NETM Netmanage (MM)

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you to in this proxy statement, contain “forward looking” statements based on estimates and assumptions. Forward looking statements include information concerning possible or assumed future results of operations of the Company, the expected completion and timing of the Merger and other information relating to the Merger. There are “forward looking” statements throughout this proxy statement, including, among others, under the headings “Summary,” “Questions and Answers About the Special Meeting and the Merger,” “The Merger,” “Opinion of Our Financial Advisor,” and “Regulatory Approvals,” and in statements containing the words “believes,” “estimates,” “expects,” “anticipates,” “intends,” “contemplates,” “may,” “will,” “could,” “should,” or “would” or other similar expressions.

You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements included in this proxy statement or elsewhere.

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

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THE PARTIES TO THE MERGER

NetManage, Inc.

NetManage, Inc. was incorporated in 1990 as a California corporation and reincorporated in Delaware in 1993 in connection with our initial public offering. We operate through only one business segment. Please see Item 8, Financial statements and supplementary data, of our Annual Report on Form 10-K for the year ended December 31, 2006 for more details. We develop and market software and service solutions that are designed to enable our customers to access and leverage the investment they have in their corporate business applications, processes, and data. We provide a range of personal computer, browser-based and server-based software products and tools. These products allow our customers to access and leverage applications, business processes and data on IBM and IBM compatible mainframe computers, IBM mid-range computers such as the iSeries, (often referred to as host access), in packaged applications, middleware and databases such as SAP, Siebel, Oracle and PeopleSoft, amongst others, and on UNIX and Microsoft-based servers. We provide support, maintenance, and technical consultation services to our customers in association with the products we develop and market. We provide applications and management consultancy to our customers primarily in association with the server-based products we deliver that are designed to allow customers to develop and deploy new web-based applications and services.

Rocket Software, Inc.

Rocket Software, Inc. is a global software development firm that builds and services Enterprise Infrastructure products for the world’s leading OEMs, networks and software companies. The company’s current lines of business complement and extend strategic OEM offerings in the areas of business intelligence, enterprise and mobile security, relational databases, mobile and wireless computing, and operational support systems (OSS). Rocket Software is based in Newton, Massachusetts.

Eastern Software, Inc.

Merger Sub is a newly formed Delaware corporation and a wholly-owned subsidiary of Rocket, and was organized solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. Merger Sub has not engaged in any business except activities incidental to its organization and in connection with the transactions contemplated by the Merger Agreement. Under the terms of the Merger Agreement, Merger Sub will merge with and into the Company. The Company will survive the Merger and Merger Sub will cease to exist.

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THE SPECIAL MEETING OF STOCKHOLDERS

Time, Place and Purpose of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our board of directors for use at a special meeting to be held at [    ] on [            ], 2008, at [    ] a.m., local time, or at any adjournment thereof. The purpose of the special meeting is to consider and vote on the proposal to adopt the Merger Agreement (and to approve the adjournment of the special meeting, if necessary or appropriate to solicit additional proxies). If the stockholders fail to adopt the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A.

Who Can Vote at the Special Meeting

In accordance with the Company’s bylaws, the board of directors has set [            ] p.m. Pacific Standard Time on [                    , 2008], as the record date. The holders of record of Company common stock as of the record date are entitled to receive notice of and to vote at the special meeting. If you own shares that are registered in someone else’s name (for example, a broker), you need to direct that person to vote those shares or obtain an authorization from them to vote the shares yourself at the special meeting. On January 31, 2007, there were [            ] shares of Company common stock outstanding held by approximately [            ] holders of record.

Vote Required for Adoption of the Merger Agreement; Quorum

The adoption of the Merger Agreement requires the approval of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon, with each share having a single vote for these purposes. The failure to vote has the same effect as a vote “AGAINST” adoption of the Merger Agreement.

The holders of a majority of the outstanding shares of Company common stock entitled to be cast as of the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Once a share of Company common stock is represented at the special meeting, it will be counted for the purposes of determining a quorum and for transacting all business, unless the holder is present solely to object to the special meeting. If a quorum is not present at the special meeting, it is expected that the meeting will be adjourned to solicit additional proxies. If a new record date is set for an adjourned meeting, then a new quorum will have to be established.

Voting By Proxy

This proxy statement is being sent to you on behalf of the board of directors for the purpose of requesting that you allow your shares of Company common stock to be represented at the special meeting by the persons named in the enclosed proxy card. All shares of Company common stock represented at the special meeting by proxies voted by telephone, the Internet or by properly executed proxy cards will be voted in accordance with the instructions indicated on that proxy. If you sign and return a proxy card without giving voting instructions, your shares will be voted as recommended by the board of directors. After careful consideration, the board of directors unanimously recommends a vote “FOR” adoption of the Merger Agreement. In considering the recommendation of the board of directors with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. See “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 24.

The persons named in the proxy card will use their own judgment to determine how to vote your shares regarding any matters not described in this proxy statement that are properly presented at the special meeting. The Company does not know of any matter to be presented at the special meeting other than the proposal to adopt the Merger Agreement (and to approve the adjournment of the meeting, if necessary or appropriate to solicit additional proxies).

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You may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must either send a signed written notice to [            ] revoking your proxy, submit a proxy by telephone, Internet or mail dated after the date of the earlier proxy you wish to change or attend the special meeting and vote your shares in person. Merely attending the special meeting without voting will not constitute revocation of your earlier proxy.

If your shares of Company common stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” adoption of the Merger Agreement.

The Company will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of the Company may solicit proxies personally and by telephone, facsimile or otherwise. None of these persons will receive additional or special compensation for soliciting proxies. The Company has retained Morrow & Co., LLC to assist in its solicitation of proxies in connection with the special meeting. Morrow & Co, LLC may solicit proxies from individuals, banks, brokers, custodians, nominees, other institutional holders and other fiduciaries. The Company has agreed to reimburse Morrow & Co, LLC for its reasonable administrative and out-of-pocket expenses, to indemnify it against certain losses, costs and expenses, and to pay it customary fees in connection with the proxy solicitation. The Company also, upon request, will reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

Submitting Proxies Via the Internet or by Telephone

Our stockholders of record as of the record date and many of our stockholders who hold their shares of Company common stock through a broker or bank will have the option to submit their proxies or voting instructions via the Internet or by telephone. There are separate arrangements for using the Internet and telephone to submit your proxy depending on whether you are a stockholder of record or your shares are held in “street name” by your broker. If your shares are held in “street name,” you should check the voting instruction card provided by your broker to see which options are available and the procedures to be followed.

In addition to submitting the enclosed proxy card by mail, stockholders of record may submit their proxies:

Adjournments

Although it is not currently expected, the special meeting may be adjourned for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting, of the time, date and place of the adjourned meeting. If no quorum exists, the Chairman of the meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. If a quorum exists, holders of a majority of the shares of Company common stock present in person or represented by proxy at the special meeting and entitled to vote thereat may adjourn the special meeting. Any adjournment 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.

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THE MERGER

The discussion of the Merger in this proxy statement 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 Merger Agreement carefully.

Background of the Merger

Our board of directors periodically reviews and assesses strategic alternatives available to us to enhance stockholder value. As part of this on-going process, during August 2007 Mr. Alon had several discussions with Mr. Johan Gedda, the Executive Vice President of Business Development of Rocket, regarding strategic transactions between the two companies. During these discussion Mr. Gedda indicated that Rocket may be interested in acquiring the Company but did not did not make any proposals regarding the price or structure of a transaction. Accordingly, Mr. Alon and Mr. Gedda agreed to continue their discussions and on August 31, 2007, the Company and Rocket signed a mutual non-disclosure agreement.

Beginning in September 2007 and continuing into the beginning of October 2007, Mr. Alon also began a series of discussions with another entity (the “Initial Bidder”) regarding a potential strategic relationship, including the potential acquisition of the Company. On October 10, the Company signed a non-disclosure agreement with the Initial Bidder. Following the execution of this non-disclosure agreement, the Initial Bidder commenced its due diligence investigation of the Company.

The Company continued discussion with Rocket throughout October. On November 1, 2007, the Company received a letter from the Initial Bidder pursuant to which the Initial Bidder expressed its interest in entering into negotiations of a definitive agreement to acquire the Company for cash at a price per share of our Common Stock that represented a premium to the current market price of our Common Stock, subject to the Company satisfying certain criteria.

On November 6, 2007, Mr. Alon met with the Chief Executive Officer of the Initial Bidder to discuss the Company’s concerns with the Initial Bidder’s offer. Subsequent to that meeting on November 6, 2007, the Initial Bidder provided the Company with a revised letter expressing the Initial Bidder’s interest in entering into negotiations of a definitive agreement to acquire the Company for a higher per share price in cash, subject to the Company satisfying certain criteria.

On the same day, Mr. Gedda, on behalf of Rocket, delivered an initial due diligence request to the Company.

On November 7, 2007, the Company’s board of directors met to discuss the status of the Company’s discussions with the Initial Bidder, Rocket and an additional company that had expressed an interest in pursuing discussions regarding a strategic relationship with the Company.

On November 9, 2007, the Company responded to the Initial Bidder’s letter of November 6, 2007 with changes to certain of the terms contained therein, including a proposal to defer negotiation of the price until negotiation of the definitive agreements.

On November 12, 2007, the Initial Bidder provided written notification to the Company that it was unwilling to alter its offer as set forth in its November 6, 2007 letter.

From the beginning of November until November 14, Mr. Regev addressed Mr. Gedda’s due diligence questions and had numerous discussions with Rocket’s senior officers.

On November 14, 2007, Rocket provided the Company with a letter expressing an interest by Rocket in negotiating the terms of an acquisition of the Company at a price of $7.10 in cash for each share of the Company’s Common stock.

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From November 12, 2007 through November 20, 2007, the Company continued its discussion with senior officers of the Initial Bidder. On November 20, 2007, the Initial Bidder provided the Company with written notification that it was terminating its acquisition discussions with the Company.

From November 14, 2007 until November 21, 2007, Mr. Alon and Mr. Regev continued their discussions with Mr. Gedda regarding the terms of Rocket’s November 14, 2007 letter. During this time period Mr. Alon and Mr. Regev provided responses Mr. Gedda due diligence questions. On November 21, 2007, Mr. Gedda, on behalf of Rocket, provided the Company with a revised letter expressing Rocket’s interest in negotiating an acquisition of the Company for $7.20 in cash for each share of Company Common Stock, subject to completion of Rocket’s due diligence and receipt of consent from Rocket’s primary lender.

From November 21, 2007 through December 1, 2007, Mr. Alon and Mr. Regev continued discussions with Mr. Gedda regarding the terms of Rocket’s November 21, 2007 letter.

On December 1, 2007 the Company received a first draft of the Merger Agreement from Rocket’s legal counsel. From December 1 to December 11, 2007, the Company, Rocket and their respective legal counsel negotiated the terms of the Merger Agreement.

On December 3, 2007, the Company’s board of directors met to discuss the terms of Rocket’s letter of November 21, 2007.

On December 11, 2007, the Company’s board of directors met to discuss the Draft Merger Agreement. At this meeting the board of directors received a presentation from Oppenheimer who reviewed with the board of directors its financial analysis of the merger consideration proposed by Rocket and rendered to the board of directors an oral opinion, which oral opinion was subsequently confirmed in writing, to the effect that, as of that date and based upon and subject to the various assumptions, qualifications and limitations set forth in its written opinion, the $7.20 per share in cash to be received by the holders of outstanding shares of Company common stock pursuant to the Draft Merger Agreement was fair, from a financial point of view, to such holders. The full text of the written opinion of Oppenheimer, which sets forth the assumptions made, procedures followed, matters considered and limitations on the scope of review undertaken by Oppenheimer in rendering its opinion, is attached as Annex B to this proxy statement and incorporated by reference into this proxy statement.

After additional discussion and deliberation with its advisors, the board of directors determined by unanimous vote that the Merger is advisable, fair to and in the best interests of the Company and its stockholders, approved the Merger and the Merger Agreement and resolved to recommend to the stockholders of the Company approval of the Merger and approval and adoption of the Merger Agreement.

After the meeting was adjourned, the Company, Rocket and Merger Sub executed the Merger Agreement and issued a press release announcing the Merger.

Reasons for the Merger

Determinations of the Board of Directors

On December 11, 2007, after careful consideration, the board of directors, by unanimous vote, approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, and determined that the Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of the Company and its stockholders, and recommends that you vote “FOR” the adoption of the Merger Agreement. In considering the recommendation of the board of directors with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers who participated in meetings of the board of directors have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. See “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 24.

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1. the fact that the Merger Agreement permits the Company to respond to Competing Proposals, and upon payment of a fee of $2 million, to accept a proposal that our board of directors determines to be superior to the terms of the Merger Agreement and the transactions contemplated thereby, under certain circumstances as more fully described under “The Merger Agreement—Solicitation of Alternative Proposals”;

2. the provisions of the Merger Agreement that allow our board of directors, under certain circumstances, to change its recommendation that the Company’s stockholders vote in favor of the adoption of the Merger Agreement; and

3. the limited number and nature of the conditions which must be satisfied prior to the consummation of the Merger under the Merger Agreement.

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The board of directors also considered the following potentially negative factors in reaching its decision to approve, adopt and declare advisable in all respects the Merger Agreement and the transactions contemplated by the Merger Agreement:

The board of directors considered all of the factors as a whole and the board of directors unanimously considered the factors in their totality to be favorable to and in support of the decision to approve, adopt and declare advisable in all respects the Merger Agreement and the transactions contemplated by the Merger Agreement and to recommend that the Company’s stockholders approve and adopt the Merger Agreement.

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, rank or otherwise assign relative or specific weight or values to any of these factors. In addition, each individual director may have given different weights to different factors.

The foregoing discussion of our board of directors’ considerations concerning the Merger is forward looking in nature. This information should be read in light of the discussions under the heading “Cautionary Statement Concerning Forward-Looking Information.”

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Recommendation of the Board of Directors

After careful consideration our board of directors by unanimous vote:

On January 18, after careful consideration, our board of directors, by unanimous vote, approved and adopted Amendment No. 1 to the Merger Agreement which amended the Merger Agreement to extend the date by which Rocket was required to elect to either waive its financing contingencies or terminate the Merger Agreement from January 18, 2008 to February 8, 2008. On February 8, 2008, after careful consideration, our board of directors, by unanimous vote, approved and adopted Amendment No. 2 to the Merger Agreement which amended the Merger Agreement as follows:

Interests of the Company’s Directors and Executive Officers in the Merger

In considering the recommendation of the board of directors with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. These interests, to the extent material, are described below. The board of directors was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger.

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Treatment of Company Stock Options

As of the record date, there were [    ] outstanding Company stock options held by our directors and executive officers under the Company’s stock option plans. Of these Company stock options, [    ] have an exercise price below $7.20, and are considered “in the money.” Each outstanding Company stock option that remains outstanding and unexercised as of the Effective Time, whether vested or unvested, will automatically become fully vested and convert into the right to receive a cash payment equal to the product of (i) the excess, if any, of the Merger Consideration over the exercise price per share of the Company stock option and (ii) the number of shares of Company common stock issuable upon exercise of such Company stock option. As of the Effective Time, Company stock options will no longer be outstanding and will automatically cease to exist, and the holders thereof will no longer have any rights with respect to the Company stock options, except the right to receive the cash payment, if any, described in the preceding sentence.

The following table identifies, for each of our directors and executive officers, the aggregate number of shares of Company common stock subject to outstanding vested and unvested “in the money” options as of December 11, 2007, the aggregate number of shares of Company common stock subject to outstanding unvested “in the money” options that will become fully vested in connection with the Merger, the weighted average exercise price and value of such unvested “in the money” options, and the weighted average exercise price and value of vested and unvested “in the money” options. The information in the table assumes that all options remain outstanding on the closing date of the Merger.

Severance and Retention Bonuses

Effective September 17, 2007, we instituted a plan to grant certain key employees of the Company retention and severance benefits pursuant to Key Employee Retention and Severance Benefits Agreement (the “ Retention Plan”). A copy of the Plan is included as an exhibit to the Report on Form 8-K filed by us on December 7, 2007.

The Retention Plan was instituted to retain existing key employees by providing them with additional stock options and retention bonuses. Subject to the forfeiture provisions in each agreement executed by a key employee, the Retention Plan will provide key employees of the Company with options under the Company’s 1999 Non-statutory Stock Option Retention Plan and cash retention bonuses. The options will vest over two years with 50% of the shares subject to the option vesting on the one-year anniversary of the date of grant and with the balance vesting on the two-year anniversary of the date of grant. The key employees who will participate in the Retention Plan and number of shares granted to each key employee will be determined by the Company’s Compensation Committee. If a key employee is terminated within two years following the date of a Change of Control (as defined in the Retention Plan) of the Company (as defined in the Retention Plan) without Cause or during this period Employee voluntarily terminates employment for Good Reason (as defined in the Retention

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Plan), any unvested Options granted pursuant to this Agreement shall immediately fully vest and become exercisable on Employee’s termination date. In addition, in the event of a Change of Control of the Company, if the surviving company, successor company or parent company, as applicable, does not assume any Options granted pursuant to the Retention Plan then held by Employee, any unvested portion of such Options shall immediately fully vest and become exercisable immediately prior to the effective time of the Change of Control. The acceleration of the vesting of these options is reflected in the table above.

Each key employee subject to the Retention Plan will also receive a cash bonus equal to twenty five percent of the employee’s base salary on the one-year anniversary of the grant date and a cash bonus equal to 50% of the employee’s base salary on the two-year anniversary of the grant date. A key employee must be continually employed by the Company from the grant date to the specified payment date in order to receive any retention bonus. Payment of retention bonus shall be done as soon as possible after becoming due but not later than two and one-half (2  ¹ / 2 ) months following the taxable year of Employee in which such payment becomes due and payable. If a key employee is terminated within two years following the date of a Change of Control of the Company without Cause or during this period Employee voluntarily terminates employment for Good Reason, any unpaid portion of this cash bonus will become due and payable immediately. In addition, in the event of a Change of Control of the Company, if the surviving company, successor company or parent company, as applicable, does not assume these bonus obligations granted pursuant to the Retention Plan, any unpaid portion of this cash bonus will become due and payable immediately.

The Retention Plan provides for cash severance benefits to be paid to a key employee in the event a key employee is terminated under specific circumstances, including: if the key employee is terminated within two years following the date of a Change of Control of the Company without Cause or if during this period he or she voluntarily terminates his or her employment for Good Reason and executes a standard release agreement. The amount of such severance benefits will be determined by the Company’s Compensation Committee. Also included are COBRA continuation coverage benefits for health, dental and vision insurance for a period equal to the amount of time the key employee receives severance payments. The Company shall also reimburse the key employee for a limited amount of outplacement service expenses actually incurred by the key employee.

Assuming that each executive officer is involuntarily terminated without “Cause” or such employee terminates employment for “Good Reason” during the two-year period following the Effective Time, the aggregate amount of unpaid retention bonus and cash severance benefits that would be payable is:

Indemnification and Insurance

Under the terms of the Merger Agreement, all current rights of indemnification provided by the Company for its current and former directors or officers shall survive the Merger and continue in full force and effect for the six years following the Effective time. Rocket has also agreed that the surviving company will continue to indemnify, defend and hold harmless, and advance expenses to the Company’s current and former directors or officers to the fullest extent required by the Company’s certificate of incorporation or bylaws .

In addition, Rocket shall cause the surviving corporation to obtain insurance policies with a claims period of at least six years from the Effective Time with respect to directors’ and officers’ liability insurance that provides coverage for events occurring on or before the Effective Time. The terms of the policies will be no less favorable than the existing policy of the Company, unless the cost of the policies would exceed $160,000, in which case the coverage will be the greatest amount available for an amount not exceeding $160,000.

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FINANCING

The total amount of funds necessary to complete the Merger is anticipated to be approximately $            million , consisting of (i) approximately $            million to pay the Company’s stockholders and option holders the amounts due to them under the Merger Agreement (ii) approximately $1.0 million to pay the fees and expenses of the Company’s advisors and agents engaged in connection with the transactions contemplated by the Merger Agreement, assuming that no Company stockholder validly exercises and perfects its appraisal rights. These payments are expected to be funded by Rocket using cash available to Rocket, funds provided under Rocket’s primary credit facility and cash available to the Company.

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OPINION OF OUR FINANCIAL ADVISOR

Opinion of Oppenheimer & Co. Inc.

Pursuant to an engagement letter, dated December 10, 2007, the Company retained Oppenheimer to provide it with financial advisory services and a fairness opinion in connection with a possible merger or sale of the Company. At a special meeting of the Company’s board of directors on December 11, 2007, Oppenheimer rendered its oral opinion, subsequently confirmed in writing, that as of December 11, 2007, and based upon and subject to the various assumptions, qualifications and limitations set forth in the opinion, that the merger consideration to be received by the holders of outstanding shares of Company common stock pursuant to the Draft Merger Agreement was fair, from a financial point of view, to such holders.

The full text of the written opinion of Oppenheimer, dated as of December 11, 2007 and as approved by Oppenheimer’s Fairness Opinion Committee, is attached hereto as Annex B and incorporated by reference into this proxy statement. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Oppenheimer in rendering its opinion. We encourage you to read the entire opinion carefully. Oppenheimer’s opinion is directed to the Company’s board of directors and addresses only the fairness, from a financial point of view, of the merger consideration to be received by the holders of outstanding shares of Company common stock pursuant to the Draft Merger Agreement as of the date of the opinion. It does not address any other aspects of the Merger or other alternative transactions and does not constitute a recommendation to any holder of shares of Company common stock as to how to vote at any stockholders’ meeting to be held in connection with this transaction. Furthermore, Oppenheimer expresses no opinion with respect to the amount or nature of any compensation to any officers, directors or employees of the Company, or any class of such persons relative to the merger consideration to be received by the public holders of shares of Company common stock in the Merger or with respect to the fairness of any such compensation. The summary of the opinion of Oppenheimer set forth below is qualified in its entirety by reference to the full text of the opinion. In connection with rendering its opinion, Oppenheimer, among other things:

(i) reviewed the Draft Merger Agreement;

(ii) reviewed certain publicly available information and other data with respect to the Company that Oppenheimer believed to be relevant to Oppenheimer’s analysis, including the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and the Company’s interim report on Form 10-Q for the fiscal quarter ended September 30, 2007;

(iii) reviewed certain other publicly available Securities and Exchange Commission filings made by the Company, including the Company’s 2007 proxy statement and current reports on Form 8-K filed through December 11, 2007;

(iv) reviewed certain financial and operating information with respect to the business, operations and prospects of the Company furnished to Oppenheimer by the management of the Company, including projections of the future financial performance of the Company prepared by the management team of the Company;

(v) reviewed the stock price and volume trading history, from December 11, 2006 through December 10, 2007, of the Company’s common stock;

(vi) reviewed the financial terms of the Merger as set forth in the Draft Merger Agreement and compared them with the financial terms, to the extent publicly available, of certain other merger and acquisition transactions involving companies that Oppenheimer deemed relevant and the consideration received for shares of such companies;

(vii) reviewed certain publicly available financial information relating to certain other companies Oppenheimer deemed to be reasonably similar to the Company, and the trading markets for such companies’ securities;

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(viii) conducted discussions with certain members of senior management of the Company concerning the Company’s business and operations, assets, present condition and future prospects; and

(ix) performed such other analyses, examinations and procedures, reviewed such other agreements and documents, and considered such other factors as Oppenheimer deemed, in its sole judgment, to be necessary, appropriate or relevant to render the opinion.

In conducting its review and arriving at its opinion, Oppenheimer assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information supplied or otherwise made available to Oppenheimer by the Company for the purposes of its opinion and further assumed that there had been no material change in the assets, financial condition, business or prospects of the Company since the date of the most recent financial information made available to Oppenheimer. In addition, Oppenheimer assumed that the historical financial statements of the Company reviewed by Oppenheimer were prepared in accordance with U.S. generally accepted accounting principles, consistently applied and fairly presented the financial condition and results of operations of the Company as of the dates and for the periods covered thereby. Oppenheimer further relied upon the assurances of management of the Company that they were not aware of any facts that would make such information inaccurate or misleading.

With respect to the forecasts, projections and analyses provided to Oppenheimer by the Company, Oppenheimer assumed that they represented the best currently available estimates and judgments of the Company’s management as to the future financial condition and results of operations of the Company, and that such forecasts, projections and analyses had been reasonably and accurately prepared on bases reflecting the best available estimates and judgments of the future financial performance of the Company. Oppenheimer assumed that the financial results reflected in such forecasts, projections and analyses will be realized in the amounts and at the times projected, and Oppenheimer assumes no responsibility for and expresses no view as to such forecasts, projections and analyses or the assumptions on which they are based.

Oppenheimer assumed that in connection with the receipt of financing and all necessary governmental, regulatory or other approvals and consents required for the Merger, no modifications, delays, limitations, conditions or restrictions will be imposed that would have an adverse effect on the Company or the contemplated benefits expected to be derived in the Merger and that the final executed merger agreement and related documents would not differ in any material respects from the Draft Merger Agreement and related documents that would be material to Oppenheimer’s analysis and that the Merger would be consummated in accordance with the terms of the final executed merger agreement and related documents, without revision or modification of any term, condition or agreement therein that would be material to Oppenheimer’s analysis. Oppenheimer further assumed that the representations and warranties made by the Company, Rocket and Merger Sub in the Draft Merger Agreement were and will be true and correct in all respects.

Oppenheimer is not a legal, tax or regulatory expert and relied upon, without independent verification, the assessment of the Company and its legal, tax or regulatory experts with respect to such matters. In conducting its review and arriving at its opinion, Oppenheimer was not requested to make, and did not make, obtain or assume any responsibilities for, any independent evaluation or appraisal of any of the assets or liabilities (tangible or intangible, contingent or otherwise) of the Company, nor was Oppenheimer furnished with any such evaluations or appraisals. Oppenheimer was not requested to conduct, and did not conduct, a physical inspection of the properties or facilities of the Company, nor was Oppenheimer requested to evaluate, and has not evaluated, the solvency of the Company or Rocket under any state or federal laws relating to bankruptcy, insolvency or similar matters. Oppenheimer’s opinion was necessarily based on financial, economic, market and other conditions as they exist on, and the information made available to Oppenheimer as of, December 11, 2007. Events occurring after December 11, 2007 may affect Oppenheimer’s opinion and the assumptions used in preparing it, and Oppenheimer did not assume any obligation to update or revise its opinion. In arriving at its opinion, Oppenheimer was not authorized to solicit, and did not solicit, interest from a broad range of parties with respect to the acquisition, business combination or other extraordinary transaction, involving the Company, nor did Oppenheimer negotiate with any of the parties.

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Summary of Material Analyses Performed

The following is a brief summary of the material analyses performed by Oppenheimer in connection with its oral opinion and the preparation of its written opinion letter, dated December 11, 2007. The various analyses summarized below were based on the closing price of $3.72 (“Pre-Deal Closing Price”) for the common stock of the Company as of December 11, 2007, the last full trading day prior to the meeting of the Company’s board of directors to consider and approve, adopt and authorize the Draft Merger Agreement. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Oppenheimer, 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 conducted by Oppenheimer.

Trading Analysis. Oppenheimer performed a trading analysis with respect to the historical share prices of Company common stock. Oppenheimer reviewed the closing prices of Company common stock for various periods ending on December 11, 2007. The following table presents the results of Oppenheimer’s analysis based on the merger consideration of $7.20 per share of common stock in cash:

Oppenheimer noted that the merger consideration of $7.20 per share of common stock in cash pursuant to the Draft Merger Agreement reflected the various premiums in the table above to the Pre-Deal Closing Price.

Historical Financial Performance . Oppenheimer reviewed certain historical annual and quarterly financial results for the Company, excluding certain non-cash expenses and nonrecurring items. Oppenheimer observed the following:

Oppenheimer also observed the Company’s historical quarterly license revenues for the last seven fiscal quarters up to and including the fiscal quarter ended September 30, 2007. A summary of these data is as follows:

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Oppenheimer noted that the Company’s license revenue for the fiscal quarter ended September 30, 2007 represented a decline of 11% from the license revenue for the fiscal quarter ended June 30, 2007 and a 33% decline from the license revenue for the fiscal quarter ended September 30, 2006. Oppenheimer also noted that the license revenue for the fiscal quarter ended September 30, 2007 was the second lowest of the seven historical fiscal quarters reviewed.

Oppenheimer further noted that the Company’s earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) was ($3.5) million for the twelve month period ended September 30, 2007.

Projected Financial Performance . Oppenheimer reviewed the Company’s expected financial forecast for calendar years 2007 and 2008 provided by the Company’s management. A summary of the management forecast is set forth in the following table:

Comparable Company Analysis. Oppenheimer performed a comparable company analysis, which attempts to provide an implied value of a company by comparing it to similar companies. Oppenheimer compared certain financial information of the Company with publicly available equity research estimates for companies that shared similar business characteristics to the Company and/or provide legacy application integration, modernization and SOA software or other software infrastructure and data solutions directly or indirectly competitive with the products sold by the Company. These companies included the following:

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For purposes of this analysis, Oppenheimer analyzed the following statistics of each of these companies for comparison purposes: the ratios of enterprise value, defined as market capitalization plus total debt less cash and cash equivalents, to estimated revenue and EBITDA and equity value to net income for the last twelve months (“LTM”) and calendar years 2007 and 2008. Based on the analysis of the relevant metrics for each of the comparable companies, Oppenheimer compared the mean, median, high and low financial multiples of the comparable companies multiples to the relevant Company financial statistic based on the merger consideration of $7.20 per share of common stock in cash. The table set forth below summarizes Oppenheimer’s analysis:

Oppenheimer noted that (i) the Company’s implied revenue multiples were below the mean and median multiples of the comparable companies for the given time period; (ii) the Company’s implied estimated 2007 EBITDA multiple was significantly above the mean and median multiples of the comparable companies for the same period; (iii) the Company’s 2008 implied estimated EBITDA multiple was significantly above the mean and median multiples of the comparable companies for the same period; and (iv) the Company’s implied estimated 2008 net income multiple was above the comparable multiple range and greater than the mean and median multiples of the comparable companies for the same period.

Oppenheimer also reviewed the mean and median of the above analysis with BluePhoenix and Micro Focus removed from the set of comparable companies. This “adjusted” scenario was considered because BluePhoenix and Micro Focus were not financially representative of the Company (i.e., they are both much larger and profitable). The table below sets forth this “adjusted” analysis:

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Oppenheimer noted that the Company’s implied LTM revenue multiple was below the mean and above the median multiples of the adjusted comparable companies for the given time period. Oppenheimer believed that other implied LTM multiples were not relevant due to the fact that the Company was not profitable for the respective historical periods.

No company utilized in the comparable company analysis is identical to the Company. In evaluating comparable companies, Oppenheimer made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the businesses of the Company and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the Company or the industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using peer group data.

Analysis of Precedent Transactions. Oppenheimer performed a precedent transaction analysis, which is designed to imply a value of a company based on publicly available financial terms of selected transactions that share some characteristics with the offer made by Rocket and the Merger. In connection with its analysis, Oppenheimer compared publicly available LTM revenue multiples for 17 selected technology transactions occurring between January 1, 2002 and December 11, 2007, in which the target company shared similar business characteristics and/or provided legacy integration and other mature software infrastructure and data solutions directly or indirectly competitive with the products sold by the Company. The following is a list of these transactions:

Selected Legacy Integration / Modernization Software Transactions (Target / Acquiror):

Seagull Holding N.V. / Rocket Software, Inc.

Watchguard Technologies, Inc. / Francisco Partners

NetIQ Corporation / AttachmateWRQ

Primavera Systems, Inc. / Insight Venture Partners and Francisco Partners

Cybermation, Inc. / CA, Inc.

Unify Corporation / HALO Technology Holdings, Inc.

First Logic, Inc. / Business Objects SA

Neon Systems, Inc. / Progress Software Corporation

Peregrine Systems, Inc. / Hewlett-Packard Company

Logic Control SA / Sage Group plc

Datakey, Inc. / SafeNet Inc.

Persistence Software, Inc. / Progress Software Corporation

Quest Software, Inc. (Vista Plus Suite of products) / Open Text Corporation

Sniffer Technologies (Assets of Network Associates, Inc.) / Silver Lake Partners LLP and Texas Pacific Group LLC

Magic Solutions, Inc. (Unit of Network Associates, Inc.) / BMC Software, Inc.

Mercator Software, Inc. / Ascential Software Corporation

Remedy Corporation (Unit of Peregrine Systems, Inc.) / BMC Software, Inc.

Oppenheimer noted that the Company’s implied LTM revenue multiple of 1.4x is lower than the mean and median of 1.7x and 1.8x, respectively, and within the high / low range of 0.9x to 2.6x.

Premiums Analysis. Oppenheimer compared publicly available premiums for 70 selected precedent transactions involving technology companies between January 1, 2002 and December 11, 2007, for which the transaction values were between $15 and $100 million.

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Oppenheimer noted the implied premium to acquired companies’ closing share price 1, 5, 10, 30, 60, 90 trading days prior to announcement. The table set forth below summarizes Oppenheimer’s analysis:

Oppenheimer noted that the premium to be received by holders of outstanding shares of Company common stock is greater than the mean and median of the precedent transactions in all cases. No company or transaction utilized in the precedent transactions analysis is identical to the Company or the Merger. In evaluating the precedent transactions, Oppenheimer made certain judgments and assumptions with regard to general business, market and financial conditions and other matters, which are beyond the control of the Company, such as the impact of competition on the business of the Company or the industry generally, industry growth and the absence of any adverse material change in the financial condition of the Company or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared.

Consideration of Discounted Cash Flow Analysis. While discounted cash flow is a commonly used valuation methodology, Oppenheimer did not employ such an analysis for the purposes of its opinion. Oppenheimer noted that discounted cash flow analysis is most appropriate for companies that are expected to exhibit relatively steady or somewhat predictable streams of long-term, positive cash flow. For a company with limited long-term visibility, a preponderance of the value in a valuation based on discounted cash flow will be in the terminal value of the entity, which is extremely sensitive to assumptions about the margins and sustainable long-term growth rate of the company. Given the uncertainty in forecasting the product mix, operating performance, future cash flows and sustainable long-term growth rate, Oppenheimer considered a discounted cash flow analysis inappropriate for valuation purposes.

Other Considerations and Terms of Engagement

In connection with the review of the Merger by the Company’s board of directors, Oppenheimer performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Oppenheimer considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Oppenheimer believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Oppenheimer may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Oppenheimer’s view of the actual value of the Company. In performing its analyses, Oppenheimer made certain assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of the Company. Any estimates contained in Oppenheimer’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Oppenheimer conducted the analyses described above solely as part of its analysis of the fairness, as of December 11, 2007, from a financial point of view, of the merger consideration pursuant to the Draft Merger

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Agreement to holders of outstanding shares of Company common stock and in connection with the delivery of its opinion dated December 11, 2007 to the Company’s board of directors. These analyses do not purport to be appraisals or to reflect the prices at which shares of common stock of the Company might actually trade. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Oppenheimer or any other person assumes responsibility if future results are materially different from those forecast.

The Merger Consideration was determined through arm’s length negotiations between the Company and Rocket and was approved by the Company’s board of directors. Oppenheimer did not provide advice to the Company’s board of directors during these negotiations or recommend any specific consideration to the Company or the Company’s board of directors or that any specific consideration constituted the only appropriate consideration for the Merger.

Oppenheimer’s opinion and its presentation to the Company’s board of directors was one of many factors taken into consideration by the Company’s board of directors in deciding to approve, adopt and authorize the Merger Agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Company’s board of directors with respect to the Merger Consideration or of whether the Company’s board of directors would have been willing to agree to different consideration. The foregoing summary describes the material analyses performed by Oppenheimer but does not purport to be a complete description of the analyses performed by Oppenheimer.

The Company’s board of directors retained Oppenheimer based upon Oppenheimer’s qualifications, experience and expertise and because Oppenheimer is an internationally recognized investment banking and advisory firm. Oppenheimer, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of Oppenheimer’s trading, brokerage, investment management and financing activities, Oppenheimer or its affiliates may at any time publish research, hold long or short positions, and may trade or otherwise effect transactions for its own account or for the accounts of customers in the debt or equity securities or senior loans of the Company or any other parties, commodities or currencies involved in the Merger. In the past, Oppenheimer, its predecessors or its affiliates have provided financial advisory and financing services for the Company and have received fees in connection with such services. Oppenheimer may also seek to provide such services to Rocket in the future and will receive fees for the rendering of these services. Pursuant to the terms of the engagement letter, Oppenheimer provided the Company financial advisory services and a fairness opinion in connection with the Merger, and the Company has agreed to pay Oppenheimer a fee of $400,000 for its services, half of which was paid to Oppenheimer upon delivery of Oppenheimer’s opinion, and half of which is contingent upon the consummation of the Merger. The Company has also agreed to reimburse Oppenheimer for its expenses incurred in connection with rendering its opinion. In addition, the Company has agreed to indemnify Oppenheimer and any of its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Oppenheimer or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, relating to or arising out of Oppenheimer’s engagement by the Company and the rendering of its opinion.

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U.S. federal income tax consequences of the Merger to holders of Company common stock whose shares of Company 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 Company common stock that is, for U.S. federal income tax purposes:

A “non-U.S. holder” is a person (other than a partnership) that is not a U.S. holder.

If a partnership holds Company 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 Company common stock should consult its tax advisor.

This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to beneficial owners who hold shares of Company common stock as capital assets, and may not apply to shares of Company common stock received in connection with the exercise of employee stock options or otherwise as compensation or 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 Company common stock as part of a hedge, straddle or a constructive sale or conversion transaction). This discussion does not address the receipt of cash in connection with the cancellation of shares of restricted stock, restricted stock units or options to purchase shares of Company common stock, or any other matters relating to equity compensation or benefit plans. This discussion also does not address any aspect of state, local or foreign tax laws.

U.S. Holders

The exchange of shares of Company common stock for cash in the Merger will be a taxable transaction to U.S. holders for U.S. federal income tax purposes. In general, a U.S. holder whose shares of Company 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 and the stockholder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that a stockholder’s holding period for such shares is more than 12 months at the time of the consummation of the Merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

Backup withholding of tax may apply to cash payments received by a non-corporate stockholder in the Merger, unless the stockholder or other payee provides a taxpayer identification number (social security number, in the case of individuals, or employer identification number, in the case of other stockholders), certifies that such number is correct, and otherwise complies with the backup withholding rules. Each of our stockholders

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should complete and sign 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 under the backup withholding rules will be allowable as a refund or a credit against a U.S. holder’s federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

Non-US. Holders

Any gain realized on the receipt of cash in the Merger by a non-U.S. holder generally will not be subject to United States federal income tax unless:

An individual non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the Merger under regular graduated U.S. federal income tax rates. If a non-U.S. holder that is a foreign corporation falls under the first bullet point immediately above, it will be subject to tax on its net gain in the same manner as if it were a U.S. person as defined under the U.S. Internal Revenue Code of 1986, as amended, and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax (or at such lower rate as may be specified by an applicable income tax treaty) on the gain derived from the Merger, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States.

The Company believes that it is not and has not been a “United States real property holding corporation” for U.S. federal income tax purposes.

Backup withholding of tax may apply to the cash received by a non-corporate stockholder in the Merger, unless the stockholder or other payee certifies under penalty of perjury that it is a non-U.S. holder in the manner described in the letter of transmittal (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person as defined under the Code) or otherwise establishes an exemption in a manner satisfactory to the paying agent. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any, provided that such non-U.S. holder furnishes the required information to the Internal Revenue Service in a timely manner.

The U.S. federal income tax consequences set forth 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 shares of Company restricted stock, or options to purchase shares of Company common stock, including the transactions described in this proxy statement relating to our equity compensation and benefit plans.

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ACCOUNTING TREATMENT OF TRANSACTION

We expect that, for financial reporting purposes, the Merger may be accounted for as a leveraged recapitalization, pursuant to which the historical basis of the Company’s assets and liabilities will be preserved following the Merger. However, it is possible that the Merger could be accounted for as a purchase, pursuant to which, following the Merger, the Company’s assets and liabilities would be reflected at their fair market value as of the date of the Merger.

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THE MERGER AGREEMENT

This section describes the material terms of the Merger Agreement, as amended by Amendment No. 1 and Amendment No. 2 thereto. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the Merger Agreement and such amendments, copies of which are attached to this proxy statement as Annex A and are 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 carefully read the Merger Agreement and such amendments in their entirety.

The Merger Agreement and such amendments are included to provide you with information regarding its terms and is not intended to provide any other factual information about the Company, Rocket, Merger Sub or their respective affiliates. The representations, warranties and covenants made by us, Rocket and Merger Sub are qualified and subject to important limitations agreed to by us, Rocket and Merger Sub in connection with negotiating the terms of the Merger Agreement. Furthermore, the representations and warranties may be subject to standards of materiality applicable to us, Rocket and Merger Sub that may be different from those that are applicable to you.

Effective Time

The Effective Time of the Merger will occur at the later of the time that the Company, Rocket and Merger Sub file the Articles of Merger with the Secretary of State of the State of Delaware and the Certificate of Merger with the Secretary of State of the State of Delaware on the Closing Date or such later time as provided in the Articles of Merger and Certificate of Merger and agreed to by Rocket, Merger Sub and the Company. The Closing Date will occur as soon as practicable, but in no event later than the third business day after all of the conditions to the Merger set forth in the Merger Agreement have been satisfied or waived, or such other date as Rocket, Merger Sub and the Company may agree.

Effects of the Merger

If the Merger Agreement is adopted by our stockholders and the other conditions to closing are satisfied, Merger Sub will merge with and into the Company. The separate corporate existence of Merger Sub will cease, and the Company will continue as the surviving corporation, wholly-owned by entities sponsored by the Sponsors and their co-investors. Upon completion of the Merger, our common stock will be converted into the right to receive the Merger Consideration. The surviving corporation will be a privately held corporation, and you will cease to have any ownership interest in the surviving corporation or any rights as its stockholder

The Structure

At the Effective Time, Merger Sub will merge with and into the Company. The separate existence of Merger Sub will cease, and the Company will survive the Merger and continue to exist after the Merger wholly-owned by entities sponsored by the Sponsors and their co-investors. All of the Company’s and Merger Sub’s properties, rights, privileges, powers and franchises, and all of their claims, obligations, liabilities, debts, and duties, will become those of the surviving corporation. Following completion of the Merger, the Company common stock will be delisted from the NYSE, deregistered under the Exchange Act, and no longer publicly traded. Thereafter, the current stockholders of the Company will not participate in any future earnings or growth of the Company and will not benefit from any appreciation in value of the Company following the Effective Time.

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Treatment of Common Stock and Other Securities

Company Common Stock

At the Effective Time, each share of Company common stock issued and outstanding immediately prior to the Effective Time will automatically be converted into the right to receive $7.20 in cash, without interest and less any applicable withholding tax, other than:

Company Stock Options

At the Effective Time, except as otherwise agreed by Rocket and a holder of Company stock options, each outstanding Company stock option that remains outstanding and unexercised, whether vested or unvested, will automatically become fully vested and convert into the right to receive a cash payment equal to the product of (i) the excess, if any, of the Merger Consideration over the exercise price per share of the Company stock option and (ii) the number of shares of common stock issuable upon exercise of such Company stock option. As of the Effective Time, subject to certain exceptions, the Company stock options will no longer be outstanding and will automatically cease to exist, and the holders thereof will no longer have any rights with respect to such Company stock options, except the right to receive the cash payment described above, if any.

Exchange and Payment Procedures

On the Closing Date, promptly following the Effective Time, the surviving corporation shall deposit with a paying agent (the “Paying Agent”) designated by Rocket and reasonably acceptable to the Company, for holders of shares of Company common stock, Company stock options, and shares of Company restricted stock (other than (i) shares held in the treasury of the Company immediately prior to the Effective Time, (ii) shares owned by Merger Sub immediately prior to the Effective Time, and (iii) shares held by a stockholder who properly demands statutory appraisal rights), a cash amount sufficient to pay the aggregate Merger Consideration to be paid in the Merger in exchange for their shares of Company common stock, Company stock options, and shares of Company restricted stock.

Appropriate transmittal materials will be provided to the holders of Company common stock certificates or book-entry shares promptly following the Effective Time by the Paying Agent, informing the holders of the effectiveness of the Merger and the procedure for surrendering Company common stock share certificates and book-entry shares to the Paying Agent. After holders surrender their certificates or book-entry shares and properly complete and execute transmittal materials to the Paying Agent, the surrendered certificates will be canceled and those holders will be entitled to receive in exchange therefor a cash amount equal to the Merger Consideration for each share of Company common stock represented by the surrendered and canceled certificates. The Paying Agent will deliver the Merger Consideration contemplated to be paid per outstanding share upon surrender of the certificates representing those securities. In addition, as promptly as practicable following the Effective Time, the Paying Agent will mail to each holder of a Company stock option or Company restricted stock a check in the appropriate amount payable to the holder pursuant to the terms of the Merger Agreement.

After the Effective Time, there will be no further transfers of Company common stock. Any certificate presented to the surviving corporation or the Paying Agent for transfer (other than those certificates representing

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dissenting shares) after the Effective Time will be canceled and exchanged for the Merger Consideration with respect to each share of Company common stock represented by that certificate.

Any portion of the funds deposited with the Paying Agent that remain undistributed to holders of certificates, book-entry shares, stock options, or restricted shares for one year after the Effective Time will be delivered to the surviving corporation, together with interest and other income received by the Paying Agent. Holders of Company common stock who at that time have not yet complied with the exchange procedures outlined above shall thereafter look only to the surviving corporation, as general creditors of the surviving corporation, for delivery of any Merger Consideration, without interest, that may be payable upon due surrender of their respective share certificates. None of Rocket, Merger Sub, the Company, the surviving corporation or the Paying Agent will be liable for any amount properly delivered to a public official under any applicable abandoned property, escheat or similar law.

The Paying Agent will invest any cash included in the funds made available by Rocket as directed by Rocket or, after the Effective Time, the surviving corporation, provided that (i) no investment shall relieve Rocket or the Paying Agent from making the payments required under the Merger Agreement, and following any losses the surviving corporation shall promptly provide additional funds to the Paying Agent for the benefit of the holders of Company common stock, Company stock options, and Company restricted stock in the amount of those losses, and (ii) investment grade money market instruments, direct obligations of the United States of America, obligations for which the full faith and credit of the United States of America is pledged to provide for the payment of principal and interest, commercial paper rated the highest quality by either Moody’s Investors Services, Inc. or Standard & Poor’s Corporation, or certificates of deposit, bank repurchase agreements or bankers’ acceptances of commercial banks with capital exceeding $1 billion, in each case having maturities not to exceed thirty (30) days. Any interest or income produced by the investments will be payable to the surviving corporation or Rocket, as directed by Rocket.

Rocket, the surviving corporation and the Paying Agent shall be entitled to deduct and withhold from any payment pursuant to the Merger Agreement amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code or any other applicable law.

Representations and Warranties

The Merger Agreement contains representations and warranties of the parties to the Merger Agreement made to and solely for the benefit of each other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the Merger Agreement and that modify, qualify and create exceptions to the representations and warranties contained in the Merger Agreement. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts, because (i) they were made only as of the date of the Merger Agreement or a prior specified date, (ii) in some cases they are subject to qualifications with respect to materiality and knowledge, and (iii) they are modified in important part by the underlying disclosure schedules. The Company’s disclosure schedules contain information that has been included in the Company’s prior public disclosures, as well as non-public information. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

The Company makes various representations and warranties in the Merger Agreement that are subject, in some cases, to exceptions and qualifications (including exceptions that do not create a Company Material Adverse Effect (as defined below)). Our representations and warranties relate to, among other things:

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For purposes of the Merger Agreement, “Company Material Adverse Effect” means any circumstance, change in or effect on our business, assets or liabilities or any of our subsidiaries that, individually or in the

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aggregate with all other circumstances, changes in, or effects on our business, assets or liabilities or any of our subsidiaries

However, any event, state of facts circumstance, development, change, effect or occurrence resulting from the following matters will not be taken into account in determining whether there has been a Company Material Adverse Effect and will not constitute a Company Material Adverse Effect:

The Merger Agreement also contains various representations and warranties made jointly and severally by Rocket and Merger Sub that are subject, in some cases, to exceptions and qualifications (including exceptions that do not create a Rocket Material Adverse Effect (as defined below)). The representations and warranties relate to, among other things:

For purposes of the Merger Agreement, a “Rocket Material Adverse Effect” means any event, state of facts, circumstance, development, change, effect or occurrence that is materially adverse to the business, financial condition or results of operations of Rocket and its subsidiaries taken as a whole or may reasonably be expected to prevent or materially delay or materially impair the ability of Rocket or any of its subsidiaries to consummate the Merger and the other transactions contemplated by the Merger Agreement. However, any event, state of facts circumstance, development, change, effect or occurrence resulting from the following matters will not be taken into account in determining whether there has been a Rocket Material Adverse Effect and will not constitute a Rocket Material Adverse Effect:

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The representations and warranties in the Merger Agreement of each of the Company, Rocket and Merger Sub will terminate at the earlier of the Effective Time and the termination of the Merger Agreement pursuant to its terms.

Conduct of the Company’s Business Pending the Merger

Under the Merger Agreement, the Company has agreed that, subject to certain exceptions, between December 11, 2007 and the completion of the Merger, unless Rocket give their prior written consent:

The Company also has agreed that between December 11, 2007 and February 8, 2008 and between             , 2008 and the completion of the Merger, subject to certain exceptions, neither the Company nor any of its subsidiaries will take any of the following actions, unless Rocket give their prior written consent:

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Solicitation of Alternative Proposals

Prior to February 8, 2008 the Company agreed that it ceased cease and cause to be terminated any solicitation, encouragement, discussion or negotiation with any persons conducted prior to these dates. From December 11, 2007 until February 8, 2008 and from             , 2008 until the earlier of the Effective Time or the date, if any, on which the Merger Agreement is terminated, the Company agreed not to:

For purposes of the Merger Agreement, a “Competing Proposal” means any proposal or offer by any person or group acting in concert, to directly or indirectly acquire 15% or more of the assets, issued and outstanding shares of Company and its subsidiaries, taken as a whole, common stock or other ownership interests of the Company whether pursuant to a merger, consolidation or other business combination or other transaction, sale of shares of stock, sale of assets, tender offer, exchange offer or similar transaction or series of related transactions

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Prior to adoption of the Merger Agreement by the Company’s stockholders, if the Company receives an unsolicited written Competing Proposal which the board of directors believes in good faith to be bona fide and which the board of directors determines, after consultation with outside counsel and financial advisors, the Company may:

Our Board of Directors may (i) withdraw, modify or change the Board of Director’s approval or recommendation of the Merger Agreement or the Merger, (ii) approve or recommend to the Company’s shareholders such Superior Competing Transaction, (iii) terminate the Merger Agreement in, and/or (iv) publicly announce the Board of Director’s intention to do any or all of the foregoing, if our Board of Directors determines that it has received a proposal for a Superior Competing Transaction and reasonably determines in good faith, after consultation with our outside counsel and financial advisors, that taking any or all of the following actions is necessary in order to comply with its fiduciary duties under applicable Law. Before the Board may take any of these actions, it must deliver to Rocket prior written notice advising Rocket that it intends to take such action, which written notice shall state the material terms and conditions of the applicable Superior Competing Transaction and Rocket shall be provided with three business days from the date of delivery of such notice to agree to make adjustments to the terms and conditions of the Merger Agreement to match or improve upon the economic or other terms of the purportedly Superior Competing Transaction. The Company must negotiate in good faith with respect to such amended proposal by Rocket.

The Company must also notify Rocket as promptly as reasonably practicable, and use its best efforts to provide such notice within one business day, following receipt by the Company (or any of its advisors) of any proposal for a Competing Transaction or any written request for nonpublic information relating to the Company or any of its subsidiaries or for access to the business, properties, assets, personnel, books or records of the Company or any of its subsidiaries by any Third Party that indicates it may be considering making, or has made, a proposal for a Competing Transaction (including the material terms and conditions of any such proposal, indication of interest or request relating to a Competing Transaction). The Company is obligated to keep Rocket reasonably informed, on a current basis, of the status and material details of any such proposal, indication or request (and any modification or amendment thereof), including of any meeting of its Board of Directors (or any committee thereof) at which its Board of Directors (or such committee) is reasonably expected to consider any Competing Transaction.

Before the Board may terminate the Merger Agreement following a withdrawal, modification or change of its recommendation and concurrently enter into a definitive agreement for a Superior Competing Transaction, the Company must complied with certain obligations regarding the submission of the Competing Transaction, must have not received an unconditional offer from Rocket that the Board of Directors reasonably and in good faith determines is at least as favorable to our stockholders as the Superior Competing Transaction.

For purposes of the Merger Agreement, “Superior Competing Transaction” means any Competing Transaction which the board of directors determines in good faith, after consultation with the Company’s financial and legal advisors, is superior to the terms of the Merger Agreement based upon the financial terms of the proposed Competing Transaction, the proposed timing of the Competing Transaction or the likelihood that such Competing Transaction will be consummated.

In addition to the foregoing, the Company may:

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Appropriate Actions

The parties agreed in the Merger Agreement that during the period from December 11, 2007 to February 8, 2008 and from             , 2008 to the consummation of the Merger, to use their respective reasonable best efforts to consummate the Merger, including, (i) obtaining all necessary actions or non-actions, consents and approvals from governmental authorities or other persons and taking all reasonable steps as may be necessary to obtain approval from, or to avoid an action or proceeding, by any governmental authority or other persons necessary to consummate the Merger, (ii) defending any lawsuits or legal proceedings challenging the Merger, including seeking to have any stay or temporary restraining order vacated or reversed, and (iii) executing and delivering any additional instruments necessary to consummate the Merger. The parties further agreed during these same time periods to cooperate with each other to cause the termination of the registration of our Common Stock under the Securities Exchange Act of 1934, as amended, at the Effective Time.

Access to Information

The Company will, and will cause each of its subsidiaries to, (i) provide to Rocket and their respective officers, directors, employees, accountants, other representatives (the “Rocket’s Representatives”) reasonable access during normal business hours to the Company’s and its subsidiaries’ officers, employees, offices and other facilities, properties, books, contracts and records and other information as Rocket may reasonably request regarding the business, assets, liabilities, employees and other aspects of the Company and its subsidiaries. The parties to the Merger Agreement also agreed to keep each other informed of the status of their efforts to consummate the Merger and give prompt notice of:

Stockholders’ Meeting

Unless the Merger Agreement is terminated, the Company is required to duly call, give notice of, convene and hold the special meeting for the purpose of voting upon the adoption of the Merger Agreement and approval of the Merger. The Company is required to recommend that the Company’s stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger, except that the Company will not be obligated to recommend to its stockholders the adoption of the Merger Agreement or the approval of the Merger

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if the board of directors, in accordance with the Merger Agreement changes, qualifies, withdraws or modifies in any manner adverse to Rocket its recommendation that the Company’s stockholders vote in favor of the adoption of the Merger Agreement and the approval of the Merger. The Company is also required to use its commercially reasonable efforts to solicit from its stockholders proxies in favor of the adoption of the Merger Agreement and the approval of the Merger and to take all other actions necessary or advisable to secure the vote or consent of its stockholders required by the rules of the Nasdaq and applicable law.

Indemnification; Directors’ and Officers’ Insurance

Under the terms of the Merger Agreement, all current rights of indemnification provided by the Company for its current and former directors or officers shall survive the Merger and continue in full force and effect for the six years following the Effective time. Rocket has also agreed that the surviving company will continue to indemnify, defend and hold harmless, and advance expenses to the Company’s current and former directors or officers to the fullest extent required by the Company’s certificate of incorporation or bylaws.

In addition, Rocket shall cause the surviving corporation to obtain insurance policies with a claims period of at least six years from the Effective Time with respect to directors’ and officers’ liability insurance that provides coverage for events occurring on or before the Effective Time. The terms of the policies will be no less favorable than the existing policy of the Company, unless the cost of the policies would exceed $160,000, in which case the coverage will be the greatest amount available for an amount not exceeding $160,000.

Conditions to the Merger

The obligations of the parties to complete the Merger are subject to the satisfaction or waiver of the following mutual conditions:

The obligation of the Company to complete the Merger is subject to the satisfaction or waiver of the following additional conditions:

The obligations of Rocket and Merger Sub to complete the Merger are subject to the satisfaction or waiver of the following additional conditions:

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Our board of directors is not aware of any condition to the Merger that cannot be satisfied. Under Delaware law, after the Merger Agreement has been adopted by our stockholders, the Merger Consideration cannot be changed and the Merger Agreement cannot be altered in a manner adverse to our stockholders without re-submitting the revisions to our stockholders for their approval.

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Termination

The Company and Rocket may agree to terminate the Merger Agreement without completing the Merger at any time. The Merger Agreement also may be terminated in each of the following circumstances:

In some cases, our termination of the Merger Agreement may require us to, reimburse Rocket’s expenses in connection with the Merger, up to $2.0 million, as described below under “The Merger Agreement—Termination Fees.”

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Termination Fees

Reimbursement of Rocket’s Expenses

The Company will be obligated to reimburse Rocket for its expenses, up to $2.0 million, incurred in connection with the Merger Agreement and the Merger if the Company terminates the Merger Agreement as a result of the failure of the stockholders to adopt the Merger Agreement and approve the Merger.

Amendment and Waiver

The Merger Agreement may be amended by mutual written agreement of the parties by action taken by or on behalf of their respective boards of directors at any time prior to the Effective Time. However, after the adoption of the Merger Agreement by the Company’s stockholders, the Merger Agreement can not be amended if such amendment would require further approval by the stockholders.

The Merger Agreement also provides that, at any time prior to the Effective Time, any party may, by written agreement: