PREM14A 1 d313553dprem14a.htm PRELIMINARY PROXY STATEMENT Preliminary Proxy Statement
Table of Contents

 

 

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

 

 

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x   Preliminary Proxy Statement
¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
¨   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to § 240.14a-12

 

 

Quest 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):
¨   No fee required.
x   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

 

Common stock par value $0.001 per share of Quest Software, Inc.

   

 

  (2)  

Aggregate number of securities to which transaction applies:

 

 

84,601,410 shares of Company common stock (including vested and unvested unreleased restricted stock units) and 12,587,828 shares of Company common stock underlying outstanding stock options with exercise prices of less than $23.00.

   

 

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

The proposed maximum aggregate value of the transaction for purposes of calculating the filing fee is $2,036,183,489.17. The maximum aggregate value of the transaction was calculated based on the sum of (a) 84,601,410 shares of Company common stock (including unvested and vested unreleased restricted stock units) multiplied by $23.00 per share; and (b) 12,587,828 shares of Company common stock underlying outstanding stock options with exercise prices less than $23.00 per share multiplied by $7.18 (which is the difference between $23.00 and the weighted average exercise price per share). The filing fee was determined by multiplying the maximum aggregate value of the transaction by .00011460.

   

 

  (4)  

Proposed maximum aggregate value of transaction:

 

 

$2,036,183,489.17

   

 

  (5)   Total fee paid:
    $233,346.63
   

 

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 240.0-11 and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

 

   

 

  (2)  

Form, Schedule or Registration Statement No.:

 

 

   

 

  (3)  

Filing Party:

 

 

   

 

  (4)  

Date Filed:

 

 

   

 

 

 

 


Table of Contents

PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

 

LOGO

                    , 2012

To the Stockholders of Quest Software, Inc.:

You are cordially invited to attend a special meeting of stockholders (the “Special Meeting”) of Quest Software, Inc., a Delaware corporation (the “Company,” “we,” “us” or “our”) to be held at              a.m., local time, on                     , 2012, at                     .

On March 8, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Expedition Holding Company, Inc., a Delaware corporation (“Parent”) and Expedition Merger Sub, Inc. a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”) providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by funds affiliated with Insight Venture Management, LLC, a Delaware limited liability company (“Insight”). At the Special Meeting, we will ask you to adopt the Merger Agreement.

If the Merger is completed, each share of Company common stock, other than as provided below, will be converted into the right to receive $23.00 in cash, without interest and less any applicable withholding taxes. We refer to this amount as the “Per Share Merger Consideration.” The following shares of Company common stock will not be converted into the right to receive the Per Share Merger Consideration in connection with the Merger: (1) treasury shares, (2) shares held by Parent, Merger Sub or any other wholly owned subsidiary of Parent, (3) the Rollover Shares (defined below) and shares held by any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the closing and (4) shares owned by stockholders who have perfected, and not withdrawn a demand for, or lost the right to, appraisal rights under Delaware law.

A special committee of our board of directors (the “Special Committee”), consisting entirely of independent and disinterested directors, negotiated, reviewed and considered the terms and conditions of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. The Special Committee unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of the Company and its unaffiliated stockholders, as defined in Rule 13e-3 of the Securities Exchange Act of 1934, as amended (“unaffiliated stockholders”), and recommended that our board of directors approve and declare the advisability of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and recommend that our stockholders adopt the Merger Agreement. Our board of directors, after careful consideration and acting on the unanimous recommendation of the Special Committee, determined, with Vincent C. Smith, our Chairman and Chief Executive Officer, taking no part in the deliberations, that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of the Company and its unaffiliated stockholders and recommended that our stockholders adopt the Merger Agreement at the Special Meeting. Following the recommendation of our board of directors, consistent with the fiduciary duties of our directors, the Company initiated a “go-shop” process to solicit a superior proposal.

OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.

In considering the recommendation of the Special Committee and the board of directors, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different


Table of Contents

from, or in addition to, the interests of our stockholders generally. Mr. Smith has voting power over approximately 34% of the total number of outstanding shares of Company common stock. Mr. Smith and certain related trusts (collectively, the “Rollover Investors”) are party to a rollover commitment letter described in the accompanying proxy statement and have agreed to contribute immediately prior to the completion of the Merger and subject to certain conditions, their shares of common stock, stock options and restricted stock units of the Company in exchange for shares of Parent common stock or equivalent equity interests in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger). Other members of our management team may also have the opportunity to invest in Parent prior to, or after, the Special Meeting.

The Merger cannot be completed unless: (i) at least a majority of the outstanding shares of Company common stock on the record date vote to adopt the Merger Agreement and (ii) a majority of the outstanding shares of Company common stock, exclusive of any shares of Company common stock held by Parent, Merger Sub or any of the Rollover Investors, on the record date vote to adopt the Merger Agreement. More information about the Merger is contained in the accompanying proxy statement and a copy of the Merger Agreement is attached as Annex A thereto. We encourage you to read the accompanying proxy statement in its entirety because it explains the proposed merger, the documents related to the Merger and other related matters.

Your vote is important, regardless of the number of shares of Company common stock you own. The failure to vote will have the same effect as a vote against the proposal to adopt the Merger Agreement. Whether or not you plan to attend the Special Meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee, you should instruct your broker, dealer, commercial bank, trust company or other nominee how to vote in accordance with the voting instruction form furnished by your broker, dealer, commercial bank, trust company or other nominee.

Thank you for your cooperation and continued support.

Very truly yours,

 

LOGO

Douglas F. Garn

Vice Chairman

Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger or the Merger Agreement, passed upon the merits or fairness of the Merger, or passed upon the adequacy or accuracy of the disclosure in the proxy statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated                     , 2012 and is first being mailed to stockholders on or about                     , 2012.


Table of Contents

PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

 

LOGO

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD                     , 2012

TO THE STOCKHOLDERS OF QUEST SOFTWARE, INC.:

NOTICE IS HEREBY GIVEN that the special meeting of stockholders (the “Special Meeting”) of Quest Software, Inc. (the “Company,” “we,” “us” or “our”) will be held at              a.m., local time, on                     , 2012, at                     , for the following purposes:

 

  1. To adopt the Agreement and Plan of Merger (the “Merger Agreement”) with Expedition Holding Company, Inc., a Delaware corporation (“Parent”) and Expedition Merger Sub, Inc. a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”) providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by funds affiliated with Insight Venture Management, LLC, a Delaware limited liability company (“Insight”);

 

  2. To consider and vote on a non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

  3. To approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

After careful consideration, our board of directors recommends, with Vincent C. Smith, our Chairman and Chief Executive Officer, taking no part in such recommendation, that you vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the non-binding compensation proposal, and “FOR” the adjournment of the Special Meeting, if necessary or appropriate.

A special committee of our board of directors (the “Special Committee”), consisting entirely of independent and disinterested directors, negotiated, reviewed and considered the terms and conditions of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. The Special Committee unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of the Company and its unaffiliated stockholders, as defined in Rule 13e-3 of the Securities Exchange Act of 1934, as amended (“unaffiliated stockholders”), and recommended that our board of directors approve and declare the advisability of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and recommend that our stockholders adopt the Merger Agreement. Our board of directors, excluding Mr. Smith, after careful consideration and acting on the unanimous recommendation of the Special Committee, determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of the Company and its unaffiliated stockholders and recommended that our stockholders adopt the Merger Agreement at the Special Meeting.

In considering the recommendation of the Special Committee and the board of directors, 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. Mr. Smith has voting power over approximately 34% of the total number of outstanding shares of Company common stock. Mr. Smith and certain related trusts (collectively, the “Rollover Investors”) are party to a rollover commitment letter described in the


Table of Contents

accompanying proxy statement and have agreed to contribute, immediately prior to the completion of the Merger and subject to certain conditions, their shares of common stock, stock options and restricted stock units of the Company in exchange for shares of Parent common stock or equivalent equity interests in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger). Other members of our management team may also have the opportunity to invest in Parent prior to, or after, the Special Meeting.

The adoption of the Merger Agreement requires: (i) the affirmative vote by a majority of the outstanding shares of Company common stock, and (ii) the affirmative vote by a majority of the outstanding shares of Company common stock, exclusive of any shares of Company common stock held by Parent, Merger Sub or any of the Rollover Investors. The approval of the non-binding compensation proposal and adjournment of the Special Meeting requires the affirmative vote of the holders of a majority of the outstanding shares of the Company common stock present and entitled to vote at the Special Meeting as of the record date.

Stockholders of the Company who do not vote in favor of adoption of the Merger Agreement are entitled to demand appraisal rights in connection with the Merger if they meet certain conditions and comply with certain procedures under Section 262 of the General Corporation Law of the State of Delaware, which is attached to this proxy statement as Annex C.

By Order of the Board of Directors,

 

LOGO

David P. Cramer

Vice President, General Counsel and Secretary

                    , 2012

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be Held On                     , 2012


Table of Contents

TABLE OF CONTENTS

 

PROXY STATEMENT

     1   

SUMMARY TERM SHEET

     1   

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     11   

SPECIAL FACTORS

     16   

The Parties

     16   

Business and Background of Natural Persons Related to the Company

     17   

Business and Background of Natural Persons Related to Insight, the Insight Entities, Parent and Merger Sub

     19   

Overview of the Transaction

     20   

Management and Board of Directors of the Surviving Corporation

     21   

Background of the Merger

     22   

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger

     37   

Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Special Committee

     42   

Purposes and Reasons of the Rollover Investors for the Merger

     53   

Positions of the Insight Entities, Parent and Merger Sub Regarding the Fairness of the Merger

     54   

Positions of the Rollover Investors Regarding the Fairness of the Merger

     57   

Certain Effects of the Merger

     58   

Alternatives to the Merger

     60   

Effects on the Company if the Merger is not Completed

     61   

Plans for the Company

     62   

Prospective Financial Information

     62   

Financing of the Merger

     63   

Limited Guaranty

     67   

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

     68   

Relationship Between Quest and Insight

     73   

Dividends

     74   

Determination of the Per Share Merger Consideration

     74   

Regulatory Matters

     74   

Fees and Expenses

     75   

Certain Material United States Federal Income Tax Consequences

     75   

Delisting and Deregistration of the Company’s Common Shares

     78   

Litigation Relating to the Merger

     78   

THE SPECIAL MEETING

     79   

Date, Time and Place

     79   

Purpose of the Special Meeting

     79   

Recommendation of Our Board of Directors and Special Committee

     79   

Record Date; Stockholders Entitled to Vote; Quorum

     79   

Vote Required

     80   

Stock Ownership and Interests of Certain Persons

     81   

Voting Procedures

     81   

Other Business

     82   

Revocation of Proxies

     82   

Rights of Stockholders Who Object to the Merger

     83   

Solicitation of Proxies

     83   

Assistance

     83   

THE MERGER AGREEMENT

     84   

Explanatory Note Regarding the Merger Agreement

     84   

Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws

     84   

Closing and Effective Time of the Merger; Marketing Period

     84   

 

i


Table of Contents

Treatment of Common Stock, Options and Restricted Stock Units

     85   

Financing Covenant; Company Cooperation

     88   

Representations and Warranties

     89   

Conduct of Our Business Pending the Merger

     92   

Solicitation of Takeover Proposals

     94   

Stockholders Meeting

     97   

Filings; Other Actions; Notification

     97   

Employee Benefit Matters

     98   

Conditions to the Merger

     99   

Termination

     100   

Termination Fees and Reimbursement of Expenses

     101   

Expenses

     103   

Remedies

     104   

Indemnification; Directors’ and Officers’ Insurance

     194   

Access

     105   

Modification or Amendment

     105   

THE VOTING AGREEMENT

     106   

GOLDEN PARACHUTE COMPENSATION

     107   

Golden Parachute Compensation

     107   

Vote Required and Board of Directors Recommendation

     108   

ADJOURNMENT OF SPECIAL MEETING

     109   

Adjournment of Special Meeting

     109   

Vote Required and Board of Directors Recommendation

     109   

COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

     110   

COMMON STOCK TRANSACTION INFORMATION

     111   

APPRAISAL RIGHTS

     112   

SELECTED FINANCIAL INFORMATION

     116   

Selected Historical Financial Information

     116   

MARKET PRICE AND DIVIDEND INFORMATION

     118   

STOCKHOLDER PROPOSALS AND NOMINATIONS

     119   

HOUSEHOLDING

     120   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     121   

WHERE YOU CAN FIND MORE INFORMATION

     122   

ANNEX A. MERGER AGREEMENT

     A-1   

ANNEX B. FINANCIAL ADVISOR OPINION

     B-1   

ANNEX C. DELAWARE GENERAL CORPORATION LAW SECTION 262

     C-1   

 

ii


Table of Contents

QUEST SOFTWARE, INC.

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD                     , 2012

 

 

PROXY STATEMENT

 

 

This proxy statement contains information related to a special meeting of stockholders (the “Special Meeting”) of Quest Software, Inc. (the “Company,” “we,” “us” or “our”) which will be held at         a.m., local time, on                     , 2012, and any adjournments or postponements thereof. We are furnishing this proxy statement to stockholders of the Company as part of the solicitation of proxies by the Company’s board of directors (the “Board”) for use at the Special Meeting. This proxy statement is dated                     , 2012 and is first being mailed to stockholders on or about                     , 2012.

SUMMARY TERM SHEET

This summary term sheet highlights selected information in this proxy statement and may not contain all of the information about the transaction that is important to you. You should carefully read this proxy statement in its entirety, including the annexes and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the Special Meeting. You may obtain without charge copies of documents incorporated by reference into this proxy statement by following the instructions under “Where You Can Find More Information” beginning on page 122.

In this proxy statement, we refer to Expedition Holding Company, Inc. as “Parent” and Expedition Merger Sub, Inc. as “Merger Sub.” We refer to Insight Venture Management, LLC as “Insight.” We refer to Insight Venture Partners VII, L.P. as “IVPVII,” Insight Venture Partners (Cayman) VII, L.P. as “IVP Cayman,” Insight Venture Partners VII (Co-Investors), L.P. as “IVP Co,” Insight Venture Partners (Delaware) VII, L.P. as “IVP Delaware,” Insight Venture Partners Coinvestment Fund II, L.P. as “IVPCFII,” and IVPVII, IVP Cayman, IVP Co, IVP Delaware and IVPCFII together as the “Insight Entities.” We refer to the Vincent C. Smith Annuity Trust 2010-1, the Vincent C. Smith Annuity Trust 2010-2 and the Vincent C. Smith Annuity Trust 2011-1 as the “VS Trusts.”

The Parties

Quest Software, Inc. designs, develops, markets, distributes, and supports enterprise systems management software products. Our goal is to provide our customers with systems management products that improve the performance, productivity and reliability of their software applications and associated software infrastructure components such as databases, application servers, operating systems, and virtual environments. The Company is an independent software vendor, a company whose products are designed to support or to interact or interoperate with other vendors’ software or hardware platforms. As such, we continually strive to innovate and evolve our product portfolio to support the dynamic nature of our markets, as well as those of our customers’ information technology environments.

Insight, and its affiliated investment funds, is a leading private equity and venture capital firm focused on the global software, infrastructure software, Internet and data-services industries. Founded in 1995, Insight has raised more than $5 billion and made more than 150 investments. Insight has a successful two-team structure: the firm’s investment team evaluates thousands of companies globally each year, while the Insight Onsite team of consultants works with growth-stage management to provide resources and advice to enable them to achieve long-term success.

 

1


Table of Contents

Both Parent and Merger Sub were formed for the sole purpose of entering into the Agreement and Plan of Merger with the Company dated March 8, 2012 (the “Merger Agreement”) and consummating the transactions contemplated by the Merger Agreement. Both Parent and Merger Sub are wholly owned by the Insight Entities.

Vincent C. Smith, our Chairman and Chief Executive Officer, has the voting power over approximately 34% of the total number of outstanding shares of Company common stock. Mr. Smith, together with the VS Trusts (the “Rollover Investors”), have entered into a rollover commitment letter (the “Rollover Letter”) with Parent to contribute, immediately prior to the completion of the Merger (the “Closing”) and subject to certain conditions, all of their shares of common stock, stock options and restricted stock units of the Company, excluding 432,982 shares of stock options the economic value of which have been transferred to Mr. Smith’s former spouse pursuant to a domestic relations order (the “Rollover Shares”) to Parent in exchange for shares of Parent common stock or equivalent equity interests in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger). The Company is not a party to the Rollover Letter. See “Special Factors—The Parties” beginning on page 16 for additional information.

Overview of the Transaction

On March 8, 2012, the Company entered into the Merger Agreement providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Both Parent and Merger Sub are wholly owned by the Insight Entities. The following will occur in connection with the Merger:

 

   

each share of Company common stock issued and outstanding immediately prior to the Closing will convert into the right to receive $23.00 per share in cash (the “Per Share Merger Consideration”), without interest and less any applicable withholding taxes, other than (i) treasury shares, (ii) shares held by Parent, Merger Sub or any other wholly owned subsidiary of Parent, (iii) the Rollover Shares (and shares held by any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing) and (iv) shares owned by stockholders who have perfected, and not withdrawn a demand for, or lost the right to, appraisal rights under the Delaware General Corporation Law (the “DGCL”); and

 

   

all shares of Company common stock so converted will, at the Closing, be cancelled, and each holder of a certificate representing any shares of Company common stock shall cease to have any rights with respect thereto, except the right to receive the Per Share Merger Consideration upon surrender of such certificate (if such shares are certificated).

Following and as a result of the Merger:

 

   

Company stockholders, other than the Rollover Investors [and shares held by any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment], will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

 

   

shares of Company common stock will no longer be listed on The Nasdaq Global Select Market (“Nasdaq”), and price quotations with respect to shares of Company common stock in the public market will no longer be available; and

 

   

the registration of shares of Company common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) will be terminated.

See “Special Factors—Overview of the Transaction” beginning on page 20 for additional information.

The Special Meeting

The Special Meeting will be held on                     , 2012 at                     . At the Special Meeting, you will be asked to, among other things, adopt the Merger Agreement. Please see the sections of this proxy statement

 

2


Table of Contents

captioned “Questions and Answers About the Special Meeting and the Merger” and “The Special Meeting” beginning on pages 11 and 79, respectively, for additional information on the Special Meeting, including how to vote your shares of Company common stock.

Stockholders Entitled to Vote

You may vote at the Special Meeting if you owned any shares of Company common stock at the close of business on                         , 2012, the record date for the Special Meeting. On that date, there were                  shares of Company common stock outstanding and entitled to vote at the Special Meeting, and, exclusive of shares held by Parent, Merger Sub and the Rollover Investors,                 shares of Company common stock outstanding and entitled to vote at the Special Meeting. You may cast one vote for each share of Company common stock that you owned on that date. See “The Special Meeting—Voting Procedures” beginning on page 81 for additional information.

Vote Required to Adopt the Merger Agreement

Adoption of the Merger Agreement requires (i) the affirmative vote by the holders of a majority of the outstanding shares of Company common stock and (ii) the affirmative vote by the holders of a majority of the outstanding shares of Company common stock, exclusive of any shares held by Parent, Merger Sub or any of the Rollover Investors. See “The Special Meeting—Vote Required” beginning on page 80 for additional information.

Merger Consideration

If the Merger is completed, each share of Company common stock, other than as provided below, will be converted into the right to receive the Per Share Merger Consideration in cash, without interest and less any applicable withholding taxes. Shares of Company common stock owned by the Company as treasury shares or owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, as well as the Rollover Shares, and shares held by any members of our management team who may have the opportunity to invest in Parent and who chose to make this investment prior to the Closing, will be cancelled without payment of the Per Share Merger Consideration. Shares of Company common stock owned by any of the Company’s wholly owned subsidiaries will, at the election of Parent, either convert into stock of the surviving corporation or be cancelled without payment of the Per Merger Share Consideration. Shares of Company common stock owned by stockholders who have exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the DGCL will be cancelled without payment of Per Share Merger Consideration and such stockholders will instead be entitled to appraisal rights under the DGCL.

Prior to the effective time of the Merger, Parent will designate a bank or trust company reasonably acceptable to the Company to act as the paying agent for the Per Share Merger Consideration (the “Paying Agent”). The Paying Agent will send written instructions for surrendering your certificates representing shares of Company common stock (if your shares of Company common stock are certificated) and obtaining the Per Share Merger Consideration after we have completed the Merger. Do not return your stock certificates with your proxy card and do not forward your stock certificates to the Paying Agent prior to receipt of the written instructions. If you hold uncertificated shares of Company common stock (i.e., you hold your shares in book-entry), you will automatically receive your Per Share Merger Consideration as soon as practicable after the effective time of the Merger without any further action required on your part. See “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units—Exchange and Payment Procedures” beginning on page 87 for additional information.

Treatment of Company Stock Options and Restricted Stock Units

Except as otherwise agreed to by Parent and a holder of a vested stock option (“Vested Option”), the Merger Agreement provides that, immediately prior to the effective time of the Merger, each outstanding and

 

3


Table of Contents

unexercised Vested Option will be cancelled as of the effective time of the Merger and converted into the right to receive, as soon as reasonably practicable (but in any event no later than five business days following the effective time of the Merger), an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Vested Option, and (ii) the excess, if any, of the Per Share Merger Consideration ($23.00) over the exercise price per share of such Vested Option, without interest and less any required withholding taxes (the “Designated Consideration”).

Except as otherwise agreed to by Parent and a holder of an unvested stock option (“Unvested Option”), the Merger Agreement provides that, at the effective time of the Merger, each outstanding Unvested Option will be cancelled and converted into the right to receive, on such date or dates and subject to such conditions as determined by the Company in accordance with the Company stock plans and subject to the approval of Mr. Smith, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Unvested Option, and (ii) the Designated Consideration. At the effective time of the Merger, the Unvested Options will no longer represent the right to acquire shares of Company common stock and shall represent the right to receive the Designated Consideration subject to the terms described in this paragraph.

Any Vested Option or Unvested Option that has an exercise price per share that is equal to or greater than the Per Share Merger Consideration will be cancelled for no consideration. See “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units” beginning on page 85 for additional information.

Except as otherwise agreed to by Parent and a holder of an unvested restricted stock unit (“Unvested RSU”), the Merger Agreement provides that each Unvested RSU that is outstanding at the effective time of the Merger will be converted into the right to receive, on the same terms and conditions as were applicable to such Unvested RSU prior to the Merger, on each date in which shares of Company common stock subject to such Unvested RSU would have become vested and exercisable (subject to continued employment through such date), a cash amount equal to the Per Share Merger Consideration for each share of Company common stock then subject to the Unvested RSU that would have otherwise vested on such vesting date, without interest and less any withholding taxes. At the effective time of the Merger, the Unvested RSUs will no longer represent the right to acquire shares of Company common stock and will represent the right to receive the Per Share Merger Consideration subject to the terms described in this paragraph. See “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units” beginning on page 85 for additional information.

Pursuant to the Rollover Letter, the Rollover Investors have committed to exchange, immediately prior to the completion of the Merger, each of their Vested Options, Unvested Options and Company restricted stock units, including any Company restricted stock units that have vested but remain unreleased (“Vested RSU”), that are outstanding at the effective time of the Merger for an equivalent equity interest in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger) and therefore will not receive the consideration described above. The Rollover Investors’ commitments pursuant to the Rollover Letter are conditions as described under the subheading “Special Factors—Financing of the Merger—Rollover Financing.”

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger

The Board, after careful consideration and acting on the unanimous recommendation of a special committee of the Board (the “Special Committee”) composed entirely of independent and disinterested directors, recommends, with Mr. Smith taking no part in such recommendation, that our stockholders vote:

 

   

“FOR” the proposal to adopt the Merger Agreement;

 

   

FOR” the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

   

“FOR” the proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 

4


Table of Contents

The Board and the Special Committee believe that the Merger is fair to the Company and its unaffiliated stockholders, as defined by Rule 13e-3 of the Exchange Act (“unaffiliated stockholders”). For a discussion of the material factors considered by the Board and the Special Committee in determining to recommend the adoption of the Merger Agreement and in determining that the Merger is fair to the Company and its unaffiliated stockholders, see “Special Factors—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” beginning on page 37 for additional information.

Positions of the Insight Entities, Parent and Merger Sub Regarding the Fairness of the Merger

Each of the Insight Entities, Parent and Merger Sub believes that the Merger is fair to the Company and its unaffiliated stockholders. However, none of the Insight Entities, Parent or Merger Sub has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Merger to the Company and its unaffiliated stockholders. Their belief is based upon the factors discussed under the caption “Special Factors—Positions of the Insight Entities, Parent and Merger Sub Regarding the Fairness of the Merger” beginning on page 54 of this proxy statement.

Positions of the Rollover Investors Regarding the Fairness of the Merger

The Rollover Investors believe that the Merger is fair to the Company and its unaffiliated stockholders. However, the Rollover Investors have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Merger to the Company and its unaffiliated stockholders. Their belief is based upon the factors discussed under the caption “Special Factors—Positions of the Rollover Investors Regarding the Fairness of the Merger” beginning on page 54 of this proxy statement.

Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Special Committee

The Special Committee received a financial opinion on March 8, 2012, from Morgan Stanley & Co. LLC (“Morgan Stanley”), the financial advisor to the Special Committee, to the effect that, as of that date and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the Per Share Merger Consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was fair from a financial point of view to such holders. See “Special Factors—Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Special Committee” beginning on page 42. A copy of Morgan Stanley’s opinion is attached as Annex B to this proxy statement.

Financing of the Merger

Parent estimates that the total amount of funds required to complete the Merger and related transactions, including payment of fees and expenses in connection with the Merger is anticipated to be approximately $2.0 billion. This amount is expected to be provided through a combination of (i) equity contributions from the Insight Entities totaling approximately $210.0 million, (ii) rollover financing from the Rollover Investors totaling approximately $645.88 million, (iii) debt financing of up to $1.195 billion and (iv) cash of the Company. See “Special Factors—Financing of the Merger” beginning on page 63 for additional information.

Limited Guaranty

The Insight Entities and the Rollover Investors, severally and not jointly, have each agreed to guarantee one-half of the obligations of Parent under the Merger Agreement, with the obligations of each Insight Entity and each Rollover Investor limited to such portion of the guaranty based on its respective equity commitment to Parent, to pay, under certain circumstances, a reverse termination fee, the Company Damages Remedy (defined below) and certain expense reimbursement and indemnification obligations. See “Special Factors—Limited Guaranty” beginning on page 67 for additional information.

 

5


Table of Contents

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

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

 

   

in the case of directors and executive officers other than Mr. Smith, the cancellation of in-the-money Vested Options for cash payable at the effective time of the Merger and the cancellation of in-the-money Unvested Options for cash payable at specified times following the effective time of the Merger;

 

   

in the case of Mr. Smith, the conversion of the Rollover Shares, in-the-money Vested Options, in-the-money Unvested Options and Vested RSUs into equivalent equity interests in Parent;

 

   

in the case of Mr. Smith, the loan by Parent to the Rollover Investors of $120 million, which amount will be used by the Rollover Investors to repay outstanding indebtedness of the Rollover Investors encumbering the Rollover Shares;

 

   

a retention arrangement with Mr. Davidson;

 

   

the possible ownership of equity interests in Parent by other members of our management team;

 

   

continued indemnification and liability insurance for directors and officers following completion of the Merger; and

 

   

Mr. Smith and Mr. Paul Sallaberry, a member of our Board, each have certain relationships with Insight, see “Special Factors—Relationship Between Quest and Insight.

See “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 68 for additional information.

Conditions to the Merger

The respective obligations of each of the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “The Merger Agreement—Conditions to the Merger” beginning on page 99.

Regulatory Approvals

The Merger cannot be completed until the Company and Mr. Smith each file a notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the applicable waiting period has expired or been terminated. The Company and Mr. Smith have filed the notification and report forms under the HSR Act with the Federal Trade Commission and the Antitrust Division of the Department of Justice on March 29, 2012. See “The Merger Agreement—Conditions to the Merger” beginning on page 99. Approvals may also be necessary, proper or advisable to obtain from, or notices may need to be submitted to, foreign regulatory authorities in connection with the Merger. The Merger cannot be completed until such approvals are obtained from, or such notices are submitted to, such foreign regulatory authorities.

Solicitation of Takeover Proposals

Until 11:59 p.m., New York City time, on May 7, 2012 (the “Go-Shop Period”), the Company, its subsidiaries and its representatives are permitted to:

 

   

initiate, solicit and encourage any inquiry or the making of Takeover Proposals (defined below) from third parties (or inquiries, proposals or offers or other efforts or attempts that are reasonably expected to lead to a Takeover Proposal), including by providing third parties non-public information pursuant to

 

6


Table of Contents
 

acceptable confidentiality agreements (provided that the Company promptly make such information available to Parent if not previously made available to Parent or its representatives); and

 

   

enter into, engage in, and maintain discussions or negotiations with respect to Takeover Proposals or otherwise cooperate with or assist or participate in or facilitate any such inquiries, proposals, discussions or negotiations.

During this time, the Company must provide to Parent a redacted copy of any such Takeover Proposal, which includes disclosure of the proposed price and material conditions.

From and after 12:00 a.m., New York City time, on May 8, 2012 (the “No-Shop Start Date”), the Company is required to immediately cease any discussions or negotiations with any persons that may be ongoing with respect to any Takeover Proposals, except as may relate to Qualified Go-Shop Bidders (as defined in “The Merger Agreement—Solicitation of Takeover Proposals”). At any time from and after the No-Shop Start Date and until the effective time of the Merger or, if earlier, the termination of the Merger Agreement, the Company, its subsidiaries and its representatives may not:

 

   

solicit, initiate or knowingly facilitate or encourage any inquiry or the making of any Takeover Proposals;

 

   

engage in, continue or otherwise participate in discussions or negotiations with any person with respect to any Takeover Proposal;

 

   

provide any non-public information to any person in connection with or to encourage or facilitate a Takeover Proposal; or

 

   

enter into any letter of intent, agreement or agreement in principle with respect to any Takeover Proposal.

Notwithstanding the foregoing, the Company may continue to engage in the activities permitted during the Go-Shop Period described above with each Qualified Go-Shop Bidder.

At any time from and after the No-Shop Start Date and prior to the time the Company’s stockholders adopt the Merger Agreement, if the Company receives an unsolicited written Takeover Proposal from any person making or renewing a Takeover Proposal after such date, the Company may:

 

   

contact such person to clarify the terms and conditions of such proposal; and

 

   

upon notice to Parent and Merger Sub, engage in discussions or negotiations with such person, and furnish to such third-party information (including non-public information) pursuant to an acceptable confidentiality agreement (provided that the Company promptly makes such information available to Parent and Merger Sub if not previously made available to Parent or Merger Sub), if the Board determined in good faith, after consultation with its financial advisor and outside legal counsel, that such Takeover Proposal either constitutes a Superior Proposal (defined below) or could reasonably be expected to lead to a Superior Proposal.

During this time, the Company must provide to Parent a redacted copy of such Takeover Proposal, which must include disclosure of the identity of the person that submitted such Takeover Proposal, as well as the proposed price and material conditions. The Company is obligated to keep Parent reasonably informed of any material developments, discussions or negotiations regarding any Takeover Proposal (whether made before or after the No-Shop Start Date). See “The Merger Agreement—Solicitation of Takeover Proposals” beginning on page 94.

Termination of the Merger Agreement

The Company and Parent may, by mutual written consent duly authorized by each of their respective boards of directors, terminate the Merger Agreement and abandon the Merger at any time prior to the effective time of the Merger, whether before or after the adoption of the Merger Agreement by the Company’s stockholders.

 

7


Table of Contents

The Merger Agreement may also be terminated and the Merger abandoned at any time prior to the effective time of the Merger as follows:

by either Parent or the Company, if:

 

   

the Merger has not been consummated by September 8, 2012 (the “Outside Date”);

 

   

the Merger is enjoined or it becomes illegal to consummate the Merger; or

 

   

the required stockholder approval shall not have been obtained at the Special Meeting;

by Parent, if:

 

   

the Company shall have materially breached or failed to perform any of its representations, warranties covenants or agreements set forth in the Merger Agreement, which breach or failure to perform would give rise to the failure of a condition of Parent or Merger Sub’s obligation to effect the Merger;

 

   

the Company shall have breached in any material respect its obligations described under “The Merger Agreement—Solicitation of Takeover Proposals”; or

 

   

the Board changes its recommendation, the Company enters into an agreement regarding an alternative transaction or the Board fails to recommend against a publicly announced Takeover Proposal and fails to reaffirm its recommendation within ten business days following the public announcement of such Takeover Proposal;

by the Company, if:

 

   

Parent or Merger Sub shall have materially breached or failed to perform any of its representations, warranties covenants or agreements contained in the Merger Agreement, which breach or failure to perform would give rise to the failure of a condition to the Company’s obligation to effect the Merger;

 

   

prior to the receipt of the stockholder approvals, in order to concurrently enter into an agreement with respect to a Takeover Proposal that constitutes a Superior Proposal and the Company pays the termination fee described under “The Merger Agreement—Termination Fees and Reimbursement of Expenses;” or

 

   

the Merger has not been consummated within three business days after the expiration of the marketing period described under “The Merger Agreement—Closing and Effective Time of the Merger; Marketing Period” and all of the conditions to Parent and Merger Sub’s obligation to effect the Merger have been satisfied.

See “The Merger Agreement—Termination” beginning on page 100.

Termination Fees and Reimbursement of Expenses

Upon termination of the Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee. If the termination fee becomes payable as a result of the Company terminating the Merger Agreement prior to the No-Shop Start Date in order to enter into an agreement with respect to a Superior Proposal, the amount of the termination fee will be $4.2 million. If the termination fee becomes payable in other circumstances, the amount of the termination fee will be $6.3 million. The Merger Agreement also provides that Parent will be required to pay the Company a reverse termination fee of $9.0 million in the event that the Company terminates the Merger Agreement because of Parent’s breach of the Merger Agreement or because Parent has not closed the Merger within three business days of notice, delivered after completion of the marketing period, that all conditions are satisfied. In addition, in certain circumstances, the Company will be required to reimburse Parent for certain actual out-of-pocket fees and expenses incurred in connection with the transactions contemplated by the Merger Agreement, subject to a maximum reimbursement of $7.0 million.

Notwithstanding the above:

 

   

In the event that the Company terminates the Merger Agreement due to (i) an intentional breach by Parent or Merger Sub of its obligation to use commercially reasonable efforts to obtain the debt financing, (ii) an intentional act of interference or collusion by Parent or Merger Sub, in the case of each of (i) and (ii) that was the proximate cause of the failure of the debt financing to be funded, or

 

8


Table of Contents
 

(iii) an intentional or willful breach by Parent or Merger Sub that is the proximate cause of the failure of a closing condition, then the Company may recover up to a maximum of $18.0 million (inclusive of the reverse termination fee) for all actual losses suffered or incurred by the Company or its stockholders with respect to any legal proceedings formally commenced within 120 days following the Company’s termination of the Merger Agreement (the “Company Damages Remedy”).

 

   

In the event that Parent terminates the Merger Agreement due to an intentional or willful breach by the Company, then Parent may recover up to a maximum of $12.6 million (inclusive of the termination fee) for all actual losses suffered or incurred by Parent with respect to any legal proceedings formally commenced within 120 days following Parent’s termination of the Merger Agreement (the “Parent Damages Remedy”).

See “The Merger Agreement—Termination Fees and Reimbursement of Expenses” beginning on page 101 for a description of such additional requirements.

Remedies

The Company’s right to receive the reverse termination fee from Parent (or the Insight Entities and the Rollover Investors pursuant to the limited guaranty), the Company Damages Remedy, and certain reimbursement and indemnification payments from Parent will be, subject to certain exceptions described below, the sole and exclusive remedy of the Company and its subsidiaries and stockholders against Parent, Merger Sub, the Insight Entities, the Rollover Investors or any of their respective former, current or future general or limited partners, stockholders, financing sources, managers, members, directors, officers or affiliates for any loss 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, and upon payment of such amounts no related party shall have any further liability or obligation relating to or arising out of the Merger Agreement or the transactions contemplated thereby.

Parent’s right to receive payment from the Company of its expenses, the Parent Damages Remedy, or the applicable termination fee will be, subject to certain exceptions described below, the sole and exclusive remedy of Parent and Merger Sub (and the other related parties described in the preceding paragraph) against the Company and its subsidiaries and any of their respective former, current or future officers, directors, partners, stockholders, managers, members or affiliates for any loss 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, and upon payment of such amounts, no such related party will have any further liability or obligation relating to or arising out of the Merger Agreement or the transactions contemplated thereby.

Under no circumstances will the Company be entitled to monetary damages in excess of the amount of the reverse termination fee (and certain reimbursement and indemnification payments from Parent), except in limited circumstances when the Company is entitled to the Company Damages Remedy. Under no circumstances will the Company be permitted or entitled to receive both a grant of specific performance and the payment of the reverse termination fee or any money damages.

The parties are entitled to an injunction or injunctions, specific performance or other equitable relief to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which they are entitled under the Merger Agreement. However, the right of the Company to seek such equitable relief in connection with enforcing Parent’s obligation to cause the equity financing to be funded will be subject to certain additional requirements. See “The Merger Agreement—Remedies” beginning on page 104.

Voting Agreement

The Rollover Investors have agreed, among other things and subject to certain conditions, to vote all of their shares of Company common stock in favor of the adoption of the Merger Agreement and against any competing

 

9


Table of Contents

Takeover Proposal (other than a Superior Proposal) that may be submitted by the Company for a vote of its stockholders, unless such voting agreement is terminated pursuant to its terms. See “The Voting Agreement” beginning on page 106 for additional information.

Appraisal Rights

If the Merger is consummated, persons who are stockholders of the Company will have certain rights under Delaware law to dissent and demand appraisal of, and payment in cash of the fair value of, their shares of Company common stock. Any shares of Company common stock held by a person who does not vote in favor of adoption of the Merger Agreement, who properly demands appraisal of such shares of Company common stock and who complies precisely with the applicable provisions of the DGCL will not be converted into the right to receive the Per Share Merger Consideration. Such appraisal rights, if the stockholder complies with the procedures set forth in Section 262 of the DGCL for exercising and perfecting appraisal rights, will lead to a judicial determination of the fair value (excluding any element of value arising from the accomplishment or expectation of the Merger) required to be paid in cash to such dissenting shareholders for their shares of Company common stock. The value so determined could be more or less than, or the same as, the Per Share Merger Consideration.

You should read “Appraisal Rights” beginning on page 112 for a more complete discussion of the appraisal rights in relation to the Merger as well as Annex C which contains a full text of Section 262 of the DGCL.

Litigation Relating to the Merger

The Company, the members of the Board, Insight or certain of the Insight Entities, Parent and Merger Sub are named as defendants in purported class action lawsuits brought by stockholders of the Company. The lawsuits allege, among other things, that the members of the Board breached their fiduciary duties owed to the Company’s public stockholders and seek, among other things, to enjoin the defendants from completing the Merger on the agreed-upon terms.

One of the conditions to the Closing is that no injunction, judgment or ruling by a court or other governmental entity shall be in effect that enjoins, restrains, prevents or prohibits consummation of the Merger or that makes the consummation of the Merger illegal. As such, if the plaintiffs are successful in obtaining an injunction prohibiting the defendants from completing the Merger on the agreed-upon terms, then such injunction may prevent the Merger from becoming effective, or from becoming effective within the expected timeframe. See “Special Factors—Litigation Relating to the Merger” beginning on page 78.

Certain Material United States Federal Income Tax Consequences

The exchange of shares of Company common stock for cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder who receives cash for shares of Company common stock pursuant to the Merger will recognize gain or loss, if any, equal to the difference between the amount of cash received and the holder’s adjusted tax basis in the shares of Company common stock. You should read “Special Factors—Certain Material United States Federal Income Tax Consequences” beginning on page 75 for more information regarding the United States federal income tax consequences of the Merger to stockholders. Because individual circumstances may differ, we urge stockholders to consult their tax advisors for a complete analysis of the effect of the Merger on their U.S. federal, state and local and/or non-U.S. taxes.

Additional Information

You can find more information about the Company in the periodic reports and other information we file with the U.S. Securities and Exchange Commission (the “SEC”). The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov. For a more detailed description of the additional information available, see “Where You Can Find More Information” beginning on page 122.

 

10


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

Q: Why am I receiving this proxy statement?

 

A: On March 8, 2012, we entered into the Merger Agreement with Parent and Merger Sub providing for the merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by the Insight Entities. You are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the adoption of the Merger Agreement.

 

Q: What matters will be voted on at the Special Meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

   

adoption of the Merger Agreement;

 

   

a non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; 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 adopt the Merger Agreement.

 

Q: What will happen in the Merger?

 

A: In the Merger, Merger Sub will be merged with and into the Company and the Company will continue as the surviving corporation and become a wholly owned subsidiary of Parent. As a result of the Merger, the Company’s common stock will no longer be publicly traded, and you will no longer have any interest in the Company’s future earnings or growth. In addition, Company common stock will be delisted from Nasdaq and deregistered under the Exchange Act, and the Company will no longer be required to file reports with the SEC.

 

Q: As a stockholder, what will I receive in the Merger?

 

A: If the Merger is completed, you will be entitled to receive the Per Share Merger Consideration of $23.00 in cash, without interest thereon and less any required withholding taxes, for each share of Company common stock that you own immediately prior to the effective time of the Merger as described in the Merger Agreement.

See “Special Factors—Certain Material United States Federal Income Tax Consequences” beginning on page 75 for a more detailed description of the United States federal tax consequences of the Merger. You should consult your own tax advisor for a full understanding of how the Merger will affect your federal, state, local and/or non-U.S. taxes.

 

Q: When and where is the Special Meeting of our stockholders?

 

A: The Special Meeting of stockholders will be held at         a.m., local time, on                     , 2012, at                     .

 

Q: What vote of our stockholders is required to adopt the Merger Agreement?

 

A: For us to complete the Merger:

 

   

at least a majority of the outstanding shares of Company common stock on the record date must vote “FOR” the proposal to adopt the Merger; and

 

11


Table of Contents
   

at least a majority of the outstanding shares of Company common stock, exclusive of any shares of Company common stock held by Parent, Merger Sub or any of the Rollover Investors, on the record date must vote “FOR” the proposal to adopt the Merger.

At the close of business on                     , 2012, the record date for the Special Meeting:

 

   

                    shares of Company common stock were outstanding and entitled to vote at the Special Meeting; and

 

   

                    shares of Company common stock were outstanding and entitled to vote at the Special Meeting, exclusive of shares of Company common stock held by Parent, Merger Sub and the Rollover Investors.

 

Q: What vote is required to approve the non-binding compensation proposal and the proposal to adjourn the Special Meeting, if necessary or appropriate?

 

A: The approval of the non-binding compensation proposal and adjournment of the Special Meeting requires the affirmative vote of the holders of a majority of the outstanding shares of the Company common stock present and entitled to vote at the Special Meeting as of the record date.

 

Q: Why am I being asked to cast an advisory (non-binding) vote to approve “golden parachute compensation” payable to the Company’s named executive officers under existing agreements with the Company in connection with the Merger?

 

A: In accordance with the rules promulgated under Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast a non-binding, advisory vote on the compensation that will or may be payable to the Company’s named executive officers in connection with the Merger.

 

Q: What is the “golden parachute compensation”?

 

A: The “golden parachute compensation” is certain compensation that is tied to or based on the consummation of the Merger and payable to the Company’s named executive officers under existing agreements with the Company. See “Golden Parachute Compensation” beginning on page 107.

 

Q: What will happen if stockholders do not approve the “golden parachute compensation” at the Special Meeting?

 

A: Approval of the “golden parachute compensation” is not a condition to the completion of the Merger. The vote with respect to the “golden parachute compensation” is an advisory vote and will not be binding on the Company or Parent. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the non-binding, advisory vote, if the Merger Agreement is adopted by the stockholders and completed, our named executive officers will be eligible to receive the “golden parachute compensation.”

 

Q: Who can attend and vote at the Special Meeting?

 

A: All stockholders of record as of the close of business on                     , 2012, the record date for the Special Meeting, are entitled to receive notice of and to attend and vote at the Special Meeting, or any postponement or adjournment thereof. If you wish to attend the Special Meeting and your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee (i.e., in “street name”), you may vote those shares in person at the meeting only if you obtain and bring with you a signed proxy from the necessary nominee giving you the right to vote the shares. To obtain a signed proxy prior to the Special Meeting, you should contact your nominee. Admission to the Special Meeting will be on a first-come, first-served basis.

 

12


Table of Contents
Q: How does the Board recommend that I vote?

 

A: The Board, after careful consideration and acting on the unanimous recommendation of the Special Committee composed entirely of independent and disinterested directors, recommends, with Mr. Smith taking no part in such recommendation, that our stockholders vote:

 

   

FOR” the proposal to adopt the Merger Agreement;

 

   

FOR” the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

   

FOR” the proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

You should read “Special Factors—Recommendation of our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” beginning on page 37 for a discussion of the factors that our Special Committee and the Board considered in deciding to recommend the adoption of the Merger Agreement. In addition, in considering the recommendation of the Special Committee and the Board with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers may have interests that are different from, or in addition to, the interests of our stockholders generally. See “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger,” beginning on page 68.

 

Q: How will our directors and executive officers vote on the proposal to adopt the Merger Agreement?

 

A: Our directors and current executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of their shares of Company common stock in favor of the adoption of the Merger Agreement. As of                     , 2012, the record date for the Special Meeting, our directors (including Mr. Smith) and current executive officers beneficially owned, in the aggregate,                     shares of Company common stock, or collectively approximately             % of the outstanding shares of Company common stock.

 

Q: Am I entitled to exercise appraisal rights instead of receiving the Per Share Merger Consideration for my shares of Company common stock?

 

A: Shareholders of Company common stock who do not vote in favor of adoption of the Merger Agreement will have the right to seek appraisal and receive the fair value of their shares of Company common stock in lieu of receiving the Per Share Merger Consideration in cash if the Merger closes, but only if they perfect their appraisal rights by precisely complying with the required procedures under the DGCL. See “Appraisal Rights” beginning on page 112. For the full text of Section 262 of the DGCL, please see Annex C attached hereto.

 

Q: How do I cast my vote if I am a holder of record?

 

A: If you were a holder of record on                     , 2012, you may vote in person at the Special Meeting or by submitting a proxy for the Special Meeting. You can submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed, postage paid envelope. Holders of record may also vote by telephone or the Internet by following the instructions on the proxy card.

If you properly transmit your proxy, but do not indicate how you want to vote, your proxy will be voted:

 

   

FOR” the adoption of the Merger Agreement;

 

   

FOR” the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

   

FOR” the proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 

13


Table of Contents
Q: How do I cast my vote if my shares of Company common stock are held in “street name” by my broker, dealer, commercial bank, trust company or other nominee?

 

A: If you hold shares in “street name” through a broker, dealer, commercial bank, trust company or other nominee, then you received this proxy statement from the nominee, along with the nominee’s voting instructions. You should instruct your broker, bank or other nominee on how to vote your shares of common stock using the voting instructions. Please refer to the voting instruction card used by your broker, dealer, commercial bank, trust company or other nominee to see if you may submit voting instructions using the Internet or telephone.

 

Q: What will happen if I abstain from voting or fail to vote on the proposals presented at the Special Meeting?

 

A: If you abstain from voting, fail to cast your vote in person or by proxy or fail to give voting instructions to your broker, dealer, commercial bank, trust company or other nominee, your shares of Company common stock will not be voted. Shares of Company common stock not voted will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement. Abstentions and broker non-votes will not count as a vote “FOR” or “AGAINST” the non-binding compensation proposal or the adjournment proposal and thus will have no effect in determining whether these proposals have received the majority vote of the outstanding shares of the Company common stock present and entitled to vote at the Special Meeting as of the record date.

 

Q: Can I change my vote after I have delivered my proxy?

 

A: Yes. If you are a record holder, you can change your vote at any time before your proxy is voted at the Special Meeting by properly delivering a later-dated proxy either by mail, the Internet or telephone or attending the Special Meeting in person and voting. You also may revoke your proxy by delivering a notice of revocation to the Company’s corporate secretary prior to the vote at the Special Meeting. If your shares of Company common stock are held in street name, you must contact your broker, dealer, commercial bank, trust company or other nominee to revoke your proxy.

 

Q: What should I do if I receive more than one set of voting materials?

 

A. You may receive more than one set of voting materials, including multiple copies of this proxy statement or multiple proxies or voting instruction cards. For example, if you hold your shares of Company common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of Company common stock. If you are a holder of record and your shares of Company common stock are registered in more than one name, you will receive more than one proxy card. Please submit each proxy and voting instruction card that you receive.

 

Q: If I am a holder of certificated shares of Company common stock, should I send in my share certificates now?

 

A: No. Promptly after the Merger is completed, each holder of record as of the time of the Merger will be sent written instructions for exchanging their stock certificates for the Per Share Merger Consideration. These instructions will tell you how and where to send in your stock certificates for your cash consideration. You will receive your cash payment after the Paying Agent receives your share certificates and any other documents requested in the instructions. Please do not send stock certificates with your proxy.

Holders of uncertificated shares of Company common stock (i.e., holders whose shares are held in book- entry) will automatically receive their cash consideration as soon as practicable after the effective time of the Merger without any further action required on the part of such holders.

 

14


Table of Contents
Q: When will the Company hold its Annual Meeting of Stockholders to elect our board of directors?

 

A: The Board has not established a record date or a meeting date for the Company’s 2012 Annual Meeting of Stockholders for the purpose of electing our board of directors. If the Merger is not completed and the Company does not consummate a merger transaction pursuant to a Superior Proposal, then the Board will establish a record date and meeting date for the Company’s 2012 Annual Meeting of Stockholders.

 

Q: What happens if the Merger is not completed?

 

A: If the Merger Agreement is not adopted by our stockholders, or if the Merger is not completed for any other reason, our stockholders will not receive any payment for their Company common stock pursuant to the Merger Agreement. Instead, we will remain as a public company and our common stock will continue to be registered under the Exchange Act and listed and traded on Nasdaq. Under circumstances specified in the Merger Agreement, we may be required to pay Parent a termination fee of $4.2 million or $6.3 million (depending on the nature and timing of the termination) and reimburse Parent for up to a maximum of $7.0 million of its out of pocket expenses and up to $12.6 million (inclusive of the reverse termination fee) pursuant to the Parent Damages Remedy, in each case subject to certain conditions. Under certain circumstances, Parent may be required to pay us a termination fee of $9.0 million and up to $18.0 million (inclusive of the termination fee) pursuant to the Company Damages Remedy. See “The Merger Agreement—Termination Fees and Reimbursement of Expenses,” beginning on page 101.

 

Q: When is the Merger expected to be completed?

 

A: The parties to the Merger Agreement are working to complete the Merger as quickly as possible. In order to complete the Merger, the Company must obtain the stockholder approval described in this proxy statement and the other closing conditions under the Merger Agreement must be satisfied or waived. The parties to the Merger Agreement currently expect to complete the Merger in the third quarter of 2012, although the Company cannot assure completion by any particular date, if at all. Because the Merger is subject to a number of conditions, the exact timing of the Merger cannot be determined at this time.

 

Q: What is householding and how does it affect me?

 

A: The SEC permits companies to send a single set of certain disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for stockholders of record; however, certain brokerage firms may have instituted householding for beneficial owners of Company common stock held through brokerage firms. If your family has multiple accounts holding Company common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

 

Q: Who can help answer my questions?

 

A: If you have any 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, you should contact                                .

 

15


Table of Contents

SPECIAL FACTORS

The following is a description of the material aspects of the Merger. You are encouraged to read carefully the full text of the Merger Agreement attached to this proxy statement as Annex A because it is the legal document that governs the Merger. The following description is subject to, and is qualified in its entirety by reference to, the Merger Agreement.

The Parties

Quest Software, Inc.

Quest Software, Inc. (the “Company,” “we,” “us” or “our”) designs, develops, markets, distributes, and supports enterprise systems management software products. Our goal is to provide our customers with systems management products that improve the performance, productivity and reliability of their software applications and associated software infrastructure components such as databases, application servers, operating systems, and virtual environments. For more information about us, please visit our website at www.quest.com (the information available at our website address is not incorporated by reference into this report). See also, “Where You Can Find More Information.” Our common stock is listed on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “QSFT.” The Company’s principal executive offices are located at 5 Polaris Way, Aliso Viejo, California 92656, and our telephone number is (949) 754-8000.

Insight Entities

Insight Venture Partners VII, L.P., a Cayman Islands exempted limited partnership (“IVPVII”), Insight Venture Partners (Cayman) VII, L.P., a Cayman Islands exempted limited partnership (“IVP Cayman”), Insight Venture Partners VII (Co-Investors), L.P., a Cayman Islands exempted limited partnership (“IVP Co”), Insight Venture Partners (Delaware) VII, L.P., a Delaware limited partnership (“IVP Delaware”) and Insight Venture Partners Coinvestment Fund II, L.P., a Delaware limited partnership (“IVPCFII,” and together with IVPVII, IVP Cayman, IVP Co and IVP Delaware, the “Insight Entities”) are affiliates of Insight Venture Management, LLC, a Delaware limited liability company (“Insight”). The principal executive offices of Insight, IVP Delaware and IVPCFII are located at 680 Fifth Avenue, 8th Floor, New York, New York 10019, and their telephone number is (212) 230-9200. The principal executive offices of IVPVII, IVP Cayman and IVP Co are c/o Insight Venture Management, 680 Fifth Avenue, 8th Floor, New York, New York 10019, and their telephone number is (212) 230-9200.

The general partner of IVPVII, IVP Cayman, IVP Co and IVP Delaware is Insight Venture Associates, VII, L.P., a Cayman Islands exempted limited partnership (“IVA”). The principal business of IVA is acting as the general partner of IVPVII, IVP Cayman, IVP Co and IVP Delaware. The principal executive offices of IVA are c/o Insight Venture Management, 680 Fifth Avenue, 8th Floor, New York, New York 10019, and its telephone number is (212) 230-9200.

The general partner of IVA is Insight Venture Associates VII, Ltd., a Cayman Islands exempted company (“IVA Ltd.”). The principal business of IVA Ltd. is acting as the general partner of IVA. Jeffrey Horing is the director of IVA Ltd. and Blair Flicker is an alternative director of IVA Ltd. The officers of IVA Ltd. are Deven Parekh, Blair Flicker and Mark Lessing. The principal executive offices of IVA Ltd. are c/o Insight Venture Management, 680 Fifth Avenue, 8th Floor, New York, New York 10019, and its telephone number is (212) 230-9200.

The general partner of IVPCFII is Insight Venture Associates Coinvestment II, L.P., a Delaware limited partnership (“IVA Co”). The principal business of IVA Co is acting as the general partner of IVPCFII. The principal executive offices of IVA Co are located at 680 Fifth Avenue, 8th Floor, New York, New York 10019, and its telephone number is (212) 230-9200.

The general partner of IVA Co and sole shareholder of IVA Ltd. is Insight Holdings Group, LLC, a Delaware limited liability company (“Insight Holdings”). The principal business of Insight Holdings is acting as

 

16


Table of Contents

the general partner of IVA Co and other affiliated entities. The members of the board of managers of Insight Holdings are Jeffrey Horing, Deven Parekh and Peter Sobiloff. The principal executive offices of Insight Holdings are located at 680 Fifth Avenue, 8th Floor, New York, New York 10019, and its telephone number is (212) 230-9200.

Insight is the investment manager of each of the Insight Entities. The principal executive offices of Insight are located at 680 Fifth Avenue, 8th Floor, New York, New York 10019, and its telephone number is (212) 230-9200.

Rollover Investors

Mr. Smith is the Chairman and Chief Executive Officer of the Company. The Vincent C. Smith Annuity Trust 2010-1, the Vincent C. Smith Annuity Trust 2010-2 and the Vincent C. Smith Annuity Trust 2011-1 (collectively the “VS Trusts,” and together with Mr. Smith, the “Rollover Investors”) are trusts affiliated with Mr. Smith. None of the Rollover Investors (including their respective trustees, as applicable), has during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In 2009, Mr. Smith entered into a settlement agreement with the U.S. Securities and Exchange Commission (the “SEC”) following the SEC’s investigation into the Company’s stock option granting practices. While not admitting or denying any allegations, Mr. Smith agreed, among other things, to the entry of a judgment enjoining future violations of certain federal securities laws. The settlement imposed no restrictions upon Mr. Smith’s service as an officer or director of any publicly traded company (See “—Business and Background of Natural Persons Related to the Company”). Except for the settlement agreement entered into by Mr. Smith with the SEC, none of the Rollover Investors, and none of their respective trustees, as applicable, has during the past five years, been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, United States federal or state securities laws, or a finding of any violation of United States federal or state securities laws. Mr. Smith is a citizen of the United States. The business address for Mr. Smith and each of the other Rollover Investors is c/o Quest Software, Inc., 5 Polaris Way, Aliso Viejo, California 92656, and their telephone number is (949) 754-8000.

Expedition Holding Company, Inc.,

Expedition Holding Company, Inc., a Delaware corporation (“Parent”) was formed by the Insight Entities solely for the purpose of owning the Company after the Merger and arranging the related financing transactions. Parent is currently owned by the Insight Entities. Parent has not engaged in any business except for activities incidental to its formation and in connection with the Merger and the other transactions contemplated by the Merger Agreement.

Expedition Merger Sub, Inc.

Expedition Merger Sub, Inc., a Delaware corporation (“Merger Sub”) was formed by Parent solely for the purpose of completing the Merger. Merger Sub is wholly owned by Parent and has not engaged in any business except for activities incidental to its formation and in connection with the Merger and the other transactions contemplated by the Merger Agreement. Upon the completion of the Merger, Merger Sub will cease to exist.

Business and Background of Natural Persons Related to the Company

Set forth below for each director and executive officer of the Company is his respective present principal occupation or employment, the name of the corporation or other organization in which such occupation or employment is conducted and the material occupations, positions, offices or employment held during the past five years. None of the Company nor any of the Company’s directors or executive officers has, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In

 

17


Table of Contents

2009, Mr. Smith entered into a settlement agreement with the SEC following the SEC’s investigation into the Company’s stock option granting practices. While not admitting or denying any allegations, Mr. Smith agreed, among other things, to the entry of a judgment enjoining future violations of certain federal securities laws. The settlement imposed no restrictions upon Mr. Smith’s service as an officer or director of any publicly traded company. On March 22, 2012, Mr. Sallaberry entered into a settlement agreement with the SEC following the SEC’s investigation into revenue reporting practices at Veritas Software Corporation, where Mr. Sallaberry previously served as Executive Vice President of Worldwide Field Operations and head of sales. While not admitting or denying any allegations, Mr. Sallaberry agreed, among other things, to the entry of a judgment enjoining future violations of certain federal securities laws. The settlement imposed no restrictions upon Mr. Sallaberry’s service as an officer or director of any publicly traded company. Except as provided above, none of the Company nor any of the Company’s directors or executive officers has, during the past five years, been a party to any judicial or administrative proceeding (expect for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws or a finding of any violation of federal or state securities laws. Each of the individuals listed below is a citizen of the United States.

Executive Officers

 

Vincent C. Smith, 48

Chief Executive Officer and Chairman of the Board

   Mr. Smith has served as our Chief Executive Officer from 1997 to 2008, and from February 2012 to the present. Mr. Smith served as our Executive Chairman from October 2008 to February 2012 and a director since 1995. Mr. Smith became Chairman of the Board in 1998.

Douglas F. Garn, 53

Vice Chairman

   Mr. Garn has served as our Vice Chairman since February 2012 and previously served as our President from February 2005 to February 2012 and our Chief Executive Officer from October 2008 to February 2012. Mr. Garn previously served as our Vice President, Worldwide Sales from January 1998 to January 2002, and returned to this position in January 2003 after a medical leave of absence.

Scott J. Davidson, 46

Senior Vice President,

Chief Financial Officer

   Mr. Davidson has served as our Chief Financial Officer since October 2007. Mr. Davidson joined the Company as Treasurer in 2002, and he has served as a vice president since 2005. His responsibilities have included worldwide treasury and investment operations, acquisitions, SEC reporting, investor relations and risk management.

Steve M. Dickson, 51

Senior Vice President & GM, Windows Server Management

   Mr. Dickson has served as our Senior Vice President & GM, Windows Server Management since March 2012. Mr. Dickson previously served as Senior Vice President of Product Management since November 2008 and, before that, as Vice President and General Manager, Windows Management since 2003. Mr. Dickson joined the Company in 1998 and has also held various sales management positions within the Company, including Vice President, Sales—Western Region, and Vice President, Sales—Microsoft Solutions.

Alan D. Fudge, 51

Senior Vice President of

Worldwide Sales and Marketing

   Mr. Fudge has served as our Senior Vice President of Worldwide Sales and Marketing since October 2011. Prior to that, Mr. Fudge served as our Senior Vice President of Worldwide Sales since August 2009. From November 2005 to August 2009, Mr. Fudge served as President and Chief Executive Officer of GuardianEdge Technologies, Inc. a privately held data protection company with a principal business address at 475 Brannan Street, Suite 400, San Francisco, CA 94107.

 

18


Table of Contents

Directors

 

Vincent C. Smith, 48

Chairman of the Board

Director since 1995

   Information for Mr. Smith is included in the previous section titled “Executive Officers.”

Douglas F. Garn, 53

Vice Chairman

Director since 2008

   Information for Mr. Garn is included in the previous section titled “Executive Officers.”

H. John Dirks, 67

Director since 2006

   Mr. Dirks has 40 years of auditing and accounting experience. Since his retirement in 2005, he has provided accounting consulting services to various organizations.

Kevin M. Klausmeyer, 53

Director since 2003

   From August 2006 until its merger in 2011 with SoftLayer Technologies, Inc., Mr. Klausmeyer served as Chief Financial Officer of The Planet, Inc., a privately held company and provider of dedicated web hosting products and services with a principal business address at 400 North Akard Street, Dallas, TX 75201.

Augustine L. Nieto II, 54

Director since 2002

   Mr. Nieto is currently an Operating Advisor for North Castle Partners, a private equity firm with a principle business address at 183 East Putnam Avenue, Greenwich, CT 06830. Mr. Nieto is currently the chairman of Octane Fitness, a privately held manufacturer of consumer exercise equipment with a principle business address at 7601 Northland Drive North, Suite 100, Brooklyn Park, MN 55428. He is also a Director of DynaVox Inc., a public company that provides communication and education solutions for individuals with speech, language and learning disabilities with a principal business address at 2100 Wharton Street, Suite 400, Pittsburgh, PA 15203.

Paul A. Sallaberry, 56

Director since 2005

   Mr. Sallaberry has been a Venture Partner since 2009 at Jafco Ventures, with a principle business address at 505 Hamilton Avenue, Suite 310, Palo Alto, CA 94301. He currently serves as a director of several private companies.

Business and Background of Natural Persons Related to Insight, the Insight Entities, Parent and Merger Sub

Jeffrey Horing is a founding partner of Insight, where he has worked since 1995.

Deven Parekh is a Managing Director of Insight, where he has worked since 2000.

Peter Sobiloff is a Managing Director of Insight, where he has worked since 1998.

Blair Flicker is a Managing Director and General Counsel to Insight, where he has worked since 2001.

Michael Triplett is a Managing Director of Insight, where he has worked since 1998.

Mark Lessing is a Managing Director and Chief Financial Officer to Insight, where he has worked since 2000.

Richard Wells is a Managing Director of Insight, where he has worked since 2005.

The principal executive office of Messrs. Horing, Parekh, Sobiloff, Flicker, Triplett and Lessing is located at 680 Fifth Avenue, 8th Floor, New York, New York 10019. Messrs. Horing, Parekh, Sobiloff, Flicker, Triplett and Lessing are each citizens of the United States.

None of Parent, Merger Sub, Insight, the Insight Entities, IVA, IVA Ltd., IVA Co and Insight Holdings, and none of their respective directors or executive officers, has during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). None of Parent, Merger Sub, Insight,

 

19


Table of Contents

the Insight Entities, IVA, IVA Ltd., IVA Co and Insight Holdings, and none of their respective directors or executive officers, has during the past five years, been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, United States federal or state securities laws, or a finding of any violation of United States federal or state securities laws.

Overview of the Transaction

The Company, Parent and Merger Sub entered into an Agreement and Plan of Merger on March 8, 2012 (the “Merger Agreement”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by investment funds affiliated with Insight. The following will occur in connection with the Merger:

 

   

each share of Company common stock issued and outstanding immediately prior to the closing of the Merger (the “Closing”) will convert into the right to receive $23.00 in cash per share, without interest and less any applicable withholding taxes (the “Per Share Merger Consideration”), other than (i) treasury shares, (ii) shares held by Parent, Merger Sub or any other wholly owned subsidiary of Parent, (iii) the Rollover Shares and shares held by any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing and (iv) shares owned by stockholders who have perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the Delaware General Corporation Law (the “DGCL”);

 

   

all shares of Company common stock so converted will, at the Closing, be cancelled, and each holder of a certificate representing any shares of Company common stock shall cease to have any rights with respect thereto, except the right to receive the Per Share Merger Consideration upon surrender of such certificate (if such shares are certificated);

 

   

except as otherwise agreed to by Parent and the applicable holder, each vested stock option (“Vested Option”) that is outstanding and unexercised at the time of the Merger will, at the Closing, be cancelled and converted into the right to receive, as soon as reasonably practicable following the effective time of the Merger, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Vested Option, and (ii) the excess, if any, of the Per Share Merger Consideration ($23.00) over the exercise price per share of such stock option, without interest and less any required withholding taxes (the “Designated Consideration”);

 

   

except as otherwise agreed to by Parent and the applicable holder, each unvested stock option (“Unvested Option”) that is outstanding at the effective time of the Merger will, at the Closing, be cancelled and converted into the right to receive, on such date or dates and subject to such conditions as determined by the Company in accordance with the Company stock plans and subject to the approval of Mr. Smith, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Unvested Option, and (ii) the Designated Consideration;

 

   

except as otherwise agreed to by Parent and the applicable holder, each unvested restricted stock unit (“Unvested RSU”) that is outstanding at the effective time of the Merger will, at the Closing, be converted into the right to receive, on the same terms and conditions as were applicable to such Unvested RSU prior to the Merger, on each date in which shares of Company common stock subject to such Unvested RSU would have become vested and exercisable (subject to continued employment through such date), a cash amount equal to the Per Share Merger Consideration for each share of Company common stock then subject to the Unvested RSU that would have otherwise vested on such vesting date, without interest and less any withholding taxes;

 

   

any Vested Option or Unvested Option that has an exercise price per share that is equal to or greater than the Per Share Merger Consideration will be cancelled for no consideration; and

 

20


Table of Contents
   

each Rollover Investor will, at the Closing, exchange each of its Company stock options and Company restricted stock units, including any Company restricted stock units that have vested but remain unreleased (“Vested RSU”), immediately prior to the Merger for an equivalent equity interest in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger).

Following and as a result of the Merger:

 

   

Company stockholders (other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing) will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

 

   

shares of Company common stock will no longer be listed on Nasdaq, and price quotations with respect to shares of Company common stock in the public market will no longer be available; and

 

   

the registration of shares of Company common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated.

Management and Board of Directors of the Surviving Corporation

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

 

21


Table of Contents

Background of the Merger

The Board and management of the Company continually review the Company’s long-term strategic plan with the goal of maximizing stockholder value. As part of this ongoing process, the Board and management of the Company have periodically evaluated potential strategic alternatives relating to the Company’s businesses and engaged in discussions with third parties.

From time to time, Vincent C. Smith, formerly Executive Chairman of the Board and currently Chairman of the Board, President and Chief Executive Officer of the Company, has engaged in informal discussions with representatives of Insight Venture Management, LLC (“Insight”), affiliated investment funds of which were early investors in Quest, regarding portfolio investments in the software industry and activity in the software industry generally. The Company and an affiliate of Mr. Smith are each a limited partner investor in certain investment funds affiliated with Insight, representing small minority interests in the funds. An affiliate of Mr. Smith is also a small minority investor in certain portfolio companies of Insight. On August 24, 2011, representatives of Insight met with Mr. Smith as well as certain other members of Company management to discuss a possible acquisition of the Company and to request further meetings with management. No confidential information of the Company was exchanged between Mr. Smith and Insight at that meeting. Mr. Smith promptly relayed this information to David Cramer, Vice President, General Counsel and Secretary of the Company, and thereafter relayed the information to each Board member. The Board scheduled a special meeting for September 19, 2011 to discuss Insight’s potential interest in the Company.

On September 19, 2011, the Board met to discuss a potential acquisition of the Company by Insight and consider Insight’s request to meet with management. During the special meeting, representatives of Latham & Watkins LLP (“Latham & Watkins”), counsel to the Company, discussed the Board’s role in a potential going private transaction. Following the departure of employee directors from the meeting, including Mr. Smith, the remaining directors discussed the ramifications of a going private transaction and the possible advantages of establishing a committee of independent and disinterested directors to review, evaluate and negotiate the terms of a potential acquisition (the “special committee”). The remaining directors observed that a special committee, due to its size, would be able to more easily manage the process of evaluating any potential acquisition proposals received by the Company than the full Board and that a special committee was an effective way to address potential, actual or perceived conflicts of interest. Following this discussion, the remaining directors determined to establish a special committee to direct the evaluation of, and any negotiation relating to, any proposal, when and if made, for a going private transaction. Mr. Sallaberry explained his affiliation with certain entities affiliated with Insight. Following a discussion, the Board determined that the special committee would be comprised of Mr. Dirks, Mr. Klausmeyer and Mr. Nieto, with Mr. Dirks serving as Chairperson. The Board also requested that the special committee present enabling resolutions delineating its authority at the next meeting of the Board. Following the September 19th meeting, at the Board’s direction the Company executed a confidentiality agreement with Insight, permitting Insight to review non-public information pertaining to the Company.

At the direction of the special committee, Latham & Watkins, with the assistance of management of the Company, established a virtual data room that was populated with non-public information regarding the Company on a rolling basis for purposes of diligence in a potential strategic process. The Company granted Insight access to the virtual data room on September 21, 2011. Between September 19 and September 30, 2011, Insight conducted its preliminary due diligence review of the Company, including a review of information in the virtual data room and discussions with management regarding the Company’s business.

On September 30, 2011, Mr. Cramer received a letter from Insight stating that, based upon the progress made to date in its due diligence, Insight was preparing an offer to acquire all of the outstanding shares of Company common stock, other than shares held by certain members of management, including Mr. Smith and his affiliated trusts (the “Rollover Shares”), that it assumed would be reinvested in the acquiring entity (the “Potential Proposal”).

 

22


Table of Contents

Between September 30 and October 3, 2011, the special committee identified and contacted several law firms and investment banks that potentially could serve as independent legal and financial advisors to the special committee. After considering the background, independence and qualifications of each law firm interviewed by the special committee, the special committee unanimously determined it would retain Potter Anderson & Corroon LLP (“Potter Anderson”) as independent counsel.

On Monday, October 10, 2011, the special committee met to consider the role, scope of authority and mandate of the special committee.

On October 11 and October 12, 2011, the special committee interviewed three potential independent financial advisors. On October 14, 2011, the special committee met, with Potter Anderson participating, to discuss the background, experience and qualifications of each financial advisor interviewed by the special committee. The special committee also discussed any potential conflicts involving the proposed financial advisors, including prior preliminary discussions that had occurred between Morgan Stanley & Co. LLC (“Morgan Stanley”) and Insight with respect to the Potential Proposal. The special committee confirmed that Morgan Stanley, if engaged by the special committee, would not engage in any additional discussions concerning the services that Morgan Stanley could provide Insight in connection with the Potential Proposal. At the conclusion of this discussion, the special committee unanimously determined to retain Morgan Stanley and confirmed there was no existing conflict of interest.

On October 14, 2011, representatives of Potter Anderson contacted Latham & Watkins and Mr. Cramer to discuss the role of all parties in connection with a Potential Proposal, the potential timing for the delivery of a written proposal from Insight, and the Company’s disclosure obligations under applicable law.

On October 18, 2011, the special committee met with representatives of Potter Anderson to discuss the proposed terms of engagement for Morgan Stanley. Following this discussion, representatives of Morgan Stanley joined the meeting to discuss with the special committee its preliminary views on a number of issues, including the possible ways in which to undertake a strategic process, and the likely timing for such a transaction. A discussion ensued regarding Mr. Smith’s current involvement in the Company’s operations, during which Potter Anderson reviewed with the special committee certain instructions regarding the strategic process for management, particularly Mr. Smith. Mr. Dirks agreed to relay this information to Mr. Smith. Morgan Stanley then updated the special committee on its efforts to complete its initial review of the Company, which would permit Morgan Stanley to provide the special committee with preliminary financial analyses before the commencement of any substantive discussions with Insight. Following this discussion, the special committee directed Morgan Stanley to follow up with management of the Company to obtain financial projections for fiscal year 2012.

On October 19, 2011, representatives of Insight contacted Latham & Watkins to communicate that Insight was prepared to deliver a written proposal to the special committee to acquire all of the shares of Company common stock (other than the Rollover Shares) on the following terms: (i) an offer price of $20.00 per share; (ii) financing commitments consisting of both debt and equity financing; and (iii) a condition that certain stockholders, including Mr. Smith, roll over a significant portion of their outstanding shares (as subsequently amended with respect to the per share offer price, the “Proposed Transaction”). Later that day, representatives of Latham & Watkins spoke with representatives of Potter Anderson and Morgan Stanley, Mr. Dirks and Mr. Cramer regarding Insight’s intention to deliver a proposal pertaining to the Proposed Transaction. Following discussions between Potter Anderson and Mr. Dirks, Morgan Stanley was directed to communicate to Insight that (i) future communications pertaining to the potential Proposed Transaction should proceed through Morgan Stanley, and (ii) the special committee would provide Insight with guidance concerning the special committee’s preferred timing for the delivery of a written proposal.

On October 21, 2011, at the direction of the special committee, Potter Anderson delivered a letter to Willkie Farr & Gallagher LLP (“Willkie Farr”), counsel to Insight, requesting that Insight hold in abeyance any written proposal until the special committee requested delivery, and indicating that the special committee anticipated that

 

23


Table of Contents

it would be prepared to receive a written proposal shortly after the regularly scheduled Board meeting on November 2, 2011 (the “November 2 Board Meeting”).

On October 25, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the potential Proposed Transaction. Representatives of Morgan Stanley indicated that they had held in-person meetings with management, discussed management’s progress to date in preparing, at the request of the special committee, financial projections, and completed a preliminary review of financial materials contained in the Company’s virtual data room. Morgan Stanley also discussed with the special committee its preliminary financial analyses. The special committee expressed its view, based upon the current trading value of the Company’s common stock and the preliminary financial analyses discussed by Morgan Stanley, that a formal offer of $20.00 per share, if received, would be inadequate.

Later in the day on October 25, 2011, Mr. Dirks, along with representatives of Potter Anderson and Latham & Watkins, spoke with representatives of Willkie Farr and with Mr. Smith to discuss the potential Proposed Transaction. During this discussion, Willkie Farr expressed Insight’s interest in delivering a written proposal to the special committee no later than October 31, 2011.

On October 26, 2011, the special committee met with representatives of Potter Anderson and Morgan Stanley. Potter Anderson provided an overview of its discussions with Willkie Farr and with Mr. Smith. The special committee directed Morgan Stanley to engage in further discussions with Scott Davidson, Senior Vice President and Chief Financial Officer, and Alan Fudge, Senior Vice President of Worldwide Sales, in order to gain a better understanding of the Company’s current and future prospects.

On October 27, 2011, Morgan Stanley provided the special committee with financial projections from management for the remainder of fiscal year 2011, as well as management’s preliminary projections for fiscal year 2012. Morgan Stanley also reported that Insight’s diligence and financing efforts were nearly complete and that Insight expected to contribute up to $150 million in equity financing in connection with any potential Proposed Transaction.

On October 28, 2011, the special committee met, together with Potter Anderson and Morgan Stanley, to review the preliminary management projections and discuss management’s view of fourth quarter 2011 and fiscal year 2012. After considering the preliminary nature of Morgan Stanley’s financial analyses and the Company’s potential disclosure obligations, the special committee directed Morgan Stanley to communicate to Insight the special committee’s preference for negotiations to remain confidential, and to confirm that Insight should not deliver a written proposal until requested to do so by the special committee.

On November 2, 2011, the special committee finalized its engagement of Morgan Stanley as its financial advisor.

On November 2, 2011, the Board met, with representatives of Potter Anderson and Latham & Watkins and Mr. Cramer and Mr. Davidson also participating in the meeting. Potter Anderson reviewed the enabling resolutions for the special committee provided to members of the Board in advance of the meeting, emphasized the broad authority provided to the special committee in the enabling resolutions, and discussed certain instructions for management of the Company with respect to the strategic process. Following Potter Anderson’s presentation, Mr. Smith confirmed that he would consider the views of the special committee when evaluating any alternative transaction in his capacity as a stockholder of the Company. The Board then adopted the enabling resolutions proposed by the special committee delegating full power and authority to the special committee in connection with its evaluation of strategic alternatives, including to establish and direct the process, to evaluate and negotiate any potential agreements or arrangements, to make recommendations to the Board and to take any and all other actions necessary during the course of its work. In addition, the Board discussed the topic of Chief Executive Officer succession planning and implementation, which the Board had discussed periodically at prior meetings. The Board members were aware of certain health concerns of Doug Garn, then President and Chief

 

24


Table of Contents

Executive Officer of the Company, and discussed the potential need to implement a Chief Executive Officer succession plan in the event Mr. Garn’s health concerns rose to a level that would impair his ability to continue serving as Chief Executive Officer. The Board determined to continue to monitor developments with respect to Mr. Garn’s health and to continue to evaluate management succession planning and implementation.

Following the November 2 Board Meeting, the special committee, together with representatives of Potter Anderson and Morgan Stanley, met with Mr. Davidson to discuss the Company’s projected results for fourth quarter 2011 and fiscal year 2012. After Mr. Davidson departed the meeting, Mr. Fudge joined the meeting to review the Company’s sales performance, year-to-date efforts by management to increase productivity, and the Company’s projected growth rates. After Mr. Fudge departed the meeting, the special committee discussed the appropriate “base case” for Morgan Stanley to utilize in developing its financial analyses and whether, in light of the relative strengths and weaknesses of the Company’s products and sales organization, it may be an appropriate time to consider selling the Company. Morgan Stanley then discussed with the special committee its preliminary financial analyses. Potter Anderson then discussed the potential ways to structure a strategic process, the relative merits of a pre- and post-signing market check, and ways to structure the strategic process to encourage alternative bidders. At the conclusion of this discussion, the special committee authorized Morgan Stanley to invite Insight to deliver a written proposal.

On November 3, 2011, representatives of Morgan Stanley invited Insight to submit a written proposal, including detail on Insight’s projected funding sources for its contemplated debt and equity financing. Morgan Stanley also reiterated the special committee’s view that a proposal of $20.00 per share would be unacceptable and that, given the differing views of the parties with respect to price, it was premature for Insight to include a draft merger agreement with its written proposal.

On November 7, 2011, Morgan Stanley received a written proposal from Insight to acquire all of the outstanding shares of Company common stock, other than the Rollover Shares, for $20.50 per share (the “November 7 Proposal”). The November 7 Proposal included draft equity and debt commitment letters and was conditioned upon the participation of the holders of the Rollover Shares (the “Rollover Investors”). The November 7 Proposal also clarified that Insight did not have any agreements, arrangements or understandings with Mr. Smith with respect to the Proposed Transaction, and requested permission for Insight to engage in further discussions with Mr. Smith regarding potential involvement in the Proposed Transaction.

On November 8, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the November 7 Proposal. Morgan Stanley discussed updated preliminary management projections and financial analyses regarding the Company’s projected growth levels. Based upon the sensitivity analysis and the Company’s plan to trim expenses, the special committee expressed the view that management’s updated preliminary projections were reasonable. Morgan Stanley then discussed Insight’s written offer with the special committee in light of the Company’s standalone trading value, improving financial results and cash flow levels and confirmed that the debt leverage ratio suggested that Insight had the ability to improve its offer price. The special committee discussed whether to contact a select group of potential third party buyers to discuss their views with respect to price. After discussing confidentiality concerns and considering the likelihood the special committee would be able to secure an improved offer price from Insight, the special committee decided to refrain, at that time, from contacting other potential buyers. The special committee then directed Morgan Stanley to communicate to Insight that the $20.50 per share price was not acceptable, that the November 7 Proposal was not compelling versus the Company’s standalone plan, and that, unless Insight significantly improved its offer price, the special committee would not commence negotiations.

On November 8, 2011, Morgan Stanley communicated the special committee’s views to Insight. Morgan Stanley encouraged Insight to continue its due diligence activities with the goal of improving its offer price.

 

25


Table of Contents

On November 14, 2011, Morgan Stanley received an oral offer from Insight to acquire all of the outstanding shares of Company common stock, other than Rollover Shares, for $21.50 per share (the “November 14 Proposal”), which offer was conditioned upon the participation of the holders of the Rollover Shares.

On November 15, 2011, the special committee met with representatives of Potter Anderson and Morgan Stanley. Morgan Stanley reported that Insight expected cooperation from the Company to secure advance credit rating agency approval with respect to its debt financing. Morgan Stanley then summarized for the special committee the valuation discussions Morgan Stanley had held with Insight. The special committee directed Morgan Stanley to communicate to Insight that the special committee had rejected the offer. The special committee also directed Morgan Stanley to inform Insight that the offer price reflected in the November 14 Proposal did not reflect potential cost synergies, reflected a low multiple and a low premium relative to comparable peer transactions, and was not compelling when compared to the Company’s standalone value. The special committee directed Morgan Stanley to inform Insight that the special committee remained willing to continue to engage in discussions with Insight, with the goal of having Insight increase its offered price per share.

On November 15, 2011, Morgan Stanley spoke with Insight and communicated the views of the special committee with respect to the November 14 Proposal. Between November 16 and November 20, 2011, Morgan Stanley and Insight continued discussions.

On November 22, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the status of discussions with Insight. Morgan Stanley reported that, prior to the meeting, Insight had inquired whether an offer price lower than $23.00 per share would be acceptable to the special committee. A discussion ensued, during which the special committee expressed reservations about Insight’s ability to fund a transaction at an offer price acceptable to the special committee. The special committee then reviewed strategic alternatives, including contacting other potential third-party buyers and continuing to operate the Company as an independent public company. The special committee also discussed Mr. Smith’s willingness to enter into a transaction with a third-party buyer other than Insight, and considered the timing and effect of any management succession issues on the strategic process. Morgan Stanley discussed its preliminary valuation analysis in light of management’s cash flow and balance sheet forecasts, and the special committee discussed the valuation range in light of the Morgan Stanley analysis. The special committee also discussed the contractual terms that the special committee would seek in any definitive transaction agreement. At the conclusion of this discussion, the special committee authorized Morgan Stanley to communicate to Insight that an offer price of $23.25 was likely to be acceptable if Insight and Mr. Smith agreed that the definitive transaction agreement would contemplate: (i) that if the special committee supported the Proposed Transaction then Mr. Smith would have a contractual obligation to vote his shares to approve the Proposed Transaction; (ii) drag-along rights providing an affirmative obligation for Mr. Smith and his affiliates to vote in favor of any superior proposal recommended by the special committee and supported by the Board; (iii) a break-up fee payable to Insight that would represent an agreed upon percentage of Insight’s committed equity capital; (iv) a requirement for a majority vote by the holders of Company common stock, excluding the Rollover Shares, adopting the merger agreement; and (v) a seller-friendly post-signing market check that would include a “go-shop” period and a bifurcated termination fee structure.

On November 22, 2011, Morgan Stanley communicated to Insight the special committee’s response.

On November 28, 2011, Morgan Stanley received a written proposal from Insight to acquire all of the outstanding shares of Company common stock, other than the Rollover Shares, for $22.00 per share (the “November 28 Proposal”), which proposal was conditioned upon the participation of the holders of the Rollover Shares.

On November 29, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the November 28 Proposal. Morgan Stanley confirmed that Insight was amenable to (i) a voting agreement requiring

 

26


Table of Contents

Mr. Smith to support the transaction, subject to customary termination rights, (ii) a break-up fee payable to Insight and based upon the amount of Insight’s committed equity capital, (iii) a condition requiring the approval of the holders of a majority of shares of Company common stock held by the Company’s unaffiliated stockholders, and (iv) a seller-friendly post-signing market check. Morgan Stanley indicated, however, that Insight had indicated that it would not agree to a deal structure that imposed a drag-along right on any of the Rollover Shares and noted that Insight expected the Company to cooperate with respect to Insight receiving appropriate rating agency reviews with respect to its debt financing. A discussion ensued regarding a number of factors, including the preliminary financial analyses previously prepared by Morgan Stanley, the execution risk associated with management succession planning and implementation, the relative strengths and weaknesses of the Company’s current product line and sales organization, the effect of recent acquisitions on the Company’s projected new license bookings and revenues, and whether the $22.00 offer price represented a compelling offer versus pursuing the Company’s standalone plan. At the conclusion of this discussion, the special committee unanimously expressed the view that the $22.00 offer price reflected in the November 28 Proposal was not compelling, and directed Morgan Stanley to communicate to Insight that: (i) the $22.00 offer price was not compelling, (ii) an offer price of $23.00 per share would likely receive the special committee’s unanimous support; (iii) the special committee would meet with Mr. Smith to discuss his support for other competing superior proposals; (iv) the special committee envisioned a 60-day “go-shop” period with a lower termination fee if the merger agreement is terminated during the “go-shop” period and a larger termination fee if the merger agreement is terminated after the start of the “no-shop” period, in each case with the termination fee to be calculated based upon Insight’s equity contribution; and (v) Insight should respond promptly to the special committee’s concerns with respect to the offer price reflected in the November 28 Proposal.

On November 29, 2011, Morgan Stanley communicated the special committee’s response to the November 28 Proposal to Insight.

On November 30, 2011, representatives of Insight contacted Morgan Stanley to confirm Insight’s willingness to increase its offer price to $22.20 per share (the “November 30 Proposal”) and that a 60-day “go-shop” period was acceptable. Insight also raised no objection to the special committee meeting with Mr. Smith to discuss his willingness to support a superior proposal. Insight did, however, relay to Morgan Stanley its concern with the Company’s low levels of projected organic growth (with the term “organic growth” referring to growth of product and business lines, not including growth from acquisitions made during the previous twelve months) and other execution risks facing the Company. Representatives of Morgan Stanley informed Insight that the proposed $22.20 offer price would likely be unacceptable to the special committee.

On December 2, 2011, members of the special committee, together with representatives of Potter Anderson and Morgan Stanley, met with Mr. Smith to discuss process and price issues relating to the November 30 Proposal. Mr. Smith indicated that he understood the mandate of the special committee was to maximize the offer price received by holders of Company common stock, other than the Rollover Investors. Mr. Smith stated that he would be willing to participate in a premium offer requiring him to accept a non-controlling position post-closing if a potential strategic or financial buyer brought significant management expertise to the Company. During the meeting with Mr. Smith, Morgan Stanley explained that a $53 million funding gap remained between the minimum $23.00 offer price the special committee would support and the $22.20 price offered by Insight. Since the November 30 Proposal remained contingent upon Mr. Smith’s participation, the parties agreed that Mr. Smith should discuss alternative financing options with Insight in an attempt to close the current price and funding gap but Mr. Smith indicated that he would not be willing to reduce his post-closing interest in the Company in order to address the discrepancy.

On December 5, 2011, Mr. Davidson informed the special committee and Morgan Stanley that preliminary results suggested that projected fourth quarter 2011 new license bookings were trending down versus fourth quarter 2010, that management had therefore reduced its projected fourth quarter 2011 new license bookings and that, depending upon the Company’s performance, management may further reduce the target range for fourth quarter 2011 new license bookings.

 

27


Table of Contents

On December 7, 2011, the special committee met with representatives of Potter Anderson and Morgan Stanley. Morgan Stanley first discussed improvements in the debt financing market and its possible effect on Insight’s debt financing requirements. A discussion ensued regarding the likely timing for Insight to secure its debt financing and the potential influence of any downward trends in the Company’s fourth quarter 2011 financial results on the ratings with respect to its debt financing. The special committee also discussed the November 30 Proposal in light of possible management succession planning and implementation issues, and considered Insight’s proposal to deliver a draft merger agreement for the special committee’s consideration. At the conclusion of this discussion, the special committee directed Morgan Stanley to invite Insight to deliver its draft merger agreement, but to inform Insight that the special committee continued to expect Insight to submit an improved offer.

On December 9, 2011, Mr. Davidson and Insight met in New York, while Mr. Smith participated by phone, with representatives of the credit rating agencies that would be rating Insight’s debt financing.

On December 11, 2011, Insight provided a financial analysis to Morgan Stanley and Mr. Smith that reflected financial projections prepared by Insight (the “12/11 Insight Projections”) illustrating Insight’s concerns with respect to low levels of organic growth forecasted by the Company for fiscal year 2012. Morgan Stanley subsequently shared the Insight analysis with members of the special committee.

On December 11, 2011, in a meeting between Mr. Smith and Mr. Nieto, Mr. Smith raised the topic of the 12/11 Insight Projections. Mr. Nieto reiterated to Mr. Smith that the minimum offer price acceptable to the special committee was $23.00 per share.

On December 13, 2011, the special committee held a meeting with Potter Anderson and Morgan Stanley. Morgan Stanley updated the special committee on recent discussions with Insight pertaining to the 12/11 Insight Projections and indicated that Insight had communicated its view that the 12/11 Insight Projections demonstrated that a price greater than $21.00 per share was not supportable. The special committee and Morgan Stanley discussed potential shortfalls in the Company’s new license bookings for the fourth quarter of 2011 as well as the strong rate of conversion of these bookings into recognizable revenue for the fourth quarter.

A discussion ensued regarding the Company’s projected fourth quarter 2011 financial results. At the conclusion of this discussion, the special committee determined to meet with Mr. Davidson and Mr. Fudge to discuss in more detail the Company’s expected fourth quarter 2011 financial results. The special committee also discussed management succession planning and implementation issues, and the effect of such concerns on the timing of the potential Proposed Transaction. At the conclusion of this discussion, the special committee directed Morgan Stanley to communicate to Insight that the special committee would not support a transaction at a price below $23.00 per share and to reaffirm that an offer price of $23.00 per share would likely receive the special committee’s unanimous support. The special committee determined, however, it was in the best interest of the Company’s unaffiliated stockholders to sign and announce a transaction by December 31, 2011, given the potential execution risks the Company faced in operating its business and the risk associated with certain potential management succession issues.

On December 13, 2011, Morgan Stanley provided Insight with a preliminary summary analysis reflecting how Insight could achieve a purchase price of $23.00 per share (the “Summary LBO Analysis”). Morgan Stanley also discussed the Summary LBO Analysis with Mr. Davidson, who agreed to discuss management’s view of the 12/11 Insight Projections with representatives of Insight.

On December 14, 2011, the special committee met to discuss recent conversations with Mr. Davidson regarding the Company’s projected fourth quarter 2011 financial results. Morgan Stanley reiterated management’s view that, while the Company would potentially fall short of its projected fourth quarter 2011 license bookings internal forecast, current booking to revenue conversion rates remained strong. The special committee discussed the effect of the Company’s fourth quarter 2011 earnings on its evaluation of Insight’s offer

 

28


Table of Contents

price and the timing of the potential Proposed Transaction. At the conclusion of this discussion, the special committee agreed that Mr. Dirks and Morgan Stanley would communicate to Insight that the special committee did not view the expected changes in the Company’s projected fourth quarter 2011 financial results as material.

On December 14, 2011, Morgan Stanley and Mr. Dirks spoke with a representative of Insight and communicated that the special committee did not believe the fourth quarter financial developments were material, and that an offer price of less than $23.00 per share was not compelling.

On December 15, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the ongoing price discussions. Morgan Stanley reviewed recent conversations with Insight, pursuant to which Insight signaled its concern with the $22.20 offer price reflected in the November 30 Proposal without receiving additional comfort regarding the Company’s fourth quarter 2011 financial results. A discussion ensued regarding whether the special committee should establish an end-date for the parties to agree on price, after which the special committee would reconsider reaching out to potential third-party buyers on a confidential basis. The special committee also discussed whether it would be in the best interest of the Company’s unaffiliated stockholders to terminate discussions with Insight and pursue the Company’s standalone plan. Potter Anderson reviewed the special committee’s fiduciary obligations. The special committee also discussed the advisability of moving forward with negotiations with Insight at a lower price, given the proposed 60-day “go-shop” contemplated by the parties. At the conclusion of this discussion, the special committee directed Morgan Stanley to communicate to Insight that (i) Insight should deliver its best and final offer with respect to price no later than Friday, December 16, 2011; (ii) the special committee believed an appropriate offer price remained $23.00 per share; and (iii) in the event the special committee rejected Insight’s best and final offer, the special committee was prepared to direct Morgan Stanley to approach other potential third-party buyers. Morgan Stanley communicated this message to Insight following the meeting.

The special committee met a second time on December 15, 2011 with representatives of Potter Anderson and Morgan Stanley. Morgan Stanley reported that Insight had proposed a graduated per share offer price based upon the Company’s projected fourth quarter 2011 new license bookings, which proposal Morgan Stanley indicated would be unacceptable to the special committee. The special committee confirmed that, based upon their conversations with Mr. Davidson and Mr. Fudge, management again anticipated that it may have to lower its range of anticipated fourth quarter 2011 new license bookings. A discussion ensued regarding the potential shortfall in the Company’s fourth quarter 2011 financial results and management succession planning and implementation issues. In light of these concerns, the special committee agreed that Mr. Klausmeyer would communicate to Mr. Smith that the special committee had reduced the minimum offer price acceptable to the Committee to $22.50 per share. Later that day, Mr. Klausmeyer spoke with Mr. Smith and communicated the special committee’s views on price to Mr. Smith.

On December 16, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss Mr. Klausmeyer’s conversation with Mr. Smith. Mr. Klausmeyer confirmed that he had communicated the special committee’s view on price to Mr. Smith and relayed the substance of his conversation with Mr. Smith. A discussion ensued among members of the special committee regarding the execution risks inherent in pushing the timing of the potential Proposed Transaction to January 2012, by which time Insight would have full visibility with respect to the Company’s fourth quarter 2011 financial results, and the Board may take any necessary action regarding management succession planning and implementation. Morgan Stanley discussed with the special committee potential third-party financial buyers Morgan Stanley would suggest contacting on a confidential basis in the event the parties were unable to reach agreement on price, and the protocol Morgan Stanley would suggest the special committee follow in making such inquiries. The special committee also discussed with its independent advisors the likely interest of any third-party buyer in speaking with Mr. Smith, and the special committee’s interest in maintaining the confidentiality of discussions with other potential buyers. At the conclusion of this discussion, the special committee directed Morgan Stanley to convey to Insight that an offer price of $22.20 remained unacceptable to the special committee.

 

29


Table of Contents

On December 16, 2011, Insight confirmed that its best offer with respect to price remained $22.20 per share (the “December 16 Proposal”). The special committee also learned during conversations with management of the Company, excluding Mr. Smith, that the Company was examining the extent to which a reduction in new license bookings and the conversion rate may impact the Company’s fourth quarter 2011 financial results.

Also on December 16, 2011, the special committee met with Potter Anderson and Morgan Stanley. At the conclusion of this discussion, the special committee directed Morgan Stanley to communicate to Insight that the special committee would accept an offer price of $22.25 per share, conditioned upon: (i) Insight’s understanding that the definitive merger agreement among the parties would reflect reasonable representations, warranties and covenants, as well as a seller-friendly “go-shop” to ensure a robust post-signing market check; and (ii) Insight’s and Mr. Smith’s willingness to enter into definitive transaction agreements with the Company on or before December 31, 2011.

On December 17, 2011, Morgan Stanley conveyed the views of the special committee to representatives of Insight.

On December 18, 2011, Willkie Farr provided a draft merger agreement to Potter Anderson, which Potter Anderson shared with Latham & Watkins and Mr. Cramer.

On December 19, 2011, Potter Anderson and Willkie Farr discussed certain business and timing issues related to the draft merger agreement. Later on the same day, Potter Anderson discussed with Morgan Stanley, Latham & Watkins and Mr. Cramer its preliminary view of the draft merger agreement.

On December 20, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the status of negotiations. Potter Anderson confirmed it had discussed with Willkie Farr, Mr. Cramer, and Latham & Watkins the special committee’s proposal to extend severance agreements to certain members of management of the Company, excluding Mr. Smith, in the event the special committee or the Board entered into an alternative transaction. The special committee also discussed Insight’s request for approval under Section 203 of the Delaware General Corporation Law, which would permit Insight and its affiliates to reach an agreement with Mr. Smith concerning his participation in a potential transaction (the “Section 203 Waiver”). At the conclusion of this discussion, the special committee delegated the full authority of the special committee to a subcommittee of the special committee consisting of Mr. Dirks to negotiate and execute, if determined to be in the best interests of the Company’s unaffiliated stockholders, the Section 203 Waiver.

On December 21, 2011, Mr. Smith engaged Cadwalader, Wickersham & Taft LLP (“Cadwalader”) as his counsel to negotiate the terms of his possible participation in the Proposed Transaction, including a rollover of his shares in connection with such a transaction.

On December 22, 2011, Potter Anderson, Latham & Watkins, Willkie Farr and Cadwalader negotiated the terms of the Section 203 Waiver with respect to Mr. Smith’s shares.

On December 22, 2011, the special committee met with Potter Anderson and Morgan Stanley to discuss the status of the Proposed Transaction. Morgan Stanley confirmed that management projections of new license bookings and revenues for the fourth quarter of 2011 had declined further. Morgan Stanley also discussed, based upon Insight’s debt ratings, Insight’s potential ability to procure adequate funds to consummate the Proposed Transaction. At the request of the special committee, Mr. Cramer and representatives of Latham & Watkins then joined the meeting to discuss, together with Potter Anderson, the draft merger agreement.

On December 23, 2011, Potter Anderson and Latham & Watkins provided a mark up of the draft merger agreement to Willkie Farr.

 

 

30


Table of Contents

On December 24, 2011, the special committee met with Potter Anderson, Latham & Watkins and Morgan Stanley to discuss certain aspects of the Proposed Transaction. Representatives of Latham & Watkins were invited to participate in the meeting to review and revise a draft severance plan contemplated by the special committee for certain members of management of the Company in the event the Company entered into an alternative transaction.

On December 26, 2011, the special committee granted the Section 203 Waiver to Insight.

Between December 24, 2011 and January 12, 2012, representatives of Potter Anderson, Latham & Watkins and Willkie Farr engaged in extensive negotiations concerning the terms and conditions of the draft merger agreement, including (i) the termination fees payable by each party under certain circumstances, (ii) the amount of damages payable by Expedition Holding Company, Inc. (“Parent”) to the Company in the event of an intentional act of interference or collusion by Parent or Expedition Merger Sub, Inc. (“Merger Sub”) to prevent the debt financing from funding, an intentional breach by Parent or Merger Sub of the obligation to use commercially reasonable efforts to obtain the debt financing, or an intentional or willful breach by Parent or Merger Sub that was the proximate cause of the failure of a closing condition (the “Company Damages Remedy”), (iii) the amount of the damages payable by the Company to Parent in the event Parent terminates the Merger Agreement due to an intentional or willful breach by the Company (the “Parent Damages Remedy”), (iv) the reimbursement by the Company of certain out-of-pocket expenses incurred by Parent (the “Parent Expenses”), and (v) a minimum Company cash closing condition proposed by Insight. During this time period, members of the special committee also received regular updates from Mr. Davidson and Mr. Fudge with respect to the Company’s anticipated fourth quarter 2011 financial results, and the special committee met on a number of occasions with its independent advisors to discuss ongoing negotiations pertaining to the draft merger agreement.

During these negotiations, it was agreed that (i) the termination fee payable by the Company during the “go-shop” period would be 2% of Insight’s equity commitment, and the termination fee payable by the Company following the commencement of the “no-shop” period would be 3% of Insight’s equity commitment, (ii) the reverse termination fee would be $9 million, (iii) the Company Damages Remedy, inclusive of the reverse termination fee, would be $18 million, and (iv) the parties would continue discussions related to the Parent Damages Remedy, the amount of Parent Expenses and the minimum Company cash closing condition of $330 million proposed by Insight.

During this period, representatives of Insight discussed the Company’s fourth quarter financial performance with Morgan Stanley. In these discussions, Insight expressed its concern that the original guidance provided by the Company to Insight for license bookings for the fourth quarter was $168 million, which projected amount was revised during the fourth quarter. On October 27, 2011, the Company posted revised projections to the virtual data room that reflected fourth quarter license books of $155 million. Then on December 7, 2011, management of the Company revised those projections to reflect estimated license bookings in the range of $145 million to $150 million.

On January 9, 2012, members of the special committee received confirmation from Mr. Davidson that the Company’s reported fourth quarter 2011 financial results would likely be consistent with management’s revised expectations.

On January 20, 2012, the special committee met with Potter Anderson and Morgan Stanley to discuss the status of the Proposed Transaction. Morgan Stanley updated the special committee on the Company’s anticipated fourth quarter 2011 financial results as provided to Morgan Stanley by Mr. Davidson. Non-GAAP operating income appeared likely to be higher than current market projections. Morgan Stanley also noted that the debt markets were improving. A discussion ensued regarding re-opening price discussions with Insight, and an appropriate offer price in light of the foregoing. The special committee also discussed certain business issues that remained to be negotiated, including a proposed personal loan to Mr. Smith, and Insight’s request for a minimum Company cash closing condition. A further discussion ensued regarding suspending negotiations related to the

 

31


Table of Contents

Proposed Transaction until the Company released its fourth quarter 2011 earnings. At the conclusion of this discussion, the special committee agreed to continue its negotiations with respect to price.

On January 24 and 25, 2012, Insight advised Morgan Stanley that additional time would be required to finalize the terms of their partnering agreement with Mr. Smith.

On January 27, 2012, Potter Anderson and Morgan Stanley provided a list of open business issues related to the Proposed Transaction to members of the special committee.

On February 1, 2012, the Board held a regularly scheduled meeting in Aliso Viejo, California and, following that meeting, Mr. Dirks and Mr. Klausmeyer informed representatives of Potter Anderson that they believed that Insight and Mr. Smith may be interested in continuing discussions with the special committee concerning a possible transaction. Following a discussion of the recent increase in the Company’s stock price and the Company’s anticipated fourth quarter 2011 financial results, Mr. Dirks and Mr. Klausmeyer agreed that the special committee should communicate to Insight and Mr. Smith that an offer price of $23.00 per share would be acceptable to the special committee.

On February 2, 2012, Mr. Smith contacted the special committee to express his view that, before moving forward with any negotiation of the remaining business terms, the parties should reach agreement on price, and in the event the parties were unable to agree on price, the Board should consider disbanding the special committee. In response, Mr. Dirks reiterated that an offer price of $23.00 per share would be acceptable to the special committee. After emphasizing the view of the special committee that the $22.25 price was no longer acceptable to the special committee, members of the special committee and Mr. Smith agreed to discontinue their discussions until Insight and Mr. Smith could determine whether further negotiations were warranted.

On February 8, 2012, the special committee met with Potter Anderson and Morgan Stanley. Morgan Stanley reviewed updated projections provided by management of the Company. Morgan Stanley also discussed with the special committee its preliminary financial analyses, as well as various execution risks facing the Company. The special committee also discussed whether it would be beneficial to conduct a limited, confidential pre-signing market check. After Morgan Stanley discussed potential financial and strategic buyers, the special committee requested that Morgan Stanley recommend two financial sponsors and one potential strategic buyer to contact about a potential strategic transaction. Morgan Stanley indicated it would evaluate the appropriate parties to involve in the limited pre-signing market check, and provide the identities of such potential buyers to the special committee for its approval.

From February 9 to February 11, 2012, at the direction of the special committee, Morgan Stanley contacted representatives of Financial Sponsor A, Financial Sponsor B, and Strategic Buyer A, provided general information relating to a proposed process, and emphasized the special committee’s confidentiality concerns.

On February 12, 2012, the special committee executed a non-disclosure agreement with Financial Sponsor A, and Morgan Stanley provided Financial Sponsor A with certain non-public information previously approved by the special committee.

On February 14, 2012, the full Board met to discuss management succession and implementation. Mr. Garn announced that he was resigning from his position as President and Chief Executive Officer of the Company, effective immediately, for personal health reasons. Following discussion, it was determined that Mr. Garn would continue as an employee of the Company in a newly created role as Vice Chairman, and as a member of the Board. Following further discussion and deliberation, the Board appointed Mr. Smith as the President and Chief Executive Officer of the Company, effective immediately. The Board selected Mr. Smith, who had served as the Company’s Chief Executive Officer from 1997 to 2008, to succeed Mr. Garn due to, among other reasons, Mr. Smith’s intimate knowledge of the Company’s businesses, his outstanding personal performance and efforts during his tenure with the Company, and his critical leadership role in strategic decisions that have shaped the Company’s success. Following the discussion regarding management succession and implementation, Mr. Dirks

 

32


Table of Contents

and Mr. Klausmeyer discussed the status of the sales process, including the special committee’s efforts to reach out, with the assistance of Morgan Stanley and on a confidential basis, to two financial sponsors and one strategic buyer. Later in the day on February 14, 2012, members of the special committee discussed the status of the Proposed Transaction with Mr. Smith, who agreed to meet with the special committee later that week to consider several options, including whether to proceed with Insight, speak with other potential third-party buyers, pursue the Company’s standalone plan, or consider other alternatives such as a debt offering, dividend recapitalization or stock repurchase.

On February 14, 2012, the Company released its fourth quarter 2011 financial results, and announced the changes in senior management of the Company described above.

On February 16, 2012, the special committee met with representatives of Potter Anderson and Morgan Stanley. Morgan Stanley reported on the Company’s fourth quarter 2011 earnings call held on February 14, 2012.

Morgan Stanley also updated the special committee on its recent discussions with Financial Sponsor A, Financial Sponsor B and Strategic Buyer A. A discussion ensued regarding the status of Mr. Smith’s ongoing discussions with Insight, and the potential advantages of having Mr. Smith meet with representatives of Financial Sponsor A and Financial Sponsor B, together with Morgan Stanley. At the conclusion of this discussion, the special committee agreed to invite Mr. Smith to participate in meetings with Morgan Stanley and representatives of Financial Sponsor A and Financial Sponsor B. The special committee also agreed that certain members of the special committee would meet separately with Mr. Smith to discuss next steps with respect to the potential Proposed Transaction. Following the meeting on February 16, 2012, Mr. Smith was apprised of the developments in the sale process and informed of the planned meetings with Morgan Stanley and representatives of Financial Sponsor A and Financial Sponsor B.

On February 22, 2012, in response to a communication from Mr. Smith referencing the $22.25 offer price, the special committee affirmed that, in light of the Company’s fourth quarter 2011 performance and management forecasts for the first quarter and fiscal year 2012, the offer price acceptable to the special committee remained $23.00 per share.

On February 22, 2012, Morgan Stanley advised members of the special committee that Financial Sponsor A remained interested in holding discussions with Mr. Smith and representatives of Insight.

On February 24, 2012, the special committee met with representatives of Potter Anderson to discuss additional risks facing the Company related to employee retention. A discussion ensued as to whether the special committee should consider lowering its asking price to $22.75 per share. Following a discussion of the benefits and risks of reducing the current offer price, the special committee agreed first to discuss with Mr. Smith: (i) Financial Sponsor A’s continued interest in holding discussions with Insight and Mr. Smith; and (ii) the special committee’s willingness to further engage with Insight to determine whether the Proposed Transaction remained viable.

Later in the day on February 24, 2012, Mr. Dirks contacted Mr. Smith to affirm the interest of Financial Sponsor A in speaking with Mr. Smith to discuss the terms of a potential transaction, including a transaction involving Insight.

On February 25, 2012, Morgan Stanley participated in a call between Financial Sponsor A and Mr. Smith with respect to a potential transaction, and Mr. Smith indicated his receptiveness to engaging in further discussions regarding such a transaction. Following the call, Mr. Smith communicated to Morgan Stanley his interest in meeting in person with representatives of Financial Sponsor A.

On February 29, 2012, the special committee met with Potter Anderson and Morgan Stanley. Morgan Stanley confirmed that Mr. Smith held an in-person meeting with representatives of Financial Sponsor A on

 

33


Table of Contents

February 28, 2012. Morgan Stanley stated that, during the meeting, Financial Sponsor A confirmed it remained open to working with Mr. Smith with respect to a potential transaction. A discussion ensued regarding the benefits of having representatives of Financial Sponsor A meet with Insight to discuss the potential involvement of Financial Sponsor A in the Proposed Transaction. The special committee further discussed the potential benefits and drawbacks of enabling Financial Sponsor A to partner with Insight, including that, given the size of the transaction, partnering may enable a bidder to overcome hurdles on equity and debt commitments and facilitate an increase in offer price, but that partnering also may discourage Financial Sponsor A from making an independent bid for the Company. At the conclusion of this discussion, the special committee agreed that an initial meeting between Financial Sponsor A and Insight would be beneficial to the special committee’s ongoing price negotiations. Morgan Stanley confirmed that Financial Sponsor B had not yet executed a non-disclosure agreement with the special committee. Morgan Stanley indicated it would follow up with Financial Sponsor B to advise that another party was engaging in discussions with management of the Company, and to gauge Financial Sponsor B’s level of interest in a potential transaction.

On March 1, 2012, the special committee met with Potter Anderson and Mr. Smith to discuss the status of negotiations. Mr. Smith confirmed that Insight met with representatives of Financial Sponsor A on February 29, 2012. Mr. Smith stated that it was uncertain whether Insight would agree to partner with Financial Sponsor A, given improved lending terms received by Insight from its financing sources and progress in the negotiations between Mr. Smith and Insight with respect to their partnering agreement. The special committee emphasized that it remained supportive of such negotiations with Financial Sponsor A. Mr. Smith confirmed that he would discuss Financial Sponsor A’s potential participation in the Proposed Transaction with representatives of Insight, and informed the special committee that Insight would likely deliver a revised written proposal to the special committee within the next twenty-four hours.

On March 2, 2012, on behalf of Insight, Willkie Farr provided a revised proposal to Potter Anderson, pursuant to which Insight offered to acquire all outstanding Company common stock, other than the Rollover Shares, for $22.50 per share. The revised proposal included draft debt and equity commitment letters (the “Financing Letters”), a draft transaction support agreement outlining the post-closing business relationship between Mr. Smith and Insight (the “Transaction Support Agreement”), and a draft rollover commitment letter (the “Rollover Letter”) to be entered into by the Rollover Investors (collectively, the “March 2 Proposal”).

On March 4, 2012, the special committee met with Potter Anderson and Morgan Stanley to discuss the status of the Proposed Transaction and the March 2 Proposal. Morgan Stanley confirmed that discussions had not progressed between Insight and Financial Sponsor A, but Morgan Stanley confirmed it would continue to encourage Financial Sponsor A to consider submitting a bid, either on a pre-signing basis or during any “go-shop” period. A discussion ensued regarding the offer price. Based upon management’s positive outlook at such time for the Company’s first quarter 2012 results, the continued interest of Financial Sponsor A in a potential transaction, and recent stability in the Company’s stock price following the release of the Company’s fourth quarter 2011 financial results, the special committee directed Morgan Stanley to communicate to Insight that it would be willing to continue negotiations promptly if Insight agreed to an offer price of $23.00 per share. The special committee also directed Morgan Stanley to confirm with representatives of Financial Sponsor A that the special committee would evaluate promptly any written proposal delivered by Financial Sponsor A and requested that Morgan Stanley update its most recent preliminary financial analyses in anticipation of expedited negotiations.

On March 5, 2012, following discussions among the special committee, Insight and Mr. Smith, Insight agreed to increase its offer to $23.00 per share.

On March 6, 2012, Financial Sponsor A submitted a preliminary, non-binding written proposal to the special committee to acquire up to 100% of the outstanding shares of the Company for $23.00 per share, subject to completion of due diligence, receipt of financing commitments and certain other terms and conditions. In the written proposal, Financial Sponsor A also expressed a willingness to partner with Mr. Smith and Insight (the “Alternative Proposal”).

 

34


Table of Contents

Also on March 6, 2012, a representative from Financial Sponsor A met with Mr. Smith to discuss Financial Sponsor A’s potential interest in a transaction involving the Company.

On March 7, 2012, the special committee met with representatives of Potter Anderson and Morgan Stanley to discuss the Alternative Proposal. At the invitation of the special committee, Mr. Smith, Mr. Cramer, Mr. Triplett, representatives of Latham & Watkins, representatives of Willkie Farr, and representatives of Financial Sponsor A also participated in portions of the meeting. The special committee first met with Potter Anderson, Morgan Stanley, Latham & Watkins and Mr. Cramer. Morgan Stanley reviewed the terms of the Alternative Proposal, and confirmed that representatives of Financial Sponsor A were available to meet in person with the special committee. After Mr. Cramer and representatives of Latham & Watkins left the meeting, the special committee discussed the benefits of moving forward with Insight to a prompt signing, rather than waiting for Financial Sponsor A to complete additional due diligence, noting that Financial Sponsor A’s offer price of $23.00 per share only matched Insight’s offer price and that Financial Sponsor A still would be able to participate in the “go-shop” process. At the conclusion of this discussion, the special committee agreed to meet with representatives of Financial Sponsor A.

Representatives of Financial Sponsor A then joined the meeting, both in person and by phone. Financial Sponsor A confirmed its preference to have Mr. Smith participate in any potential transaction, and reiterated that to the extent Financial Sponsor A partnered with Insight, the deal could proceed to signing by Monday, March 12, 2012 at the $23.00 per share price set forth in the Alternative Proposal. In response to an inquiry from the special committee, Financial Sponsor A indicated that it had not yet joined a transaction involving Insight and Mr. Smith, and, therefore, it would require an additional two weeks to complete its independent due diligence, secure independent financing, and determine what higher price, if any, it would be prepared to offer for the Company.

Following the departure of representatives of Financial Sponsor A from the meeting, the special committee discussed the risks entailed in delaying the transaction for two weeks. At the conclusion of this discussion, Mr. Smith, representatives of Insight, representatives of Willkie Farr, representatives of Latham & Watkins and Mr. Cramer joined the meeting. After confirming that the special committee had met with representatives of Financial Sponsor A, Morgan Stanley reiterated the suggestion that Mr. Smith remain open to potential opportunities that may arise during any “go-shop” period. Mr. Smith indicated his willingness to engage in discussions with third-party bidders with respect to takeover proposals during the “go-shop” period and, if requested by the Board or the special committee, participate in a due diligence process with any third-party with respect to a competing proposal. Potter Anderson also informed Insight and Mr. Smith that any future communications with Financial Sponsor A should be coordinated exclusively through the special committee and its independent advisors.

On March 7 and 8, 2012, the special committee, Insight, Mr. Smith and their respective advisors, representatives from Latham & Watkins and Mr. Cramer negotiated the terms of a definitive merger agreement and the related transaction agreements (the “Merger”). During these negotiations, it was agreed that (i) the Parent Damages Remedy would be $12,600,000, inclusive of the termination fee, in the event of an intentional or willful breach by the Company, (iii) the maximum reimbursement for Parent Expenses payable by the Company would be $7,000,000, and (iv) there would be no minimum Company cash closing condition.

On March 8, 2012, at their request, the members of the Board who did not serve on the special committee met with representatives of Latham & Watkins to receive a summary of the strategic process to date leading up to the consideration of the proposed Merger Agreement, to discuss the terms of the proposed Merger Agreement and to ask additional questions leading up to a proposed full Board meeting later that day.

Also on March 8, 2012, the special committee met, with representatives of Morgan Stanley and Potter Anderson participating in the meeting. Potter Anderson confirmed that members of the special committee had received and reviewed in advance of the meeting the final version of the Merger Agreement and substantially final versions of the Financing Letters, the Transaction Support Agreement, the Rollover Letter, the Voting Agreement and the form of limited guaranty (the “Limited Guaranty”), as well as discussion materials provided

 

35


Table of Contents

by Morgan Stanley (the “Discussion Materials”), and an executive summary prepared by Potter Anderson (the “Executive Summary”). Potter Anderson then reviewed the fiduciary duties of the special committee in connection with the sale of the Company. Representatives of Latham & Watkins and Mr. Cramer then joined the meeting and, together with representatives of Potter Anderson, summarized the principal terms and conditions of the definitive Merger Agreement and the related transaction agreements. Potter Anderson also summarized certain factors and risks that the special committee considered in connection with the Merger.

Referencing the Discussion Materials, representatives of Morgan Stanley then reviewed Morgan Stanley’s financial analyses of the Proposed Transaction, which are described under “Opinion of Morgan Stanley, Financial Advisor to the Special Committee” below, and delivered Morgan Stanley’s oral opinion that, as of the date of the opinion, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations to be set forth in the written opinion, that the merger consideration of $23.00 per share to be received by the holders of shares of Company common stock (other than the Rollover Investors) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. Morgan Stanley subsequently confirmed its oral opinion in writing, dated March 8, 2012. The full text of the written opinion of Morgan Stanley, which describes, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with its opinion, is attached to this proxy statement as Annex B.

Following a discussion of the Merger and the related transaction documents, the special committee unanimously adopted resolutions (i) declaring the Merger Agreement and the transactions contemplated thereby, including the Merger, to be fair to and in the best interests of the holders of Company common stock, other than the Rollover Investors, (ii) recommending the submission of the Merger Agreement to the Board, (iii) recommending that the Board approve and adopt the Merger Agreement and the Merger, and declare that the Merger Agreement, the Merger and the transactions contemplated thereby, are advisable, fair to and in the best interests of the holders of Company common stock, and (iv) recommending that the Board submit the Merger Agreement to the holders of Company common stock for adoption, and resolve to recommend that the holders of Company common stock adopt the Merger Agreement.

Following the meeting of the special committee, the full Board immediately convened a meeting, with all members of the Board present. At the invitation of the Board, Mr. Cramer, Mr. Davidson, as well as representatives of Potter Anderson, Latham & Watkins and Morgan Stanley, also participated in the meeting. Potter Anderson and Mr. Dirks reviewed the process engaged in by the special committee and discussed the alternatives considered by the special committee, including a potential debt offering, stock buyback, liquidation and pursuit of the Company’s standalone plan. Representatives of Morgan Stanley confirmed that Morgan Stanley had delivered an oral fairness opinion to the special committee and then provided a summary of the financial analyses performed by Morgan Stanley. Representatives of Latham & Watkins then reviewed with the Board its fiduciary duties with respect to the Merger Agreement and the Merger, and summarized the key terms and provisions contained in Merger Agreement, the Financing Letters, the Transaction Support Agreement, the Rollover Letter, the Voting Agreement, and the Limited Guaranty. Mr. Smith then recused himself from the meeting.

Following Mr. Smith’s recusal from the meeting, and after further discussion, the Board, having received the recommendation of the special committee and having relied in substantial part on such recommendation, approved and declared advisable the Merger Agreement, and resolved to recommend that the holders of Company common stock adopt the Merger Agreement.

Later in the day on March 8, 2012, the parties executed the Merger Agreement and the Financing Letters, the Transaction Support Agreement, the Rollover Letter, the Voting Agreement and the Limited Guaranty.

In the morning on March 9, 2012, the parties issued a joint press release announcing the Merger.

 

36


Table of Contents

On March 9, 2012, as permitted by the terms of the Merger Agreement and under the direction of the special committee, Morgan Stanley started placing calls on behalf of the Company to financial sponsors and potential strategic buyers to discuss the terms of the 60-day “go-shop” provision and to gauge each party’s interest in engaging in a potential transaction with the Company.

On March 13, 2012, the special committee met with Potter Anderson and Morgan Stanley to discuss Morgan Stanley’s preliminary discussions with financial sponsors and potential strategic buyers. The special committee also discussed with Morgan Stanley the contemplated participation of management of the Company in initial meetings with financial sponsors and potential strategic buyers, and confirmed that Morgan Stanley would attend all such meetings.

On March 20, 2012, following further review and discussion, the special committee approved retention payments for certain members of management of the Company, including a retention payment of $100,000 to Mr. Davidson, with such retention payments due and payable only if the members of Company management receiving such payments remained with the Company through the earlier of (i) the effective time of the Proposed Transaction, and (ii) the date of the Company’s entry into an agreement with respect to a superior proposal.

On March 27 and April 3, 3012, the special committee met with Potter Anderson and Morgan Stanley to discuss the status of the “go-shop” process, and to receive updates relating to pending litigation filed in California and Delaware.

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger

The Special Committee

At a meeting of a special committee (the “Special Committee”) of the Company’s board of directors (the “Board”) held on March 8, 2012, the Special Committee unanimously (a) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are in the best interests of the Company and its unaffiliated stockholders, (b) recommended to the Board that it determine that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to and in the best interests of the Company and its unaffiliated stockholders and (c) recommended to the Board that it approve and declare the advisability of the Merger Agreement and the transactions contemplated thereby, including the Merger, upon the terms and conditions contained therein.

In reaching its determination, the Special Committee consulted with and received the advice of its financial advisor and legal counsel, and discussed issues regarding the Company and its outlook with the Company’s senior management team as well as the Company’s outside counsel. The Special Committee considered a number of factors that it believed supported its determination, including:

 

   

the current and historical market price of the Company common stock, including the fact that the Per Share Merger Consideration represents a premium of approximately 19% over the closing price of the Company common stock on March 7, 2012, the day before the Company announced its entry into the Merger Agreement, and 12% and 17% premiums over the 1-month and 2-month average trading price prior to such announcement, respectively;

 

   

the Special Committee’s belief that it was unlikely that the trading price of the Company common stock would, in the foreseeable future, reach and sustain a trading price greater than $23.00 per share, adjusted for present value;

 

   

the opinion of Morgan Stanley, delivered to the Special Committee on March 8, 2012, subsequently confirmed in writing, to the effect that, as of March 8, 2012, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the Per Share Merger Consideration to be received by holders of Company common stock (other than the

 

37


Table of Contents
 

Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders;

 

   

the requirement that the Merger Agreement be adopted by a majority of the outstanding shares of Company common stock that are not held by Parent, Merger Sub or the Rollover Investors;

 

   

the risks of remaining independent, and pursuing the Company’s strategic business plan;

 

   

that the form of consideration to be paid to holders of Company common stock is cash, which will provide certainty of value and immediate liquidity to the holders of such Company common stock;

 

   

the uncertainties associated with the Company’s strategic business plan in light of the Company’s competitive position in its industry, potential for future growth, and current acquisition strategy;

 

   

the possible alternatives to a sale, which alternatives the Special Committee determined were less favorable to our stockholders than the Merger given the potential risks, rewards and uncertainties associated with those alternatives;

 

   

the likelihood that the Merger would be completed based on, among other things:

 

   

the Special Committee’s belief that the debt and equity financing required for the Merger will be obtained, given (i) the fact that Parent had obtained commitments for such debt and equity financing, (ii) the limited number and nature of the conditions to such debt and equity financing, (iii) the reputation of the financing sources and (iv) the obligation of Parent to use commercially reasonable efforts to obtain such debt and equity financing;

 

   

the likelihood and anticipated timing of completing the Merger in light of the scope of the closing conditions;

 

   

that if Parent does not complete the proposed Merger under certain circumstances, it may be required to pay a termination fee to the Company of $9.0 million, with an additional $9.0 million damages remedy available to the Company in certain circumstances; and

 

   

the Company’s right, in certain circumstances, to specifically enforce Parent’s obligations under the Equity Commitment Letters;

 

   

the other terms of the Merger Agreement and the related agreements, including:

 

   

the Board’s ability to withhold, withdraw, qualify or modify its recommendation that the Company’s stockholders vote to adopt the Merger Agreement, in certain circumstances and subject to certain conditions in the Merger Agreement;

 

   

the existence of a “go-shop” period permitting the Company to engage in a fulsome 60-day post-signing market check;

 

   

that the Merger Agreement provides for a termination fee of $4.2 million until 11:59 p.m., New York City time, on May 7, 2012 (the “Go-Shop Period”), and $6.3 million during the “no-shop” period, in the event the Company terminates the Merger Agreement pursuant to its terms;

 

   

the limited guaranty of the Insight Entities and the Rollover Investors in the Company’s favor with respect to the payment by Parent of certain of its payment obligations under the Merger Agreement; and

 

   

the availability of appraisal rights under Section 262 of the DGCL to holders of Company common stock who comply with all of the required procedures under the DGCL, which allows such holders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery;

 

38


Table of Contents
   

the principal terms of the proposed Merger, including, among others, the Per Share Merger Consideration to be received by holders of Company common stock, Parent’s indemnification obligations and the conditions to the parties’ obligations to consummate the Merger;

 

   

the Company’s need to respond to rapid market, competitive and technological conditions in the software industry, to anticipate accurately new technology developments, customer requirements and industry standards, and to introduce new products or enhancements to existing products and services in a timely manner;

 

   

the risks associated with our international research and development operations in Canada, Australia, Russia, United Kingdom, China, Czech Republic, Hong Kong and Israel;

 

   

the Company’s vulnerability to direct competition from Oracle and other platform vendors;

 

   

consolidation within the software industry, and the timing of new products and services and enhancements to existing products and services by platform vendors of database application, Windows and virtualization products and by the Company’s competitors;

 

   

continued volatility in the foreign exchange markets; and

 

   

continued volatility in the European markets in which the Company does business.

The Special Committee also considered a number of factors that are discussed below relating to the procedural safeguards that the Special Committee believes were and are present to ensure the fairness of the Merger. The Special Committee believes these factors support its determinations and recommendations and provide assurance of the procedural fairness of the Merger to the Company and its unaffiliated stockholders:

 

   

the Merger Agreement must be adopted by both (i) the affirmative vote by a majority of the outstanding shares of the Company common stock and (ii) the affirmative vote by a majority of the outstanding shares of the Company common stock, exclusive of any shares of Company common stock held by Parent, Merger Sub or any of the Rollover Investors;

 

   

the Special Committee is composed of three independent directors who are not affiliated with Parent or any direct or indirect wholly owned subsidiary of Parent, are not employees of the Company or any of its subsidiaries and have no financial interest in the Merger that is different from that of the stockholders;

 

   

the Special Committee met regularly to discuss our alternatives and was advised by independent financial and legal advisors, and each member of the Special Committee was actively engaged in the process;

 

   

the Special Committee made all material decisions relating to our alternatives, including recommending to the Board that the Company enter into the Merger Agreement;

 

   

the financial and other terms and conditions of the Merger Agreement were the product of arm’s-length negotiations between the Special Committee and its advisors, on one hand, and Parent and its advisors, on the other;

 

   

our ability, under certain circumstances, to provide information to, or participate in discussions or negotiations with, third parties regarding other Takeover Proposals (defined below);

 

   

our ability, under certain circumstances, to terminate the Merger Agreement in order to enter into a definitive agreement related to a Superior Proposal (defined below), subject to paying a termination fee;

 

   

the opinion of Morgan Stanley, delivered to the Special Committee on March 8, 2012, subsequently confirmed in writing, to the effect that, as of March 8, 2012, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the Per Share Merger Consideration to be received by holders of Company common stock (other than the Rollover Investors or any other stockholder of the Company that contributes shares of Company

 

39


Table of Contents
 

common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders; and

 

   

the availability of appraisal rights under Section 262 of the DGCL to holders of Company common stock who comply with all of the required procedures under the DGCL, which allows such holders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery.

In the course of its deliberations, the Special Committee also considered a variety of uncertainties, risks and other countervailing factors concerning the Merger Agreement and the Merger, including:

 

   

the Company may be unable to obtain stockholder approval as required for the transactions contemplated by the Merger Agreement;

 

   

conditions to the Closing and the transactions contemplated by the Merger Agreement may not be satisfied;

 

   

the Go-Shop Period contemplated by the Merger Agreement may not generate sufficient interest for a third party to put forth a competing bid for the Company;

 

   

the holdings of Company common stock by the Rollover Investors may discourage potential third parties from participating in the Go-Shop Period;

 

   

the Company’s obligation, in certain circumstances, to pay up to $12.6 million, inclusive of any termination fee previously paid by the Company, in damages to Parent;

 

   

recent changes in the Company’s senior management team;

 

   

the transactions contemplated by the Merger Agreement may involve unexpected costs, liabilities or delays;

 

   

the business of the Company may suffer as a result of uncertainty surrounding the Merger and the transactions contemplated by the Merger Agreement;

 

   

the Company may be adversely affected by other economic, business, and/or competitive factors;

 

   

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

   

the risk that the Merger and the transactions contemplated by the Merger Agreement disrupt current plans and operations;

 

   

the risk that the Merger and the transactions contemplated by the Merger Agreement create potential difficulties in employee retention;

 

   

other risks to consummation of the Merger and the transactions contemplated by the Merger Agreement, including the risk that the Merger and the transactions contemplated by the Merger Agreement will not be consummated within the expected time period;

 

   

the Company may be required, if the Merger is not completed, to pay its own expenses associated with the Merger Agreement, the Merger and the other transactions contemplated thereby;

 

   

that the nature of the Merger will prevent the holders of Company common stock from participating in any future earnings or growth of the Company, or in any potential future appreciation in the value of shares of Company common stock;

 

   

that an all cash transaction will be taxable to the Company’s stockholders that are U.S. holders for U.S. federal income tax purposes;

 

   

that restrictions in the Merger Agreement on the conduct of the Company’s business prior to the consummation of the Merger may delay or prevent the Company from undertaking business opportunities that could arise prior to the consummation of the Merger; and

 

40


Table of Contents
   

that Parent and Merger Sub are newly formed corporations with essentially no assets other than the equity commitments of the Insight Entities and the rollover commitments of the Rollover Investors.

In addition, the Special Committee was aware of and considered the interests that certain of our directors and executive officers have with respect to the Merger that differ from, or are in addition to, their interests as stockholders of the Company. See “—Interests of the Company’s Directors and Executive Officers in the Merger” and “Golden Parachute Compensation” beginning on pages 68 and 107.

Rather than assign any particular weight or rank to any of the positive or potentially negative factors or risks discussed in this section, the Special Committee carefully considered all of these factors as a whole in reaching its determination and recommendation.

In the course of reaching its determination and recommendation regarding the fairness of the Merger to the Company and its unaffiliated stockholders and its decision to recommend to the Board that it approve the Merger, the Special Committee considered valuation analyses presented by Morgan Stanley related to the going concern value of the Company. See “—Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Special Committee.” The Special Committee expressly adopted the analyses and the opinion of Morgan Stanley, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the Merger Agreement.

The foregoing discussion of the information and factors considered by the Special Committee is not intended to be exhaustive, but the Special Committee believes it addresses the material factors considered by the Special Committee in its consideration of the Merger, including factors that may support the Merger as well as factors that may weigh against it. In view of the variety of factors and the amount of information considered, the Special Committee did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, the Special Committee did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, and individual members of the Special Committee may have given different weights to the above factors.

Recommendation of the Company’s Board of Directors

The Board, with Mr. Smith not participating in the deliberations, acting upon the unanimous recommendation of the Special Committee, at a meeting described above on March 8, 2012:

 

   

deemed it advisable and in the best interests of the Company and its unaffiliated stockholders, as defined in Rule 13e-3 of the Exchange Act (“unaffiliated stockholders”) that the Company enter into the Merger Agreement, and that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and fair to and in the best interests of the Company and its unaffiliated stockholders; and

 

   

directed that the adoption of the Merger Agreement be submitted to a vote at a meeting of the stockholders of the Company and recommended to the stockholders of the Company that they vote for the adoption of the Merger Agreement and all other actions or matters necessary or appropriate to give effect to the foregoing pursuant to the DGCL.

In reaching these determinations, the Board considered a number of factors, including the following material factors:

 

   

the Special Committee’s analysis, conclusions and unanimous determination (which the Board has adopted) that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement were advisable and fair to and in the best interests of the Company and its unaffiliated stockholders and the Special Committee’s unanimous recommendation that the Board

 

41


Table of Contents
 

adopt a resolution approving and declaring the advisability of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and recommending that the stockholders of the Company adopt the Merger Agreement;

 

   

the Special Committee is comprised of three independent directors who are not affiliated with either the Rollover Investors or the Insight Entities and are not employees of the Company or any of its subsidiaries; in addition, other than the receipt of Board and Special Committee fees (which are not contingent upon the consummation of the Merger or the Special Committee’s or Board’s recommendation of the Merger) and their indemnification and liability insurance rights under the Merger Agreement, members of the Special Committee do not have an interest in the Merger different from, or in addition to, that of the Company’s unaffiliated stockholders; and

 

   

the financial analysis presented to the Special Committee by Morgan Stanley and shared with the Board (which the Board has adopted), as well as the written financial opinion of Morgan Stanley, dated March 8, 2012, to the Special Committee, to the effect that, as of that date, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the Per Share Merger Consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders (the full text of which is attached as Annex B to this proxy statement).

Mr. Smith, our Chairman and Chief Executive Officer and a Rollover Investor, recused himself from the foregoing determination and approval due to his potential interest in Parent pursuant to a letter agreement (the “Rollover Letter”).

The foregoing discussion of the factors considered by the Board is not intended to be exhaustive, but rather includes the principal factors considered by the Board. The Board, with Mr. Smith not participating in the deliberations, collectively reached the conclusion to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement in light of the various factors described above and other factors that the members of the Board believed were appropriate. The Board did not find it practicable to, and did not quantify or otherwise assign relative weights to, the specific reasons underlying its determination and recommendation. Rather, the Board viewed its determinations and recommendations being based on the totality of the information and factors presented to and considered by the Board. In considering the factors discussed above, individual directors may have given different weights to different factors.

In connection with the consummation of the Merger, certain of the Company’s directors may receive benefits and compensation that may differ from the Per Share Merger Consideration you would receive. See “Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 68 of this proxy statement.

THE BOARD RECOMMENDS, WITH MR. SMITH TAKING NO PART IN SUCH RECOMMENDATION, THAT THE STOCKHOLDERS OF THE COMPANY VOTE “FOR” ADOPTION OF THE MERGER AGREEMENT.

Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Special Committee

The Special Committee retained Morgan Stanley to provide financial advisory services and a financial opinion in connection with a possible merger, sale, change of control, going-private or other similar transaction involving the Company. The Special Committee selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation and its knowledge of our business and affairs. At the meeting of the Special Committee on March 8, 2012, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of March 8, 2012, and based upon and subject to the various assumptions, procedures, factors, qualifications and limitations set forth in the written opinion, the Per Share Merger

 

42


Table of Contents

Consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Morgan Stanley, dated as of March 8, 2012, is attached to this proxy statement as Annex B. The opinion will also be available for inspection and copying during ordinary business hours at the principal executive offices of the Company located at 5 Polaris Way, Aliso Viejo, California 92656. In addition, any stockholder of the Company can request a copy of the opinion at his or her expense. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the Special Committee and addresses only the fairness from a financial point of view of the Per Share Merger Consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing) pursuant to the Merger Agreement as of the date of the opinion. It does not address any other aspects of the Merger and does not constitute a recommendation to any holder of Company common stock as to how to vote at any stockholder’s meeting held in connection with the Merger or whether to take any other action with respect to the Merger. The summary of the opinion of Morgan Stanley set forth below is qualified in its entirety by reference to the full text of the opinion.

In connection with rendering its opinion, Morgan Stanley, among other things:

 

   

Reviewed certain publicly available financial statements and other business and financial information of the Company;

 

   

Reviewed certain internal financial statements and other financial and operating data concerning the Company;

 

   

Reviewed certain financial projections prepared by the management of the Company;

 

   

Discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;

 

   

Reviewed the reported prices and trading activity for the Company common stock;

 

   

Compared the financial performance of the Company and the prices and trading activity of the Company common stock with that of certain other publicly traded companies comparable with the Company and their securities;

 

   

Reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

   

Participated in certain discussions and negotiations among representatives of the Company and Parent and their financial and legal advisors;

 

   

Reviewed the Merger Agreement, the Rollover Letter, and the draft equity commitment letters and draft debt commitment letters from certain financial institutions (the “Financing Letters”) and the guaranty executed in connection with the Merger Agreement by the Insight Entities and the Rollover Investors, in each case, substantially in the form of the drafts dated March 2, 2012 and certain related documents; and

 

   

Performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made

 

43


Table of Contents

available to Morgan Stanley by the Company, and formed a substantial basis for its opinion. With respect to the financial projections, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company. In addition, Morgan Stanley assumed that the Merger will be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions including, among other things, that the transactions contemplated by the Rollover Letter will be consummated, and that Parent will obtain financing in accordance with the terms set forth in the Financing Letters. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed Merger. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be paid to the holders of shares of the Company common stock in the transaction. Morgan Stanley’s opinion did not address the fairness of any consideration to be received by the Rollover Investors pursuant to the Merger Agreement or the Rollover Letter or otherwise. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, March 8, 2012. Events occurring after March 8, 2012 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated March 8, 2012. The various analyses summarized below were based on the closing price of $19.35 per share of Company common stock as of March 7, 2012, the last full trading day prior to the meetings of the Special Committee on March 8, 2012 to consider and recommend to the Board the approval, adoption and authorization of the 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 Morgan Stanley, 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.

Historical Trading Range Analysis

Morgan Stanley performed a trading range analysis with respect to the historical share prices of the Company common stock. Morgan Stanley reviewed the range of closing prices of the Company common stock for various periods ending on March 7, 2012. Morgan Stanley observed the following:

 

Period Ending March 7, 2012    Range of Closing
Prices
 

Last 30 Days

   $ 19.34 – 21.93   

Since Issuing Revised Fiscal Year 2011 Guidance (July 12, 2011)

   $ 15.02 – 21.93   

Last 12 Months

   $ 15.02 – 26.99   

Morgan Stanley noted that the consideration of $23.00 per share to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected)

 

44


Table of Contents

pursuant to the Merger Agreement reflected a 19% premium to the closing price per share of Company common stock as of March 7, 2012, a 12% premium to the average closing price per share of Company common stock for the 30 trading days prior to and including March 7, 2012 and a 17% premium to the average closing price per share of Company common stock for the 60 trading days prior to and including March 7, 2012.

Equity Research Analysts’ Future Price Targets

Morgan Stanley reviewed and analyzed future public market trading price targets for Company common stock prepared and published by equity research analysts prior to March 7, 2012. These targets reflect each analyst’s estimate of the future public market trading price of the Company common stock and are not discounted to reflect present values. The range of undiscounted analyst price targets for Company common stock was $19.50 to $29.00 per share as of March 7, 2012 and Morgan Stanley noted that the median and mean undiscounted analyst price targets were $23.00 per share and $22.70 per share, respectively.

Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was $23.00 per share.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for Company common stock and these estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions.

Comparable Companies Analysis

Morgan Stanley performed a comparable companies analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley compared certain financial information of the Company with equivalent publicly available consensus estimates for companies that share similar business characteristics, such as those that provide IT management software or those that have similar scale and operating characteristics (the “Comparable Companies”). These companies included the following:

Selected Core Comparables

 

   

BMC Software, Inc.

 

   

CA, Inc.

 

   

Compuware Corporation

 

   

Symantec Corporation

Selected Large Cap Software Comparables

 

   

Hewlett-Packard Company

 

   

International Business Machines Corporation

 

   

Microsoft Corporation

 

   

Oracle Corporation

Selected Other/High-Growth Software

 

   

Citrix Systems, Inc.

 

45


Table of Contents
   

Informatica Corporation

 

   

Qlik Technologies Inc.

 

   

SolarWinds, Inc.

 

   

TIBCO Software Inc.

 

   

VMware, Inc.

For purposes of this analysis, Morgan Stanley analyzed the following statistics of each of these companies for comparison purposes:

 

   

the ratio of aggregate value, defined as fully diluted market capitalization plus total debt plus minority interest less cash and cash equivalents, to estimated non-Generally Accepted Accounting Principles (“non-GAAP”) operating income, adjusted to exclude amortization of acquired intangibles, stock compensation expense and one-time items (“EBITA”) for calendar year 2011 and 2012; and

 

   

the ratio of price per share to diluted non-GAAP earnings per share (“earnings per share”) for calendar year 2011 and 2012

Based on the analysis of the relevant metrics for each of the Comparable Companies, Morgan Stanley selected representative ranges of financial multiples and applied these ranges of multiples to the relevant Company financial statistic. For purposes of estimated EBITA and earnings per share, Morgan Stanley utilized the average of publicly available street analyst estimates for the Company, available as of March 7, 2012 (the “Street Case”). Morgan Stanley also utilized estimates prepared by the Company’s management, as more fully described in “—Prospective Financial Information” (the “Management Case A”).

Based on the number of outstanding shares of Company common stock on a fully diluted basis (including outstanding options and restricted stock units), Morgan Stanley calculated the estimated implied value per share of Company common stock of the Company as follows:

 

Calendar Year Financial Statistic    Comparable Company
Multiple Range
     Implied Value
Per Share of the
Company Common
Stock
 

Street Case

     

Aggregate Value to 2011 EBITA

     7.5x – 10.0x       $ 17.42 – $21.83   

Price to 2011 Earnings per Share

     11.0x – 15.0x       $ 14.52 – $19.79   

Aggregate Value to Estimated 2012 EBITA

     7.0x – 9.0x       $ 18.35 – $22.37   

Price to Estimated 2012 Earnings per Share

     10.0x – 14.0x       $ 16.46 – $23.04   

Management Case A

     

Aggregate Value to Estimated 2012 EBITA

     7.0x – 9.0x       $ 18.66 – $22.76   

Price to Estimated 2012 Earnings per Share

     10.0x – 14.0x       $ 16.48 – $23.07   

Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was $23.00 per share.

No company utilized in the public trading comparables analysis is identical to the Company. In evaluating comparable companies, Morgan Stanley 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

 

46


Table of Contents

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.

Discounted Equity Value Analysis

Morgan Stanley performed a discounted equity value analysis, which is designed to provide insight into the estimated future value of a company’s common equity as a function of the company’s estimated future EBITA and future earnings per share and a potential range of aggregate value to EBITA multiples and price per share to earnings per share multiples. The resulting value is subsequently discounted to arrive at an estimated present value for such company’s stock price. In connection with this analysis, Morgan Stanley calculated a range of estimated present equity values per share of Company common stock on a standalone basis. To calculate the discounted equity value, Morgan Stanley used calendar year 2013 EBITA and earnings per share estimates based on the Management Case A and the Management Case A+20. The Management Case A+20 was approved for use by Morgan Stanley as a basis for its opinion by the Company and was prepared by modifying the Management Case A to reflect $10 million of cost savings in calendar year 2012 and $20 million in cost savings in each subsequent year. Morgan Stanley applied a range of EBITA and price to earnings multiples to these estimates and applied a discount rate of 10%.

The following table summarizes Morgan Stanley’s analysis:

 

     Comparable
Company
Representative
Multiple
Range
     Implied Present
Value Per
Share of the
Company
 

Calendar Year 2013 Estimated EBITA

     

Management Case A

     7.0x – 9.0x       $ 19.52 – $23.78   

Management Case A + 20

     7.0x – 9.0x       $ 20.83 – $25.44   

Calendar Year 2013 Estimated Earnings per Share

     

Management Case A

     10.0x – 14.0x       $ 17.12 – $23.97   

Management Case A + 20

     10.0x – 14.0x       $ 18.67 – $26.14   

Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was $23.00 per share.

Discounted Cash Flow Analysis

Morgan Stanley calculated a range of equity values per share for the Company based on a discounted cash flow analysis to value the Company as a standalone entity. Morgan Stanley utilized projections from each of the Street Case, the Management Case A, and the Sensitivity Case. The Sensitivity Case was approved for use by Morgan Stanley as a basis for its opinion by the Company and reflects a more cautious potential outlook for the Company than the Management Case A. Accordingly, the Sensitivity Case projects lower growth rates as compared to the Management Case A. For the analysis utilizing the Street Case, projections through 2013 were based on the average of publicly available estimates, prepared by equity research analysts available as of March 7, 2012, and estimates for 2014 through 2016 were developed by an extrapolation of 2013 estimates. For the analysis utilizing the Management Case A and the Sensitivity Case, management projections through 2015 were used, and estimates for 2016 were developed by an extrapolation of management’s 2015 projections. Morgan Stanley calculated the net present value of projected free cash flows for the Company for the period through 2016 and calculated terminal values in the year 2016 based on a range of terminal perpetual growth rates and a range of terminal tax rates ranging from 25% to 40%. Morgan Stanley utilized terminal perpetual growth rates between 1% to 3% for the Street Case, the Management Case A and the Management Case A + 20. For the Sensitivity Case, Morgan Stanley utilized

 

47


Table of Contents

terminal perpetual growth rates from 0% to 2%. These values were discounted to present values as of March 31, 2012 at a discount rate from 9% to 11%.

The following table summarizes Morgan Stanley’s analysis:

 

     Implied Present
Value Per
Share of the Company
 

Street Case

   $ 19.67 – $29.12   

Management Case A

   $ 21.73 – $32.01   

Management Case A + 20

   $ 22.99 – $33.98   

Sensitivity Case

   $ 19.16 – $27.21   

Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement is $23.00 per share.

Illustrative Leveraged Buyout (“LBO”) Analysis

Morgan Stanley performed a hypothetical leveraged buyout analysis to determine the prices at which a financial sponsor might effect a leveraged buyout of the Company. Morgan Stanley assumed a transaction date of March 31, 2012 and a range of total debt to last 12 months Adjusted EBITDA ratios of 5.0x to 5.5x. Adjusted EBITDA refers to estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”), excluding stock compensation expense and one-time items. Morgan Stanley also assumed a subsequent exit transaction by the financial sponsor at December 31, 2016 with a valuation of the Company realized by the financial sponsor in such subsequent exit transaction calculated utilizing the same ratio of aggregate value to last twelve months Adjusted EBITDA as was implied by the initial purchase price for each hypothetical leveraged buyout scenario. In preparing this analysis, Morgan Stanley utilized projections from Management Case. The implied acquisition price per share paid by the financial sponsor for purposes of this analysis was based on a target range of annualized internal rates of return for the financial sponsor of 20% to 25%. The resulting present value per share of Company common stock implied by this analysis was between $22.44 and $27.72 per share.

Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was $23.00 per share.

Analysis of Precedent Transactions

Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and premia of selected transactions that share some characteristics with this transaction. In connection with its analysis, Morgan Stanley compared publicly available statistics for select all cash technology transactions with a value greater than $500 million occurring between January 1, 2010 and March 7, 2012, select software transactions with a value greater than $500 million occurring between January 1, 2008 and March 7, 2012 as well as select LBO transactions with a value greater than $1 billion occurring between January 1, 2010 and March 7, 2012. The following is a list of the transactions reviewed:

Selected Technology Transactions (Target / Acquiror)

3PAR Inc. / Hewlett-Packard Company

Actel Corporation / Microsemi Corporation

ADC Telecommunications, Inc. / Tyco Electronics, Ltd.

 

48


Table of Contents

ArcSight, Inc. / Hewlett-Packard Company

Art Technology Group Inc. / Oracle Corporation

Atheros Communications, Inc. / QUALCOMM Incorporated

Autonomy Corporation PLC / Hewlett-Packard Company

Blackboard Inc. / Providence Equity Partners LLC *

Blue Coat Systems, Inc. / Thoma Bravo, LLC *

Cogent Communications Group, Inc. / 3M Company

Compellent Technologies, Inc. / Dell Inc.

CyberSource Corporation / Visa Inc.

DemandTec, Inc. / International Business Machines Corporation

Dimension Data Holdings PLC / Nippon Telegraph and Telephone Corporation

Dionex Corp. / Thermo Fisher Scientific, Inc.

Epicor Software Corporation / Apax Partners Holdings Ltd *

GSI Commerce, Inc. / eBay Inc.

Interactive Data Corporation / Investor Group *

Internet Brands, Inc. / Hellman & Friedman LLC *

Isilon Systems, Inc. / EMC Corporation

L-1 Identity Solutions, Inc / Safran SA

Lawson Software, Inc. / Infor Global Solutions, Inc. *

McAfee, Inc. / Intel Corporation

Motorola Solutions, Inc. / Google Inc.

National Semiconductor Corporation / Texas Instruments Inc.

Netezza Corporation / International Business Machines Corporation

NetLogic Microsystems, Inc. / Broadcom Corporation

Novell, Inc. / Attachmate Corporation *

Palm, Inc. / Hewlett-Packard Company

Phase Forward Inc. / Oracle Corporation

Radiant Systems, Inc. / NCR Corp.

RightNow Technologies Inc. / Oracle Corporation

Skillsoft PLC / Investor Group *

Smart Technologies Inc. / Silver Lake Partners *

SonicWALL, Inc. / Investor Group *

Stanley, Inc. / CGI Group, Inc.

SuccessFactors, Inc. / SAP AG

Sybase, Inc. / SAP AG

Syniverse Technologies, Inc. / The Carlyle Group LP *

Taleo Corporation / Oracle Corporation

Terremark Worldwide, Inc. / Verizon Communications Inc.

Varian Semiconductor Equipment Associates, Inc. / Applied Materials Inc.

Verigy Ltd. / Advantest Corp.

Zarlink Semiconductor Inc. / Microsemi Corporation

 

* Technology LBO Transactions

Selected Software Transactions (Target / Acquiror)

ArcSight, Inc. / Hewlett-Packard Company

Art Technology Group Inc. / Oracle Corporation

Autonomy Corporation PLC / Hewlett-Packard Company

Blackboard Inc. / Providence Equity Partners LLC

Blue Coat Systems, Inc. / Thoma Bravo, LLC

DemandTec, Inc. / International Business Machines Corporation

 

49


Table of Contents

Eclipsys Corporation / Allscripts Healthcare Solutions, Inc.

Epicor Software Corporation / Apax Partners Holdings Ltd

Fast Search & Transfer ASA / Microsoft Corporation

Interactive Data Corporation / Investor Group

Interwoven Inc. / Autonomy Corporation PLC

Lawson Software, Inc. / Infor Global Solutions, Inc.

McAfee, Inc. / Intel Corporation

Novell, Inc. / Attachmate Corporation

Omniture, Inc. / Adobe Systems Inc.

Phase Forward Inc. / Oracle Corporation

Radiant Systems, Inc. / NCR Corp.

Rightnow Technologies Inc. / Oracle Corporation

S1 Corporation / ACI Worldwide, Inc.

Sonic Corp. / Rovi Corporation

SonicWALL, Inc. / Investor Group

SPSS Inc. / International Business Machines Corporation

SkillSoft PLC / Investor Group

SuccessFactors, Inc. / SAP AG

Sun Microsystems, Inc/ Oracle Corporation

Sybase, Inc. / SAP AG

Taleo Corporation / Oracle Corporation

Wind River Systems, Inc. / Intel Corporation

Selected LBO Transactions (Target / Acquiror)

99 Cents Only Stores / Leonard Green & Partners, L.P.

Academy, Ltd. / Kohlberg Kravis Roberts & Co.

Acosta, Inc. / Thomas H. Lee Partners, L.P.

Advantage Sales and Marketing Holdings LLC / Apax Partners Worldwide LLP

Air Medical Group Holdings, Inc. / Bain Capital, LLC

American Tire Distributors Holdings, Inc. / TPG Capital

Arizona Chemical Ltd. / American Private Equity Partners L.P.

Ashland Inc. / TPG Capital

BJ’s Wholesale Club Inc. / Leonard Green & Partners, L.P.

Blackboard Inc. / Providence Equity Partners LLC

Blue Coat Systems, Inc. / Thoma Bravo, LLC

Bumble Bee Foods, LLC / Liongate Capital Management

Burger King Holdings, Inc. / 3G Capital Management, LLC

Capsugel Holdings US Inc. / Kohlberg Kravis Roberts & Co.

CKE Restaurants, Inc. / Apollo Food Holdings Berhad

CommScope Inc. / The Carlyle Group LP

Del Monte Foods Company / Kohlberg Kravis Roberts & Co.

DynCorp International Inc. / Cerberus Capital Management, L.P.

Dynegy Inc. / The Blackstone Group LP

Emdeon Inc. / The Blackstone Group LP

Emergency Medical Services Corporation / CD&R Investment Associates VI Inc.

Epicor Software Corporation / Apax Partners Worldwide LLP

Gymboree Corp. / Bain Capital, LLC

Husky Energy Inc. / Berkshire Hathaway Inc.

Immucor Inc. / TPG Capital

Interactive Data Corporation / Investor Group

inVentiv Health, Inc. / Thomas H. Lee Partners, L.P.

 

50


Table of Contents

J. Crew Group, Inc. / TPG Capital

Jo-Ann Stores, Inc. / Leonard Green & Partners, L.P.

Kinetic Concepts, Inc. / Apax Partners Worldwide LLP

Lawson Software, Inc. / Golden Gate Capital

Michaels Stores Inc. / Goldman Sachs Private Equity Group

MultiPlan Holdings, Inc. / Silver Lake Partners

NBTY, Inc. / The Carlyle Group LP

Novell, Inc. / Attachmate Corporation

Pharmaceutical Product Development, Inc. / The Carlyle Group LP

Radiant Communications Corp. / ABRY Partners, LLC

Sedgwick CMS Holdings, Inc. / Hellman & Friedman LLC

SRA International, Inc. / Providence Equity Partners LLC

SSI Investments II Limited / Berkshire Hathaway Inc.

Styron LLC / Bain Capital, LLC

Syniverse Holdings, Inc. / The Carlyle Group LP

The Go Daddy Group, Inc. / Kohlberg Kravis Roberts & Co.

Tomkins PLC / CPP Group PLC

TransUnion Corp. / Madison Dearborn Partners, LLC

Vertafore, Inc. / TPG Capital

For each transaction listed above, Morgan Stanley noted the following financial statistics where available: (1) implied premium to the acquired company’s closing share price on the last trading day prior to announcement; (2) implied premium to the acquired company’s 30 trading day average closing share price prior to announcement; (3) the ratio of aggregate value of the transaction to last twelve months EBITDA; (4) the ratio of aggregate value of the transaction to next twelve months estimated EBITDA; (5) the ratio of price per share to the last twelve months earnings per share; and (6) the ratio of price per share to the next twelve months estimated earnings per share.

Based on the analysis of the relevant metrics and time frame for each transaction listed above, Morgan Stanley selected representative ranges of implied premia and financial multiples of the transactions and applied these ranges of premia and financial multiples to the relevant Company financial statistic. Morgan Stanley utilized Street Case estimates for purposes of next twelve months EBITDA and earnings per share. The following table summarizes Morgan Stanley’s analysis:

 

Precedent Transactions Financial Statistic    Representative
Range
   Implied Value
Per Share of the
Company

Precedent Premia

     

Premium to 1-Day Prior Closing Share Price

   20.0% – 55.0%    $23.22 – $29.99

Premium to 30-Day Average Closing Share Price

   20.0% – 55.0%    $24.73 – $31.94

Technology LBO: Premium to 1-Day Prior Closing Share Price

   10.0% – 35.0%    $21.29 – $26.12

Precedent Software Transactions

     

Aggregate Value to Last Twelve Months EBITDA

   9.0x – 15.0x    $20.60 – $31.83

Aggregate Value to Estimated Next Twelve Months EBITDA

   8.0x – 13.0x    $20.75 – $31.37

Price to Last Twelve Months Earnings Per Share

   14.0x – 24.0x    $18.47 – $31.67

Price to Estimated Next Twelve Months Earnings Per Share

   14.0x – 20.0x    $23.04 – $32.91

LBO Transactions

     

Aggregate Value to Last Twelve Months Adjusted EBITDA

   7.0x – 12.0x    $19.85 – $31.39

Aggregate Value to Last Twelve Months EBITDA

   7.0x – 12.0x    $16.71 – $26.27

Aggregate Value to Next Twelve Months EBITDA

   6.0x – 11.0x    $16.33 – $27.17

 

51


Table of Contents

Morgan Stanley noted that the consideration to be received by holders of shares of Company common stock (other than Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was $23.00 per share.

No company or transaction utilized in the precedent transactions analysis is identical to the Company or the Merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, 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 and equity value of the transactions to which they are being compared.

General

In connection with the review of the Merger by the Special Committee, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley 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. Morgan Stanley 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, Morgan Stanley 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 Morgan Stanley’s view of the actual value of the Company. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the Company’s control. Any estimates contained in Morgan Stanley’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.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the Per Share Merger Consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement and in connection with the delivery of its opinion, dated March 8, 2012, to the Special Committee of our Board. These analyses do not purport to be appraisals or to reflect the prices at which shares of Company common stock might actually trade.

The consideration to be received by the holders of shares of Company common stock (other than the Rollover Investors or any other stockholder of the Company that contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) pursuant to the Merger Agreement was determined through arm’s length negotiations between the Special Committee and Parent and Merger Sub and was approved by the Board. Morgan Stanley provided advice to the Special Committee during these negotiations. Morgan Stanley did not, however, recommend any specific consideration to the Company or the Special Committee or to the Board or that any specific consideration constituted the only appropriate consideration for the Merger. Morgan Stanley’s opinion does not address the underlying business decision to engage in the transaction contemplated by the Merger Agreement, or the relative merits of such transaction as compared to any strategic alternatives that may be available to the Company. In addition, Morgan Stanley expresses no opinion as to how the shareholders of the Company should vote at the Special Meeting.

Morgan Stanley’s opinion and its presentation to the Special Committee was one of many factors taken into consideration by the Special Committee in its recommendation to the Board to approve, adopt and authorize the

 

52


Table of Contents

Merger Agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Special Committee or the Board with respect to the consideration pursuant to the Merger Agreement or of whether the Special Committee or the Board would have been willing to agree to different consideration.

The Special Committee retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, 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, estate and other purposes. In the ordinary course of Morgan Stanley’s trading, brokerage, investment management and financing activities, Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or for the accounts of customers, in the debt or equity securities or loans of the Company, or any other company, or any currency or commodity, that may be involved in the transactions contemplated by the Merger Agreement, or any related derivative instrument.

Under the terms of its engagement letter, Morgan Stanley provided the Special Committee financial advisory services and a financial opinion in connection with the Merger, and will receive a fee of approximately $18 million for its services, a substantial portion of which is contingent upon the Closing. Morgan Stanley will also be reimbursed for its expenses, including reasonable fees of outside counsel and other professional advisors, incurred in connection with its engagement. In addition, the Special Committee has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, relating to or arising out of Morgan Stanley’s engagement. In the two years prior to the date of its opinion, Morgan Stanley has provided financing services for the Company and has received fees in connection with such services. Morgan Stanley may also seek to provide such services to Parent and the Company in the future and expects to receive fees for the rendering of these services. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Purposes and Reasons of the Insight Entities, Parent and Merger Sub for the Merger

Under a possible interpretation of the SEC rules governing “going-private” transactions, each of the Insight Entities, Parent and Merger Sub may be deemed to be affiliates of the Company and, therefore, required to express their reasons for the Merger to the Company’s unaffiliated stockholders. The Insight Entities, Parent and Merger Sub are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. For the Insight Entities, Parent and Merger Sub, the purpose of the Merger is to enable Parent to acquire control of the Company, in a transaction in which the holders of the Company common stock, other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing, will be cashed out for $23.00 per share, so Parent will bear the rewards and risks of the ownership of the Company after shares of the Company common stock cease to be publicly traded.

Purposes and Reasons of the Rollover Investors for the Merger

Each of the Rollover Investors may be deemed to be an affiliate of the Company and, therefore, required to express its reasons for the Merger to the Company’s unaffiliated stockholders. The Rollover Investors are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. For the Rollover Investors, the purpose of the Merger is to enable the Rollover Investors to maintain a significant portion of their investment in the Company through their respective commitments to make an equity investment in Parent and provide rollover financing, as described in this proxy statement under the section captioned “—Financing of the Merger,” and at the same time enable Mr. Smith to

 

53


Table of Contents

maintain a leadership role with the surviving corporation. In addition, the Rollover Investors believe that the Company will benefit from operating as a privately held entity that can achieve greater operational flexibility and focus on long-term growth absent the regulatory burden imposed on public companies and the distractions caused by the public equity market’s valuation of the Company’s common stock, while still maintaining the Company’s name, values and culture.

Positions of the Insight Entities, Parent and Merger Sub Regarding the Fairness of the Merger

Under a possible interpretation of the SEC rules governing “going-private” transactions, each of the Insight Entities, Parent, and Merger Sub may be deemed to be affiliates of the Company and required to express their beliefs as to the fairness of the Merger to the Company’s unaffiliated stockholders. The Insight Entities, Parent and Merger Sub believe that the Merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC) is fair to the Company’s unaffiliated stockholders, on the basis of the factors described under “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” and the additional factors described below.

In this section and the section captioned “—Positions of the Rollover Investors Regarding the Fairness of the Merger,” we refer to the Company’s board of directors, other than Mr. Smith, who recused himself from the Board’s deliberations and the Board’s determination with respect to the Merger Agreement and the proposed Merger due to his potential interest in Parent pursuant to the Rollover Letter as the “Board.”

None of the Insight Entities, Parent or Merger Sub participated in the deliberations of the Special Committee or the Board regarding, or received advice from the Company’s legal advisor or the Special Committee’s legal or financial advisors as to, the fairness of the Merger. None of the Insight Entities, Parent or Merger Sub has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Merger to the Company’s unaffiliated stockholders. Based on these entities’ knowledge and analysis of available information regarding the Company, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the Board and the Special Committee discussed in this proxy statement in the sections entitled “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” (which analysis and resulting conclusions the Insight Entities, Parent and Merger Sub adopt), the Insight Entities, Parent and Merger Sub believe that the Merger is substantively fair to the Company’s unaffiliated stockholders. In particular, the Insight Entities, Parent and Merger Sub considered the following:

 

   

other than their receipt of Special Committee fees (which are not contingent upon the consummation of the Merger or the Special Committee’s recommendation of the Merger) and their interests described under “—Interests of the Company’s Directors and Executive Officers in the Merger,” no member of the Special Committee has a financial interest in the Merger that is different from, or in addition to, the interests of the Company’s unaffiliated stockholders, generally, although the Merger Agreement does include customary provisions for indemnity and the continuation of liability insurance for the Company’s officers and directors;

 

   

the Special Committee determined, by the unanimous vote of all members of the Special Committee, and the Board determined, by the unanimous vote of all members of the Board (other than Mr. Smith who recused himself from such determination), that the Merger is fair to, and in the best interests of, the Company and the holders of the Company common stock, other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing;

 

   

the per share price of $23.00 represents a 19% premium to the closing price per share of Company common stock as of March 7, 2012 of $19.35;

 

54


Table of Contents
   

the per share price of $23.00 represents a 12% premium over the Company’s average closing per share price of Company common stock for the 30 trading day period prior to and ending on March 7, 2012;

 

   

the per share price of $23.00 represents (i) a 15% premium over the Company’s average closing per share price of Company common stock for the one year trading period prior to and ending on March 7, 2012; (ii) a 17% premium over the Company’s average closing per share price of Company common stock for the three year trading period prior to and ending on March 7, 2012; and (iii) a 30% premium over the Company’s average closing per share price of Company common stock for the five year trading period prior to and ending on March 7, 2012; and

 

   

the Merger will provide consideration to the Company’s stockholders entirely in cash, allowing the Company’s stockholders (other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing) to immediately realize a certain and fair value for all their shares of Company common stock.

The Insight Entities, Parent and Merger Sub did not establish, and did not consider, a pre-Merger going concern value of the Company’s common stock as a public company for the purposes of determining the Per Share Merger Consideration or the fairness of the Per Share Merger Consideration to the holders of the Company common stock, other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing, because, following the Merger, the Company will have a significantly different capital structure. However, to the extent the pre-Merger going concern value was reflected in the pre-announcement per share price of the Company’s common stock, the Per Share Merger Consideration of $23.00 represented a premium to the going concern value of the Company. In addition, the Insight Entities, Parent and Merger Sub did not consider net book value because they believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, either the market trading prices of common stock or the Company’s value as a going concern. The Insight Entities, Parent and Merger Sub did not consider liquidation value in determining the fairness of the Merger to the holders of the Company common stock, other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing, because of their belief that liquidation sales generally result in proceeds substantially less than sales of going concern, because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, because they considered the Company to be a viable, going concern and because the Company will continue to operate its business following the Merger.

The Insight Entities, Parent and Merger Sub believe that the Merger is procedurally fair to the Company’s unaffiliated stockholders, based upon the following factors:

 

   

the fact that, other than their receipt of Board and Special Committee fees (which are not contingent upon the consummation of the Merger or the Special Committee’s or Board’s recommendation of the Merger) and their interest described under “—Interests of the Company’s Directors and Executive Officers in the Merger,” the Special Committee, consisting solely of directors who are not officers or employees of the Company and who are not affiliated with the Insight Entities, Parent or Merger Sub and who have no financial interest in the Merger different from, or in addition to, the holders of the Company common stock, other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing, generally, was given exclusive authority to, among other things, review, evaluate and negotiate the terms of the proposed Merger, to decide not to engage in the Merger, and to consider alternatives to the Merger;

 

   

the Special Committee’s independent financial advisor, Morgan Stanley, rendered a written financial opinion to the Special Committee that, as of March 8, 2012, and based upon and subject to various assumptions, procedures, factors, qualifications and limitations described in the written opinion, the $23.00 Per Share Merger Consideration to be received by holders of the shares of the Company common stock (other than the Rollover Investors or any other stockholder of the Company that

 

55


Table of Contents
 

contributes shares of Company common stock to Parent or the Merger Sub prior to the Merger, or Parent, the Merger Sub or any subsidiary of Parent, the Merger Sub or the Company or as to which dissenters’ rights have been perfected) in the Merger was fair, from a financial point of view, to such holders;

 

   

$23.00 per share cash consideration and the other terms and conditions of the Merger Agreement resulted from extensive arm’s-length negotiations between Parent and its advisors, on the one hand, and the Special Committee and its advisors, on the other hand;

 

   

the Company’s ability during the Go-Shop Period to initiate, solicit and encourage alternative Takeover Proposals from third parties and to enter into, engage in, and maintain discussions or negotiations with third parties with respect to such proposals;

 

   

the Company’s ability to continue discussions with such parties thereafter if such party submits a Takeover Proposal prior to 11:59 p.m., New York City time, on May 7, 2012 that the Special Committee determines in good faith prior to or as of May 7, 2012 constitutes, or could be reasonably expected to lead to, a Superior Proposal (in each case, with the termination of the Merger Agreement in order to enter into an agreement with respect to a Superior Proposal that was identified during the Go-Shop Period resulting in the payment to Parent of the termination fee of $4.2 million);

 

   

the Merger was approved by the Special Committee;

 

   

the requirements of an affirmative vote of (i) a majority of the outstanding shares of the Company common stock and (ii) a majority of the outstanding shares of the Company common stock, exclusive of any shares held by Parent, Merger Sub or any of the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing, in each case to adopt the Merger Agreement;

 

   

the Company’s ability to terminate the Merger Agreement if the stockholders do not adopt it, subject to paying a termination fee of $6.3 million and out-of-pocket fees and expenses incurred by Parent, Merger Sub and their affiliates of up to $7.0 million, and in certain circumstances the Parent Damages Remedy up to $12.6 million (See “The Merger Agreement—Termination Fees and Reimbursement of Expenses” beginning on page 101); and

 

   

the availability of appraisal rights to the Company’s stockholders who comply with all of the required procedures under Delaware law for exercising appraisal rights, which allow such holders to seek appraisal of the fair value of their stock as determined by the Court of Chancery of the State of Delaware.

The foregoing discussion of the information and factors considered and given weight by the Insight Entities, Parent and Merger Sub in connection with the fairness of the Merger Agreement and the Merger is not intended to be exhaustive but is believed to include all material factors considered by them. The Insight Entities, Parent and Merger Sub did not find it practicable to, and did not quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger Agreement and the Merger. Rather, the Insight Entities, Parent and Merger Sub made the fairness determinations after considering all of the foregoing as a whole. The Insight Entities, Parent and Merger Sub believe these factors provide a reasonable basis upon which to form their belief that the Merger is fair to the Company’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder to adopt the Merger Agreement. The Insight Entities, Parent and Merger Sub do not make any recommendation as to how stockholders of the Company should vote their shares of Company common stock relating to the Merger. In addition, the Insight Entities, Parent and Merger Sub agree with the analyses, determinations and conclusions of the Board and the Special Committee described under “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” with respect to the reasons for undertaking the Merger at this time, as compared with other times in the Company’s operating history, which analysis and resulting conclusions the Insight Entities, Parent and Merger Sub adopt. None of the Insight Entities, Parent or Merger Sub believes that it has or had any fiduciary duty to the Company or its stockholders, including with respect to the Merger and its terms.

 

56


Table of Contents

Positions of the Rollover Investors Regarding the Fairness of the Merger

Each of the Rollover Investors may be deemed to be an affiliate of the Company and required to express its belief as to the fairness of the Merger to the unaffiliated stockholders of the Company. As described below, each of the Rollover Investors believes that the Merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC) is fair to the Company’s unaffiliated stockholders on the basis of the factors described under “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” “—Opinion of Morgan Stanley & Co. LLC, Financial Advisor to the Special Committee” and “—Positions of the Insight Entities, Parent and Merger Sub Regarding the Fairness of the Merger.” None of the Rollover Investors participated in the deliberations of the Special Committee or the Board regarding, or received advice from the Company’s legal or financial advisor as to, the fairness of the Merger. As disclosed under “—Interests of the Company’s Directors and Executive Officers in the Merger,” the Rollover Investors have interests in the Merger different from those of the Company’s unaffiliated stockholders by virtue of Mr. Smith’s voting power over approximately 34% of the total number of outstanding shares of Company common stock, Mr. Smith’s and the other Rollover Investors’ agreement to contribute the Rollover Shares in exchange for equity in the Parent pursuant to a Rollover Letter, Mr. Smith’s expectation of a continuing leadership role in the surviving corporation and the rights of the Rollover Investors with respect to the Parent as set forth in the Rollover Letter, the Transaction Support Agreement (as discussed in this proxy statement in the section entitled “—Interests of the Company’s Directors and Executive Officers in the Merger”) and the Stockholders Agreement (as discussed in this proxy statement in the section entitled “—Interests of the Company’s Directors and Executive Officers in the Merger”).

The Company’s unaffiliated stockholders were represented by the Special Committee, which negotiated the terms and conditions of the Merger Agreement on their behalf, with the assistance of the Special Committee’s financial and legal advisors. Accordingly, none of the Rollover Investors has performed, or engaged a financial advisor to perform, any independent valuation or other analysis for the purpose of assessing the fairness of the Merger to the Company’s unaffiliated stockholders. The Rollover Investors believe, however, that the Merger is fair to the Company’s unaffiliated stockholders based upon substantially the same factors considered by the Board and the Special Committee (including, among other factors considered by the Rollover Investors, the analysis and resulting conclusions of the Board and the Special Committee discussed in this proxy statement in the section entitled “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” which analysis and resulting conclusions the Rollover Investors adopt) and by the Insight Entities, Parent and Merger Sub (including, among other factors considered by the Rollover Investors, the analysis and resulting conclusions of the Insight Entities, Parent and Merger Sub discussed in this proxy statement in the section entitled “—Positions of the Insight Entities, Parent and Merger Sub Regarding the Fairness of the Merger,” which analysis and resulting conclusions the Rollover Investors adopt) with respect to the fairness of the proposed Merger to the Company’s unaffiliated stockholders. The Rollover Investors agree with the analyses, determinations and conclusions of the Special Committee described under “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” based on the reasonableness of these analyses, determinations and conclusions, which the Rollover Investors adopt. In addition, the Rollover Investors agree with the analyses, determinations and conclusions of the Board and the Special Committee described under “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” with respect to the reasons for undertaking the Merger at this time, as compared with other times, in the Company’s operating history, which analysis and resulting conclusions the Rollover Investors adopt.

While Mr. Smith is an officer and director of the Company, because of his participation in the transaction as described under the section captioned “—Interests of the Company’s Directors and Executive Officers in the Merger,” he did not serve on the Special Committee, nor did he participate in, or vote in connection with, the Special Committee’s evaluation of the Merger Agreement and the Merger or of the Board’s evaluation or

 

57


Table of Contents

approval of the Merger Agreement and the Merger. For these reasons, Mr. Smith does not believe that his or any other Rollover Investors’ interests in the Merger influenced the decision of the Special Committee or the Board with respect to the Merger Agreement or the Merger.

The foregoing discussion of the information and factors considered and given weight by the Rollover Investors in connection with the fairness of the Merger Agreement and the Merger is not intended to be exhaustive but is believed to include all material factors considered by them. The Rollover Investors did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger Agreement and the Merger. Rather, the Rollover Investors made their fairness determinations after considering all of the foregoing as a whole. The Rollover Investors believe these factors provide a reasonable basis upon which to form their belief that the Merger is fair to the Company’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder to adopt the Merger Agreement. The Rollover Investors do not make any recommendation as to how stockholders of the Company should vote their shares of Company common stock relating to the Merger.

Certain Effects of the Merger

If the Merger is completed, all of our equity interests will be owned by Parent. Except for the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior the Closing, through their interest in Parent, none of our current stockholders will have any ownership interest in, or be a stockholder of, the Company after the completion of the Merger. As a result, our current stockholders (other than the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior the Closing) will no longer benefit from any increase in our value, nor will they bear the risk of any decrease in our value.

Upon completion of the Merger, each share of Company common stock issued and outstanding immediately prior the effective time of the Merger will convert in to the right to receive the Per Share Merger Consideration, other than (i) treasury shares, (ii) shares held by Parent, Merger Sub and any other wholly owned subsidiary or Parent, (iii) the Rollover Shares and shares held by any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing and (iv) shares owned by stockholders who have perfected, and not withdrawn a demand for or lost the right to, appraisal rights under the DGCL. Following the Merger, shares of Company common stock will no longer be traded on Nasdaq or any other public market.

Our common stock is registered as a class of equity security under the Exchange Act. Registration of our common stock under the Exchange Act may be terminated upon the Company’s application to the SEC if our common stock is not listed on a national securities exchange and there are fewer than 300 record holders of the outstanding shares. Termination of registration of our common stock under the Exchange Act will substantially reduce the information required to be furnished by the Company to our stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement of furnishing a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to the Company. If the Company (as the entity surviving the Merger) completed a registered exchange or public offering of debt securities, however, we would be required to file periodic reports with the SEC under the Exchange Act for a period of time following that transaction.

Except as otherwise agreed to by Parent and a holder of a Vested Option, the Merger Agreement provides that, immediately prior to the effective time of the Merger, each outstanding and unexercised Vested Option will be cancelled as of the effective time of the Merger and converted into the right to receive, as soon as reasonably practicable (but in any event no later than five business days following the effective time of the Merger, an

 

58


Table of Contents

amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Vested Option, and (ii) the Designated Consideration.

Except as otherwise agreed to by Parent and a holder of an Unvested Option, the Merger Agreement provides that, at the effective time of the Merger, each outstanding Unvested Option will be cancelled and converted into the right to receive, on such date or dates and subject to such conditions as determined by the Company in accordance with the Company stock plans and subject to the approval of Mr. Smith, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Unvested Option, and (ii) the Designated Consideration. At the effective time of the Merger, the Unvested Options will no longer represent the right to acquire shares of Company common stock and shall represent the right to receive the Designated Consideration subject to the terms described in this paragraph.

Any Vested Option or Unvested Option that has an exercise price per share that is equal to or greater than the Per Share Merger Consideration will be cancelled for no consideration. See “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units” beginning on page 85 for additional information.

Except as otherwise agreed to by Parent and a holder of an Unvested RSU, the Merger Agreement provides that each Unvested RSU that is outstanding at the effective time of the Merger will be converted into the right to receive, on the same terms and conditions as were applicable to such Unvested RSU prior to the Merger, on each date in which shares of Company common stock subject to such Unvested RSU would have become vested and exercisable (subject to continued employment through such date), a cash amount equal to the Per Share Merger Consideration for each share of Company common stock then subject to the Unvested RSU that would have otherwise vested on such vesting date, without interest and less any withholding taxes. At the effective time of the Merger, the Unvested RSUs will no longer represent the right to acquire shares of Company common stock and will represent the right to receive the Merger consideration subject to the terms described in this paragraph. See “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units” beginning on page 85 for additional information.

Pursuant to the Rollover Letter, the Rollover Investors have committed to exchange, immediately prior to the completion of the Merger, each of their Vested Options, Unvested Options and Company restricted stock units, including any Vested RSUs, that are outstanding immediately prior to the effective time of the Merger for an equivalent equity interest in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger) and therefore will not receive the consideration described above. The Rollover Investors’ commitment pursuant to the Rollover Letter are conditions as described under the subheading “—Financing of the Merger—Rollover Financing.”

Parent does not currently own any interest in the Company. The Rollover Investors possess voting power over approximately 34% of the total number of outstanding shares of Company common stock. Following consummation of the Merger, Parent will own 100% of our outstanding common stock and will have a corresponding interest in our net book value and net earnings. Our net income for the fiscal year ended December 31, 2011 was approximately $44 million and our net book value as of December 31, 2011 was approximately $880 million.

The Insight Entities agreed to contribute $210.0 million to Parent, subject to reduction by any amounts actually contributed to Parent (and not returned) at or prior to the effective time of the Merger by persons or entities to which the Insight Entities allocates all or a portion of its equity commitment which is in excess of its equity funding commitment in the amount of $150.0 million for the purpose of funding a portion of the Per Share Merger Consideration, any other amounts required to be paid pursuant to the Merger Agreement and related fees and expenses pursuant to the Merger Agreement. In addition, the Rollover Investors have agreed to contribute 28,081,712 shares of Company common stock to Parent, as well as the rollover of all Company stock options, excluding 432,982 shares of stock options the economic value of which have been transferred to Mr. Smith’s

 

59


Table of Contents

former spouse pursuant to a domestic relations order, and Company restricted stock units held by the Rollover Investors (in total, the equivalent of a $645.88 million investment based upon the Per Share Merger Consideration of $23.00) in exchange for certain equity securities of Parent.

The table below sets forth the interests in our voting shares and the interest in our net book value and net earnings for Insight Entities and the Rollover Investors before and after the Merger, based on our historical net book value as of December 31, 2011 of $44 million and our historical net earnings for the year ended December 31, 2011 of $880 million. All dollar figures are in the thousands and rounded to the nearest dollar amount.

 

     Fully Diluted Ownership of the
Company Prior to the Merger
     Fully Diluted Ownership of the
Company After the Merger
 
     %
Ownership
    Net earnings
for the fiscal year
ended
December 31,
2011
     Net book value
as of
December 31,
2011
     %
Ownership
     Net earnings for
the fiscal year
ended
December 31,
2011
     Net book
value as of
December 31,
2011
 

Insight Entities

     0     $0         $0         0%         $0         $0   

Rollover Investors

     34     $15         $299         0%         $0         $0   

Parent

     0     $0         $0         100%         $44         $880   

Total

       $44         $880         100%         $44         $880   

 

     Fully Diluted Ownership of Parent After the Merger  
     %
Ownership
    Net earnings for the fiscal year ended
December 31, 2011
    Net book value as of
December 31, 2011
 

Insight Entities

     22.68     $10        $ 200 

Rollover Investors

     78.32     $34        $ 680 

Total

     100     $ 44      $ 880 

Alternatives to the Merger

The Board did not independently determine to initiate a process for the sale of the Company. As noted above, the Special Committee was formed on September 19, 2011 and with the authority and responsibilities as set forth in enabling resolutions adopted by the Board on November 2, 2011, in response to preliminary discussions with members of Company management, including Mr. Smith, regarding the Insight Entities’ interest in a potential strategic transaction. As further noted above, while exploring the proposals from the Insight Entities, the Special Committee considered the potential benefits to the Company and its unaffiliated stockholders of possible alternatives to a sale to the Insight Entities, including an alternative sales process or continuing as a stand-alone company and conducting a stock repurchase, implementing a dividend or undertaking a recapitalization. In considering these alternatives, the Special Committee took into account all information that was available to it, including the Company’s fourth quarter 2011 financial results, management’s views on guidance for full year 2012 performance, the Company’s long-term financial projections, as well as the Special Committee’s knowledge and understanding of the business, operations, management, financial condition, earnings and prospects of the Company, including the prospects of the Company as an independent entity. After evaluating such information with the assistance of Morgan Stanley, the Special Committee determined that remaining as a stand-alone company and conducting a stock repurchase, implementing a dividend, undertaking a recapitalization or some combination of the foregoing actions was less favorable to the Company’s unaffiliated stockholders than the Merger given the potential risks, rewards and uncertainties associated with such alternatives. As noted above, the Special Committee also considered an alternative sales process, and, through Morgan Stanley, contacted a limited number of additional potential acquirers to gauge their interest in a potential transaction. As described above, Financial Sponsor A made a preliminary offer to acquire all outstanding shares of the Company’s common stock on March 6, 2012, but indicated that it would require two additional weeks of diligence if the proposed transaction would not involve partnering with the Insight Entities. Given all information

 

60


Table of Contents

that was available to the Special Committee as set forth above, the Special Committee determined that pursuing the opportunity to execute a merger agreement with Parent on March 8, 2012 would be in the best interests of the Company’s unaffiliated stockholders. The Special Committee also decided not to engage with other potential bidders at that time to preserve confidentiality of the sale process and protect against jeopardizing the potential transaction with the Insight Entities, instead utilizing a meaningful post-signing “go-shop” period to permit the Company to solicit and consider alternative transaction proposals. In electing to approve the Merger Agreement and the proposed Merger with Parent and to not take any of the alternative actions discussed above, the Special Committee determined (and the Board, in substantial reliance on the Special Committee’s determination, the Insight Entities, Parent and Merger Sub adopted the Special Committee’s determination) that the proposed Merger represents the best value reasonably obtainable for the Company’s unaffiliated stockholders. For more information on the process behind the Special Committee’s determination and the Board’s adoption of such determination, see “—Background of the Merger” and “—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger.” The firm proposals discussed above from the Insight Entities and the preliminary offer received from Financial Sponsor A represent the only proposals received by the Company from such parties. Other than the proposals from the Insight Entities and the preliminary offer from Financial Sponsor A, the Company is not aware of any firm offer by any other person during the prior two years for (i) a merger or consolidation of the Company with another entity, (ii) the sale or transfer of all or substantially all of the Company’s assets or (iii) a purchase of the Company’s securities that would enable such person to exercise control of the Company. The Rollover Investors believe pursuing the Merger is preferable to the alternatives considered by the Special Committee as described above for substantially the same reasons as presented by the Special Committee, which reasons the Rollover Investors adopt. In addition, the Merger provides the Rollover Investors the best opportunity to achieve the purposes described above under the section captioned “—Purposes and Reasons of Insight, Parent, Merger Sub and the Rollover Investors for the Merger.”

Effects on the Company if the Merger is not Completed

If our stockholders do not adopt the Merger Agreement or if the Merger is not completed for any other reason, our stockholders will not receive any payment for their shares of Company common stock unless the Company is sold to a third party. Instead, unless the Company is sold to a third party, we will remain an independent public company, our common stock will continue to be listed and traded on Nasdaq, and our stockholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our common stock. If the Merger is not completed, there is no assurance as to the effect of these risks and opportunities on the future value of your shares of Company common stock, including the risk that the market price of our common stock may decline to the extent that the current market price of our stock reflects a market assumption that the Merger will be completed. From time to time, the Board will evaluate and review the business operations, properties, dividend policy and capitalization of the Company and, among other things, make such changes as are deemed appropriate and continue to seek to maximize stockholder value. If our stockholders do not adopt the Merger Agreement or if the Merger is not completed for any other reason, there is no assurance that any other transaction acceptable to the Company will be offered or that the business, prospects or results of operations of the Company will not be adversely impacted. Pursuant to the Merger Agreement, under certain circumstances the Company is permitted to terminate the Merger Agreement and recommend an alternative transaction. See “The Merger Agreement—Termination.”

Under specified circumstances, we may be required to pay Parent a termination fee of $4.2 million or $6.3 million (depending on the nature and timing of the termination, subject to certain conditions) and reimburse Parent for up to a maximum of $7.0 million of its out of pocket expenses and up to $12.6 million (inclusive of the reverse termination fee) pursuant to the Parent Damages Remedy, subject to certain conditions. Under certain circumstances, Parent may be required to pay us a termination fee of $9.0 million and up to $18.0 million (inclusive of the termination fee) pursuant to the Company Damages Remedy, subject to certain conditions. See “The Merger Agreement—Termination Fees and Reimbursement of Expenses.”

 

61


Table of Contents

Plans for the Company

Parent and Merger Sub expect that following completion of the Merger, our operations will be conducted substantially as they are currently being conducted, except that we will cease to have publicly traded equity securities and will instead be a wholly owned subsidiary of Parent. However, following completion of the Merger, the Company will have significantly more debt than it currently has. There are no current plans to repay the debt taken out to finance the Merger. Parent and Merger Sub have informed us that they do not have any current plans or proposals and are not in negotiations to cause us to engage in any of the following:

 

   

an extraordinary corporate transaction following consummation of the Merger involving our corporate structure, business or management, such as a merger, reorganization or liquidation;

 

   

the sale or transfer of a material amount of assets; or

 

   

any other material changes in our business.

However, following the consummation of the Merger, Parent may initiate from time to time reviews of the Company and our assets, corporate structure, capitalization, operations, properties, management and personnel to determine what changes, if any, would be desirable. Parent expressly reserves the right to make any changes that it deems necessary or appropriate in the light of its review or in the light of future developments.

After the effective time of the Merger, the directors of Merger Sub immediately prior to the effective time of the Merger will become the directors of the Company, and the officers of the Company immediately prior to the effective time of the Merger will remain the officers of the Company, in each case until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be.

Prospective Financial Information

In connection with the evaluation of a possible transaction, the Company provided Morgan Stanley, in its capacity as the Company’s financial advisor, and the Insight Entities certain prospective financial information concerning the Company, including projected revenues, Operating Income, Stock Compensation, Taxes, After-Tax EBIT, Depreciation and Amortization, and Capital Expenditures. The Company’s management does not in the ordinary course prepare prospective financial information for multiple upcoming fiscal years and made available prospective financial information for use in connection with the financial analyses performed by Morgan Stanley in connection with delivering its written financial opinion to the Special Committee and to assist the Insight Entities with their due diligence review of the Company.

The summary of such information below is included solely to give stockholders access to the information that was made available to the Insight Entities and is not included in this proxy statement in order to influence any stockholder to make any investment decision with respect to the Merger, including whether or not to seek appraisal rights with respect to the shares of Company common stock.

The prospective financial information reflects numerous estimates and assumptions made by the Company with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, 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. The prospective financial information reflects subjective judgment in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the prospective financial information constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in such prospective information, including, but not limited to, the Company’s performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in the Company’s reports filed with the SEC. There can be no assurance that the prospective results will be realized or

 

62


Table of Contents

that actual results will not be significantly higher or lower than forecast. The prospective financial information covers multiple years and such information by its nature becomes less reliable with each successive year. In addition, the prospective information will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The assumptions upon which the prospective information was based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. The prospective information also reflects assumptions as to certain business decisions that are subject to change. Such prospective information cannot, therefore, be considered a guaranty of future operating results, and this information should not be relied on as such. The inclusion of this information should not be regarded as an indication that the Company, the Insight Entities, the Special Committee, any of their respective financial advisors or anyone who received this information then considered, or now considers, it a reliable prediction of future events, and this information should not be relied upon as such. None of the Company, the Insight Entities, the Special Committee or any of their financial advisors or any of their affiliates intends to, and each of them disclaims any obligation to, update, revise or correct such prospective information if they are or become inaccurate.

The prospective financial information does not take into account any circumstances or events occurring after the date it was prepared, including the transactions contemplated by the Merger Agreement. Further, the prospective financial information does not take into account the effect of any failure of the Merger to occur and should not be viewed as accurate or continuing in that context.

The inclusion of the prospective financial information herein should not be deemed an admission or representation by the Company, the Insight Entities or the Special Committee that they are viewed by the Company or the Insight Entities or the Special Committee as material information of the Company, and in fact the Company, the Insight Entities and the Special Committee view the prospective financial information as non-material because of the inherent risks and uncertainties associated with such long range forecasts. The prospective information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC. In light of the foregoing factors and the uncertainties inherent in the Company’s prospective information, stockholders are cautioned not to place undue, if any, reliance on the prospective information included in this proxy statement.

 

     2011     2012E     2013E     2014E     2015E     2016E  
     (amounts in thousands)  

Revenue

   $ 857.4      $ 958.9      $ 1,020.6      $ 1,073.6      $ 1,124.3      $ 1,158.0   

Operating Income

   $ 168.0      $ 196.7      $ 227.5      $ 251.6      $ 273.9      $ 279.9   

Stock Compensation

     ($24.4     ($28.8     ($30.6     ($32.2     ($33.7     ($34.7

Taxes

     ($30.4     ($42.0     ($49.2     ($54.8     ($60.1     ($61.3

After Tax EBIT

   $ 113.1      $ 125.9      $ 147.7      $ 164.5      $ 180.2      $ 183.9   

Depreciation and Amortization

   $ 15.9      $ 19.6      $ 20.4      $ 21.5      $ 20.8      $ 21.4   

Capital Expenditures

     ($28.7     ($32.0     ($19.0     ($20.0     ($20.8     ($21.4

Financing of the Merger

The Company and Parent estimate that the total amount of funds required to complete the Merger and related transactions and pay related fees and expenses will be approximately $2.0 billion. Parent expects this amount to be provided through a combination of the proceeds of:

 

   

cash equity investments by each of the Insight Entities (or such investment funds together with its co-investors and assignees), which are described elsewhere in this section under the subheading “Equity Financing”;

 

63


Table of Contents
   

the contribution of shares of Company common stock to Parent immediately prior to the Merger by the Rollover Investors, which is described elsewhere in this section under the subheading “Rollover Financing”;

 

   

debt financing, which is described elsewhere in this section under the subheading “Debt Financing”; and

 

   

cash of the Company.

Equity Financing

On March 8, 2012, the Insight Entities entered into a letter agreement (the “Equity Commitment Letter”) with Parent pursuant to which the Insight Entities committed to purchase, at or prior to the consummation of the Merger, $210.0 million of certain equity securities of Parent. The equity commitment of each of the Insight Entities is conditioned upon the contemporaneous contribution of shares of Company common stock by the Rollover Investors described below and the funding of the debt financing described below (or alternative debt financing being obtained in accordance with the Merger Agreement). The equity commitment is further conditioned upon the satisfaction or waiver of the conditions to the obligations of Parent to complete the Merger contained in the Merger Agreement and upon the substantially simultaneous consummation of the Merger. The equity commitment of the Insight Entities may be reduced on a pro rata basis by any amounts not required by Parent to fund the aggregate Merger consideration and to pay any fees and expenses pursuant to the Merger Agreement. The equity commitment will terminate upon the earliest to occur of (i) consummation of the Merger and (ii) termination of the Merger Agreement (unless the Company has commenced litigation prior to termination to enforce the equity commitments, in which case the equity commitments will terminate when the Insight Entities have satisfied any obligations finally determined or agreed to be owed by them under the Equity Commitment Letter). The Company is an express third-party beneficiary of the Equity Commitment Letter and has the right to seek specific performance of each of the equity commitments under the circumstances in which the Company would be permitted by the Merger Agreement to obtain specific performance requiring Parent to enforce the equity commitment.

Rollover Financing

On March 8, 2012, the Rollover Investors entered into the Rollover Letter with Parent pursuant to which the Rollover Investors collectively committed to contribute, immediately prior to the consummation of the Merger, an aggregate amount of 28,081,712 shares of Company common stock to Parent, as well as the rollover of all Company stock options and Company restricted stock units held by the Rollover Investors, excluding 432,982 shares of stock options the economic value of which have been transferred to Mr. Smith’s former spouse pursuant to a domestic relations order (the equivalent of a $645.88 million investment based upon the Per Share Merger Consideration of $23.00) in exchange for certain equity securities of Parent. The Rollover Investors’ commitments pursuant to the Rollover Letter are conditioned upon the contemporaneous purchase of securities of Parent pursuant to the equity commitments of the Insight Entities described above and the funding of the debt financing described below (or alternative debt financing being obtained in accordance with the Merger Agreement). Such commitments are further conditioned upon, among other requirements, the satisfaction or waiver of the conditions to the obligations of Parent to complete the Merger contained in the Merger Agreement (as determined by the Insight Entities or as determined by a court enforcing such entities’ equity commitments pursuant to the Company’s specific performance remedy under the Merger Agreement), the condition that the Transaction Support Agreement described below is not terminated (other than by mutual written consent of the parties thereto), the funding of the Shareholder Loan described below, and upon the substantially simultaneous consummation of the Merger. The Rollover Investors’ commitments pursuant to the Rollover Letter will terminate upon the earliest to occur of (i) consummation of the Merger and (ii) termination of the Merger Agreement (unless the Company has commenced litigation prior to termination to enforce such commitments, in which case the equity commitments will terminate when the Rollover Investors have satisfied any obligations finally determined or agreed to be owed by them under the Rollover Letter). The Company is an

 

64


Table of Contents

express third-party beneficiary of the Rollover Letter and has the right to seek specific performance of the commitments of the Rollover Investors under the Rollover Letter under the circumstances in which the Company would be permitted by the Merger Agreement to obtain specific performance requiring Parent to enforce such commitments.

Debt Financing

In connection with Parent’s entry into the Merger Agreement, Parent received a commitment letter (the “Debt Commitment Letter”), dated March 8, 2012, from JPMorgan Chase Bank, N.A. (“JPMCB”), J.P. Morgan Securities LLC (“JPMorgan”), Royal Bank of Canada (“Royal Bank”), RBC Capital Markets (“RBCCM”), Barclays Capital (“Barclays Capital”) and Barclays Bank PLC (together with JPMCB, JPMorgan, Royal Bank, RBCCM and Barclays Capital, the “Debt Commitment Parties”). The Debt Commitment Letter provides an aggregate of $1.195 billion in debt financing to Merger Sub, consisting of a $820.0 million senior secured term loan facility, a $300.0 million senior unsecured bridge facility and a $75.0 million senior secured revolving facility, of which, subject to the then-applicable borrowing base, no more than $37.5 million may be drawn at the Closing (i) to fund any original issue discount or upfront fees with respect to the debt financing and (ii) to pay fees and expenses incurred in connection with the transactions.

The Debt Commitment Parties may invite other banks, financial institutions and institutional lenders to participate in the debt financing described in the Debt Commitment Letter and to undertake a portion of the commitments to provide such debt financing.

Senior Secured Facilities. Interest under the senior secured facilities will be payable either at a base rate (based on the higher of the prime rate, the Federal Funds Effective Rate plus 0.50% and adjusted LIBOR for interest periods of 1 month plus 1.00%) plus 3.75% or a LIBOR-based rate plus 4.75% at the option of the borrower and will be payable at the end of each interest period set forth in the credit agreement (but at least every three months).

The borrower under the senior secured facilities will initially be Merger Sub, and upon consummation of the Merger, the rights and obligations under the senior secured facilities will be assumed by the Company. The senior secured facilities will be guaranteed on a joint and several basis by Parent and by all of the existing and future direct and indirect domestic restricted subsidiaries of Merger Sub (which will include, after the Merger, all of the existing and future direct and indirect domestic restricted subsidiaries of the Company) other than certain immaterial and other subsidiaries. The senior secured term loan facility and the senior secured revolving facility will be secured, subject to agreed upon exceptions, by substantially all the assets of Parent, Merger Sub and each subsidiary guarantor, including substantially all tangible and intangible personal property (including but not limited to accounts receivable, inventory, cash and deposit accounts and the proceeds therefrom), substantially all of the material fee-owned real property and equipment and perfected pledges of the equity securities of the borrower and of each direct restricted subsidiary of the borrower and of each subsidiary guarantor, with certain exceptions, including limitations on the pledge of capital stock of foreign subsidiaries.

Senior Unsecured Bridge Facility. The Debt Commitment Letter contemplates that either (i) Merger Sub will issue and sell senior unsecured notes in a Rule 144A or other private placement on or prior to the Closing date yielding at least $300.0 million in gross proceeds, or (ii) to the extent Merger Sub does not so issue senior unsecured notes on or prior to the Closing date, Merger Sub will borrow up to $300.0 million (less the gross proceeds of any offering of senior unsecured notes) under the senior unsecured bridge facility.

The borrower under the senior unsecured bridge facility will initially be Merger Sub, and upon consummation of the Merger, the rights and obligations under the senior unsecured bridge facility will be assumed by the Company. Interest under the senior unsecured bridge facility shall initially equal a LIBOR-based rate (subject to a 1.25% floor) plus 9.25% increasing to a specified cap. The senior unsecured bridge facility will be guaranteed on a joint and several basis by the guarantors of the senior secured facilities on a senior unsecured

 

65


Table of Contents

basis with the guarantee of each such guarantor under the senior unsecured bridge facility being pari passu in right of payment with all obligations under the senior facilities.

If the senior unsecured bridge facility is not paid in full on or before the first anniversary of the Merger, then subject to specified conditions, the maturity of the senior unsecured bridge facility shall be extended to eight years after the Closing date. After such extension, the holders of the outstanding senior bridge loans may choose to exchange such loans for senior exchange notes that mature eight years after the Closing date that the Company would be required to register for public sale under a registration statement in compliance with applicable securities laws.

Debt Financing Conditions:

The facilities contemplated by the Debt Commitment Letter are subject to certain closing conditions, including, without limitation:

 

   

a condition that, (a) since December 31, 2011, except (i) as set forth in the Company Disclosure Letter (as defined in the Merger Agreement) or (ii) disclosed in any Company SEC Document (as defined in the Merger Agreement) filed on or after January 1, 2011 (the “filed SEC documents”) other than exhibits and schedules to the filed SEC documents or disclosures in such filed SEC documents contained in the “Risk Factors” and “Forward-Looking Statements” sections thereof or any other disclosures in the filed SEC documents which are forward-looking in nature, there shall not have been any event, change or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect (defined in the Debt Commitment Letter in a manner substantially similar to the definition of “Material Adverse Effect” in the Merger Agreement) and (b) since the date of the Merger Agreement, no Material Adverse Effect shall have occurred and be continuing;

 

   

the consummation of the Merger in all material respects in accordance with the terms of the Merger Agreement (without any amendments to the Merger Agreement or any waivers thereof that are material and adverse to the interests of the lenders or the joint lead arrangers) substantially and concurrently with the initial borrowing under the debt facilities;

 

   

the consummation of the equity contribution by the Insight Entities substantially concurrently with the initial borrowing under the debt facilities;

 

   

the refinancing or repayment, including the termination and release of all commitments, security interests and guaranties in connection therewith of all existing third-party indebtedness for borrowed money of the Company and its subsidiaries substantially concurrently with the initial borrowing under the debt facilities;

 

   

delivery of certain audited, unaudited and pro forma financial statements;

 

   

the delivery of certain customary closing documents (including, among others, a solvency certificate, legal opinions, evidence of insurance and customary lien searches), documentation required under anti-money laundering laws and the taking of certain actions necessary to establish and perfect a security interest in certain items of collateral;

 

   

the closing of each of the debt facilities shall have occurred on or before the Expiration Date (as defined in the Debt Commitment Letter);

 

   

the execution and delivery of definitive documentation with respect to the applicable debt facilities consistent with the Debt Commitment Letter;

 

   

the payment of applicable fees and expenses;

 

   

as a condition to the availability of the senior unsecured bridge facility, (a) one or more investment banks reasonably satisfactory to the senior unsecured bridge facility arrangers shall have been engaged

 

66


Table of Contents
 

to privately place the senior unsecured notes, (b) the receipt of a customary offering memorandum with respect to the senior unsecured notes offering (the “Required OM”), and (c) the expiration of a marketing period of 15 consecutive business days following receipt of the Required OM;

 

   

as a condition to the availability of the senior secured credit facilities, the expiration of a marketing period of 15 consecutive business days following receipt of the Required OM and a confidential information memorandum for each of the revolving facility and term loan facility and other customary marketing materials to be used for the purpose of syndication for use in the syndication of the senior secured credit facilities; and

 

   

the accuracy of certain representations and warranties in the Merger Agreement and specified representations and warranties in the loan documents.

The final termination date for the Debt Commitment Letter is the earliest of (a) the date on which the Merger Agreement is validly terminated in accordance with its terms, (b) the date on which the Merger Agreement is consummated, (c) 5:00 p.m. New York City time, on September 8, 2012, (d) any public announcement by Parent or its affiliates indicating that Parent does not intend to proceed with the Merger or the debt financing.

Subject to the terms and conditions of the Merger Agreement, each of Parent and Merger Sub shall use its commercially reasonable efforts to obtain the Financing (as defined in the Merger Agreement) on the terms and conditions described in the Financing Letters (as defined in the Merger Agreement), and the contribution contemplated by the Rollover Letter, pursuant to the terms thereof, and shall not permit any amendment or modification to be made to, or any waiver of any material provision under, the Financing Letters or Rollover Letter if such amendment, modification or waiver (i) reduces the aggregate amount of the Financing or amount of Company common stock to be contributed, or (ii) impose new or additional conditions or otherwise expands, amends or modifies any of the conditions to the Financing or contribution contemplated by the Rollover Letter that would reasonably be expected to (a) materially delay or prevent the funding of the Financing or contribution contemplated by the Rollover Letter (or satisfaction of the conditions to the Financing or contribution contemplated by the Rollover Letter) on the Closing date or (b) adversely impact the ability of Parent or Merger Sub, as applicable, to enforce its rights against the other parties to the Financing Letters or the Rollover Letter.

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

Limited Guaranty

The Insight Entities and the Rollover Investors, severally and not jointly, have each agreed to guarantee one-half of the obligations of Parent under the Merger Agreement, with the obligations of each Insight Entity and each Rollover Investor limited to such portion of the guaranty based on its respective equity commitment to Parent, to pay, under certain circumstances, a reverse termination fee, the Company Damages Remedy and certain expense reimbursement and indemnification obligations. The limited guaranty will terminate on the earliest of (i) the effective time of the Merger, (ii) the termination of the Merger Agreement by mutual consent of the parties thereto or under circumstances in which Parent would not be obligated to pay the reverse termination fee, the Company Damages Remedy is not available and no other reimbursement or indemnification obligations remain outstanding, (iii) the receipt by the Company of the payment in full of all of the guaranteed obligations payable under the limited guaranty and (iv) September 8, 2012 (unless, with respect to this clause (iv), the Company has commenced litigation under the limited guaranty on or prior to such termination, in which case the limited guaranty will terminate when the Insight Entities and the Rollover Investors have satisfied any obligations finally determined or agreed to be owed by them under the limited guaranty). However, if the

 

67


Table of Contents

Company or any of its affiliates asserts a claim other than as permitted under the limited guaranty, including a claim against certain specified non-recourse parties or a claim in excess of the guaranteed amounts under the limited guaranty, the limited guaranty will immediately terminate and become null and void by its terms, all payments previously made pursuant to the limited guaranty may be recovered and neither the Insight Entities, the Rollover Investors, nor certain of their related parties will have any liability under the limited guaranty, the Merger Agreement or any related documents.

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

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

Special Committee Compensation

In consideration of the expected time and effort that would be required of the members of the Special Committee in evaluating the Merger, including negotiating the terms and conditions of the Merger Agreement, the Board determined that the chairman of the Special Committee would receive a retainer of $40,000 and monthly fee of $30,000 and that each other member of the Special Committee would receive a retainer of $30,000 and a monthly fee of $25,000 for their service on the Special Committee. Such fees are payable whether or not the Merger is completed and were approved by the Board. No other meeting fees or other compensation (other than reimbursement for out-of-pocket expenses in connection with attending Special Committee meetings) will be paid to the members of the Special Committee in connection with their service on the Special Committee.

Treatment of Outstanding Stock Options

As described in “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units” beginning on page 85, except as otherwise agreed to by Parent and a holder of a Vested Option, the Merger Agreement provides that, immediately prior to the effective time of the Merger, each outstanding and unexercised Vested Option will be cancelled as of the effective time of the Merger and converted into the right to receive, as soon as reasonably practicable (but in any event no later than five business days following the effective time of the Merger), an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Vested Option, and (ii) the Designated Consideration.

Except as otherwise agreed to by Parent and a holder of an Unvested Option, the Merger Agreement provides that, at the effective time of the Merger, each outstanding Unvested Option will be cancelled and converted into the right to receive, on such date or dates and subject to such conditions as determined by the Company in accordance with the Company stock plans and subject to the approval of Mr. Smith, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Unvested Option, and (ii) the Designated Consideration. At the effective time of the Merger, the Unvested Options will no longer represent the right to acquire shares of Company common stock and shall represent the right to receive the Designated Consideration on the terms described in this paragraph.

Any Vested Option or Unvested Option that has an exercise price per share that is equal to or greater than the Per Share Merger Consideration will be cancelled for no consideration. See “The Merger Agreement—Treatment of Common Stock, Options and Restricted Stock Units” beginning on page 85 for additional information.

Pursuant to the Rollover Letter, Mr. Smith has committed to exchange, immediately prior to the completion of the Merger, each Vested Option and Unvested Option that is outstanding at the effective time of the Merger,

 

68


Table of Contents

excluding 432,982 shares of stock options the economic value of which have been transferred to Mr. Smith’s former spouse pursuant to a domestic relations order, for a stock option with respect to Parent stock under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger) and therefore will not receive the consideration described above. The Parent options will generally have the same terms and conditions, including vesting schedules and expiration dates, as the Company stock options. Mr. Smith’s commitments pursuant to such the Rollover Letter are conditioned as described under the subheading “—Financing of the Merger—Rollover Financing.”

The following table sets forth, for each of our directors and executive officers holding stock options as of April 2, 2012 (other than Mr. Smith) the aggregate number of shares of Company common stock subject to Vested Options and Unvested Options that have a per share exercise price lower than the Per Share Merger Consideration, and the value of such options. The value of the stock options has been calculated on a pre-tax basis, by multiplying (i) the Designated Consideration by (ii) the number of shares of Company common stock subject to those stock options.

 

     Vested Stock Options      Unvested Stock Options  

Name

   Shares      Value      Shares      Value  

Executive Officers

           

Douglas F. Garn

     142,130       $ 1,180,300         610,390       $ 4,523,299   

Scott J. Davidson

     101,440       $ 784,606         220,410       $ 1,620,022   

Steve Dickson

     76,500       $ 535,025         182,500       $ 1,255,725   

Alan Fudge

     71,340       $ 464,241         203,010       $ 1,394,752   

Non-Employee Directors

           

Kevin M. Klausmeyer

     105,000       $ 742,350         0       $ 0   

Augustine L. Nieto II

     85,000       $ 540,150         0       $ 0   

Paul A. Sallaberry

     140,000       $ 1,037,400         0       $ 0   

H. John Dirks

     85,000       $ 522,300         0       $ 0   

The following table sets forth the aggregate number of shares of Company common stock subject to Vested Options and Unvested Options that have a per share exercise price lower than the Per Share Merger Consideration held by Mr. Smith as of April 2, 2012, and the number of shares of Parent stock subject to the Parent options into which such Vested Options and Unvested Options will be converted.

 

     Vested Stock Options      Unvested Stock Options  

Name

   Company Shares     Parent Shares      Company Shares      Parent Shares  

Vincent C. Smith

     1,691,055 (1)      1,691,055         1,153,250         1,153,250   

 

(1) Excludes 432,982 Vested Options the economic value of which have been transferred to Mr. Smith’s former spouse pursuant to a domestic relations order.

Treatment of Outstanding Restricted Stock Units

Pursuant to the Rollover Letter, Mr. Smith has committed to exchange, immediately prior to the Merger, the Vested RSUs for an equivalent equity interest in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger). The Parent restricted stock units will generally have the same terms and conditions, including vesting schedules and expiration dates, as the Vested RSUs.

None of the Company’s other directors or executive officers held Company restricted stock units as of April 2, 2012.

 

69


Table of Contents

The following table sets forth the aggregate number of Vested RSUs held by Mr. Smith as of April 2, 2012, and the number of Parent RSUs into which such Vested RSUs will be converted.

 

     Vested Restricted Stock Units  

Name

   Company Shares      Parent Shares  

Vincent C. Smith

     202,956         202,956   

Severance Arrangements

On March 8, 2012, the Board adopted the Quest Software, Inc. Change in Control Severance Plan (the “Severance Plan”) in order to encourage certain management-level employees of the Company to continue to focus on the best interests of the Company’s stockholders and provide severance protections to such employees in the event their employment is terminated in connection with a change in control of the Company under the circumstances described in the Severance Plan. For purposes of the Severance Plan, a “change in control” of the Company does not include the consummation of the Merger. Therefore, upon consummation of the Merger, the Severance Plan will terminate and participants in the Severance Plan will not realize any benefits or severance protections under the Severance Plan on a subsequent termination of employment.

Employment Agreement with Vincent C. Smith

As of the date of this proxy statement, Mr. Smith has not entered into any amendments or modifications to his existing employment arrangements with the Company in connection with the Merger, nor has he entered into any employment or other agreement with Parent or its affiliates.

Retention Arrangement with Mr. Davidson

With the desire to encourage Mr. Davidson to continue to focus on the best interests the Company following the execution of the Merger Agreement, on March 20, 2012, the Special Committee approved a one-time cash payment of $100,000 to Mr. Davidson, less applicable taxes, subject to his continued employment through, and payable following, the earlier of (i) the effective time of the Merger and (ii) the date of the Company’s entry into an agreement with respect to a Superior Proposal (defined below).

Rollover Agreement

On March 8, 2012, the Rollover Investors entered into the Rollover Letter with Parent pursuant to which the Rollover Investors collectively committed to contribute, immediately prior to the completion of the Merger, an aggregate amount of 28,081,712 shares of Company common stock to Parent, as well as the rollover of all Company Vested Options, Unvested Options and Company restricted stock units held by the Rollover Investors (as described above), excluding 432,982 stock options the economic value of which have been transferred to Mr. Smith’s former spouse pursuant to a domestic relations order (the aggregate amount of which is the equivalent of a $645.88 million investment based upon the Per Share Merger Consideration of $23.00) in exchange for certain equity securities of Parent.

Transaction Support Agreement

On March 8, 2012, the Insight Entities, the Rollover Investors, Parent and Merger Sub entered into a transaction support agreement (the “Transaction Support Agreement”), pursuant to which the Rollover Investors agree not to transfer any shares of Company common stock without the prior written consent of the Insight Entities, subject to certain exceptions. The parties to the Transaction Support Agreement agreed that the Insight Entities would not permit Parent or Merger Sub to commit to, or enter into any amendment, modification, waiver or alteration (including any change in price) of the Merger Agreement, the Equity Commitment Letter or the Debt Commitment Letter that (i) could reasonably be expected to materially and adversely impact the Rollover

 

70


Table of Contents

Investors, (ii) alters the form or amount of merger consideration, waives the satisfaction of obligations of Parent and Merger Sub to effect the Closing as set forth in the Merger Agreement or alters the amount or conditions under which the reverse termination fee or Parent Damages Remedy would be payable by Parent or (iii) changes the structure or intended tax treatment of the Merger or any of the transactions contemplated by the Merger Agreement without prior written consent of the Rollover Investors (a “Consent Triggering Event”). The Transaction Support Agreement also restricts the Rollover Investors from disclosing any assumption, information, evaluation or view of Insight or its affiliates or representatives in connection with the Merger, subject to certain exemptions. The Transaction Support Agreement does not restrict or prevent Mr. Smith from engaging in or entering into any unsolicited discussions, agreements, understandings or arrangements with any third party regarding the participation by the Rollover Investors in any other acquisition transaction involving the Company, and does not restrict Mr. Smith from taking or refraining from any action in his capacity as an executive officer or as a director of the Company.

In addition, the Transaction Support Agreement provides that on the Closing date, Parent, the Insight Entities and the Rollover Investors shall enter into a previously negotiated stockholders agreement (the “Stockholders Agreement”) that will govern the rights and obligations of the parties as holders of equity in Parent following completion of the Merger. Pursuant to the Stockholders Agreement, immediately following the Closing, the board of directors of Parent will initially consist of five members: Mr. Smith, who will be chairman of the board of directors, two individuals designated by Mr. Smith and two directors designated by the Insight Entities. The Stockholders Agreement also sets forth certain requirements regarding the voting of the equity of Parent and certain restrictions on transfers of the equity of Parent and provides the Rollover Investors and the Insight Entities with certain board designation rights, information rights, consent rights, rights of first offer, tag-along rights, drag-along rights, preemptive rights and registration rights with respect to the equity of Parent. In addition, the Stockholders Agreement provides that for a specified period of time prior to the date on which the Shareholder Loan is repaid in full, the Rollover Investors will be entitled to receive annual dividends with respect to their equity in Parent, out of funds legally available therefor (as determined by the board of Parent and as permitted by any agreements governing the terms of Parent’s senior indebtedness) equal to $7 million per year in the aggregate, or such lesser amount necessary to repay in full the Shareholder Loan after giving effect to all prior dividends (100% of the proceeds of such dividends shall be used to repay the Shareholder Loan), before any dividends shall be declared, set apart for or paid with respect to any shares of any other equity of Parent.

The Transaction Support Agreement will automatically terminate on the earliest of (i) the date the Merger is consummated, (ii) the date that the Merger Agreement is validly terminated in accordance with its terms or (iii) the occurrence of a Consent Triggering Event that, to the extent subject to cure, was not subsequently cured by the Insight Entities.

Shareholder Loan

Parent has also agreed, pursuant to the Transaction Support Agreement, to loan ( the “Shareholder Loan”) the Rollover Investors $120 million, immediately prior to the Closing, which amount will be used by the Rollover Investors to repay outstanding indebtedness of the Rollover Investors encumbering the Rollover Shares. The Shareholder Loan will be secured by 100% of the common stock of Parent held by the Rollover Investors following the Closing, and will be recourse to the Rollover Investors to the extent of 50% of the then outstanding principal amount of the Shareholder Loan plus accrued interest thereon. The interest rate on the Shareholder Loan is subject to further negotiation between the Rollover Investors and the Insight Entities, and will depend on certain factors, including the current interest rate payable by the Rollover Investors on the indebtedness encumbering the Rollover Shares and the costs to unwind such indebtedness. Such loan would have the same maturity date as the senior term facility of the Company to be entered into at the Closing, require mandatory prepayment in certain circumstances and shall include customary restrictive covenants and events of default.

 

71


Table of Contents

Employee Benefits

The Merger Agreement requires Parent or the surviving corporation to continue to provide certain compensation and benefits for a period of one year from the consummation of the Merger, as well as take certain actions in respect of employee benefits provided to the Company’s employees, including its executive officers. For a more detailed description of these requirements, please see “The Merger Agreement—Employee Benefit Matters” beginning on page 98.

New Management Arrangements with Other Quest Executive Officers

Other than as described above, as of the date of this proxy statement, none of the Company’s executive officers has entered into any amendments or modifications to his or her existing employment arrangements with the Company in connection with the Merger, nor has any executive officer entered into any employment or other agreement with Parent or its affiliates. Parent has indicated that it or its affiliates may pursue agreements, arrangements or understandings with the Company’s executive officers, which may include cash, stock and co-investment opportunities. To date, no negotiations or discussions have occurred, and no promises have been made to any person.

Pursuant to the Rollover Agreement, the Insight Entities agreed with the Rollover Investors to cause Parent to adopt a new management incentive plan prior to the consummation of the Merger with such customary terms and conditions appropriate for a private company as are mutually agreed upon by the Rollover Investors and Parent.

Indemnification of Directors and Officers

The Company is organized under the laws of the State of Delaware. Section 145 of the DGCL permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by current law. The Company’s Certificate of Incorporation provides for the indemnification of the Company’s directors to the fullest extent permissible under the DGCL. Consequently, no director will be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duties as a director, except liability for:

 

   

any breach of the director’s duty of loyalty to the Company or its stockholders;

 

   

any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law;

 

   

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or

 

   

any transaction from which the director derived an improper personal benefit.

In addition, the Company’s bylaws provide that the Company may indemnify its directors, officers, employees and agents, in each case to the fullest extent permitted by the DGCL. The Company’s bylaws also provide that the Company shall, to the fullest extent permitted by the DGCL, advance expenses to any indemnified director, officer, employee or agent who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding.

The Company has entered into agreements to indemnify its directors, officers and other employees as determined by the Board. These agreements generally provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals

 

72


Table of Contents

in any action or proceeding. The Company’s indemnification obligations include the advancement of the expenses mentioned in the preceding sentence. The Company also maintains directors’ and officers’ liability insurance that insures its directors and officers against certain losses and insures the Company with respect to its obligations to indemnify its directors and officers.

The Merger Agreement provides that Parent and the surviving corporation will honor and fulfill in all respects the indemnification obligations of the Company, including the advancement of expenses incurred in the defense of any action or suit, incurred prior to the effective time of the Merger. The certificate of incorporation and bylaws of the surviving corporation will contain provisions no less favorable to the indemnified parties with respect to the limitation of liabilities of directors and officers and indemnification than are set forth in the Company’s organizational documents in effect on March 8, 2012. Furthermore, until the sixth anniversary of the effective time of the Merger, the surviving corporation will maintain in effect directors’ and officers’ liability insurance with benefits and coverage levels that are no less favorable than the Company’s existing policies in respect of acts or omissions occurring at or prior to the effective time of the Merger, provided that in satisfying such obligations, Parent and the surviving corporation will not be obligated to pay annual premiums in excess of 300% of the amount paid by the Company for coverage for its last full fiscal year (the “Maximum Annual Premium”). If the annual premiums of such insurance coverage exceed such amount, Parent and the surviving corporation will obtain a policy with the greatest coverage available for a cost not exceeding the Maximum Annual Premium. In lieu of the foregoing insurance, the Company has the option, in its sole discretion, to purchase a six-year prepaid “tail” policy, for an aggregate amount not exceeding six times the Maximum Annual Premium, with benefits and coverage levels that are no less favorable than the Company’s existing policies in respect of acts or omissions occurring at or prior to the effective time of the Merger.

Intent to Vote in Favor of the Merger

As of                     , 2012, the record date for the Special Meeting, our directors and current executive officers owned, in the aggregate,              shares of Company common stock, or collectively approximately     % of the outstanding shares of Company common stock and, exclusive of Mr. Smith, our directors and current executive officers owned, in the aggregate,              shares of Company common stock, or collectively approximately     % of the outstanding shares of Company common stock.

Mr. Smith has entered into a voting agreement with the Company, dated as of March 8, 2012, pursuant to which Mr. Smith has agreed, subject to certain conditions, to vote all shares Company common stock of which he possesses voting power (approximately 34% of the outstanding shares of Company common stock) in favor of the adoption of the Merger Agreement unless the voting agreement is terminated pursuant to its terms. Furthermore, the balance of our directors and current executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of Company common stock in favor of the adoption of the Merger Agreement because they believe that the Merger is in the best interests of the Company and its unaffiliated stockholders.

Relationship Between Quest and Insight

The Company, Mr. Smith and Mr. Sallaberry are limited partner investors in, certain investment funds affiliated with Insight. Mr. Sallaberry and Mr. Smith are minority investors in GFI Software S.a.r.l., a portfolio company of Insight.

Except as set forth above and elsewhere in this proxy statement, none of the Insight Entities, Parent or Merger Sub nor any of their respective directors, executive officers or other affiliates had any transactions with us or any of our directors, executive officers or other affiliates that would require disclosure under the rules and regulations of the SEC applicable to this proxy statement. Except as set forth in this proxy statement, neither we nor any of our directors, executive officers or other affiliates had any transactions with Parent, Merger Sub or any

 

73


Table of Contents

of their directors, executive officers or other affiliates that would require disclosure under the rules and regulations of the SEC applicable to this proxy statement.

Except as set forth above or elsewhere in this proxy statement, none of the Insight Entities, Parent or Merger Sub, nor any of their respective directors, executive officers or other affiliates had any negotiations, transactions or material contacts with us or any of our directors, executive officers or other affiliates during the past two years that would require disclosure under the rules and regulations of the SEC applicable to this proxy statement.

Dividends

Pursuant to the Merger Agreement, we are prohibited from declaring any dividends following execution of the Merger Agreement on March 8, 2012 absent the prior written consent of Parent.

Determination of the Per Share Merger Consideration

The Per Share Merger Consideration was determined through arm’s-length negotiations between Parent, Merger Sub and the Company (acting through the Special Committee).

Regulatory Matters

In connection with the Merger, we are required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies, including:

 

   

filing the certificate of merger with the Secretary of State of the State of Delaware in accordance with the DGCL after the adoption of the Merger Agreement by our stockholders; and

 

   

complying with U.S. federal securities laws.

In addition, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the related rules and regulations that have been issued by the Federal Trade Commission (the “FTC”), certain transactions having a value above specified thresholds may not be consummated until specified information and documentary material have been furnished to the FTC and the Antitrust Division of the Department of Justice (the “DOJ”) and certain waiting period requirements have been satisfied. The requirements of the HSR Act apply to the acquisition of shares of Company common stock in the offer and the Merger. The Company and Mr. Smith filed the notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ on March 29, 2012.

Further, approvals may be necessary, proper or advisable to obtain from, or notices may need to be submitted to, foreign regulatory authorities in connection with the Merger. The Merger cannot be completed until such approvals are obtained from, or such notices are submitted to, such foreign regulatory authorities.

At any time before or after consummation of the Merger, notwithstanding the expiration or termination of required waiting periods and the receipt of any other required approvals, the Antitrust Division of the DOJ, the FTC or state or foreign antitrust and competition authorities could take such action under applicable antitrust or competition laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture or licensing of substantial assets and businesses, including assets and businesses of the Company and/or Parent. Private parties may also seek to take legal action under the antitrust and competition laws under certain circumstances.

None of the parties is aware of any other required regulatory approvals.

 

74


Table of Contents

Fees and Expenses

Whether or not the Merger is completed, in general, all fees and expenses incurred in connection with the Merger will be paid by the party incurring those fees and expenses. If the Merger Agreement is terminated, the Company will, in specified circumstances, be required to reimburse Parent and Merger Sub for up to $7 million of documented out-of-pocket fees and expenses. See “The Merger Agreement—Termination Fees and Reimbursement of Expenses.” Fees and expenses incurred or to be incurred by the Company in connection with the Merger are estimated at this time to be as follows:

 

Description

   Amount (in thousands)  

Financing fees and expenses and related professional fees

   $            

Financial advisory fee and expenses

   $     

Legal and accounting fees and expenses

   $     

Printing, proxy solicitation, filing fees and mailing costs

   $     

Special Committee fees

   $     

Miscellaneous

   $     

These expenses will not reduce the Per Share Merger Consideration to be received by the Company’s shareholders.

Certain Material United States Federal Income Tax Consequences

The following is a general summary of certain material U.S. federal income tax consequences to holders of shares of Company common stock upon the exchange of shares of Company common stock for cash pursuant to the Merger. This summary is not a complete analysis of all potential U.S. federal income tax consequences, nor does it address any tax consequences arising under any state, local or foreign tax laws or U.S. federal estate or gift tax laws. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations, administrative rulings and court decisions, all as in effect as of the date hereof and all of which are subject to differing interpretations and/or change at any time (possibly with retroactive effect). This summary assumes that holders own shares of Company common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address U.S. federal income tax considerations that may be relevant to a holder in light of the holder’s particular circumstances, including without limitation, holders of shares of Company common stock received in connection with the exercise of employee stock options or otherwise as compensation, holders that validly exercise their rights under Delaware law to object to the Merger, or holders subject to special treatment under U.S. federal income tax law (such as insurance companies, banks, tax-exempt entities, 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, tax-deferred or other retirement accounts, holders subject to the alternative minimum tax, U.S. persons that have a functional currency other than the U.S. dollar, certain former citizens or residents of the United States, “controlled foreign corporations,” “passive foreign investment companies,” or holders that hold shares of Company common stock as part of a hedge, straddle, integration, constructive sale or conversion transaction). In addition, except as specifically described below, this summary does not discuss any consequences to shareholders of the Company, including shareholders that own or are deemed to own Rollover Shares, that will directly or indirectly hold an ownership interest in Parent or the Company after the Merger, or to holders of options or warrants to purchase shares of Company common stock.

We have not sought and will not seek any opinion of counsel or any ruling from the Internal Revenue Service with respect to the matters discussed herein. We urge holders of shares of Company common stock to consult their tax advisors with respect to the specific tax consequences to them in connection with the Merger in light of their own particular circumstances, including the tax consequences under state, local, foreign and other tax laws.

 

75


Table of Contents

As used in this discussion, a “U.S. Holder” is any beneficial owner of Shares who is treated for U.S. federal income tax purposes as:

 

   

an individual citizen or resident of the United States;

 

   

a corporation (or other entity taxed as a corporation) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

   

a trust if (a) a U.S. court can exercise primary supervision over the administration of the trust and one or more “United States persons” within the meaning of the Code control all substantial trust decisions, or (b) the trust was in existence on August 20, 1996 and has elected to continue to be treated as a United States person.

A “Non-U.S. Holder” is any beneficial owner of shares of Company common stock who is not a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) or a U.S. Holder.

If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds shares of Company common stock, the tax treatment of a holder that is a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. Such holders should consult their own tax advisors regarding the tax consequences of exchanging the shares of Company common stock pursuant to the Merger.

Characterization of the Merger

For U.S. federal income tax purposes, Merger Sub should be disregarded as a transitory entity, and the merger of Merger Sub with and into the Company should be treated as a taxable transaction to holders of our common stock and should not be treated as a taxable transaction to the Company.

U.S. Holders

Payments with Respect to Shares of Company Common Stock

The exchange of shares of Company common stock for cash pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes, and a U.S. Holder who receives cash for shares of Company common stock pursuant to the Merger will generally recognize gain or loss, if any, equal to the difference, if any, between the amount of cash received and the holder’s adjusted tax basis in the shares of Company common stock. Gain or loss must 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 capital gain or loss, and will be long-term capital gain or loss if such U.S. Holder’s holding period for the shares of Company common stock is more than one year at the time of the exchange of such holder’s shares of Company common stock for cash. Long-term capital gains recognized by an individual holder generally are subject to tax at a lower rate than short-term capital gains or ordinary income. There are limitations on the deductibility of capital losses. Holders of our common stock should consult their tax advisors regarding the determination and allocation of their tax basis in their stock surrendered in the Merger.

Rollover Investors

Parent, the Company and the Rollover Investors expect to take the position that the Rollover Investors will generally not recognize gain or loss with respect to their contribution of the Rollover Shares to Parent, in which case the Rollover Investors’ tax basis in their Parent shares will generally equal their tax basis in the Rollover Shares contributed to Parent and their holding period in the Parent shares received will generally include the holding period of the Rollover Shares. Alternative tax treatments of the Rollover Investors are possible, which may in part depend on the particular circumstances of the Rollover Investors, and there can be no assurance that the Internal Revenue Service will agree with the expected treatment described above.

 

76


Table of Contents

Backup Withholding Tax and Information Reporting

Payments made with respect to shares of Company common stock exchanged for cash in the Merger may be subject to information reporting, and such payments will be subject to U.S. federal backup withholding tax unless the U.S. Holder (i) furnishes an accurate tax identification number or otherwise complies with applicable U.S. information reporting or certification requirements (typically, by completing and signing an IRS Form W-9) or (ii) is a corporation or other exempt recipient and, when required, demonstrates such fact. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. Holder’s United States federal income tax liability, if any, provided that such U.S. Holder furnishes the Required Information to the Internal Revenue Service in a timely manner.

Non-U.S. Holders

Non-U.S. Holders should consult their own tax advisors to determine the specific U.S. federal, state, local and foreign tax consequences that may be relevant to them.

Payments with Respect to Shares of Company Common Stock

Payments made to a Non-U.S. Holder with respect to shares of Company common stock exchanged for cash pursuant to the Merger generally will be exempt from U.S. federal income tax, unless:

(a) the gain on shares of Company common stock, if any, is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States (and, if certain income tax treaties apply, is attributable to the Non-U.S. Holder’s permanent establishment in the United States) in which event (i) the Non-U.S. Holder will be subject to U.S. federal income tax as described under “U.S. Holders,” but such Non-U.S. Holder should provide an IRS Form W-8ECI instead of an IRS Form W-9, and (ii) if the Non-U.S. Holder is a corporation, it may be subject to branch profits tax on such gain at a 30% rate (or such lower rate as may be specified under an applicable income tax treaty);

(b) the Non-U.S. Holder is an individual who was present in the United States for 183 days or more in the taxable year and certain other conditions are met, in which event the Non-U.S. Holder will be subject to tax at a flat rate of 30% (or such lower rate as may be specified under an applicable income tax treaty) on the gain from the exchange of the shares of Company common stock net of applicable U.S. losses from sales or exchanges of other capital assets recognized during the year; or

(c) the Non-U.S. Holder is an individual subject to tax pursuant to U.S. tax rules applicable to certain expatriates.

(d) the Company is or has been a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition of the shares of Company common stock or the period that the Non-U.S. holder held the shares of Company common stock and the shares have ceased to be regularly traded on an established securities market prior to the beginning of the calendar year in which the Merger occurs. The determination of whether the Company is a USRPHC depends on the fair market value of its United States real property interests relative to the fair market value of its other trade or business assets and its foreign real property interests. We intend to take the position that the Company is not and has not been a USRPHC at any time within the five-year period ending on the date of the Merger.

Backup Withholding Tax and Information Reporting

In general, a Non-U.S. Holder will not be subject to backup withholding and information reporting with respect to a payment made with respect to shares of Company common stock exchanged for cash in the Merger if the Non-U.S. Holder has provided an IRS Form W-8BEN (or an IRS Form W-8ECI if the Non-U.S. Holder’s

 

77


Table of Contents

gain is effectively connected with the conduct of a U.S. trade or business). If shares are held through a foreign partnership or other flow-through entity, certain documentation requirements also apply to the partnership or other flow-through entity. 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 United States 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.

Delisting and Deregistration of the Company’s Common Shares

If the Merger is completed, the shares of Company common stock will be delisted from Nasdaq and deregistered under the Exchange Act and shares of Company common stock will no longer be publicly traded, and the Company will no longer be required to file reports with the SEC.

Litigation Relating to the Merger

On March 12, 2012, March 14, 2012, and March 16, 2012, putative class action complaints captioned Pontiac General Employees’ Retirement System v. Quest Software, Inc., et al., No. 30-2012-00552957-CU-BT-CXC, New Jersey Building Laborers Pension Fund v. H. John Dirks, et al., No. 30-2012-00553945-CU-BT-CXC and Peter Koehler v. Quest Software, Inc., et al., No. 30-2012-00554755, respectively, were filed in the Superior Court of California, County of Orange, on behalf of an alleged class of the Company’s stockholders. On March 27, 2012, March 28, 2012, April 2, 2012, and April 11, 2012, putative class action complaints captioned Central Laborers’ Pension Fund v. Quest Software, Inc., et al., No. 7357- VCG, Taffel v. Garn, et al., No. 7361-VCG, O’Brien v. Quest Software, Inc., et al., No. 7384-VCG, and Plumbers Union Local No. 690 Metal Trades Division Pension Plan v. Quest Software, Inc., et al., No. 7416, respectively, were filed in the Court of Chancery of the State of Delaware on behalf of an alleged class of the Company’s stockholders. The complaints name as defendants the Company, all members of the Board, Insight or certain of the Insight Entities, Parent, and Merger Sub.

In each case, the plaintiffs allege that members of the Board breached their fiduciary duties to the Company’s stockholders in connection with the proposed Merger and that the Company and the Insight Entities aided and abetted the directors’ breaches of fiduciary duties. The complaints claim that the proposed Merger between the Company and Insight involves an unfair price, an inadequate sales process, self-dealing and unreasonable deal protection devices. The complaints seek injunctive relief, including to enjoin or rescind the Merger, and an award of other unspecified attorneys’ and other fees and costs, in addition to other relief. The New Jersey, Central Laborers, Taffel, and Plumbers Union complaints also seek compensatory or rescissory damages arising from the proposed transaction. We believe that these actions have no merit and intend to defend vigorously against them.

 

78


Table of Contents

THE SPECIAL MEETING

We are furnishing this proxy statement to the Company’s stockholders as part of the solicitation of proxies by the Board for use at the Special Meeting.

Date, Time and Place

We will hold the Special Meeting at              a.m., local time, on                     , 2012, at             . Seating will be limited to stockholders. Admission to the Special Meeting will be on a first-come, first-served basis. If you plan to attend the Special Meeting, please note that you may be asked to present valid photo identification, such as a driver’s license or passport. Stockholders owning stock in brokerage accounts must bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

Purpose of the Special Meeting

The Special Meeting is being held for the following purposes:

 

   

to adopt the Merger Agreement;

 

   

to approve a non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

   

to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

A copy of the Merger Agreement is attached as Annex A to this proxy statement.

Recommendation of Our Board of Directors and Special Committee

The Board, with Mr. Smith not participating in the deliberations, after careful consideration and acting on the unanimous recommendation of the Special Committee composed entirely of independent and disinterested directors, determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to and in the best interests of the Company and its unaffiliated stockholders and recommended that the Company’s stockholders adopt the Merger Agreement at the Special Meeting. In recognition of his interests in the Merger, Mr. Smith recused himself from the discussion and vote in connection with the approval of the Merger Agreement by the Board. The Board recommends, with Mr. Smith taking no part in such recommendation, that our stockholders vote:

 

   

FOR” the adoption of the Merger Agreement;

 

   

FOR” the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

   

FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

Record Date; Stockholders Entitled to Vote; Quorum

Only holders of record of Company common stock at the close of business on                      , 2012, the record date, are entitled to notice of and to vote at the Special Meeting. On the record date,              shares of Company common stock were issued and outstanding and held by                  holders of record. Holders of record of shares of Company common stock on the record date are entitled to one vote per share of Company common

 

79


Table of Contents

stock at the Special Meeting on each proposal. For ten days prior to the meeting, a complete list of stockholders entitled to vote at the meeting will be available for examination by any stockholder, for any purpose relating to the meeting, during ordinary business hours at our offices located at 5 Polaris Way, Aliso Viejo California 92656.

Shares of Company common stock represented by proxies reflecting abstentions will be counted in determining the presence of a quorum. However, broker non-votes will not be counted in determining the presence of a quorum. A broker non-vote occurs when a broker, dealer, commercial bank, trust company or other nominee does not vote on a particular matter because such broker, dealer, commercial bank, trust company or other nominee does not have the discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. Brokers, dealers, commercial banks, trust companies and other nominees will not have discretionary voting power with respect to the proposals to be considered at the Special Meeting. A quorum will be present at the Special Meeting if the holders of a majority of the shares of Company common stock outstanding and entitled to vote on the record date are present, in person or by proxy. In the event that a quorum is not present, or if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.

Vote Required

Adoption of the Merger Agreement

The adoption of the Merger Agreement by our stockholders requires the affirmative vote of both (i) the holders of a majority of the outstanding shares of Company common stock and (ii) the holders of a majority of the outstanding shares of Company common stock, exclusive of any shares of Company common stock held by Parent, Merger Sub or any of the Rollover Investors.

Failure to vote your shares of Company common stock will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.

Approval of the Compensation Proposal

The approval of the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger requires the affirmative vote of the holders of at least a majority of the shares of Company common stock present and entitled to vote at the Special Meeting as of the record date, whether or not a quorum is present.

Failure to vote your shares of Company common stock will not have the effect of a vote “FOR” or “AGAINST” the proposal to approve the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger and thus will have no effect in determining whether this proposal has received the majority vote of the outstanding shares of the Company common stock present and entitled to vote at the Special Meeting as of the record date.

Approval of the Adjournment of the Special Meeting

The approval of the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement requires the affirmative vote of the holders of at least of a majority of the shares of Company common stock present and entitled to vote at the Special Meeting as of the record date, whether or not a quorum is present.

Failure to vote your shares of Company common stock will not have the effect of a vote “FOR” or “AGAINST” the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement and thus

 

80


Table of Contents

will have no effect in determining whether this proposal has received the majority vote of the outstanding shares of the Company common stock present and entitled to vote at the Special Meeting as of the record date.

Stock Ownership and Interests of Certain Persons

As of                     , 2012, the record date for the Special Meeting, our directors and current executive officers owned, in the aggregate,              shares of Company common stock, or collectively approximately     % of the outstanding shares of Company common stock and, exclusive of Mr. Smith, our directors and current executive officers owned, in the aggregate, shares of Company common stock, or collectively approximately     % of the outstanding shares of Company common stock.

Mr. Smith has entered into a voting agreement with the Company, dated as of March 8, 2012, pursuant to which Mr. Smith has agreed, subject to certain conditions, to vote all shares of Company common stock for which he has voting power (approximately 34% of the outstanding shares of Company common stock as of March 5, 2012) in favor of the adoption of the Merger Agreement and other proposals necessary to consummate the Merger unless the voting agreement is terminated by its terms. Furthermore, the balance of our directors and current executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of Company common stock in favor of the adoption of the Merger Agreement because they believe that the Merger is in the best interests of the Company and its unaffiliated stockholders.

Certain members of our management and the Board have interests that may be different from, or in addition to, those of our stockholders generally. For more information, please read “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 68.

Voting Procedures

Ensure that your shares of Company common stock can be voted at the Special Meeting by submitting your proxy or contacting your broker, dealer, commercial bank, trust company or other nominee.

If your shares of Company common stock are registered in the name of a broker, dealer, commercial bank, trust company or other nominee: check the voting instruction card forwarded by your broker, dealer, commercial bank, trust company or other nominee to see which voting options are available or contact your broker, dealer, commercial bank, trust company or other nominee in order to obtain directions as to how to ensure that your shares of Company common stock are voted at the Special Meeting.

If your shares of Company common stock are registered in your name: submit your proxy as soon as possible by telephone, via the Internet or by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares of Company common stock can be voted at the Special Meeting.

Instructions regarding telephone and Internet voting are included on the proxy card.

The failure to vote will have the same effect as a vote against the proposal to adopt the Merger Agreement. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to adopt the Merger Agreement, the non-binding advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger, and the proposal to adjourn the Special Meeting, if necessary and appropriate, to solicit additional proxies.

For additional questions about the Merger, assistance in submitting proxies or voting shares of Company common stock, or to request additional copies of the proxy statement or the enclosed proxy card, please contact.

 

81


Table of Contents

Voting by Proxy or in Person at the Special Meeting

Holders of record can ensure that their shares of Company common stock are voted at the Special Meeting by completing, signing, dating and delivering the enclosed proxy card in the enclosed postage-paid envelope. Submitting by this method or voting by telephone or the Internet as described below will not affect your right to attend the Special Meeting and to vote in person. If you plan to attend the Special Meeting and wish to vote in person, you will be given a ballot at the Special Meeting. Please note, however, that if your shares of Company common stock are held in “street name” by a broker, dealer, commercial bank, trust company or other nominee and you wish to vote at the Special Meeting, you must bring to the Special Meeting a proxy from the record holder of those shares of Company common stock authorizing you to vote at the Special Meeting.

You should return a proxy by mail, by telephone or via the Internet even if you plan to attend the Special Meeting in person. If you vote your shares of Company common stock by submitting a proxy, your shares will be voted at the Special Meeting as you indicated on your proxy card or Internet or telephone proxy. If no instructions are indicated on your signed proxy card, all of your shares of Company common stock will be voted:

 

   

FOR” the adoption of the Merger Agreement;

 

   

FOR” the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger; and

 

   

FOR” approval to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the Special Meeting to approve the proposal to adopt the Merger Agreement.

Electronic Voting

Our holders of record and many stockholders who hold their shares of Company common stock through a broker, dealer, commercial bank, trust company or other nominee will have the option to submit their proxy cards or voting instruction cards electronically by telephone or the Internet. Please note that there are separate arrangements for voting by telephone and Internet depending on whether your shares of Company common stock are registered in our records in your name or in the name of a broker, dealer, commercial bank, trust company or other nominee. If you hold your shares of Company common stock through a broker, bank or other nominee, you should check your voting instruction card forwarded by your broker, dealer, commercial bank, trust company or other nominee to see which options are available.

Please read and follow the instructions on your proxy card or voting instruction card carefully.

Other Business

We do not expect that any matter other than the proposals to (i) adopt the Merger Agreement, (ii) the approval of the non-binding, advisory proposal to approve the compensation that may become payable to the Company’s named executive officers in connection with the completion of the Merger and (iii) the approval of the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement, will be brought before the Special Meeting. If, however, other matters are properly presented at the Special Meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

Revocation of Proxies

Submitting a proxy on the enclosed form does not preclude a stockholder from voting in person at the Special Meeting. A stockholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by properly submitting a proxy by mail, the Internet or telephone with a later date or by appearing at the Special Meeting and voting in person. A stockholder of record

 

82


Table of Contents

may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the Special Meeting without voting will not itself revoke a proxy. If your shares of Company common stock are held in street name, you must contact your broker, dealer, commercial bank, trust company or other nominee to revoke your proxy.

Rights of Stockholders Who Object to the Merger

Stockholders are entitled to statutory appraisal rights under the DGCL in connection with the Merger. This means that you are entitled to have the value of your shares of Company common stock determined by the Court of Chancery of the State of Delaware, and to receive payment based on that valuation instead of receiving the Merger consideration. The ultimate amount you would receive in an appraisal proceeding may be more than, the same as or less 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 us before the vote is taken on the Merger Agreement and you must NOT vote in favor of the adoption of the Merger Agreement. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 112 and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex C to this proxy statement.

Solicitation of Proxies

This proxy solicitation is being made by the Company on behalf of the Board and will be paid for by the Company. The Company’s directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. The Company has also retained to assist in the solicitation of proxies for a fee estimated to be approximately $            , plus the reimbursement of out-of-pocket expenses incurred on behalf of the Company.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Special Meeting, please contact.

 

83


Table of Contents

THE MERGER AGREEMENT

The following is a summary of the material terms and conditions 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 because it is the legal document that governs the Merger.

Explanatory Note Regarding the Merger Agreement

The Merger Agreement and this summary of its terms have been included to provide you with information regarding the terms of the Merger Agreement. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the Merger Agreement and described in this summary. The representations, warranties and covenants made in the Merger Agreement by the Company, Parent and Merger Sub were qualified and subject to important limitations agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement. 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. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and in some cases were qualified by disclosures that were made by each party to the other, which disclosures are not reflected in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws

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.

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

At the effective time of the Merger, the certificate of incorporation and bylaws of the surviving corporation will be amended and restated to conform with those attached as Exhibit B and Exhibit C, respectively, of the Merger Agreement, until amended in accordance with their terms or by applicable law.

Closing and Effective Time of the Merger; Marketing Period

The Closing will take place no later than the third business day following the date on which the last of the conditions to closing (described under “—Conditions to the Merger”) have been satisfied or waived (to the extent permitted by applicable law) (other than the conditions that by their nature are to be satisfied at the Closing, but

 

84


Table of Contents

subject to the satisfaction or waiver of those conditions), unless another date, time or place is agreed to in writing by Parent and the Company. However, if the marketing period (as summarized below) has not ended at such time, neither Parent nor Merger Sub will be required to effect the Closing until the earlier of (a) a date during the marketing period specified by Parent on no less than three business days’ prior written notice to the Company and (b) the next business day after the final day of the marketing period.

The effective time of the Merger will occur as soon as practicable on the date of the Closing upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later date as the Company, Parent and Merger Sub may agree and specify in the certificate of merger).

The marketing period is the first period of 18 consecutive business days following the date of the Merger Agreement beginning on the later of the first day on which (A) Parent shall have received certain customary and pertinent business information that is reasonably available to the Company and certain financial statements, pro forma financial statements, and other financial data and financial information relating to the Company and its subsidiaries, in each case to the extent reasonably requested by Parent in connection with the offering of debt securities and the arrangement of loans (which information we refer to as the “Required Information”), complies with the applicable SEC requirements for offerings of debt securities on a registration statement on Form S-1 (other than such provisions for which compliance is not customary in a Rule 144A offering of high-yield debt securities) and meets certain other requirements, and (B) the closing conditions to the obligations of Parent and Merger Sub (described under “—Conditions to the Merger”) have been satisfied (other than the conditions relating to the stockholder approval and termination or expiration of the waiting period under the HSR Act, which must be satisfied no later than five business days prior to the end of the marketing period, and conditions that by their nature are to be satisfied at the Closing) and nothing has occurred and no condition exists that would cause any of such conditions not to be satisfied if the Closing were to occur at any time during such 18 consecutive business day period, provided that the marketing period ends on any earlier date on which the debt financing (described under “Special Factors—Financing of the Merger—Debt Financing”) is consummated. If the Company in good faith reasonably believes it has delivered the Required Information and that such Required Information complies with the relevant requirements, it may deliver to Parent a written notice to that effect (stating when it believes it completed such delivery), in which case the Company will be deemed to have complied with clause (A) above, unless Parent in good faith reasonably believes the Company has not satisfied such requirements and, within three business days after the delivery of such notice by the Company, delivers a written notice to the Company to that effect (stating with specificity what Required Information the Company has not delivered or does not otherwise meet the requirements). The marketing period will not commence and will not be deemed to have commenced (i) prior to the mailing of this proxy statement to stockholders or (ii) if before the completion of the marketing period, (x) the Company publicly announces any intention to restate any material financial information included in the Required Information or that any such restatement is under consideration, in which case the marketing period will be deemed not to commence until the first day on which such restatement has been completed and the relevant reports have been amended or the Company has determined that no restatement is required, and the conditions described in (A) and (B) above are fulfilled or (y) the Required Information would not comply with the relevant requirements at any time during the marketing period, in which case the marketing period will be deemed not to commence until the Required Information is compliant with such requirements, and the conditions described in (A) and (B) above are fulfilled.

Treatment of Common Stock, Options and Restricted Stock Units

Common Stock

At the effective time of the Merger, each share of the Company’s common stock issued and outstanding immediately prior thereto (other than excluded shares described in this subsection) will convert into the right to receive the Per Share Merger Consideration. Common stock owned by the Company as treasury stock or owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent (including shares contributed to Parent by the Rollover Investors) will be cancelled without payment of consideration. Common

 

85


Table of Contents

stock owned by any of the Company’s wholly owned subsidiaries will, at the election of Parent, either convert into stock of the surviving corporation or be cancelled without payment of consideration. Common stock owned by stockholders who have exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the DGCL will be cancelled without payment of consideration, and such stockholders will instead be entitled to the appraisal rights provided under the DGCL as described under “Appraisal Rights.” For a discussion of the treatment of shares of common stock held by Mr. Smith, see “Special Factors—Financing of the Merger—Rollover Financing” beginning on page 64.

Stock Options

Except as otherwise agreed by Parent and a holder of a Vested Option, immediately prior to the effective time of the Merger, each outstanding and unexercised Vested Option will be cancelled as of the effective time of the Merger and converted into the right to receive, as soon as reasonably practicable (but in any event no later than five business days after completion of the Merger), an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Vested Option and (ii) the Designated Consideration.

Except as otherwise agreed to by Parent and a holder of an Unvested Option, at the effective time of the Merger, each outstanding Unvested Option will be cancelled and converted into the right to receive, on such date or dates and subject to such conditions as determined by the Company in accordance with the Company stock plans and subject to the approval of Mr. Smith, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Unvested Option, and (ii) the Designated Consideration. At the effective time of the Merger, the Unvested Options will no longer represent the right to acquire shares of Company common stock and shall represent the right to receive the Designated Consideration subject to the terms described in this paragraph.

Any Vested Option or Unvested Option that has an exercise price per share that is equal to or greater than the Per Share Merger Consideration will be cancelled for no consideration.

Pursuant to the Rollover Letter, Mr. Smith has committed to exchange, immediately prior to the completion of the Merger, each Vested Option and Unvested Option that is outstanding at the effective time of the Merger for an equivalent equity interest in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger) and therefore will not receive the consideration described above. The Parent options will generally have the same terms and conditions, including vesting schedules and expiration dates, as the Company stock options. Mr. Smith’s commitments pursuant to the Rollover Letter are conditioned as described under the subheading “Special Factors—Financing of the Merger—Rollover Financing.”

For additional information regarding the treatment of the Company stock options held by Mr. Smith, see “Special Factors—Financing of the Merger—Rollover Financing” beginning on page 64.

Restricted Stock Units

Except as otherwise agreed to by Parent and a holder of an Unvested RSU, each Unvested RSU that is outstanding at the effective time of the Merger will be converted into the right to receive, on the same terms and conditions as were applicable to such Unvested RSU prior to the Merger, on each date in which shares of Company common stock subject to such Unvested RSU would have become vested and exercisable (subject to continued employment through such date), a cash amount equal to the Per Share Merger Consideration for each share of Company common stock then subject to the Unvested RSU that would have otherwise vested on such vesting date, without interest and less any withholding taxes. At the effective time of the Merger, the Unvested RSUs will no longer represent the right to acquire shares of Company common stock and will represent the right to receive the Merger consideration subject to the terms described in this paragraph.

Pursuant to the Rollover Letter, Mr. Smith has committed to exchange, immediately prior to the completion of the Merger, the Vested RSUs for an equivalent equity interest in Parent under Parent’s stock incentive plan

 

86


Table of Contents

(such plan to be adopted prior to the effective time of the Merger) and therefore will not receive the consideration described above. The Parent restricted stock units will generally have the same terms and conditions, including vesting schedules and expiration dates, as the Vested RSUs. Mr. Smith’s commitments pursuant to the Rollover Letter are conditioned as described under the subheading “Special Factors—Financing of the Merger—Rollover Financing.” For additional information regarding the treatment of the Company restricted stock units held by Mr. Smith, see “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 68.

Exchange and Payment Procedures

Prior to the effective time of the Merger, Parent will designate a bank or trust company reasonably acceptable to the Company to act as the paying agent for the Per Share Merger Consideration (which we refer to as the “Paying Agent”). At or prior to the effective time of the Merger, Parent will deposit, or will cause to be deposited, with the Paying Agent an amount in cash sufficient for the Paying Agent to make payment of the aggregate Per Share Merger Consideration to the holders of shares of Company common stock.

Promptly (but in any event within three business days) after the effective time of the Merger, each record holder of shares of Company common stock will be sent a letter of transmittal describing how it may exchange its shares of Company common stock for the Per Share Merger Consideration.

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 surrender your stock certificate or certificates (or submit an affidavit of loss in respect thereof as described below) along with a duly completed and executed letter of transmittal 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 certificate is properly endorsed and 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. No interest will be paid or accrued on the cash payable as the Per Share Merger Consideration as provided above. 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 of the Merger, there will be no transfers on the stock transfer books of the surviving corporation of shares of Company common stock that were outstanding immediately prior to the effective time of the Merger. If, after the effective time of the Merger, 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 one year after the effective time of the Merger may be delivered to the surviving corporation. Record holders of common stock who have not complied with the above-described exchange and payment procedures 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 record holders of Company common stock for any cash delivered 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 the surviving corporation, post a bond in a customary amount as indemnity

 

87


Table of Contents

against any claim that may be made against it 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.

Financing Covenant; Company Cooperation

Parent and Merger Sub will use commercially reasonable efforts to obtain the equity and debt financing for the Merger on the terms and conditions described in the Equity Commitment Letter and the Debt Commitment Letter, and to obtain the equity rollover contribution by the Rollover Investors on the terms of the Rollover Letter, and will not permit any amendment or modification to be made thereto, or any waiver of any material provision or remedy thereunder, if such amendment, modification or waiver (A) reduces the aggregate amount of the financing or, with respect to the equity rollover contribution by the Rollover Investors, reduces the amount of the Company’s common stock to be contributed, or (B) imposes new or additional conditions or otherwise expands, amends or modifies any other provision of the Equity Commitment Letter, the Debt Commitment Letter or the Rollover Letter, in a manner that would reasonably be expected to (x) materially delay or prevent the funding of the financing or the equity rollover contribution (or the satisfaction of the conditions thereto) on the date of the Closing or (y) adversely impact the ability of Parent or Merger Sub, as applicable, to enforce its rights against other parties to the Equity Commitment Letter, the Debt Commitment Letter or the definitive agreements with respect thereto or the Rollover Letter.

Parent and Merger Sub will use commercially reasonable efforts to:

 

   

negotiate and enter into definitive agreements with respect to the Debt Commitment Letter on the terms and conditions contained therein (or on terms no less favorable to Parent, Merger Sub or the Company than the terms contained in the Debt Commitment Letter);

 

   

satisfy all conditions to funding in the Debt Commitment Letter and the definitive agreements related thereto, the Equity Commitment Letter and the Rollover Letter, and consummate the financing and the equity rollover contribution at or prior to the Closing;

 

   

comply with their obligations under the Equity Commitment Letter, the Debt Commitment Letter and the Rollover Letter.

If any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated by the Debt Commitment Letter, (A) Parent and Merger Sub will promptly notify the Company and (B) Parent and Merger Sub will use commercially reasonable efforts to arrange and obtain alternative financing in an amount sufficient to consummate the Merger with terms and conditions not materially less favorable to Parent, Merger Sub or the Company (or their affiliates) as promptly as practicable following such occurrence, but no later than the final day of the marketing period.

The obtaining of the financing and the equity rollover contribution, or any alternative financing, is not a condition to the consummation of the Merger.

The Company will provide to Parent and Merger Sub, and will cause its subsidiaries to provide (in each case, at Parent’s sole expense) and will use commercially reasonable efforts to cause its representatives to provide, all cooperation reasonably requested by Parent that is customary in connection with the arrangement of the financing for the Merger or any permitted alternative financing, including (i) providing the Required Information as may be reasonably requested by Parent; (ii) participating in a reasonable number of meetings with third parties in connection with the financing, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies in connection with the financing; (iii) assisting with the preparation of materials for rating agency presentations, offering documents, bank information memoranda and similar documents required in connection with the financing; (iv) assisting and cooperating with Parent to obtain accountant’s comfort letters, legal opinions, surveys and title insurance, as reasonably requested by Parent; (v) taking corporate actions to permit the consummation of the financing and to permit the proceeds thereof to be made

 

88


Table of Contents

available to the surviving corporation immediately after the effective time of the Merger; (vi) assisting with executing and delivering customary pledge and security documents and customary closing certificates and documents as may be reasonably requested by Parent; (vii) assisting in the preparation and execution of one or more credit agreements, indentures, purchase agreements, currency or interest hedging agreements or, subject to certain limitations, the amendment of any of the Company’s existing agreements; (viii) providing authorization letters to the available debt financing sources, authorizing the distribution of information to prospective lenders; (ix) using its commercially reasonable efforts to ensure that the available debt financing sources benefit from the existing lending relationships of the Company and its subsidiaries; (x) cooperating reasonably with Parent’s available debt financing sources’ due diligence, to the extent customary and reasonable and to the extent not unreasonably interfering with the business of the Company; (xi) using its commercially reasonable efforts to arrange for customary payoff letters, lien terminations and instruments of discharge; (xii) using its commercially reasonable efforts to obtain public corporate family credit ratings for the Company from Moody’s Investor Services and from Standard & Poor’s Ratings Group and a public credit rating for each of the debt facilities and debt securities from each of such rating agencies; and (xiii) facilitating the consummation of the available debt financing and the direct borrowing or incurrence of all proceeds of the available debt financing, by the surviving corporation concurrently with the effective time of the Merger. Parent shall promptly, upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Company or any of its subsidiaries in connection with such cooperation and shall indemnify and hold harmless the Company, its subsidiaries and their respective representatives from and against any and all losses, damages, claims, costs or expenses suffered or incurred by any of them in connection with the arrangement of the financing and any information used in connection therewith.

Representations and Warranties

The Merger Agreement contains representations and warranties made by the Company, Parent and Merger Sub to each other as of specific dates. The statements embodied in those representations and warranties were made for purposes of the Merger Agreement and are subject to qualifications and limitations agreed by the parties in connection with negotiating the terms of the Merger Agreement (including the disclosure schedule delivered by the Company in connection therewith). In addition, some of those representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from that generally applicable to stockholders or may have been used for the purpose of allocating risk between the parties to the Merger Agreement rather than establishing matters as facts. The representations and warranties made by the Company to Parent and Merger Sub include representations and warranties relating to, among other things:

 

   

due organization, existence, good standing and authority to carry on the Company’s businesses;

 

   

the Company’s capitalization, the absence of preemptive or other similar rights or any debt securities that give its holders the right to vote with the Company’s stockholders and the absence of encumbrances on the Company’s ownership of the equity interests of its subsidiaries;

 

   

the Company’s corporate power and authority to execute and deliver, to perform its obligations under and to consummate the transactions under the Merger Agreement, and the enforceability of the Merger Agreement against the Company;

 

   

the declaration of advisability of the Merger Agreement and the Merger by the Board, and the approval of the Merger Agreement and the Merger by the Board;

 

   

the absence of violations of, or conflicts with, the governing documents of the Company and its subsidiaries, applicable law and certain agreements as a result of the Company entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement;

 

   

the required vote of the Company’s stockholders to adopt the Merger Agreement;

 

   

governmental consents and approvals;

 

89


Table of Contents
   

the Company’s SEC filings since January 1, 2010 and the financial statements included therein;

 

   

the absence of indebtedness and certain undisclosed liabilities;

 

   

the Company’s disclosure controls and procedures and internal controls over financial reporting;

 

   

the accuracy of the information provided in this proxy statement and the Schedule 13E-3;

 

   

the absence of a Company “material adverse effect” (as defined below) and the absence of certain other changes or events since December 31, 2011;

 

   

the conduct of business in accordance with the ordinary course, consistent with past practice since December 31, 2011;

 

   

the absence of legal proceedings and governmental orders against the Company or its subsidiaries;

 

   

compliance with applicable laws, licenses and permits, including the Foreign Corrupt Practices Act (FCPA);

 

   

affiliate transactions;

 

   

tax matters;

 

   

employee benefits plans;

 

   

labor matters;

 

   

environmental matters;

 

   

intellectual property;

 

   

the absence of a rights agreement and the inapplicability of any anti-takeover law to the Merger;

 

   

real property;

 

   

material contracts and the absence of any default under, or termination of, any material contract;

 

   

customers and suppliers;

 

   

insurance policies;

 

   

the receipt of a fairness opinion from Morgan Stanley;

 

   

the absence of any undisclosed broker’s or finder’s fees; and

 

   

acknowledgment as to absence of any other representations and warranties.

Many of the Company’s representations and warranties are qualified as to, among other things, “materiality” or “material adverse effect.” For purposes of the Merger Agreement, “material adverse effect” means any effect, change, event, state of fact, development, circumstance or occurrence that, individually or in the aggregate, would reasonably be expected to (i) have a material adverse effect on the business, results of operations, or financial condition of the Company and its subsidiaries taken as a whole, or (ii) prevent or materially impair or delay beyond September 8, 2012 (the “Outside Date”) the consummation of the transactions; provided that none of the following, and, to the extent arising out of or resulting from the following, no other effect, change, event or occurrence, shall constitute or be taken into account, individually or in the aggregate, in determining whether a “material adverse effect” has occurred or may occur:

 

   

any effect, change, event or occurrence generally affecting (A) the industry in which the Company and its subsidiaries operate or (B) the economy, credit or financial or capital markets, in the United States or elsewhere in the world, including changes in interest or exchange rates (in each case, only to the

 

90


Table of Contents
 

extent it does not have a materially disproportionate effect on the Company and its subsidiaries as compared to others in the industry or industries in which the Company and its subsidiaries conduct their business):

 

   

any effect, change, event or occurrence to the extent arising out of, resulting from or attributable to:

 

   

changes in law or in generally accepted accounting principles or in accounting standards after the date of the Merger Agreement (in each case, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries as compared to others in the industry or industries in which the Company and its subsidiaries conduct their business);

 

   

the announcement or existence of the Merger Agreement or the consummation of the Merger, other than for the purposes of the representations and warranties related to noncontravention and governmental approvals;

 

   

acts of war (whether declared or not declared), sabotage, terrorism, other hostilities or political conditions, or any escalation or worsening of any such events (in each case, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries as compared to others in the industry or industries in which the Company and its subsidiaries conduct their business);

 

   

earthquakes, hurricanes, tornados or other natural disasters or force majeure events (in each case, only to the extent it does not have a materially disproportionate effect on the Company and its subsidiaries as compared to others in the industry or industries in which the Company and its subsidiaries conduct their business);

 

   

any action taken by the Company or its subsidiaries that is expressly required by the Merger Agreement or expressly requested in writing by Parent or Merger Sub;

 

   

any change in the market price, or change in trading volume, of the capital stock of the Company, provided that such exception does not prevent or otherwise affect a determination that the underlying cause (if not otherwise falling within any of the other exceptions described above) is a “material adverse effect”;

 

   

any failure to meet any internal or public projections, forecasts or estimates of revenue, earnings or other financial measure in and of itself, provided that such exception does not prevent or otherwise affect a determination that the underlying cause (if not otherwise falling within any of the other exceptions described above) is a “material adverse effect”;

 

   

any legal proceedings made or brought by any of the current or former security holders of the Company (on their own behalf or on behalf of the Company) arising out of or related to any of the transactions contemplated by the Merger Agreement;

 

   

the announcement of any change in the Company’s current senior management; and

 

   

any item set forth in the disclosure letter that the Company delivered in connection with the Merger Agreement.

The representations and warranties made by Parent and Merger Sub to the Company include representations and warranties relating to, among other things:

 

   

their due organization, existence and good standing;

 

   

their corporate power and authority to execute and deliver, to perform their obligations under and to consummate the transactions contemplated by the Merger Agreement, and the enforceability of the Merger Agreement against them;

 

   

the absence of violations of, or conflicts with, their governing documents, applicable law and certain agreements as a result of entering into and performing under the Merger Agreement and consummating the transactions contemplated by the Merger Agreement;

 

91


Table of Contents
   

governmental consents and approvals;

 

   

Parent ownership of Merger Sub and the operations of Merger Sub;

 

   

the Equity Commitment Letter, the Debt Commitment Letter, the Rollover Letter and the absence of any default thereunder;

 

   

sufficiency of funds in the financing contemplated by the Equity Commitment Letter, the Debt Commitment Letter and the Rollover Letter, subject to certain exceptions;

 

   

Parent not having any reason to believe the conditions to the financing and the equity rollover contribution will not be satisfied or that the financing and the equity rollover contribution will not be available;

 

   

the absence of contingencies related to the funding of the financing other than as set forth in the Equity Commitment Letter, the Debt Commitment Letter and the Rollover Letter;

 

   

the absence of any side letters or other agreements to which Parent or its affiliates are a party relating to the financing subject to certain exceptions;

 

   

the execution and the validity and enforceability of a guaranty by the financial sponsors of certain obligations of Parent and the lack of any default thereunder;

 

   

solvency of Parent and the surviving corporation immediately following consummation of the Merger;

 

   

the absence of certain agreements or compensation or equity arrangements;

 

   

the absence of any undisclosed broker’s or finder’s fees;

 

   

the absence of legal proceedings against Parent and Merger Sub;

 

   

Parent and Merger Sub not having taken any action that could reasonably be expected to require the service of notice under the Worker Adjustment and Retraining Notification Act (WARN) or similar local laws prior to the Closing;

 

   

the absence of any stockholder voting or consent requirements with respect to Parent’s approval of the Merger Agreement or the transactions contemplated therein, except for the vote or consent of Parent as the sole stockholder of Merger Sub;

 

   

acknowledgement as to the absence of any other representations and warranties, including with respect to any estimates, forecasts, projections, forward-looking statements or business plans provided by the Company;

 

   

adequacy of Parent and Merger Sub’s investigation and ability to evaluate the merits and risks of the transactions contemplated by the Merger Agreement; and

 

   

the accuracy of the information provided by Parent or Merger Sub for inclusion or incorporation by reference in this proxy statement.

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. Many of the Parent’s and Merger Sub’s representations and warranties are qualified as to, among other things “materiality” or “Parent material adverse effect.” For purposes of the Merger Agreement, “Parent material adverse effect” means any effect that would individually or in the aggregate, prevent, materially impair or delay beyond the Outside Date the ability of Parent or Merger Sub to consummate the transactions contemplated by the Merger Agreement.

Conduct of Our Business Pending the Merger

Under the Merger Agreement, the Company has agreed that, subject to certain exceptions in the Merger Agreement and the disclosure letter delivered by the Company in connection with the Merger Agreement,

 

92


Table of Contents

between the date of the Merger Agreement and the effective time of the Merger, unless Parent gives its prior written consent (which cannot be unreasonably withheld, delayed or conditioned), the Company and its subsidiaries will cause their businesses to be conducted in all material respects in the ordinary course consistent with past practice and, to the extent consistent therewith, the Company and its subsidiaries will use their reasonable efforts to preserve their business organizations intact and maintain existing relations with key customers, suppliers, distributors, employees and other entities with whom they have business relationships, assets, rights and properties.

Subject to certain exceptions set forth in the Merger Agreement and the disclosure letter the Company delivered in connection with the Merger Agreement, unless the Parent consents in writing (which consent cannot be unreasonably withheld, delayed or conditioned), the Company and its subsidiaries are restricted from, among other things:

 

   

issuing, selling or granting shares of capital stock or other equity or voting interests, subject to certain exceptions;

 

   

redeeming, purchasing or otherwise acquiring any of the Company’s outstanding shares of capital stock or other equity or voting interest, or any rights, warrants or options to acquire any shares of the Company’s capital stock or other equity or voting interest, subject to certain exceptions;

 

   

establishing a record date for, declaring, setting aside or paying any dividend or distribution in respect of any shares of the Company’s capital stock;

 

   

splitting, combining, subdividing or reclassifying any shares of the Company’s capital stock or other equity or voting interest;

 

   

entering into any collective bargaining agreements or other agreement with a labor union, works council or similar organization;

 

   

(x) subject to certain exceptions, incurring, issuing, modifying, renewing, syndicating or refinancing any indebtedness, (y) entering into any swap or hedging transaction or other derivative agreements other than in the ordinary course of business or (z) making any loans, advances, capital contributions or advances to any person other than the Company and any of its wholly owned subsidiaries;

 

   

adopting or implementing any stockholder rights plan, “poison pill” or similar arrangement or plan that is applicable to the Merger;

 

   

selling or leasing any of the Company’s properties or assets whose value or purchase price exceeds $10 million other than in the ordinary course of business, subject to certain exceptions;

 

   

making or authorizing capital expenditures in excess of $2 million individually or $10 million in the aggregate, other than those in the Company’s current plan or in the ordinary course of business;

 

   

making any acquisition of the capital stock of another entity, and except in the ordinary course of business, any acquisition of a material portion of the assets of another entity, in each case, for consideration in excess of $5 million individually or $15 million in the aggregate;

 

   

increasing the compensation or benefits of any director or executive officer, other than as required by the terms of any current benefit plan or agreement or as required by applicable law; increasing the salary, wages and benefits of other employees who are not executive officers or directors of the Company, other than (x) as required by the terms of any Company Plan, (y) as required by applicable law, (z) in the ordinary course of business and consistent with past practice, or (aa) as the Company deems in its reasonable discretion to be necessary in order to compensate such employee at a level consistent with market practice, up to an aggregate of $250,000; entering into any severance, change-in-control, retention, employment or other agreement with any employee, director or independent contractor; establishing, adopting, terminating or amending any benefits plan, other than as required by law; taking any action to fund the payment of compensation or benefits under any

 

93


Table of Contents
 

benefit plan (unless required by the terms of any benefit plan); exercising any discretion to accelerate the vesting or payment of any compensation or benefits under any benefit plan; or extending an offer of employment to, or hiring, any candidate for a senior vice president or more senior position, or any employee with an annual base salary in excess of $175,000;

 

   

making certain material changes to financial or tax accounting policies (except as required by GAAP or by applicable law);

 

   

modifying, amending, terminating or waiving any rights under any material contract, entering into any new material contracts or entering into any new material contract including a change-in-control payment that would be triggered in connection with the Merger (in each case, subject to certain exceptions);

 

   

making changes to the organizational documents of the Company or its subsidiaries;

 

   

failing to make any material filing, pay any fee or take any other action with respect to any material trademark or trade name or entering into any license or transfer agreement relating to such trademark or trade name that is material to the conduct of the business of the Company or any of its subsidiaries;

 

   

adopting a plan or agreement of complete or partial liquidation or dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any subsidiary;

 

   

granting any liens or encumbrances other than certain permitted liens and encumbrances;

 

   

failing to use commercially reasonable efforts to maintain the existing insurance policies or replace such policies with comparable insurance policies covering the Company, it subsidiaries and their respective properties, assets and businesses;

 

   

paying, discharging, settling or compromising any pending or threatened litigation or claim other than litigation or claims (i) for less than $5 million individually or $10 million in the aggregate, (ii) that do not involve injunctive or equitable relief, and (iii) that do not involve the issuance of capital stock;

 

   

subject to certain exceptions, making any material change in any method of tax accounting, making, changing or rescinding any material tax election, settling or compromising any material tax liability, surrendering any right to claim for a material tax refund, filing any amended tax return with respect to any material tax, entering into any closing agreement or waiving or extending the statute of limitations in respect of any income or other material taxes; and

 

   

agreeing, authorizing or committing to do any of the foregoing.

Solicitation of Takeover Proposals

During the Go-Shop Period, the Company, its subsidiaries and its representatives are permitted to:

 

   

initiate, solicit and encourage any inquiry or the making of Takeover Proposals from third parties (or inquiries, proposals or offers or other efforts or attempts that may reasonably be expected to lead to a Takeover Proposal), including by providing third parties non-public information pursuant to acceptable confidentiality agreements (provided that the Company promptly make such information available to Parent, if not previously made available to Parent or its representatives; and

 

   

enter into, engage in, and maintain discussions or negotiations with respect to Takeover Proposals, or otherwise cooperate with or assist such inquiries, proposals, offers, efforts, attempts, discussions or negotiations.

From and after 12:00 a.m., New York City time, on May 8, 2012 (the “No-Shop Period Start Date”), the Company is required to immediately cease any discussions or negotiations with any persons that may be ongoing with respect to any Takeover Proposals and request that any such person promptly return or destroy all confidential information concerning the Company and the Company’s subsidiaries, except as may relate to

 

94


Table of Contents

Qualified Go-Shop Bidders (as defined below). At any time from and after the No-Shop Period Start Date and until the effective time of the Merger or, if earlier, the termination of the Merger Agreement, the Company, its subsidiaries and their representatives may not:

 

   

solicit, initiate or knowingly facilitate or encourage any inquiry or the making of any Takeover Proposals;

 

   

engage in, continue or otherwise participate in discussions or negotiations with any person with respect to any Takeover Proposal;

 

   

provide any non-public information to any person in connection with or to encourage or facilitate a Takeover Proposal; or

 

   

enter into any letter of intent, agreement or agreement in principle with respect to any Takeover Proposal.

Notwithstanding the foregoing, the Company may continue to engage in the activities permitted during the Go-Shop Period described above with each party from whom the Company has received during the Go-Shop Period an acquisition proposal that the Special Committee determines in good faith, prior to or as of the end of the Go-Shop Period in consultation with its financial advisor and outside legal counsel, either constitutes a Superior Proposal or could reasonably be expected to lead to a Superior Proposal (such party being referred to herein as a “Qualified Go-Shop Bidder”). The Company must provide to Parent a redacted copy of the Takeover Proposal made by a Qualified Go-Shop Bidder, which shall include disclosure of the proposed price and material conditions.

At any time from and after the No-Shop Period Start Date and prior to the time the Company’s stockholders adopt the Merger Agreement, if the Company receives an unsolicited written Takeover Proposal from a Qualified Go-Shop Bidder or from any other person making or renewing a Takeover Proposal after such date, the Company may:

 

   

contact such person to clarify the terms and conditions of such proposal; and

 

   

upon notice to Parent and Merger Sub, engage in discussions or negotiations with such person, and furnish to such third-party information (including non-public information) pursuant to an acceptable confidentiality agreement (provided that the Company promptly makes such information available to Parent and Merger Sub, if not previously made available to Parent or Merger Sub), if the Board determines in good faith, after consultation with its financial advisor and outside legal counsel, that such Takeover Proposal either constitutes a Superior Proposal or could reasonably be expected to lead to a Superior Proposal.

The Company must provide to Parent a redacted copy of such Takeover Proposal, which shall include disclosure of the identity of the person that submitted such Takeover Proposal, as well as the proposed price and material conditions. Following the No-Shop Period Start Date, the Company shall keep Parent reasonably informed of any material developments, discussions or negotiations regarding any Takeover Proposal (whether made before or after the No-Shop Period Start Date) on a current basis and upon the request of Parent shall apprise Parent of the status of such Takeover Proposal.

Except as permitted by the terms of the Merger Agreement described below, the Company has agreed in the Merger Agreement that the Board will not (i) fail to recommend to its stockholders that they approve the Merger (the “Company Board Recommendation”) or fail to include the Company Board Recommendation in the proxy statement, (ii) change, qualify, withhold, withdraw or modify (or publicly propose to do so), in a manner adverse to Parent, the Company Board Recommendation, (iii) take any formal action or make any recommendation or public statement in connection with a tender offer other than a recommendation against such offer or a customary “stop, look and listen” communication, (iv) adopt, approve or recommend to stockholders (or publicly propose to do so) a Takeover Proposal (the actions listed in (i) through (iv) are referred to herein as an “Adverse

 

95


Table of Contents

Recommendation Change”), (v) authorize, cause or permit the Company to enter into any letter of intent, agreement or agreement in principle with respect to any Takeover Proposal, (vi) take any action to terminate the Merger Agreement in light of a Superior Proposal or (vii) terminate, amend, release, modify or fail to enforce any provision of, or grant any permission, waiver or request under, any standstill, confidentiality or similar agreement entered into by the Company in respect of or in contemplation of a Takeover Proposal.

Prior to the time the Company’s stockholders adopt the Merger Agreement, the Board may take any of the actions described in the preceding paragraph with respect to a Takeover Proposal if the Board determines in good faith, after consultation with its financial advisor and outside counsel, that failure to do so would be inconsistent with its fiduciary obligations and that such Takeover Proposal constitutes a Superior Proposal. However, prior to taking such action, the Company must comply with the following procedures:

 

   

the Company must provide at least three business days’ prior written notice (or two business days’ prior written notice with respect to any material change to the material terms of the Superior Proposal) to Parent of its intention to take such action, which notice shall include unredacted copies of the Superior Proposal, the related transaction agreements and financing commitments;

 

   

during such notice period, the Company must negotiate with Parent in good faith (to the extent Parent desires to negotiate) to enable Parent to propose revisions to the terms of the Merger Agreement, the commitment letters and the guarantees such that it would cause the Superior Proposal to no longer constitute a Superior Proposal; and

 

   

following the end of such notice period, the Board must have considered in good faith any proposed revisions to the Merger Agreement, the commitment letters, the guarantees and the Rollover Letter offered in writing by Parent in a manner that would form a contract if accepted by the Company, and must have determined that the Superior Proposal would still constitute a Superior Proposal if such revisions were given effect.

In addition, prior to the time the Company’s stockholders adopt the Merger Agreement, the Board may change, qualify, withhold, withdraw or modify (or publicly propose to do so) in a manner adverse to Parent, the Company Board Recommendation if the Board determines in good faith, after consultation with its financial advisor and outside counsel, that failure to do so would be inconsistent with its fiduciary obligations (such action is referred to herein as a “Change in Recommendation”). However, prior to taking such action, the Company must comply with the procedures described in the immediately preceding paragraph.

Nothing in the provisions of the Merger Agreement relating to Takeover Proposals prevents the Company from (i) taking and disclosing to its stockholders a position contemplated by Rule 14d-9 or 14e-2(a) or Item 1012(a) of Regulation M-A under the Exchange Act (provided that any disclosure so permitted that does not contain an express rejection of such Takeover Proposal or an express reaffirmation of the Company recommendation shall be deemed an Adverse Recommendation Change) or (ii) making any disclosure to its stockholders required by applicable law.

In this proxy statement, we refer to any inquiry, proposal or offer from any person (other than Parent and its subsidiaries) or “group” relating to, in a single transaction or series of related transactions, any (A) acquisition of assets of the Company and its subsidiaries equal to 20% or more of the Company’s consolidated assets or to which 20% or more of the Company’s revenues or earnings on a consolidated basis are attributable; (B) acquisition of 20% or more of the outstanding shares of common stock; (C) tender offer or exchange offer that, if consummated, would result in any person beneficially owning 20% or more of the outstanding shares of common stock; (D) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or (E) any combination of the foregoing types of transactions if the sum of the percentage of consolidated assets, consolidated revenues or earnings and shares of common stock involved is 20% or more (in each case, other than the Merger) as a “Takeover Proposal.”

 

96


Table of Contents

In this proxy statement, we refer to any bona fide written Takeover Proposal that the Board has determined, after consultation with its outside legal counsel and financial advisor, in its good faith judgment is reasonably likely to be consummated in accordance with its terms, taking into account all legal, regulatory and financial aspects (including certainty of closing) of the proposal and the person making the proposal, and if consummated, would result in a transaction more favorable to the Company’s stockholders (excluding the Rollover Investors and any members of our management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the Closing) from a financial point of view than the transaction contemplated by the Merger Agreement (including any revisions to the terms of the Merger Agreement proposed by Parent in response to such proposal or otherwise) as a “Superior Proposal” (provided that all references to 20% in the definition of Takeover Proposal shall be deemed to be references to 50%).

Stockholders Meeting

Unless the Merger Agreement is terminated, the Company is required to take all reasonable action necessary to duly call, give notice of, convene and hold a meeting of its stockholders as promptly as reasonably practicable after the SEC confirms that it has no further comments on this proxy statement and the Schedule 13E-3 for the purpose of obtaining the stockholder approval required by the Merger Agreement. The Company may adjourn or postpone, in its sole discretion, the stockholders meeting (i) after consultation with Parent, and with Parent’s consent, to the extent necessary to ensure that any required supplement or amendment to this proxy statement is provided to the stockholders of the Company within a reasonable amount of time in advance of the stockholders meeting or (ii) if, as of the time for which the stockholders meeting is originally scheduled, there are insufficient shares of common stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the stockholders meeting. Subject to the provisions of the Merger Agreement discussed above under “—Solicitation of Takeover Proposals,” the Board will use its reasonable best efforts to obtain the stockholder approval required by the Merger Agreement.

Parent has agreed to vote or cause to be voted any shares of Company common stock beneficially owned by it or its subsidiaries in favor of the proposal to adopt the Merger Agreement.

Filings; Other Actions; Notification

The Company and Parent will (and will cause their subsidiaries to) cooperate and use their respective reasonable best efforts to (i) take all actions and assist and cooperate with the other parties in doing all things necessary, proper or advisable to cause the conditions to closing to be satisfied as promptly as reasonably practicable and to consummate and make effective the Merger and the other transactions contemplated by the Merger Agreement (together, such transactions are referred to herein as the “Transactions”) in the most expeditious manner practicable, including preparing and filing promptly and fully all documentation to effect all necessary filings, notices and other documents; and (ii) obtain as promptly as practicable all approvals, consents, registrations, waivers, permits, authorizations, orders and other confirmations necessary, proper or advisable to be obtained from any third party or any governmental entity in order to consummate the Transactions.

The Company and Parent have agreed, subject to certain exceptions, to:

 

   

each use its reasonable best efforts to (i) take all action necessary to ensure that no state takeover statute or similar law is or becomes applicable to the Transactions and (ii) if the restrictions of any state takeover statute or similar law become applicable, take all action necessary to ensure that the Transactions may be consummated as promptly as practicable on the terms contemplated by the Merger Agreement and otherwise lawfully minimize the effect of such law;

 

   

make any required filings of Notification and Report Forms pursuant to the HSR Act and make any other required filings or submissions with foreign antitrust or competition authorities with respect to the Transactions as promptly as reasonably practicable and with respect to Notification and Report Forms pursuant to the HSR Act within fifteen business days of the date of the Merger Agreement and

 

97


Table of Contents
 

to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act; and Parent agrees to promptly take any and all steps necessary to avoid or eliminate each and every impediment and obtain all consents under any antitrust laws that may be required by any foreign or domestic governmental authority so as to enable the Closing to occur, including agreeing to sell, license, hold separate or otherwise dispose of any of their assets or business owned as of the date of the Merger Agreement, in whole or in part, or to conduct or limit any aspect of any of their assets or business in any specified manner, provided that the impacted assets and business have a total aggregate value, and generated revenues for the year ended December 31, 2011, not in excess of $100 million;

 

   

each use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission with a governmental authority and in connection with any investigation or other inquiry by or before a governmental authority, including any proceeding initiated by a private party; (ii) keep the other party informed in all material respects and on a reasonably timely basis of any material communication received by such party from, or given by such party to, the FTC, the Antitrust Division of the DOJ or any other governmental authority and of any material communication received or given in connection with any proceeding by a private party; and (iii) to the extent reasonably practicable, consult with the other party with respect to information relating to the other parties and their respective subsidiaries that appears in any filing made with any third party and/or any governmental authority.

Employee Benefit Matters

Parent has agreed that it will, and will cause the surviving corporation after the completion of the Merger to:

 

   

from the effective time of the Merger until the one-year anniversary thereof, provide the Company’s employees and the employees of its subsidiaries with base salary and base wages and short-term cash incentive compensation opportunities that are substantially comparable, in the aggregate, to the base salary and base wages and short-term cash incentive compensation opportunities the Company provided immediately prior to the effective time of the Merger, and benefits (excluding equity-based compensation) that are substantially comparable in the aggregate to the benefits (excluding equity compensation) provided to the Company employees immediately prior to the effective time of the Merger) (provided that nothing above will prohibit the surviving corporation from terminating the employment of any Company employee);

 

   

cause any benefit plan in which the Company’s employees or the employees of its subsidiaries are eligible to participate in following the effective time of the Merger to credit all years of service by such employees for purposes of vesting, eligibility to participate and level of benefits (but not benefit accrual under any defined benefit plan) to the extent such years of service were credited under one of the Company’s comparable employee benefit plans, subject to certain exceptions;

 

   

use commercially reasonable efforts to cause any employee plan in which the Company’s employees or the employees of its subsidiaries are eligible to participate in following the effective time of the Merger to (i) waive any waiting period requirements to the extent that applicable benefits following the effective time of the Merger are replacing comparable benefits the Company offered its employees prior to the effective time of the Merger and (ii) waive any pre-existing condition exclusions or any actively-at-work requirements with respect to medical, dental, pharmaceutical and/or vision benefits to the same extent waived under the Company’s comparable plans; and

 

   

cause any eligible expenses paid by the Company’s employees with respect to benefit plans in effect immediately prior to the effective time of the Merger for purposes of satisfying any deductible, co-insurance or maximum out-of-pocket limitations, to be taken into account with respect to plans provided by Parent or the surviving corporation following the effective time of the Merger as if such

 

98


Table of Contents
 

amounts were paid in accordance with the benefit plans provided by Parent or the surviving corporation following the effective time of the Merger.

Conditions to the Merger

The respective obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (if permissible under applicable law) on or prior to the date of the Closing of the following conditions:

 

   

the stockholder approval required under the Merger Agreement shall have been obtained;

 

   

the waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired and any required approvals thereunder shall have been obtained;

 

   

other than the filing of a certificate of merger, all authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any governmental authority shall have been filed or obtained without imposition of any condition that is material relative to the aggregate merger consideration, other than such authorizations, consents, orders or approvals, declarations or filings or expirations, the failure of which to obtain, file or occur, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect; and

 

   

no law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or enforced by any governmental authority shall be in effect enjoining, restraining, preventing or prohibiting consummation of the Merger or making the consummation of the Merger illegal.

The obligations of Parent and Merger Sub to effect the Merger are further subject to the satisfaction or waiver by Parent (if permissible under applicable law) on or prior to the date of the Closing of the following additional conditions:

 

   

the representations and warranties of the Company set forth in the Merger Agreement regarding (i) the Company’s corporate power and authority to execute and deliver the Merger Agreement, the Board’s determination and recommendation regarding the Merger Agreement, the stockholder approval required to adopt the Merger Agreement, the absence of a rights agreement and the inapplicability of any anti-takeover law to the Merger, must be true and correct as of the effective time of the Merger (except to the extent expressly made as of an earlier date, in which case as of such date), as if made on and as of the effective time of the Merger; (ii) the Company’s capitalization (subject to immaterial exceptions that do not increase the aggregate amount of the merger consideration by more than $10 million), without giving effect to any materiality or “material adverse effect” qualifications therein, shall be true and correct in all material respects at and as of the effective time of the Merger with the same effect as though made as of the effective time of the Merger (except to the extent expressly made as of an earlier date, in which case as of such date); (iii) the absence of brokers’ and finders’ fees except as disclosed, without giving effect to any materiality or “material adverse effect” qualifications therein, shall be true and correct in all but de minimus respects at and as of the effective time of the Merger with the same effect as though made as of the effective time of the Merger (except to the extent expressly made as of an earlier date, in which case as of such date); and (iv) all other matters, without giving effect to any materiality or “material adverse effect” qualifications therein, shall be true and correct as of the effective time of the Merger as if made on and as of the effective time of the Merger (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure to be true and correct would not reasonably be expected to have a “material adverse effect,” and Parent shall have received a certificate signed on behalf of the Company by an executive officer of the Company to such effect;

 

   

the Company has performed in all material respects all obligations required to be performed by the Company under the Merger Agreement at or prior to the effective time of the Merger, and Parent shall

 

99


Table of Contents
 

have received a certificate signed on behalf of the Company by an executive officer of the Company to such effect;

 

   

no “material adverse effect” shall have occurred, and be continuing, since the date of execution of the Merger Agreement; and

 

   

the Company’s common stock shall be listed on Nasdaq on the date of the Closing.

The Company’s obligation to effect the Merger is subject to the satisfaction or waiver by the Company (if permissible under applicable law) at or prior to the date of the Closing of the following additional conditions:

 

   

the representations and warranties of Parent and Merger Sub set forth in the Merger Agreement must be true and correct as of the date of the Merger Agreement and as of the effective time of the Merger (except to the extent made as of an earlier date, in which case as of such earlier date) except where the failure to be true and correct would not prevent consummation of the Merger, and the Company shall have received a certificate signed on behalf of Parent and Merger Sub by an officer of Parent and Merger Sub to such effect; and

 

   

each of Parent and Merger Sub has performed in all material respects all obligations required to be performed by them under the Merger Agreement at or prior to the date of the Closing, and the Company shall have received a certificate signed on behalf of Parent by an officer of Parent to such effect.

Termination

The Company and Parent may, by mutual written consent duly authorized by each of their respective boards of directors, terminate the Merger Agreement and abandon the Merger at any time prior to the effective time of the Merger, whether before or after the adoption of the Merger Agreement by the Company’s stockholders.

The Merger Agreement may also be terminated and the Merger abandoned at any time prior to the effective time of the Merger as follows:

by either Parent or the Company, if:

 

   

the Merger has not been consummated by the Outside Date (but this right to terminate will not be available to a party if the failure to consummate the Merger prior to the Outside Date was primarily due to the failure of such party to perform any of its obligations under the Merger Agreement);

 

   

any law, injunction, judgment, or ruling enacted, promulgated, issued, entered, amended or enforced by any governmental authority shall be in effect enjoining, restraining, preventing or prohibiting consummation of the Merger or making the consummation of the Merger illegal has become final and non-appealable (but this right to terminate will not be available to a party if the issuance of such final, non-appealable law, injunction, judgment, or ruling is primarily due to the failure of such party to perform any of its obligations under the Merger Agreement); or

 

   

the required stockholder approval shall not have been obtained at the stockholders meeting duly convened therefor or any adjournment thereof, provided that this termination right is not available to the Company if the failure by the Company to perform any of its obligations is the principal cause of or resulted in the failure to obtain the required stockholder approval;

by Parent, if:

 

   

the Company shall have materially breached or failed to perform any of its representations, warranties covenants or agreements set forth in the Merger Agreement (except the covenants and agreements described under “—Solicitation of Takeover Proposals”), which failure to be true and correct, breach or failure to perform (i) would give rise to the failure of a condition to Parent and Merger Sub’s

 

100


Table of Contents
 

obligation to effect the Merger and (ii) cannot be cured by the Company by the Outside Date, or if capable of being cured, shall not have been cured within 30 days following receipt by the Company of written notice from Parent of Parent’s intention to terminate (or, if earlier, the Outside Date); provided that, Parent shall not have the right to terminate if either Parent or Merger Sub is then in material breach of any representations, warranties, covenants or other agreements hereunder that would result in the conditions to the Company’s obligation to effect the Merger not being satisfied;

 

   

the Company shall have breached in any material respect its obligations described under “—Solicitation of Takeover Proposals,” which breach if capable of being cured by the Company, shall not have been cured within 10 days following receipt of written notice from Parent of such breach (or, if earlier, the Outside Date) provided that Parent must exercise their right to terminate prior to the receipt of the required stockholder approval; or

 

   

(i) the Board shall have failed to include the Company Board Recommendation in this proxy statement; (ii) the Board shall have effected an Adverse Recommendation Change or a Change in Recommendation; (iii) the Board shall have failed to recommend against any publicly announced Takeover Proposal and reaffirm the Company Board Recommendation, in each case, within 10 days following the public announcement of such Takeover Proposal and in any event at least two business days prior to the Special Meeting; (iv) the Company enters into any letter of intent, agreement or agreement in principle with respect to any Takeover Proposal; or (v) the Company or the Board shall have publicly announced its intention to do any of the foregoing;

by the Company, if:

 

   

Parent or Merger Sub shall have materially breached or failed to perform any of its representations, warranties covenants or agreements contained in the Merger Agreement, which failure to be true and correct, breach or failure to perform (i) would give rise to the failure of a condition to the Company’s obligation to effect the Merger and (ii) cannot be cured by the Outside Date, or if capable of being cured, shall not have commenced to have been cured within 30 days following receipt by the Parent or Merger Sub of written notice from the Company of the Company’s intention to terminate (or, if earlier, the Outside Date); provided that, the Company shall not have the right to terminate if it is then in material breach of any representations, warranties, covenants or other agreements hereunder that would result in the conditions to Parent and Merger Sub’s obligation to effect the Merger not being satisfied;

 

   

prior to the receipt of the stockholder approval, in order to concurrently enter into an agreement with respect to a Takeover Proposal that constitutes a Superior Proposal, if (i) the Company has complied in all material respects with the requirements described under “—Solicitation of Takeover Proposals” above and (ii) prior to or concurrently with such termination, the Company pays the termination fee described under “—Termination Fees and Reimbursement of Expenses” below; or

 

   

(i) the marketing period has ended and the conditions to Parent and Merger Sub’s obligation to effect the Merger (other than those conditions that by their nature are to be satisfied by actions taken at the Closing) have been satisfied, (ii) the Company has irrevocably confirmed by notice to Parent that all conditions to the Company’s obligation to effect the Merger have been satisfied and (iii) the Merger shall not have been consummated within three business days after the delivery of such notice.

Termination Fees and Reimbursement of Expenses

The Company is required to pay Parent a termination fee if:

 

   

(i) a bona fide Takeover Proposal is made, proposed or communicated (and not withdrawn), after March 8, 2012 and prior to the stockholders meeting (or prior to the termination of the Merger Agreement if there has been no stockholders meeting), (ii) following such occurrence, the Merger Agreement is terminated by the Company or Parent because the Merger has not been consummated by the Outside Date or because the stockholder approval was not obtained at the stockholders meeting or

 

101


Table of Contents
 

by Parent pursuant to a failure of the representations and warranties of the Company to be true and correct or a breach of any of the covenants and agreements of the Company set forth in the Merger Agreement (described under “—Termination” above) and (iii) within 12 months of the date the Merger Agreement is terminated, the Company enters into a definitive agreement with respect to any Takeover Proposal or any such Takeover Proposal is consummated, (provided that for purposes of clause (iii), references to 20% in the definition of Takeover Proposal shall be deemed to be references of 50%);

 

   

the Merger Agreement is terminated by the Company prior to the receipt of the stockholder approval, in order to concurrently enter into an agreement with respect to a Takeover Proposal that constitutes a Superior Proposal;

 

   

the Merger Agreement is terminated by Parent if the Board (i) failed to include the Company recommendation in the proxy statement; (ii) effected an Adverse Recommendation Change or a Change in Recommendation; or (iii) failed to recommend against any publicly announced Takeover Proposal and reaffirm the Company Board Recommendation, in each case, within 10 business days after the public announcement of such Takeover Proposal, and in any event at least two business days prior to the Special Meeting; (iv) the Company enters into any letter of intent, agreement or agreement in principle with respect to any Takeover Proposal; or (v) the Company or the Board shall have publicly announced its intention to do any of the foregoing; or

 

   

the Merger Agreement is terminated by the Company or Parent because stockholder approval was not obtained at the stockholders meeting, and prior to the stockholders meeting the Board has changed, qualified, withheld, withdrawn or modified the Company recommendation (other than related to a Superior Proposal).

If the termination fee becomes payable as a result of the Company terminating the Merger Agreement in order to enter into an agreement with respect to a Superior Proposal prior to the No-Shop Period Start Date, the amount of the termination fee will be $4.2 million. If the termination fee becomes payable in other circumstances, the amount of the termination fee will be $6.3 million. Notwithstanding the foregoing, in the event that Parent terminates the Merger Agreement due to an intentional or willful breach by the Company, then Parent may recover up $12.6 million (inclusive of the termination fee) for all actual losses suffered or incurred by the Company of its stockholders with respect to any legal proceedings formally commenced within 120 days following the Company’s termination as the result (the “Parent Damages Remedy”).

Parent is required to pay the Company a termination fee of $9 million if all conditions to Parent’s and Merger Sub’s obligations to consummate the Merger have been satisfied (other than those conditions expected to be satisfied as of the Closing, by actions taken at the Closing or other conditions that are not satisfied as a result of the events which give rise to the Company’s right to terminate) and:

 

   

the Merger Agreement is terminated by the Company pursuant to a failure of the representations and warranties of Parent and Merger Sub to be true and correct or a breach of any of the covenants and agreements of Parent and Merger Sub set forth in the Merger Agreement (described under “—Termination” above); or

 

   

the Merger Agreement is terminated by the Company if (i) the marketing period has ended and the conditions to Parent and Merger Sub’s obligation to effect the Merger (other than those conditions that by their nature are to be satisfied by actions taken at the Closing) have been satisfied on the date the Closing should have been consummated, (ii) the Company has irrevocably confirmed by notice to Parent after the end of the marketing period that all conditions to the Company’s obligation to effect the Merger have been satisfied or that it is willing to waive any unsatisfied conditions and (iii) the Merger shall not have been consummated within three business days after the delivery of such notice.

Notwithstanding the foregoing, in the event that the Company terminates the Merger Agreement due to (i) an intentional breach by Parent or Merger Sub of its obligation to use commercially reasonable efforts to

 

102


Table of Contents

obtain the debt financing, (ii) an intentional act of interference or collusion by Parent or Merger Sub, in the case of each (i) and (ii) that was the proximate cause of the failure of the debt financing to be funded, or (iii) an intentional or willful breach by Parent or Merger Sub that is the proximate cause of the failure of a closing condition of the Merger Agreement, then the Company may recover the Company Damages Remedy.

The Insight Entities and the Rollover Investors have agreed, pursuant to the limited guaranty, severally and not jointly to guarantee the obligation of Parent to pay the reverse termination fee, the Company Damages Remedy and certain expense reimbursement and indemnification obligations in connection with the cooperation of the Company and its subsidiaries with respect to the arrangement of the financing of the Merger.

The Company is required to pay up to $7.0 million of out-of-pocket fees and expenses incurred by Parent, Merger Sub and their affiliates in connection with the Transactions contemplated by the Merger Agreement, if:

 

   

(i) a bona fide Takeover Proposal is made, proposed or communicated (and not withdrawn), after March 8, 2012 and prior to the stockholders meeting (or prior to the termination of the Merger Agreement if there has been no stockholders meeting), (ii) following such occurrence, the Merger Agreement is terminated by the Company or Parent because the Merger has not been consummated by the Outside Date or because the stockholder approval was not obtained at the stockholders meeting or by Parent pursuant to a failure of the representations and warranties of the Company to be true and correct or a breach of any of the covenants and agreements of the Company set forth in the Merger Agreement (described under “—Termination” above) and (iii) within 12 months of the date the Merger Agreement is terminated, the Company enters into a definitive agreement with respect to any Takeover Proposal and such Takeover Proposal is consummated, whether or not the Takeover Proposal was the same Takeover Proposal referred to in (i);

 

   

the Merger Agreement is terminated by the Company prior to the receipt of stockholder approval, in order to concurrently enter into an agreement with respect to a Takeover Proposal that constitutes a Superior Proposal;

 

   

the Merger Agreement is terminated by Parent if (i) the Board shall have failed to include the Company recommendation in the proxy statement, effected an Adverse Recommendation Change or effected a Change in Recommendation; (ii) the Board shall have failed to publicly reaffirm its recommendation of the Merger Agreement in the absence of a publicly announced Takeover Proposal within five business days after Parent so requests in writing; (iii) the Company enters into a letter of intent, agreement or agreement in principle with respect to any Takeover Proposal; (iv) the Company or the Board shall have publicly announced its intention to do any of the foregoing or (v) the Company fails to hold the stockholders meeting within 10 business days prior to the Outside Date;

 

   

the Merger Agreement is terminated by the Company or Parent because stockholder approval was not obtained at the stockholders meeting; or

 

   

the Merger Agreement is terminated by Parent pursuant to a failure of the representations and warranties of the Company to be true and correct or a breach of any of the covenants and agreements of the Company set forth in the Merger Agreement (described under “—Termination” above).

Expenses

Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring such fees and expenses; except (i) Parent and Merger Sub will reimburse and indemnify the Company for expenses incurred by the Company or its subsidiaries in connection with the cooperation of the Company and its subsidiaries with respect to the arrangement of the financing of the Merger; and (ii) as described above in connection with a termination of the Merger Agreement.

 

103


Table of Contents

Remedies

The Company’s right to receive the termination fee from Parent and certain reimbursement and indemnification payments from Parent will be, subject to certain rights to equitable relief, including specific performance, described below, the sole and exclusive remedy of the Company and its subsidiaries and stockholders against Parent, Merger Sub, the guarantors, the parties to the Rollover Letter, the financing sources of the debt financing or any of their respective former, current or future general or limited partners, stockholders, financing sources, managers, members, directors, officers or affiliates for any loss suffered as a result of the failure of the Merger to be consummated or for a breach or failure to perform hereunder or otherwise, and upon payment of such amount, no such related party shall have any further liability or obligation relating to or arising out of the Merger Agreement or the Transactions contemplated thereby.

Parent’s right to receive payment from the Company of the Parent expenses, the applicable termination fee and/or the Parent Damages Remedy, as the case may be, from the Company will be, subject to certain rights to equitable relief, including specific performance, described below, the sole and exclusive remedy of Parent and Merger Sub (and the other related parties described in the preceding paragraph) against the Company and its Subsidiaries and any of their respective former, current or future officers, directors, partners, stockholders, managers, members or affiliates for any loss suffered as a result of the failure of the Merger to be consummated or for a breach or failure to perform hereunder or otherwise, and upon payment of such amount(s), no such related party shall have any further liability or obligation relating to or arising out of the Merger Agreement or the Transactions contemplated thereby.

Except with respect to the Company Damages Remedy, under no circumstances will the Company be entitled to monetary damages in excess of the amount of the reverse termination fee (and certain reimbursement and indemnification payments from Parent). While the Company may pursue both a grant of specific performance and the payment of the reverse termination fee, under no circumstances will the Company be permitted or entitled to receive both a grant of specific performance and any money damages, including all or any portion of the reverse termination fee.

The parties are entitled to an injunction or injunctions, specific performance, or other equitable relief, to prevent breaches of the Merger Agreement and to enforce specifically the terms and provisions thereof, this being in addition to any other remedy to which they are entitled under the Merger Agreement. However, the right of the Company to seek an injunction, specific performance or other equitable remedies in connection with enforcing Parent’s obligation to cause the equity financing to be funded shall be subject to the requirements that (i) the marketing period has ended and all conditions to the obligations of Parent and Merger Sub to effect the Merger were satisfied (other than those conditions that by their terms are to be satisfied by actions taken at the Closing) at the time when the Closing would have been required to occur, but for the failure of the equity financing to be funded, (ii) the debt financing (including any alternative financing that has been obtained in accordance with the Merger Agreement) has been funded in accordance with the terms thereof or will be funded in accordance with the terms thereof at the Closing if the equity financing is funded at the Closing, (iii) the equity rollover contribution is made at the Closing and (iv) the Company has irrevocably confirmed that if the equity financing and debt financing are funded, then it would take such actions that are within its control to cause the Closing to occur.

Indemnification; Directors’ and Officers’ Insurance

For the six-year period commencing immediately after the effective time of the Merger, Parent and the surviving corporation will indemnify and hold harmless (and Parent will advance expenses to) each individual who is or was a director or officer of the Company or a subsidiary of the Company with respect to all claims, liabilities, losses, damages, judgments, fines, penalties, costs (including amounts paid in settlement or compromise) and expenses (including fees and expenses of legal counsel) in connection with any claim, suit, action, proceeding or investigation (whether civil, criminal, administrative or investigative), arising out of (i) the

 

104


Table of Contents

fact that such person was a director or officer of the Company or a subsidiary of the Company, or (ii) acts or omissions by such person in their capacity as a director, officer, employee or agent of the Company or a subsidiary of the Company or taken at the request of the Company or a subsidiary of the Company, at or prior to the effective time of the Merger, to the fullest extent permitted under applicable law, and will assume all obligations of the Company and its subsidiaries in respect of indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the Merger as provided in the Company’s organizational documents currently in effect. The certificate of incorporation and bylaws of the surviving corporation will contain provisions no less favorable to such persons with respect to the limitation of liabilities of directors and officers and indemnification than were set forth in the Company’s organizational documents in effect on March 8, 2012.

For the six-year period commencing immediately after the effective time of the Merger, the surviving corporation will maintain in effect the Company’s current directors’ and officers’ liability insurance (or substitute policies including comparable coverage) covering acts or omissions occurring at or prior to the effective time of the Merger with respect to those individuals who are currently covered by the Company’s directors’ and officers’ liability insurance policy (and any additional individuals who prior to the effective time of the Merger become covered) on terms and scope with respect to such coverage, and in amount, no less favorable to such individuals than those of the policies in effect as of the effective time of the Merger (subject to a limitation of the annual premium paid to 300% of the current annual premium). In the alternative, the Company may prior to the effective time of the Merger purchase, for an aggregate amount not to exceed six times 300% of the current aggregate annual premium, a six-year prepaid “tail policy” with substantially equivalent coverage, and the surviving corporation shall use its reasonable best efforts to cause such policy to be maintained in full force and effect.

Parent or the surviving corporation have the right to assume and control the defense of any threatened or actual litigation covered by the provisions described above, unless there is a conflict of interest between Parent and the surviving corporation, on the one hand, and the indemnified parties, on the other (any threatened or actual litigation related to the Transactions contemplated by the Merger Agreement shall be deemed to involve such conflict of interest). However, Parent and surviving corporation may not settle, compromise or consent to any judgment unless such settlement, compromise or consent includes an unconditional release of the indemnified party from all liability (or the indemnified party otherwise consents).

The present and former directors and officers of the Company will have the right to enforce the provisions of the Merger Agreement relating to their indemnification.

Access

Subject to certain exceptions, the Company will afford Parent, its authorized representatives and potential sources of debt financing reasonable access during normal business hours to the Company’s officers, employees, agents, properties, books, contracts and records, and will furnish Parent information concerning its business, personnel, assets, liabilities and properties as Parent may reasonably request.

Modification or Amendment

At any time prior to the effective time of the Merger, the Merger Agreement may be amended or supplemented in any and all respects, whether before or after receipt of stockholder approval, by written agreement of the parties hereto, by action taken by their respective boards of directors (in the case of the Company, acting upon recommendation of the Special Committee). However, following the receipt of stockholder approval, the parties may not amend or supplement the provisions of the Merger Agreement which, by law, would require further approval by the stockholders of the Company without such approval.

 

105


Table of Contents

THE VOTING AGREEMENT

The following is a summary of the material terms and conditions of the voting 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 voting agreement, a copy of which is attached as Annex B 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 voting agreement that is important to you. We encourage you to read the voting agreement carefully and in its entirety.

In connection with the Merger, the Rollover Investors, in their capacity as stockholders of the Company, entered into a voting agreement with the Company, dated as of March 8, 2012, pursuant to which the Rollover Investors agreed to, among other things and subject to certain conditions, vote their shares of Company common stock in favor of the approval of the Merger Agreement and the other proposals necessary to consummate the Merger and against (i) any Takeover Proposal (other than a Superior Proposal), (ii) any other action involving the Company or its subsidiaries which has the effect of impeding, interfering with, delaying, postponing, or impairing the ability of the Company to consummate the Merger on or prior to the Outside Date or the other transactions contemplated by the Merger Agreement or (iii) any action or agreement that would reasonably be expected to result in any condition to the consummation of the Merger set forth in the Merger Agreement not being fulfilled on or prior to the Outside Date, unless such voting agreement is terminated pursuant to its terms.

As of                     , 2012, the record date, the Rollover Investors held voting power over approximately         % of the Company common stock outstanding and         % of the voting power of the outstanding shares of common stock. The voting agreement will terminate on the earliest of (i) the effective time of the Merger, (ii) the termination of the Merger Agreement in accordance with its terms or (iii) the termination of the Rollover Letter in accordance with its terms.

 

106


Table of Contents

GOLDEN PARACHUTE COMPENSATION

Golden Parachute Compensation

The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K under the Exchange Act, which requires disclosure of information about compensation for each “named executive officer” of the Company that is based on or otherwise relates to the proposed Merger. The compensation described below is referred to as “golden parachute compensation.”

 

Name

  Cash ($) (1)     Equity ($) (2)     Pension/
NQDC ($)
    Perquisites/
Benefits ($)
    Tax
Reimbursement ($)
    Other ($)     Total ($)  

Vincent C. Smith

    —        $ 0 (3)      —          —          —          —        $ 0   

Scott J. Davidson

    —        $ 1,620,022        —          —          —        $ 100,000 (4)    $ 1,720,022   

Douglas F. Garn

    —        $ 4,523,299        —          —          —          —        $ 4,523,299   

Steve M. Dickson

    —        $ 1,255,725        —          —          —          —        $ 1,255,725   

Alan D. Fudge

    —        $ 1,394,752        —          —          —          —        $ 1,394,752   

 

(1) As described above under the heading “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger—Severance Arrangements” certain management-level employees, including the “named executive officers” set forth in this table, entered into the Severance Plan with the Company. For purposes of the Severance Plan, a “change in control” of the Company does not include the consummation of the Merger. Therefore, upon consummation of the Merger, the Severance Plan will terminate and participants in the Severance Plan will not realize any benefits or severance protections under the Severance Plan upon a subsequent termination of employment.
(2) Represents the “single-trigger” payments resulting from consummation of the Merger. No equity awards will have their vesting accelerated in connection with the Merger. Pursuant to the terms of the Merger Agreement, each Unvested Option will be cancelled and converted into the right to receive, on such date or dates and subject to such conditions as determined by the Company in accordance with the Company stock plans and subject to the approval of Mr. Smith, an amount in cash equal to the product of (i) the number of shares of Company common stock subject to such Unvested Option, and (ii) the Designated Consideration. At the effective time of the Merger, the Unvested Options will no longer represent the right to acquire shares of Company common stock and shall represent the right to receive the Designated Consideration on the terms described in this paragraph. The table does not show any values with respect to Vested Options, which will be cancelled in exchange for cash payments payable shortly following the Merger.

The amounts reported for each named executive officer represent:

 

Name

   Number of Unvested
Stock Options
     Exercise Price      Value  

Scott J. Davidson

     100,000       $ 15.71       $ 729,000   
     85,410       $ 16.85       $ 525,272   
     35,000       $ 12.55       $ 365,750   

Douglas F. Garn

     260,000       $ 15.71       $ 1,895,400   
     240,390       $ 16.85       $ 1,478,399   
     110,000       $ 12.55       $ 1,149,500   

Steve M. Dickson

     100,000       $ 15.71       $ 729,000   
     78,000       $ 16.85       $ 479,700   
     4,500       $ 12.55       $ 47,025   

Alan D. Fudge

     91,000       $ 15.71       $ 663,390   
     62,010       $ 16.85       $ 381,362   
     50,000       $ 16.00       $ 350,000   

 

(3)

As described above under the heading “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger—Treatment of Outstanding Stock Options” and “Special Factors—

 

107


Table of Contents
  Interests of the Company’s Directors and Executive Officers in the Merger—Treatment of Outstanding Restricted Stock Units,” pursuant to the Rollover Letter, Mr. Smith has committed to exchange each Vested Option, Unvested Option and Vested RSU immediately prior to the Merger for an equivalent equity interest in Parent under Parent’s stock incentive plan (such plan to be adopted prior to the effective time of the Merger), and therefore none of his equity awards will have their vesting accelerated or will be cashed-out in connection with the Merger.
(4) With the desire to encourage Mr. Davidson to continue to focus on the best interests of Company’s stockholders following the execution of the Merger Agreement, on March 20, 2012, the Special Committee approved a one-time cash payment of $100,000 to Mr. Davidson, less applicable taxes, subject to his continued employment through, and payable following, the earlier of (i) the effective time of the Merger and (ii) the date of the Company’s entry into an agreement with respect to a Superior Proposal.

Vote Required and Board of Directors Recommendation

Section 951 of the Dodd-Frank Act and Rule 14a-21(c) under the Exchange Act require that the Company seek an advisory (non-binding) vote from its stockholders to approve certain golden parachute compensation that its “named executive officers” may be eligible to receive from the Company in connection with the Merger. Approval requires the affirmative vote of the majority of shares present in person or represented by proxy and entitled to vote on the proposal. Accordingly, the Company is asking you to approve the following resolution:

“RESOLVED, that the stockholders approve, on an advisory (non-binding) basis, the agreements or understandings with and items of compensation payable to the named executive officers of Quest Software, Inc. that are based on or otherwise relate to the Merger with Merger Sub, as disclosed in the section of the Proxy Statement entitled “Golden Parachute Compensation.”

The Board recommends, with Mr. Smith taking no part in such recommendation, that stockholders approve the golden parachute compensation arrangements described in this proxy statement by voting “FOR” the above proposal.

Approval of this proposal is not a condition to the completion of the Merger, and the vote with respect to this proposal is advisory only and will not be binding on the Company or Parent. Accordingly, regardless of the outcome of the non-binding, advisory vote, if the Merger Agreement is adopted by the stockholders and completed, our named executive officers will be eligible to receive the various golden parachute compensation that may become payable in connection with the completion of the Merger.

 

108


Table of Contents

ADJOURNMENT OF SPECIAL MEETING

Adjournment of Special Meeting

In the event that the number of shares of Company common stock present in person and represented by proxy at the Special Meeting and voting “FOR” the Merger is insufficient to approve the Merger proposal, the Company may move to adjourn the Special Meeting in order to enable the Board to solicit additional proxies in favor of the approval of the Merger proposal. In that event, the Company will ask its stockholders to vote only upon the adjournment proposal and not on the other proposals discussed in this proxy statement.

Vote Required and Board of Directors Recommendation

The approval of the proposal to adjourn the Special Meeting, if there are not sufficient votes to adopt the Merger proposal, requires the affirmative vote of a majority of the shares present in person or by proxy at the Special Meeting and entitled to vote thereon.

The Board has unanimously approved and authorized the Merger, and recommends, with Mr. Smith taking no part in such recommendation, that you vote “FOR” the adoption of the Merger Agreement and, if there are not sufficient votes to adopt the Merger Agreement, recommends, with Mr. Smith taking no part in such recommendation, that you vote “FOR” the proposal to adjourn the Special Meeting.

 

109


Table of Contents

COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN

BENEFICIAL OWNERS

The following table sets forth certain information as of April 2, 2012 with respect to the beneficial ownership of Company common stock by (i) each person the Company believes beneficially holds more than 5% of the outstanding shares of Company common stock; (ii) each director; (iii) each executive officer and (iv) all directors and executive officers as a group. Unless otherwise indicated, all persons named as beneficial owners of common stock have sole voting power and sole investment power with respect to the shares indicated as beneficially owned. Beneficial ownership also includes shares of Company common stock issuable upon exercise of stock options that are exercisable or will become exercisable, and shares of Company common stock subject to restricted stock units that are vested or will vest, within 60 days of April 2, 2012, as indicated in the footnotes to the table below. For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of 84,258,270 shares of common stock outstanding on April 2, 2012 and the number of shares of common stock that such person or group had the right to acquire on or within 60 days after April 2, 2012. Unless otherwise indicated, the principal address of each of the stockholders below is c/o Quest Software, Inc., 5 Polaris Way, Aliso Viejo, California 92656.

 

Name and Address of Beneficial Owner

   Amount and Nature of
Beneficial Ownership
    Percent of Class  

BlackRock, Inc.

New York, NY 10022

40 East 52nd Street

     4,938,443 (1)      5.86

Executive Officers

    

Vincent C. Smith

     30,542,355        36.25

Douglas F. Garn

     263,022        *   

Scott J. Davidson

     155,055        *   

Steve M. Dickson

     113,443        *   

Alan D. Fudge

     99,340        *   

Directors

    

Augustine L. Nieto II

     105,000        *   

Kevin M. Klausmeyer

     128,400        *   

Paul Sallaberry

     164,213        *   

H. John Dirks

     105,000        *   

All executive officers and directors as a group (9 persons)

     31,675,828        37.59

 

(1) According to a Schedule 13G/A filed with the SEC by the beneficial owner of these shares on February 8, 2012. BlackRock, Inc. has sole voting power and sole dispositive power over these shares.

 

110


Table of Contents

COMMON STOCK TRANSACTION INFORMATION

Purchases of Company Common Stock

There have been no purchases of the Company’s common stock during the past two years effected by the Company, other than shares acquired by the Company pursuant to its stock repurchase program and shares withheld by the Company to satisfy tax withholding obligations on the vesting of restricted stock units held by employees. As of April 2, 2012, 12,244,693 shares of the Company’s common stock were purchased pursuant to the stock repurchase program. None of the Insight Entities, the Rollover Investors, Parent or Merger Sub have made any purchases of the Company’s common stock during the past two years.

Transactions by the Insight Entities, Parent and Merger Sub

There have been no transactions in shares of Company common stock by the Insight Entities, Parent or Merger Sub within the 60 days prior to the date of this proxy statement. In addition there have been no prior stock purchases by the Insight Entities, Parent or Merger Sub in shares of Company common stock during the past two years.

Transactions by Rollover Investors

There have been no transactions in shares of Company common stock by the Rollover Investors within the 60 days prior to the date of this proxy statement. Pursuant to his compensation plan, on March 10, 2011, Mr. Smith was granted 575,000 stock options with an exercise price of $25.91 and on September 9, 2011, Mr. Smith was granted 375,000 stock options with an exercise price of $15.71. Otherwise, there have been no prior stock transactions by the Rollover Investors in shares of Company common stock during the past two years.

Transactions by the Company’s Executive Officers and Directors

Other than as set forth below, there have been no transactions in shares of Company common stock by the Company or our directors and executive officers within the 60 days prior to the date of this proxy statement.

 

Identity of Person

   Date of
Transaction
     Number of
Shares
     Price Per
Share
     Nature of
Transaction

Steve Dickson

     3/01/2012         435       $ 20.45       Sale of Shares(1)

Scott Davidson

     3/01/2012         3,394       $ 20.45       Sale of Shares(1)

Douglas F. Garn

     3/01/2012         10,869       $ 20.45       Sale of Shares(1)

 

(1) Represents shares withheld to satisfy tax withholding obligations on the vesting of restricted stock units held by employees.

 

111


Table of Contents

APPRAISAL RIGHTS

If you do not vote for the adoption of the Merger Agreement at the Special Meeting of stockholders, make a written demand for appraisal prior to the taking of the vote on the adoption of the Merger Agreement and otherwise comply with the applicable statutory procedures of Section 262 of the DGCL, summarized herein, you may be entitled to appraisal rights under Section 262 of the DGCL. In order to exercise and perfect appraisal rights, a record holder of shares of Company common stock must follow the steps summarized below properly and in a timely manner.

Section 262 of the DGCL is reprinted in its entirety as Annex C to this proxy statement. Set forth below is a summary description of Section 262 of the DGCL. The following summary describes the material aspects of Section 262 of the DGCL, and the law relating to appraisal rights and is qualified in its entirety by reference to Annex C. All references in Section 262 of the DGCL and this summary to “stockholder” are to the record holder of shares of Company common stock immediately prior to the effective time of the Merger as to which appraisal rights are asserted. Failure to comply strictly with the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.

Under the DGCL, holders of shares of Company common stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of those shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger.

Under Section 262 of the DGCL, when a Merger Agreement relating to a proposed merger is to be submitted for adoption at a meeting of stockholders, as in the case of the Special Meeting, the corporation, not less than 20 days prior to such meeting, must notify each of its stockholders who was a stockholder on the record date for notice of such meeting with respect to such shares for which appraisal rights are available, that appraisal rights are so available, and must include in each such notice a copy of Section 262 of the DGCL. This proxy statement constitutes such notice to the holders of Company common stock and Section 262 of the DGCL is attached to this proxy statement as Annex C and incorporated herein by reference. Any stockholder who wishes to exercise such appraisal rights or who wishes to preserve his or her right to do so should review the following discussion and Annex C carefully, because failure to timely and properly comply with the procedures specified will result in the loss of appraisal rights under the DGCL.

If you wish to exercise appraisal rights you must not vote for the adoption of the Merger Agreement and must deliver to the Company, before the vote on the proposal to adopt the Merger Agreement, a written demand for appraisal of your shares of Company common stock. If you sign and return a proxy card or vote by submitting a proxy by telephone or the Internet, without abstaining or expressly directing that your shares of Company common stock be voted against the adoption of the Merger Agreement, you will effectively waive your appraisal rights because such shares represented by the proxy will be voted for the adoption of the Merger Agreement. Accordingly, if you desire to exercise and perfect appraisal rights with respect to any of your shares of Company common stock, you must either refrain from executing and returning the enclosed proxy card and from voting in person, or submitting a proxy by telephone or the Internet, in favor of the proposal to adopt the Merger Agreement or check either the “against” or the “abstain” box next to the proposal on such card or vote in person or by submitting a proxy by telephone or the Internet, against the proposal or register in person an abstention with respect thereto. A vote or proxy against the adoption of the Merger Agreement will not, in and of itself, constitute a demand for appraisal.

A demand for appraisal will be sufficient if it reasonably informs the Company of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of such stockholder’s shares of Company common stock. This written demand for appraisal must be separate from any proxy or vote abstaining from or voting against the adoption of the Merger Agreement. If you wish to exercise your appraisal rights you must be the record holder of such shares of Company common stock on the date the written demand for appraisal

 

112


Table of Contents

is made and you must continue to hold such shares through the effective time of the Merger. Accordingly, a stockholder who is the record holder of shares of Company common stock on the date the written demand for appraisal is made, but who thereafter transfers such shares prior to the effective time of the Merger, will lose any right to appraisal in respect of such shares.

Only a holder of record of Company common stock is entitled to assert appraisal rights for such shares of Company common stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the stock certificates or in the case of uncertificated shares, as the holder’s name appears on the stockholder register, and must state that such person intends thereby to demand appraisal of his, her or its shares. If the shares are owned of record in a fiduciary capacity, such as by a broker, dealer, commercial bank, trust company or other nominee, execution of the demand for appraisal should be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including one for two or more joint owners, may execute the demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, it, he or she is acting as agent for such owner or owners.

A record holder such as a broker, dealer, commercial bank, trust company or other nominee who holds shares as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of Company common stock held for one or more beneficial owners while not exercising such rights with respect to the shares held for other beneficial owners; in such case, the written demand should set forth the number of shares as to which appraisal is sought. If the number of shares of Company common stock is not expressly stated, the demand will be presumed to cover all shares held in the name of the record owner. If you hold your shares in an account with a broker, dealer, commercial bank, trust company or other nominee and wish to exercise your appraisal rights, you are urged to consult with your broker, dealer, commercial bank, trust company or other nominee to determine the appropriate procedures for the making of a demand for appraisal.

All written demands for appraisal of shares of Company common stock must be mailed or delivered to: Quest Software, Inc., Attn: Corporate Secretary 5 Polaris Way, Aliso Viejo, CA 92656, or should be delivered to the Corporate Secretary at the Special Meeting, prior to the vote on the adoption of the Merger Agreement.

Within ten days after the effective time of the Merger, we will notify each stockholder as of the effective time of the Merger who properly asserted appraisal rights under Section 262 of the DGCL and has not voted for the adoption of the Merger Agreement. Within 120 days after the effective time of the Merger, but not thereafter, we or any stockholder who has complied with the statutory requirements summarized above may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the fair value of the shares of Company common stock held by such stockholder. If no such petition is filed, appraisal rights will be lost for all stockholders who had previously demanded appraisal of their shares. We are not under any obligation, and we have no present intention, to file a petition with respect to appraisal of the value of the shares. Accordingly, if you wish to exercise your appraisal rights, you should regard it as your obligation to take all steps necessary to perfect your appraisal rights in the manner prescribed in Section 262 of the DGCL.

Within 120 days after the effective time of the Merger, any stockholder who has complied with the provisions of Section 262 of the DGCL will be entitled, upon written request, to receive from us a statement setting forth the aggregate number of shares of Company common stock not voted in favor of the adoption of the Merger Agreement and with respect to which demands for appraisal were received by us, and the number of holders of such shares. Such statement must be mailed within ten days after the written request therefor has been received by us or within ten days after expiration of the period for delivery of appraisal demands, whichever is later. A person who is the beneficial owner of Company common stock held either in a broker, dealer, commercial bank, trust company or other nominee on behalf of such person may, in such person’s own name, file an appraisal petition or request from us the statement described in this paragraph.

 

113


Table of Contents

If a petition for an appraisal is timely filed and a copy thereof served upon us, we will then be obligated, within 20 days, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of the stockholders who have demanded appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the Court of Chancery, the Court of Chancery is empowered to conduct a hearing on such petition to determine those stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Court of Chancery may require the stockholders who demanded appraisal rights of their shares of Company common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding; and if any stockholder fails to comply with such direction, the Court of Chancery may dismiss the proceedings as to such stockholder.

After the Court of Chancery determines which stockholders are entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the Court of Chancery shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court of Chancery shall take into account all relevant factors. Unless the Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective time of the Merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the Merger and the date of payment of the judgment. If you are considering seeking appraisal, you should be aware that the fair value of your shares as determined under Section 262 of the DGCL could be more than, the same as or less than the Per Share Merger Consideration you are entitled to receive pursuant to the Merger Agreement if you did not seek appraisal of your shares and that investment banking opinions as to the fairness from a financial point of view of the Per Share Merger Consideration payable in the Merger are not necessarily opinions as to fair value under Section 262 of the DGCL. In determining “fair value” of shares, the Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court has stated that such factors include “market value, asset value, dividends, earning prospects, the nature of the enterprise and other facts which were known or which could be ascertained as of the date of the Merger which throw any light on future prospects of the merged corporation.” In Weinberger, the Delaware Supreme Court stated, among other things, that “proof of value by any techniques or methods generally considered acceptable in the financial community and otherwise admissible in court” should be considered in an appraisal proceeding. In addition, the Court of Chancery has decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenter’s exclusive remedy.

The Court of Chancery will direct the payment of the fair value of the shares of Company common stock that have perfected appraisal rights, together with interest, if any by the surviving corporation to the stockholders entitled thereto. The Court of Chancery will determine the amount of interest, if any, to be paid on the amounts to be received by persons whose shares of Company common stock have been appraised. The costs of the action (which do not include attorneys’ fees or expert fees or expenses) may be determined by the Court of Chancery and taxed upon the parties as the Court of Chancery deems equitable. The Court of Chancery may also order that all or a portion of the expenses incurred by any stockholder in connection with an appraisal, including without limitation reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against the value of all of the shares entitled to appraisal. In the absence of such determination or assessment, each party bears its own expenses.

Any stockholder who has duly demanded and perfected an appraisal in compliance with Section 262 of the DGCL will not, after the effective time of the Merger, be entitled to vote his or her shares for any purpose or be entitled to the payment of dividends or other distributions thereon, except dividends or other distributions payable to holders of record of shares of Company common stock as of a date prior to the effective time of the Merger.

 

114


Table of Contents

At any time within 60 days after the effective time of the Merger, any stockholder will have the right to withdraw his or her demand for appraisal and to accept the cash payment for his or her shares pursuant to the Merger Agreement. After this period, a stockholder may withdraw his or her demand for appraisal only with our written consent. If no petition for appraisal is filed with the Court of Chancery within 120 days after the effective time of the Merger, a stockholder’s right to appraisal will cease and he or she will be entitled to receive the cash payment for his or her shares pursuant to the Merger Agreement, as if he or she had not demanded appraisal of his or her shares. No petition timely filed in the Court of Chancery demanding appraisal will be dismissed as to any stockholder without the approval of the Court of Chancery and such approval may be conditioned on such terms as the Court of Chancery deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the Per Share Merger Consideration offered pursuant to the Merger Agreement within 60 days after the effective time of the Merger.

If you properly demand appraisal of your shares of Company common stock under Section 262 and you fail to perfect, or effectively withdraw or lose, your right to appraisal, as provided in the DGCL, your shares of Company common stock will be converted into the right to receive the Per Share Merger Consideration. You will fail to perfect, or effectively lose or withdraw, your right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective time of the Merger, or if you deliver to us a written withdrawal of your demand for appraisal. Any such attempt to withdraw an appraisal demand more than 60 days after the effective time of the Merger will require our written approval.

If you desire to exercise your appraisal rights, you must not vote for adoption of the Merger Agreement and must strictly comply with the procedures set forth in Section 262 of the DGCL.

Failure to take any required step in connection with the exercise of appraisal rights will result in the termination or waiver of such rights.

In view of the complexity of Section 262 of the DGCL, stockholders who may wish to dissent from the Merger and pursue appraisal rights should consult their legal advisors.

 

115


Table of Contents

SELECTED FINANCIAL INFORMATION

Selected Historical Financial Information

Set forth below is certain selected historical consolidated financial data relating to the Company. The financial data has been derived from the audited financial statements filed as part of our Annual Report on Form 10-K for the year ended December 31, 2011. This financial data should be read in conjunction with the financial statements and the related notes and other financial information contained in that Form 10-K. See “Where You Can Find More Information” beginning on page 122.

 

     December 31, 2011
(in thousands,
except shares)
    December 31, 2010
(in thousands,
except shares)
 

Income Statement Data

    

Revenues

    

Licenses

   $ 337,889      $ 320,683   

Services

     519,526        446,414   
  

 

 

   

 

 

 

Total Revenues

     857,415        767,097   

Cost of Revenues:

    

Licenses

     10,913        8,303   

Services