015, as estimated by the Company’s management, to perform a discounted cash flow analysis. In conducting this analysis, Thomas Weisel Partners assumed that the Company would perform in accordance with these forecasts provided by the Company’s management. Thomas Weisel Partners used two approaches: in the first approach, Thomas Weisel Partners estimated the terminal value of the projected cash flows by applying exit multiples to the Company’s estimated 2015 EBITDA, which multiples ranged from 6.0x to 8.0x. Thomas Weisel Partners then discounted the cash flows projected through 2014 and the 2015 terminal value to present values using rates ranging from 14.0% to 18.0%. In their second approach, Thomas Weisel Partners estimated the perpetual cash flows by applying annual growth rates of 2.0% to 4.0% to the Company’s estimated 2015 free cash flow and then discounted the cash flows projected through 2014 and the perpetual cash flows to present values using rates ranging from 14.0% to 18.0%. These two methods of analysis indicated two ranges of aggregate values, each of which were then increased by the Company’s estimated net cash, to calculate a range of equity values. These equity values were then divided by fully diluted shares outstanding to calculate implied equity values per share (i) ranging from $10.45 to $13.13, using EBITDA exit multiples for the terminal value, and (ii) ranging from $8.61 to $11.20, using perpetual growth rates. Thomas Weisel Partners noted that the value of consideration to be received by holders of the common stock pursuant to the merger was $10.55.

 

Premiums Paid Analysis.   Thomas Weisel Partners reviewed the consideration paid in thirty selected technology acquisitions involving an aggregate value between approximately $100 million and $500 million announced since January 1, 2009. Thomas Weisel Partners calculated the premiums paid in these transactions over both the applicable stock price and the enterprise value of the target company one day, one week and one month prior to the announcement of the proposed acquisition, and calculated the implied per share value based on third and first quartile metrics.

 

Thomas Weisel Partners noted that the premiums implied by the transaction were 21%, 20% and 19% based on the price per share of the Company common stock, and were 39%, 42% and 61% based on the enterprise value of the Company, in each case for the period one day, one week and one month prior to April 9, 2010, the last trading day prior to the public announcement by the Company that it had received indications of interest with respect to a possible acquisition. Thomas Weisel Partners also noted that the value of consideration to be received by holders of the common stock pursuant to the merger was $10.55.

 

Miscellaneous

 

The foregoing description is only a summary of the analyses and examinations that Thomas Weisel Partners deems material to its opinion. It is not a comprehensive description of all analyses and examinations actually conducted by Thomas Weisel Partners. The preparation of a fairness opinion necessarily is not susceptible to partial analysis or summary description. Thomas Weisel Partners believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses and of the factors considered, without considering all analyses and factors, would create an incomplete view of the process underlying the analyses set forth in its presentation to us. In addition, Thomas Weisel Partners may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis. Accordingly, the ranges of valuations resulting from any particular analysis described above should not be taken to be the view of Thomas Weisel Partners with respect to the actual value of our company.

 

In performing its analyses, Thomas Weisel Partners 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. The analyses performed by Thomas Weisel Partners are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by these analyses. These analyses were prepared solely as part of the analysis performed by Thomas Weisel Partners with respect to the financial fairness of the per share merger consideration to be received by holders of the common stock (other than Parent and its affiliates) pursuant to the merger, and were provided to the board of directors in connection with the delivery of the Thomas Weisel Partners opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at any time in the future.

 

As described above, Thomas Weisel Partners’ opinion and presentation were among the many factors the board of directors took into consideration in making its determination to approve, and to recommend that our stockholders approve, the merger.

 

The Company has agreed to pay Thomas Weisel Partners an aggregate fee currently estimated to be approximately $1.535 million, a portion of which was payable upon the rendering of Thomas Weisel Partners’ opinion and a significant portion of which is contingent on the completion of the merger. Further, the Company has agreed to reimburse Thomas Weisel Partners for its reasonable out-of-pocket expenses and to indemnify Thomas Weisel Partners, its affiliates, and their respective partners, directors, officers, agents, consultants, employees and controlling persons against specific liabilities, including liabilities under the federal securities laws.

 

In the ordinary course of its business, Thomas Weisel Partners actively trades the equity securities of the Company for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. Thomas Weisel Partners also acted as an underwriter in connection with the initial public offering and secondary offering of securities of the Company and has performed various investment banking services for the Company for which Thomas Weisel Partners has received customary fees.

 

Our senior management provided certain financial forecasts to BofA Merrill Lynch and Thomas Weisel Partners for purposes of the opinions described above. The table below sets forth the Company’s financial forecasts used by BofA Merrill Lynch and Thomas Weisel Partners in preparing their respective opinions, and sets forth

forecasts of free cash flow derived by BofA Merrill Lynch and Thomas Weisel Partners based on information provided by the Company, and used by them in preparing their respective opinions

 

 

 

 

Each of EBITDA, EBIT and Free Cash Flow is a non-GAAP, or generally accepted accounting principles in the United States, measure. Non-GAAP financial measures are not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of the performance of other companies.

 

The financial forecasts are included in this proxy statement solely because they were provided to BofA Merrill Lynch and Thomas Weisel Partners in connection with each of their opinions to the board of directors that, as of May 16, 2010 and based upon and subject to the assumptions set forth therein, the $10.55 per share merger consideration to be paid to the holders of shares (other than Parent and its affiliates) of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The inclusion of this information should not be regarded as an indication to any stockholder that the board of directors or any other recipient of this information considered, or now considers, it to be predictive of actual future results, and they should not be relied on as such.

 

At the time the financial forecasts set forth above were prepared, the forecasts represented the best estimates and judgments of the Company’s management and, to the best of management’s knowledge and belief, the future financial performance of the Company. While the financial projections set forth above were prepared in good faith, no assurance can be given regarding future events. The financial forecasts also reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. As a result, there can be no assurance that the forecasted results will be realized or that actual results will not be significantly higher or lower than forecasted. Since the financial forecasts cover multiple years, such information by its nature becomes less predictive with each successive year. Also, the economic and business environments can and do change quickly, which adds a significant level of unpredictability, unreliability and execution risk. These factors create significant doubt as to whether the forecasts for fiscal years 2010 and beyond are likely to be achieved. As a result, the financial forecasts are not necessarily indicative of future results. In addition, the Company prepared the financial forecasts prior to the board of director’s approval of the merger agreement and, accordingly, the financial forecasts do not reflect the effects of the merger or the merger agreement, which may cause results to differ materially. Although presented with numeric specificity, the financial forecasts reflect numerous estimates and assumptions that may not be realized and are subject to significant uncertainties and contingencies, many of which are beyond the Company’s control. Accordingly, readers of this proxy statement are cautioned not to place undue reliance on the financial forecasts.

 

The financial forecasts were prepared for internal use and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding forecasts or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The financial forecasts included in this proxy statement were prepared by, and are the responsibility of, our

management. We do not assume any responsibility to update these financial forecasts. 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 financial forecasts or their achievability, and assume no responsibility for, and disclaim any association with, the financial forecasts. Furthermore, the financial forecasts do not take into account any circumstances or events occurring after the date the financial forecasts were prepared that were unforeseen by our management at the time of preparation. We have made publicly available our actual results of operations for the quarter ended March 31, 2010. Our stockholders should review our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 to obtain this information. See the section entitled “Where You Can Find More Information” beginning on page 76.

 

None of the Company or our affiliates, advisors, officers, directors or representatives has made or makes any representation to any stockholder or other person regarding the ultimate performance of the Company compared to the information contained in the financial forecasts or that forecasted results will be achieved.

 

We anticipate that the total funds needed to complete the merger, including the funds needed to:

 

 

will be approximately $257 million (a portion of which amount is for fees related to the refinancing of Parent’s existing indebtedness).

 

We expect this amount to be funded through a combination of:

 

 

Parent has obtained the debt financing commitment described below. The funding under that commitment is subject to certain conditions precedent, including conditions that do not relate directly to the merger agreement. We believe the committed amounts will be sufficient to complete the transaction, but we cannot assure you of that. Those amounts might be insufficient if, among other things, we have substantially less cash on hand or Parent realizes substantially less net proceeds from the debt financing than we currently expect. Although obtaining the debt financing is not a condition to the completion of the merger, the failure of Parent and Merger Sub to obtain sufficient 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 the Parent termination fee, as described under “The Merger Agreement — Termination Fees” beginning on page 66. That obligation is guaranteed by the Guarantor.

 

Debt Financing

 

In connection with entering into the merger agreement, Parent received a debt commitment letter, dated May 17, 2010, from Jefferies Finance LLC to provide in the aggregate up to $255 million in debt financing to Parent and Merger Sub, consisting of (i) a senior secured term loan facility in an aggregate principal amount of $240 million, and a (ii) a senior secured revolving credit facility with a maximum availability of $15 million (no more than $7.5 million of which may be drawn at closing).

 

The facilities contemplated by the debt financing commitments are subject to customary closing conditions, including without limitation:

 

 

 

The debt commitment will terminate upon the first to occur of (i) the date that the merger agreement has terminated or expired or, if earlier, the date that Parent notifies Jefferies of the termination or abandonment of the merger, (ii) the closing of the merger, (iii) the execution by (A) the Company or any of its subsidiaries or (B) any of the Company’s affiliates or equityholders representing at least 50% (as calculated by reference to either economic value or ordinary voting power) of the outstanding capital stock of the Company, of a definitive acquisition agreement with respect to an offer to acquire all or at least 50% of the capital stock or all or a substantial part of the assets of the Company, (iv) the date Parent terminates the debt commitment letter, and (v) 5:00 pm, New York City time, on the later of (x) October 14, 2010 and (y) the date that is 150 days after the date of the executed merger agreement.

 

Subject to the terms and conditions of the merger agreement, each of Parent and Merger Sub has agreed to use its commercially reasonable efforts to obtain the financing on the terms and conditions described in the debt commitment letter (or terms not materially less favorable to Parent or the Company). Neither Parent or Merger Sub may amend, alter or waive, or agree to amend, alter or waive, any term of the debt commitment letter without the prior written consent of the Company if such amendment, alteration or waiver reduces the aggregate amount of the debt financing commitment or the conditions precedent to the debt financing in a manner that would reasonably be expected to delay or prevent the closing or make the debt financing less likely to occur.

 

Although the debt financing described in this proxy statement is not subject to due diligence or a so called “market out” provision, which allows lenders not to fund their commitments if certain conditions in the financial

markets prevail, there is still a risk that such financing may not be funded when required. As of the date of this proxy statement, Parent has not informed us of any alternative financing arrangements or alternative financing plans that have been made in the event the debt financing described in this proxy statement is not available as anticipated.

 

Pursuant to a limited guarantee delivered by the Guarantor in favor of the Company, dated May 17, 2010, the Guarantor has agreed to guarantee the due and punctual performance and discharge of (a) the obligations of Parent and Merger Sub under the merger agreement that are due to be performed prior to the effective time and (b) the payment of the Parent termination fee, if and when payable. The Guarantor’s maximum liability under the limited guarantee is limited to the amount of the Parent termination fee. The limited guarantee is attached as Exhibit A to the merger agreement, which is attached hereto as Annex A .

 

The closing of the merger will take place on the first business day following the date on which the last of the conditions to closing of the merger (described under “The Merger Agreement — Conditions to the Merger” beginning on page 63) has been satisfied or waived (other than the conditions that by their nature are to be satisfied at the closing of the merger, but subject to the fulfillment or waiver of those conditions).

 

The effective time will occur as soon as practicable following the closing of the merger upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later date as we and Parent may agree and specify in the certificate of merger).

 

Each record holder of shares of the common stock (other than holders of solely the excluded shares) will be sent a letter of transmittal describing how such holder may exchange their shares of common stock for the per share merger consideration promptly after the completion of the merger.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

You will not be entitled to receive the per share merger consideration until you deliver a duly completed and executed letter of transmittal to the paying agent. If your shares are certificated, you must also surrender your stock certificate or certificates to the paying agent. If ownership of your shares is not registered in the transfer records of the Company, a check for any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required to evidence and effect transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.

 

In considering the recommendation of our board of directors that you vote to approve the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, those of our stockholders generally. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of the Company.

 

Equity Compensation Awards

 

At the effective time each outstanding option to purchase shares of common stock will be cancelled, and with respect to options for which the exercise price is less than $10.55, the options will be converted into the right to receive a cash payment equal to the number of shares of common stock subject to such option multiplied by the amount by which $10.55 exceeds the exercise price per share of such option, less any applicable withholding taxes. Any outstanding option with an exercise price per share above $10.55 will be cancelled without the payment of any consideration to the holder. Except as described in the next sentence, at the effective time each restricted stock unit will be cancelled and converted into the right to receive a cash payment equal to the total number of shares subject to

such restricted stock unit immediately prior to the effective time multiplied by $10.55, less any applicable withholding taxes. Certain restricted stock units granted on May 13, 2010 to the non-employee members of our board of directors as part of their annual compensation will be cancelled without any consideration therefor in the event that the effective time occurs by the termination date in the merger agreement.

 

The table below provides detail as to the value of the outstanding options and restricted stock units held by our directors and executive officers that, at the effective time, whether or not vested, will become fully vested and cancelled and converted into the right to receive the per share merger consideration. The table does not include restricted stock units that are subject to our Executive Bonus Plan 2010, which are described below under the heading “2010 Bonuses and Equity Awards Under Executive Bonus Plan if Merger Closes in 2010.”

 

 

 

 

Employment Agreements

 

We entered into employment agreements with Messrs. Beeler and Demlow in 2006 that were amended and restated in 2007. The agreements generally provide for severance payments upon termination without cause. In the event of a qualifying termination without cause, each of Messrs. Beeler and Demlow are entitled to receive (i) payment in an amount equal to one time the executive’s base annual salary in effect as of the date of termination (in the amounts of $189,000 and $193,170, respectively, less any applicable withholding taxes), which amounts are to be paid in accordance with our regular payroll periods, and (ii) the payment of amounts by which the cost of continuation of health benefits following termination exceeds the amount the executive previously paid for such coverage up to a twelve month period. The severance payments and benefits are subject to the execution of a release of claims in our favor and compliance with the terms of a non-disclosure agreement. Under our agreements with Messrs. Beeler and Demlow, “cause” is defined as (i) willful disobedience by employee of a material and lawful instruction of the chief executive officer or the board of directors of the company; (ii) conviction of employee of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) breach by employee of any material provision of this agreement; (iv) conduct amounting to fraud, dishonesty, willful misconduct or recurring insubordination; or (v) excessive absences from work for any reason. These provisions and the benefits afforded to Messrs. Beeler and Demlow thereunder upon termination of employment without cause are the same benefits that Messrs. Beeler and Demlow would have outside of the context of the merger in the event of the termination of their employment without cause.

 

We entered into an employment letter agreement with Mr. Huke which provides that in the event that Mr. Huke’s employment is terminated without cause in connection with a change in control as a result of a merger, acquisition,

purchase of all or substantially all of our assets, or other like transaction in which we are not the surviving entity, as determined by the compensation committee of the board of directors, all unvested options to purchase shares of our common stock held by Mr. Huke will immediately vest. Pursuant to the terms of our equity compensation plan and the merger agreement, this provision of his employment agreement does not provide Mr. Huke a benefit in this transaction that is different from that to which all other employees of the Company are entitled.

 

Severance Agreements

 

We have entered into letter agreements with each of our executive officers (with the exception of Messrs. Beeler, Demlow and Murciano) that provide for certain benefits in the event of termination without cause, whether or not following a change of control. Upon termination without cause, Messrs. Goodermote, Huke, Jones, and Lesh are entitled to receive (i) payment in an amount equal to one time the executive’s base annual salary in effect as of the date of the termination, which amounts are to be paid in accordance with our regular payroll periods (in the amounts of $350,000, $224,460, $181,600, and $183,680 respectively, less any applicable withholding taxes), and (ii) the payment of amounts by which the cost of continuation of health benefits following termination exceeds the amount the executive previously paid for such coverage up to a twelve month period. The receipt of severance payments and the continuation of health benefits are subject to the execution of a release of claims in our favor and compliance with the terms of a non-disclosure agreement. Under the letter agreements, “cause” is defined as: (i) willful disobedience of a material and lawful instruction of the chief executive officer or the board; (ii) conviction of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) conduct amounting to fraud, dishonesty, negligence, willful misconduct or recurring insubordination; (iv) inattention to the executive’s duties; (v) excessive absences from work; or (vi) the violation of the non-disclosure confidentiality agreement between the executive and the Company. These provisions and the benefits afforded to Messrs. Goodermote, Huke, Jones and Lesh thereunder upon termination of employment without cause are the same benefits that these executive officers would have outside of the context of the merger in the event of the termination of their employment without cause.

 

In 2008 we entered into a letter agreement with Mr. Murciano providing for a payment in the amount of €150,000 if he is terminated without cause, which amount is to be paid in accordance with our regular payroll periods. Receipt of the severance payment is subject to the execution of a release of claims in our favor and compliance with the terms of a non-disclosure agreement. Under our agreement with Mr. Murciano, “cause” is defined as (i) willful disobedience of a material and lawful instruction of the company in its capacity as sole shareholder of Double-Take EMEA; (ii) conviction of any misdemeanor involving fraud or embezzlement or similar crime, or any felony; (iii) conduct amounting to fraud, dishonesty, negligence or willful misconduct; (iv) inattention to his duties; or (v) violation of a non-disclosure confidentiality agreement between Mr. Murciano and the Company. These provisions and the benefits afforded to Mr. Murciano upon termination of employment without cause are the same benefits that he would have outside of the context of the merger in the event of the termination of his employment without cause.

 

2010 Bonuses and Equity Awards under Executive Bonus Plan if Merger Closes in 2010

 

We award annual incentive pay pursuant to the terms of our Executive Bonus Plan. The Executive Bonus Plan has two components that are designed to reward our executive officers with cash awards for achieving company-wide net revenue and, for each executive, net revenue for a specific product line. The total targeted cash incentive amounts for each executive officer are divided into five equal sub amounts, one for each quarter’s performance and one for the year-end performance. The Executive Bonus Plan also has a component that is designed to reward our executive officers with the vesting of restricted stock units for achieving operating profit and net revenues. The total restricted stock units for each executive officers are also divided into five equal sub amounts, one for each quarter’s performance and one for the year-end performance.

 

The Executive Bonus Plan provides that in the event that the Company is acquired, the objectives for the quarter in which the transaction takes place and the year-end will be deemed to have been made without regard to whether the objectives are eventually achieved. Accordingly, if the merger closes during 2010, the cash awards for the quarter in which the merger closes and for the year-end will be deemed to have been met and the executive officers will be entitled to receive the cash awards even if the objectives are not met. The restricted stock units will

be treated like all other restricted stock unit awards and at the effective time, whether or not vested, will be cancelled and converted into the right to receive the per share merger consideration.

 

The following table sets forth the total amount of cash awards that would be guaranteed under the Executive Bonus Plan if the merger were to close in the third quarter of 2010, as well as the number of restricted stock awards that would vest and be canceled if the merger were to close in the third quarter of 2010, and the dollar value that the executive officer will receive in lieu of those restricted stock units.

 

 

Arrangements with the Surviving Corporation

 

As of the date of this proxy statement, no members of our current management have entered into any agreement, arrangement or understanding with Parent or its affiliates regarding employment with, or the right to convert into or reinvest or participate in the equity of, the surviving corporation or Parent or its affiliates. Although it would not be unexpected that some members of our current management team will enter into arrangements, agreements or understandings with Parent or its affiliates regarding employment (and severance arrangements) with, and the right to purchase or participate in the equity of, Parent (and/or a subsidiary of Parent), as of the date of this proxy statement no such agreements, arrangements or understandings have been reached between members of our current management and representatives of Parent, and there can be no assurance that any parties will reach an agreement, arrangement or understanding. New arrangements, agreements or understandings, if any, are currently expected to be entered into at or prior to completion of the merger and would not become effective until after the merger is completed.

 

Except as disclosed in this proxy statement, there is no present or proposed material agreement, arrangement, understanding or relationship between Parent, Merger Sub, the Guarantor or any of their respective executive officers, directors, controlling persons or subsidiaries, on the one hand, and the Company or any of its executive officers, directors, controlling persons or subsidiaries, on the other hand.

 

 

The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

 

 

The following is a summary of the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) whose shares of common stock are converted into the right to receive cash in the merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of common stock that is, for U.S. federal income tax purposes:

 

 

 

 

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. A partner of a partnership holding common stock should consult the partner’s tax advisor regarding the U.S. federal income tax consequences of the merger to such partner.

 

This discussion is based on current law, which is subject to change, possibly with retroactive effect. The discussion applies only to beneficial owners who hold shares of common stock as capital assets, and does not apply to shares of common stock received in connection with the exercise of employee stock options or otherwise as compensation, stockholders who hold an equity interest, actually or constructively, in Parent or the surviving corporation after the merger, stockholders who validly exercise their rights under the DGCL to object to the merger or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, stockholders subject to the alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar or stockholders who hold common stock as part of a hedge, straddle, constructive sale or conversion transaction). This discussion also does not address the U.S. tax consequences to any stockholder who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and does not address the receipt of cash in connection with the cancellation of shares of stock appreciation rights, restricted stock units or options to purchase shares of common stock, or any other matters relating to equity compensation or employee benefit plans. This discussion does not address any aspect of state, local or foreign tax laws.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement.

 

The exchange of shares of common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding taxes) and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such shares. Gain or loss will be determined separately for each block of shares of common stock (i.e., shares of common stock acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that the U.S. holder’s holding period for such shares of common stock is more than twelve months at the time of the completion of the merger. Long-term capital gains of non-corporate U.S. holders are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses. The gain or loss will generally be income or loss from sources within the U.S. for foreign tax credit limitation purposes.

 

Backup Withholding and Information Reporting.

 

Backup withholding of tax (at the rate of 28%) may apply to cash payments to which a non-corporate U.S. holder is entitled under the merger agreement, unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct, and otherwise complies with the backup withholding rules. Each of our U.S. holders should complete and sign, under penalty of perjury, the Substitute Form W-9 included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

 

Backup withholding is not an additional tax. Any amounts withheld from cash payments to a U.S. holder pursuant to the merger under the backup withholding rules will be allowable as a refund or a credit against such U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

Cash payments made pursuant to the merger will also be subject to information reporting unless an exemption applies.

 

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each stockholder should consult the stockholder’s tax advisor regarding the applicability of the rules discussed

above to the stockholder and the particular tax effects to the stockholder of the merger in light of such stockholder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of options, stock appreciation rights or restricted stock units to purchase shares of common stock, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

 

Under the terms of the merger agreement, the merger cannot be completed until the waiting period applicable to the consummation of the merger under the HSR Act has expired or been earlier terminated.

 

Under the HSR Act, and the rules promulgated thereunder by the FTC, the merger cannot be completed until each of the Company and Parent file a notification and report form with the FTC and the Antitrust Division of the DOJ under the HSR Act and the applicable waiting period has expired or been terminated. Each of the Company and Parent filed such a notification and report form on May 28, 2010 and each requested early termination of the waiting period. On June 16, 2010, the FTC notified the parties that their request for early termination of the applicable waiting period had been granted. At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Parent. At any time before or after the completion of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion 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 DOJ, the FTC or any other governmental entity or any private party will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, there can be no assurance as to its result.

 

 

On May 27 and 28, 2010, and June 17, 2010, five putative class action lawsuits were commenced against us, our directors, Parent and Thoma Bravo, in the Worcester County Superior Court of the Commonwealth of Massachusetts. The actions are captioned Michael K. Page vs. Double-Take Software, Inc. et al., C.A. No. 10-1170; Tatiana Gershanovich vs. Dean Goodermote et al., C.A. No. 10-1181; Continuum Capital v. Double-Take Software, Inc. et al ., C.A. No. 10-1183; Lionel Patenaude vs. Double-Take Software, Inc. et al. , C.A. No. 10-1184; and Russell Sundquist vs. Double-Take Software, Inc., et al. , C.A. No. 10-1329. The Gersanovich plaintiff filed an amended complaint on June 11, 2010. On June 16, 2010, a putative class action lawsuit was commenced against us, our directors, Parent, Merger Sub and Thoma Bravo in the Court of Chancery of the State of Delaware, captioned Ian Weyer vs. Dean Goodermote et al ., Case No. 5569. In each of these actions, plaintiffs allege generally that our directors breached their fiduciary duties in connection with the transaction by, among other things, failing to conduct a thorough and proper sales process to maximize shareholder value, restricting the Company’s ability to solicit or otherwise engage in discussions with other potential buyers of the Company and putting their own interests above those of our stockholders generally. In addition, the Gersanovich and the Weyer actions assert, among other things, that our directors had breached their duty of disclosure in the preliminary proxy statement filed on June 2, 2010. The complaints allege that we, Parent and Thoma Bravo aided and abetted those supposed breaches of duty. Plaintiffs in each action purport to bring their lawsuits on behalf of the public stockholders of the Company. In all but the Continuum Capital action, plaintiffs seek equitable relief to enjoin the consummation of the merger, rescission of the merger agreement and/or rescissory damages, and fees and costs, among other relief. In the Continuum Capital action, plaintiff seeks compensatory and/or rescissory damages, and fees and costs, among other relief.

 

The Company believes that the claims asserted in the Page, Gershanovich, Continuum Capital , Patenaude, Weyer and Sundquist actions are without merit.

 

This section describes the material terms of the merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. 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. We encourage you to read the merger agreement carefully and in its entirety. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled, “Where You Can Find More Information”, beginning on page 76.

 

The merger agreement is 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. The representations, warranties and covenants contained in the merger agreement were made only for purposes of the merger agreement and were made as of specified dates, were solely for the benefit of the parties to the merger agreement, and are qualified by information in confidential disclosure schedules that the Company exchanged with Parent and Merger Sub in connection with the execution of the merger agreement. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to your investment decision. 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 close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. Although these representations and warranties may not constitute the actual state of facts about the parties to the agreements as of a specific date, any specific material facts that qualify the representations and warranties in the merger agreement have been disclosed in this proxy statement or in the information incorporated by reference herein, as applicable. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the other information provided elsewhere in this proxy statement or incorporated by reference into this proxy statement. None of the representations and warranties of the parties to the merger agreement will survive the effective time of the merger.

 

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, set forth in the merger agreement. As the surviving corporation, the Company will continue to exist following the merger.

 

Following the completion of the merger, we expect the common stock to be delisted from Nasdaq and deregistered under the Exchange Act, and to cease to be publicly traded.

 

The closing of the merger will take place on the first business day following the date on which the conditions to closing of the merger (described under “The Merger Agreement — Conditions to the Merger”) have been satisfied or waived (other than the conditions that by their terms are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of those conditions).

 

The effective time will occur on the date of the closing of the merger upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later date as we and Parent may agree and specify in the certificate of merger).

 

The board of directors of the surviving corporation will, from and after the effective time, consist of the directors of Merger Sub until their successors have been duly appointed and qualified. The officers of Merger Sub at the effective time will, from and after the effective time, be the officers of the surviving corporation until their successors have been duly elected or appointed and qualified.

 

The certificate of incorporation of the surviving corporation will be in the form attached as Exhibit B to the merger agreement, until amended in accordance with applicable law and its terms. The bylaws of the surviving corporation will be in the form of the bylaws of Merger Sub (except with respect to the name of the Company) until amended in accordance with applicable law, their terms and the certificate of incorporation of the surviving corporation.

 

Common Stock

 

If the merger is completed, at the effective time each share of the common stock issued and outstanding immediately prior thereto (other than excluded shares) will convert into the right to receive $10.55 in cash (which we refer to as the per share merger consideration), without interest and less any applicable withholding taxes. Common stock owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent will be cancelled without payment of consideration. Common stock owned by stockholders who have properly exercised, and not effectively withdrawn or lost or failed to perfect, appraisal rights under the DGCL will be not be entitled to receive the per share merger consideration. Such stockholders will instead be entitled to the appraisal rights provided under the DGCL as described under “Appraisal Rights” beginning on page 72.

 

Options

 

At the effective time each outstanding option will be cancelled and converted into the right to receive cash in an amount equal to the product of (x) the total number of shares of common stock subject to such option immediately prior to the effective time and (y) the excess, if any, of the per share merger consideration over the exercise price per share of such option, less any applicable withholding taxes.

 

Restricted Stock Units

 

Except as provided below, at the effective time, each outstanding restricted stock unit will be cancelled and converted into the right to receive cash in an amount equal to the product of (x) the total number of shares of common stock subject to such restricted stock unit immediately prior to the effective time and (y) the per share merger consideration, less any applicable withholding taxes. Certain restricted stock units that were granted on May 13, 2010 to the non-employee members of our board of directors as part of their annual compensation will be cancelled without any consideration therefor in the event that the effective time occurs by the termination date contained in the merger agreement.

 

At the effective time, Parent has agreed to deposit, or cause to be deposited, with the paying agent a cash amount in immediately available funds necessary for the paying agent to make payment of the aggregate per share merger consideration to the holders of shares of our common stock.

 

Promptly following the consummation of the merger, Parent and the surviving corporation have agreed to cause the paying agent to send each record holder of shares of common stock a letter of transmittal and / or instructions advising you how to surrender your certificates and uncertificated shares in exchange for an amount in cash equal to the product obtained by multiplying the aggregate number of shares of the common stock represented by your certificate(s) or the uncertificated shares, as the case may be, and the per share merger consideration (less any applicable withholding taxes payable in respect thereof). The merger agreement contemplates that the paying agent will pay you your merger consideration after you have surrendered your certificates for cancellation to the payment agent together with the letter of transmittal duly completed and validly executed, or upon receipt of an

“agent’s message” by the paying agent in the case of a book-entry transfer or uncertificated shares. You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

No interest will be paid or accrued on the per share merger consideration. Parent, the surviving corporation and the paying agent will be entitled to deduct and withhold any applicable taxes from the per share merger consideration. Any sum that is withheld will be deemed to have been paid to the person with regard to whom it is withheld.

 

From and after the effective time, there will be no transfers on our stock transfer books of shares of 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 told to comply with the instructions in that letter of transmittal in order to receive the cash to which such person is entitled.

 

Any portion of the per share merger consideration deposited with the paying agent that remains unclaimed by former record holders of common stock for twelve months after the effective time will be delivered to the surviving corporation. Holders of common stock who have not surrendered their certificates or uncertificated shares by that time will thereafter only look to the surviving corporation for payment of the per share merger consideration. None of the surviving corporation, Parent, the paying agent or any other person will be liable to any former holders of common stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar laws.

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per share merger consideration, you will have to make an affidavit of the loss, theft or destruction, and if required by Parent, post a bond in a customary amount as indemnity against any claim that may be made against it, the paying agent or the surviving corporation with respect to such certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

 

Parent and Merger Sub have agreed to use their commercially reasonable efforts to obtain debt financing for the merger on the terms and conditions described in the debt commitment letter, including:

 

 

Parent and Merger Sub have agreed not to amend or waive any provision under the debt commitment letter without the prior written consent of the Company if such amendment or waiver (i) reduces the aggregate amount of the financing, or (ii) amends or modifies any of the conditions to the receipt of the financing in a manner that would reasonably be expected to delay or prevent the closing of the merger or make the funding of the financing less likely to occur.

 

In the event that all the conditions to the closing of the merger are satisfied or waived (or upon funding will be satisfied or waived), Parent and Merger Sub have agreed to use their commercially reasonable efforts to cause the lenders and any other person providing debt financing to fund on the closing date of the merger the debt financing required to complete the merger and the other transactions contemplated by the merger agreement. Parent and Merger Sub acknowledge in the merger agreement that the obtaining of the financing is not a condition to the consummation of the merger, such that if the financing has not been obtained, Parent and Merger Sub will continue

to be obligated, subject to the satisfaction or waiver of the closing conditions in the merger agreement, to consummate the merger.

 

We have agreed to use our commercially reasonable efforts to cooperate with Parent and its financing sources to provide financial and other pertinent information regarding the Company and its subsidiaries as may be reasonably requested by Parent or the financing sources; provided that (i) the Company shall not be required to pay any commitment or other similar fee or to incur any other liability in connection with the financing, except following the effective time, and (ii) such cooperation does not unreasonably interfere with the ongoing operations of the Company.

 

We made customary representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement, in the disclosure schedule the Company delivered in connection therewith, or in the public filings we have made with the SEC. These representations and warranties relate to, among other things:

 

 

 

Many of our representations and warranties are qualified by, among other things, exceptions relating to the absence of a Company material adverse effect, which is defined to mean any change, event, violation, inaccuracy, effect or circumstance (each, an effect) that, individually or taken together with all other effects that have occurred prior to the date of determination of the occurrence of the Company material adverse effect, is or would reasonably be expected to be materially adverse to the business, financial condition or results of operations of the Company and our subsidiaries, taken as a whole, other than:

 

 

 

except, in the case of the first five bullets above, to the extent such effect has not had a disproportionate impact on the Company relative to other companies in its industry.

 

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

 

 

 

The representations and warranties in the merger agreement of each of the Company, Parent and Merger Sub will terminate upon the consummation of the merger or the termination of the merger agreement pursuant to its terms.

 

Under the merger agreement, we have agreed that, subject to certain exceptions in the merger agreement and disclosure schedules we delivered in connection with the merger agreement, between the date of the merger agreement and the effective time, unless Parent gives its prior written approval (which cannot be unreasonably withheld, delayed or conditioned), we and our subsidiaries will cause our businesses to be conducted in the ordinary course consistent with past practice and will use our commercially reasonable efforts to preserve our business organizations intact, keep available the services of our officers and key employees and preserve current relationships with parties with whom we have significant business relations.

 

Subject to certain exceptions set forth in the merger agreement and disclosure schedules we delivered in connection with the merger agreement, we will not, and we will not permit our subsidiaries to, take any of the following actions without Parent’s written approval (which cannot be unreasonably withheld, delayed or conditioned):

 

 

 

 

Except as permitted by the terms of the merger agreement described below, we have agreed in the merger agreement that our board of directors will not (i) withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent or the Merger Sub, the board recommendation with respect to the merger, (ii) adopt, approve or recommend or propose to adopt, approve or recommend (publicly or otherwise) an acquisition proposal, (iii) after the receipt of any acquisition proposal, fail to publicly reaffirm the board recommendation within ten business days after Parent so requests in writing (provided that Parent may make such request no more than once with respect to any such acquisition proposal) or (iv) fail to include the board recommendation in this proxy statement.

 

In addition, we have agreed that, until the effective time or, if earlier, the termination of the merger agreement, we, our subsidiaries and our representatives may not:

 

 

However, at any time prior to the time our stockholders adopt the merger agreement, if the Company receives an unsolicited bona fide acquisition proposal from any person, we may, if our board of directors (i) prior to taking any such actions, determines in good faith after consultation with outside legal counsel that failure to take such action would be reasonably likely to violate its fiduciary obligations under applicable law, and (ii) determines in good faith after consultation with its financial advisor and outside legal counsel that such acquisition proposal either constitutes a superior proposal or is reasonably likely result in a superior proposal:

 

 

In addition, at any time prior to the time our stockholders adopt the merger agreement, (i) the board of directors may (whether or not it has received a superior proposal) effect a board recommendation change and / or (ii) if the Company has received a bona fide written acquisition proposal from any person that is not withdrawn and that the board of directors concludes in good faith constitutes a superior proposal, the board of directors may authorize the Company to terminate the merger agreement to enter into an alternative acquisition agreement with respect to such superior proposal, if and only if the case of either such actions:

 

 

Nothing in the provisions of the merger agreement relating to acquisition proposals prevents us from complying with our disclosure obligations under U.S. federal or state law with regard to an acquisition proposal, including taking and disclosing to our stockholders a position contemplated by Rule 14d-9 or 14e-2(a) under the Exchange Act or making any similar communication to our stockholders, or making any “stop-look-and-listen” or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act.

 

Nothing in the provisions of the merger agreement prevents us from taking and disclosing a position contemplated by Rule 14e-2(a) under the Exchange Act or complying with the provisions of Rule 14d-9 promulgated under the Exchange Act, and making any disclosure that the board of directors shall have determined to make in good faith (after consultation with outside legal counsel) in order to comply with its fiduciary duties under applicable law; provided, however, that, in either such case, any such statement(s) or disclosures made by the board of directors shall be subject to the terms and conditions of the merger agreement.

In this proxy statement an acceptable confidentiality agreement means an agreement with respect to the confidentiality of the Company’s material non-public information that is either: (i) in effect as of the execution and delivery of the merger agreement; or (ii) has provisions that in all material respects are no less favorable to the Company in the aggregate than the provisions of the confidentiality agreement between the Company and Parent.

 

In this proxy statement an acquisition proposal means any offer or proposal (other than an offer or proposal by Parent or Merger Sub) to engage in an acquisition transaction.

 

In this proxy statement, an acquisition transaction means any transaction or series of related transactions (other than the merger) involving:

 

 

In this proxy statement, a superior proposal means any bona fide written acquisition proposal for an acquisition transaction (except that all references in the definition of acquisition transaction to “fifteen percent” shall be references to “fifty percent”) not solicited in violation of the no solicitation provisions of the merger agreement which the board of directors determines in good faith, after consultation with independent financial advisors and outside legal counsel, and taking into consideration, among other things, all of the terms and conditions and all legal, financial, regulatory and other aspects of such acquisition proposal and the merger agreement, (i) is reasonably likely to be consummated in accordance with its terms, (ii) would result in a transaction more favorable to the Company’s stockholders from a financial point of view than the transactions provided for in the merger agreement (after taking into account the expected timing and risk and likelihood of consummation), and (iii) is not contingent on any person’s ability to obtain any financing prior to consummating such acquisition proposal.

 

We have agreed to hold a meeting of our stockholders as promptly as reasonably practicable, subject to our right to postpone or adjourn the meeting if (i) there are holders of insufficient shares of the common stock present or represented by a proxy to constitute a quorum, (ii) the Company is required to postpone or adjourn the meeting by applicable law, order or a request from the SEC or its staff, (iii) the board of directors shall have determined in good faith, after consultation with outside legal counsel, that a failure to so delay the meeting would be reasonably likely to violate the directors’ fiduciary duties under applicable law or (iv) a failure to so delay the meeting would be reasonably likely to violate applicable duties of disclosure or other applicable disclosure requirements under applicable law. Subject to the provisions of the merger agreement discussed above under “The Merger Agreement — Solicitation of Acquisition Proposals”, our board of directors has agreed to include in the merger agreement its recommendation that our stockholders vote to adopt the merger agreement.

 

We, Parent and Merger Sub have agreed to take, or cause to be taken, all actions reasonably necessary, and to do, or cause to be done, and assist and cooperate with the other party or parties in doing, all things reasonably necessary, proper or advisable under applicable law to consummate the merger in the most expeditious manner reasonably practicable, including using reasonable best efforts to cause the conditions of the merger to be satisfied.

 

We, Parent and Merger Sub have also agreed to file with the FTC and the Antitrust Division of the DOJ a Notification and Report Form relating to the merger agreement as required by the HSR Act within twenty calendar days following the execution and delivery of the merger agreement, and to file comparable pre-merger or post-merger notification filings, forms and submissions with any foreign governmental authority that are required by the other applicable antitrust laws in connection with the merger. We filed the notification and report form on May 28, 2010, and were notified of early termination of the applicable waiting period on June 16, 2010.

 

Following the consummation of the merger, Parent has agreed to cause the surviving corporation to provide employees of the Company with benefits and compensation that are comparable to those provided to similarly situated employees of Parent.

 

Parent has also agreed to cause the surviving corporation to cause to be granted to any continuing employee credit for all service with the Company and its subsidiaries prior to the consummation of the merger for purposes of eligibility to participate, vesting and, solely for purposes of vacation accrual and severance pay, benefit entitlement, to the extent credited under an analogous employee plan prior to the consummation of the merger, except that such service need not be credited under any equity-based or non-qualified deferred compensation plan or arrangement or to the extent that it would result in duplication of coverage or benefits. In addition, (i) each continuing employee shall be immediately eligible to participate, without any waiting time, in any and all new employee benefit plans sponsored by the surviving corporation and its subsidiaries to the extent coverage under any such new plan replaces coverage in the plan year in which the merger occurs under a old plan in which such continuing employee participates immediately before the merger; and (ii) for purposes of each new plan providing medical, dental, pharmaceutical, or vision benefits to any continuing employee, the surviving corporation shall use commercially reasonable efforts to cause all waiting periods, pre-existing condition exclusions, evidence of insurability requirements and actively-at-work or similar requirements of such new plan to be waived in the plan year in which the merger occurs for such continuing employee and his or her covered dependents to the extent waived or satisfied under the corresponding old plan as of the consummation of the merger, and the surviving corporation shall cause any eligible expenses incurred by such continuing employee and his or her covered dependents during the portion of the plan year of the old plan ending on the date such employee’s participation in the corresponding new plan begins in the plan year in which the consummation of the merger occurs to be given full credit under such new plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such continuing employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such new plan. Any vacation or paid time off accrued but unused by a continuing employee as of immediately prior to the consummation of the merger shall be credited to such continuing employee following the consummation of the merger to the extent reflected as a working capital liability on the Company’s balance sheet.

 

The respective obligations of the Company, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of the following conditions:

 

 

The obligations of Parent and Merger Sub to effect the merger are also subject to the satisfaction or waiver by Parent at or prior to the effective time of the following additional conditions:

 

 

Our obligation to effect the merger is subject to the satisfaction or waiver by us at or prior to the effective time of the following additional conditions:

 

 

 

The conditions to each of the parties’ obligations to complete the merger are for the benefit of such party and may be waived exclusively by such party in whole or in part (to the extent permitted by applicable law).

 

We and Parent may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time.

 

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time as follows:

 

 

 

 

 

 

 

 

Except as set forth below, all fees and expenses incurred in connection with the merger agreement will be paid by the party or parties incurring the expense whether or not the merger is consummated.

 

Termination Fees Payable by the Company

 

If we terminate the merger agreement, or the merger agreement is terminated by Parent or Merger Sub, we must pay a termination fee to Parent of $7,265,410, less the amount of any Parent expenses previously reimbursed by the Company, if:

 

 

 

 

The parties have agreed that in no event will the Company be required to pay the termination fee on more than one occasion, whether or not the termination fee may be payable under more than one provision of the merger agreement at the same time or at different times.

 

Parent Expenses Payable by the Company

 

If Parent terminates the merger agreement, at any time prior to the consummation of the merger pursuant to the termination provision relating to a material breach by the Company of its covenants under the merger agreement or the triggering event termination provision relating to a breach of the no-solicitation covenant contained in the merger agreement, then we must pay to Parent an amount equal to the costs and expenses incurred by Parent, Merger Sub and their respective financing sources in connection with the negotiation of the merger agreement, up to a maximum amount of $1,500,000.

 

Termination Fee Payable by Parent

 

Parent must pay us the a termination fee of either $14,530,820 or $24,218,034 in the event that the agreement is terminated in the conditions below, with the amount of the fee dependent on the circumstances of termination as described below:

 

 

 

The amount of the termination fee payable by Parent is equal to $14,530,820 in any other circumstances in which a Parent termination fee is payable.

 

As used above, willful breach, as to any person, means a material breach of any material representation, warranty or covenant or other agreement set forth in the merger agreement that is a consequence of an act or failure to act by such person with the actual knowledge or intention that the taking of such act or failure to take such act would, or would reasonably be expected to, constitute a breach of the merger agreement; provided, however, that a mere failure to consummate the merger in breach of the covenant to consummate the merger within one business day of the satisfaction of the conditions to the merger, shall not in and of itself constitute a willful breach.

 

The Guarantor has agreed to guarantee the obligation of Parent to pay the Parent termination fee pursuant to the limited guarantee, as discussed in “The Merger — Limited Guarantee” on page 46.

 

Our receipt of the Parent termination fee will, subject to certain specific performance rights described below, be our sole and exclusive remedy against Parent, its subsidiaries, its financing sources and any of their respective former, current and future directors, officers, employees, agents, general and limited partners, managers, members, shareholders, affiliates and assignees and any former, current or future director, officer, employee, agent, general or limited partner, manager, member, shareholder, affiliate and assignee of any of the foregoing for any loss or damage suffered as a result of the failure of the merger to be consummated or for a breach or failure to perform under the merger agreement or otherwise.

 

Parent’s receipt of the termination fee and / or the Parent expenses payable by us will, subject to certain specific performance rights described below, be the sole and exclusive remedy of Parent and Merger Sub and their respective affiliates against the Company, its subsidiaries or any of their respective former, current or future directors, officers, employees, agents, managers, shareholders, affiliates or assignees or any former, current or future director, officer, employee, agent, shareholder, affiliate or assignee of any of the foregoing for any loss or damage suffered as a result of the failure of the merger to be consummated or for a breach or failure to perform under the merger agreement, under the debt commitment letter or otherwise.

 

Under no circumstances will the Company be entitled to monetary damages in excess of the amount of the termination fee payable by Parent or Parent be entitled to monetary damages in excess of the amount of the termination fee and / or Parent expenses payable by the Company, and while the Company may pursue both a grant of specific performance in the circumstances described below and the payment of the fee by Parent, the Company will not be permitted or entitled to receive both a grant of specific performance and any money damages, including all or any portion of the fee payable by Parent.

 

The parties are entitled to an injunction to prevent breaches of the merger agreement and the limited guarantee and to enforce specifically the terms of the merger agreement and the limited guaranty in addition to any other remedy to which they are entitled at law or in equity, however the Company shall only be entitled to seek specific performance to cause Parent to consummate the merger in the event that (i) Parent and Merger Sub are required to consummate the closing pursuant to the terms of the merger agreement (assuming the satisfaction of any conditions that have not been satisfied as a result of Parent or Merger Sub’s breach or failure to perform any of their respective covenants in the merger agreement), (ii) the debt financing (or any alternative financing obtained pursuant to the terms of the merger agreement) is available to be funded at closing, (iii) Parent and Merger Sub fail to complete the closing in accordance with the terms of the merger agreement and (iv) the Company has irrevocably committed that it is willing to complete the closing if specific performance is granted to cause Parent to consummate the merger and the debt financing is funded.

 

Parent has agreed to cause the surviving corporation and its subsidiaries to honor the obligations of the Company and its subsidiaries under any and all indemnification agreements with their respective current or former directors and officers

 

For a period of six years following the consummation of the merger, Parent has agreed to cause the surviving corporation to cause the charter and bylaws of the surviving corporation to contain provisions with respect to

indemnification, exculpation and advancement of expenses that are at least as favorable as the indemnification, exculpation and advancement of expenses set forth in the charters and bylaws of the Company as of the date of the merger agreement, and such provisions shall not be repealed, amended or otherwise modified in any manner except as required by applicable law.

 

In addition, for a period of six years following the consummation of the merger, Parent has agreed to cause the surviving corporation to indemnify and hold harmless each current or former director and officer of the Company from and against any costs, fees and expenses (including reasonable attorneys’ fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, proceeding, investigation or inquiry, whether civil, criminal, administrative or investigative, to the extent such claim, proceeding, investigation or inquiry arises directly or indirectly out of or pertains directly or indirectly to (i) any action or omission or alleged action or omission in an indemnified person’s capacity as a director, officer, employee or agent of the Company or any of its subsidiaries or other affiliates (regardless of whether such action or omission, or alleged action or omission, occurred prior to, at or after the consummation of the merger), or (ii) any of the transactions contemplated by the merger agreement.

 

Moreover, during the period of six years following the consummation of the merger, Parent will cause the surviving corporation to maintain in effect the Company’s current directors’ and officers’ liability insurance, or D&O Insurance, in respect of acts or omissions occurring at or prior to the consummation of the merger, covering each person covered by the D&O Insurance.

 

Subject to certain exceptions and limitations, we will afford Parent and its authorized representatives reasonable access to the Company and will furnish Parent information concerning our business, properties and personnel as may reasonably be requested.

 

At any time prior to the effective time, the parties to the merger agreement may modify or amend the merger agreement, by written agreement executed and delivered by duly authorized officers of the respective parties, except that after our stockholders have adopted the merger agreement, there shall be no amendment that by law requires further approval by our stockholders without such approval having been obtained.

MARKET PRICE OF COMMON STOCK

 

The Company’s common stock is listed for trading on Nasdaq under the symbol “DBTK”. The table below shows, for the periods indicated, the high and low trading price per share of the common stock, as reported by Nasdaq. The Company has never declared or paid dividends.