PREM14A 1 d542782dprem14a.htm PREM14A PREM14A
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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 under Rule 14a-12

BMC 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:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (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):

   

In accordance with Exchange Act Rule 0-11(c), the filing fee of $941,788 was determined by multiplying 0.0001364 by the aggregate merger consideration of $6,904,604,142. The aggregate merger consideration was calculated by multiplying the 140,410,969 outstanding shares of common stock by the per share merger consideration of $46.25, and adding the foregoing sum to (i) $358,233,861, the product obtained by multiplying the 7,745,597 shares of common stock reserved for issuance in respect of outstanding restricted stock units (including the number of shares subject to market stock units at the 100% vesting level) by the per share merger consideration of $46.25, (ii) $48,760,644, the product obtained by multiplying the 3,050,400 shares of common stock subject to outstanding employee stock options by $15.985, the per share merger consideration of $46.25 less the $30.265 weighted average exercise price per share of such outstanding employee stock options, and (iii) $3,602,320, the product obtained by multiplying 77,888, the number of shares of common stock subject to restricted stock units that may be granted prior to the closing of the merger by the per share merger consideration of $46.25 (in each case, as of the close of business of May 17, 2013).

  (4)  

Proposed maximum aggregate value of transaction: $6,904,604,142

 

     

  (5)  

Total fee paid: $941,788

 

     

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) 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:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED MAY 23, 2013

 

LOGO

2101 CityWest Boulevard

Houston, Texas 77042

[], 2013

Dear Stockholder:

You are cordially invited to attend a special meeting of the stockholders of BMC Software, Inc., a Delaware corporation (“BMC,” the “Company,” “we,” “our” or “us”) which we will hold at [], on [], 2013, at [], local time.

At the special meeting, holders of our common stock, par value $0.01 per share (“common stock”), will be asked to consider and vote on a proposal to adopt an Agreement and Plan of Merger (as it may be amended from time to time, the “merger agreement”), dated as of May 6, 2013, by and among the Company, Boxer Parent Company Inc., a Delaware corporation (“Parent”), and Boxer Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the merger agreement, Merger Sub will be merged with and into the Company (the “merger”), and each share of common stock outstanding at the effective time of the merger (other than shares owned by the Company, any direct or indirect subsidiary of the Company, Parent, Merger Sub and holders who are entitled to and properly exercise appraisal rights under Delaware law) will be canceled and converted into the right to receive $46.25 in cash, without interest and less any applicable withholding taxes.

The board of directors of the Company (the “board”), with Mr. Carl James Schaper having recused himself, has unanimously approved the merger agreement and determined that the merger agreement is advisable, fair to and in the best interests of the Company and its stockholders. The board (with Mr. Schaper recusing himself) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement. The board unanimously (with Mr. Schaper recusing himself) recommends that the stockholders of the Company vote “FOR” the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger.

The enclosed proxy statement describes the merger agreement, the merger and related agreements and provides specific information concerning the special meeting. In addition, you may obtain information about us from documents filed with the Securities and Exchange Commission (the “SEC”). We urge you to, and you should, read the entire proxy statement carefully, including the appendices, as it sets forth the details of the merger agreement and other important information related to the merger.

Your vote is very important. The merger cannot be completed unless holders of a majority of the outstanding shares of common stock vote in favor of the adoption of the merger agreement. If you fail to vote on the adoption of the merger agreement, the effect will be the same as a vote against the adoption of the merger agreement.

While stockholders may exercise their right to vote their shares in person, we recognize that many stockholders may not be able to attend the special meeting. Accordingly, we have enclosed a proxy that will enable your shares to be voted on the matters to be considered at the special meeting even if you are unable to attend. If you desire your shares to be voted in accordance with the board’s recommendation, you need only sign, date and return the proxy in the enclosed postage-paid envelope. Otherwise, please mark the proxy to indicate your voting instructions; date and sign the proxy; and return it in the enclosed postage-paid envelope. You also may submit a


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proxy by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services. Submitting a proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting.

If you hold your shares in “street name” through a broker, bank or other nominee you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the proposal to adopt the merger agreement.

If you have any questions or need assistance in voting your shares, please contact our proxy solicitor, D.F. King & Co., Inc., toll free at 1-800-269-6427.

Thank you for your continued support.

Very truly yours,

ROBERT E. BEAUCHAMP

Chairman of the Board, President and Chief Executive

Officer

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

This proxy statement is dated [], 2013 and is first being mailed to stockholders on or about [], 2013.


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED MAY 23, 2013

BMC SOFTWARE, INC.

2101 CityWest Boulevard

Houston, Texas 77042

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Stockholders of BMC Software, Inc.:

NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of BMC Software, Inc., a Delaware corporation (“BMC,” the “Company,” “we,” “our” or “us”), will be held at [], at [] local time on [], 2013, for the following purposes:

 

  1. to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time, the “merger agreement”), dated as of May 6, 2013, by and among the Company, Boxer Parent Company Inc., a Delaware corporation (“Parent”), and Boxer Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”);

 

  2. to approve, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of the Company in connection with the merger;

 

  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 approve the proposal to adopt the merger agreement; and

 

  4. to act upon other business as may properly come before the special meeting or any adjournment or postponement thereof by or at the direction of the board.

The holders of record of our common stock, par value $0.01 per share (“common stock”), at the close of business on [], 2013, are entitled to notice of and to vote at the special meeting or at any adjournment thereof. All stockholders of record are cordially invited to attend the special meeting in person.

The board of directors of the Company (the “board”), with Mr. Carl James Schaper having recused himself, has unanimously approved the merger agreement and determined that the merger agreement is advisable, fair to and in the best interests of the Company and its stockholders. The board (with Mr. Schaper recusing himself) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement. The board unanimously (with Mr. Schaper recusing himself) recommends that the stockholders of the Company vote “FOR” the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger and “FOR” the proposal to adjourn the special meeting to solicit additional proxies, if necessary or appropriate.

Your vote is important, regardless of the number of shares of common stock you own. The adoption of the merger agreement by the affirmative vote of holders of a majority of the outstanding shares of common stock is a condition to the consummation of the merger. The advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger and the proposal to adjourn the special meeting to solicit additional proxies, if necessary or appropriate, each requires the affirmative vote of holders of a majority of the shares of common stock present at the meeting and entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy and thus ensure that your shares will be represented at the special meeting if you are unable to attend.

You also may submit your proxy by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.


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If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the adoption of the merger agreement and the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger and the proposal to adjourn the special meeting to solicit additional proxies, if necessary or appropriate. If you fail to vote or submit your proxy, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the adoption of the merger agreement, but will not affect the advisory vote to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger and the vote regarding the adjournment of the special meeting to solicit additional proxies, if necessary or appropriate.

Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement. If you are a stockholder of record, you may revoke your proxy by attending the meeting and voting in person.

BY ORDER OF THE BOARD OF DIRECTORS

PATRICK K. TAGTOW

Senior Vice President, General Counsel and Secretary

Dated [], 2013


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TABLE OF CONTENTS

 

     Page  

SUMMARY

     1   

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     12   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     18   

THE COMPANIES

     19   

BMC Software, Inc.

     19   

Boxer Parent Company Inc. and Boxer Merger Sub Inc.

     19   

Bain Capital, LLC

     19   

Golden Gate Private Equity, Inc.

     19   

Insight Venture Management, LLC

     19   

Westhorpe Investment Pte Ltd

     20   

THE SPECIAL MEETING

     21   

Date, Time and Place of the Special Meeting

     21   

Purpose of the Special Meeting

     21   

Recommendation of the Company’s Board of Directors

     21   

Record Date and Quorum

     21   

Required Vote

     22   

Voting by the Company’s Directors and Executive Officers

     22   

Voting; Proxies; Revocation

     22   

Abstentions

     24   

Adjournments and Postponements

     24   

Solicitation of Proxies

     24   

Other Information

     24   

THE MERGER (PROPOSAL 1)

     25   

Certain Effects of the Merger

     25   

Background of the Merger

     25   

Reasons for the Merger

     38   

Recommendation of the Company’s Board of Directors

     41   

Opinion of BofA Merrill Lynch

     41   

Opinion of Morgan Stanley

     50   

Projected Financial Information

     62   

Financing

     65   

Limited Guarantees

     67   

Voting Agreement

     67   

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

     68   

Material U.S. Federal Income Tax Consequences of the Merger

     72   

Regulatory Approvals

     74   

Litigation

     75   


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THE MERGER AGREEMENT

     77   

Explanatory Note Regarding the Merger Agreement

     77   

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

     77   

When the Merger Becomes Effective

     78   

Effect of the Merger on the Common Stock

     79   

Treatment of Company Stock Options and Other Stock Based Awards

     79   

Treatment of the Company’s ESPP

     80   

Payment for the Common Stock and Stock Based Awards in the Merger

     80   

Representations and Warranties

     80   

Conduct of Business Pending the Merger

     83   

Other Covenants and Agreements

     85   

Conditions to the Merger

     96   

Termination

     98   

Termination Fees

     99   

Reimbursement of Expenses

     100   

Expenses

     101   

Specific Performance

     101   

Amendments; Waiver

     101   

ADVISORY VOTE ON NAMED EXECUTIVE OFFICER MERGER-RELATED COMPENSATION (PROPOSAL 2)

     102   

VOTE ON ADJOURNMENT (PROPOSAL 3)

     103   

MARKET PRICE OF THE COMPANY’S COMMON STOCK

     104   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     105   

RIGHTS OF APPRAISAL

     108   

MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS

     112   

SUBMISSION OF STOCKHOLDER PROPOSALS

     112   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     114   

 

Annex A

  

Agreement and Plan of Merger

     A-1   

Annex B

  

Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated

     B-1   

Annex C

  

Opinion of Morgan Stanley & Co. LLC

     C-1   

Annex D

  

Section 262 of the Delaware General Corporation Law

     D-1   

 

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SUMMARY

This Summary discusses the material information contained in this proxy statement, including with respect to the merger agreement, the merger and the other agreements entered into in connection with the merger. We encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary may not contain all of the information that may be important to you. The items in this Summary include page references directing you to a more complete description of that topic in this proxy statement.

The Companies (page 19)

BMC Software, Inc.

BMC Software, Inc., referred to as “BMC,” the “Company,” “we,” “our,” or “us,” is a Delaware corporation. BMC is one of the world’s largest software companies. BMC provides IT management solutions for large, mid-sized and small enterprises and public sector organizations around the world. See “The Companies—BMC Software, Inc.” on page 19.

Additional information about BMC is contained in its public filings, which are incorporated by reference herein. See “Where You Can Find Additional Information” on page 114.

Boxer Parent Company Inc. and Boxer Merger Sub Inc.

Boxer Parent Company Inc., referred to as “Parent,” is a Delaware corporation formed by affiliates of investment funds advised by Bain Capital, LLC, Golden Gate Private Equity, Inc. and Insight Venture Management, LLC, and Westhorpe Investment Pte Ltd (these entities are collectively referred to as the “Buyer Group”). Boxer Merger Sub Inc., referred to as “Merger Sub,” is a Delaware corporation and a wholly owned subsidiary of Parent. Both Parent and Merger Sub were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, and have not engaged in any business except for activities incidental to their formation and as contemplated by the merger agreement. See “The Companies—Boxer Parent Company Inc. and Boxer Merger Sub Inc.” on page 19.

The Merger Proposal (page 25)

You will be asked to consider and vote upon the proposal to adopt the Agreement and Plan of Merger, dated as of May 6, 2013, by and among the Company, Parent and Merger Sub, which, as it may be amended from time to time, is referred to as the “merger agreement.” The merger agreement provides that at the effective time of the merger, Merger Sub will be merged with and into the Company, and each outstanding share of common stock, par value $0.01 per share, of the Company, referred to herein as the “common stock,” other than shares owned by the Company (or any direct or indirect subsidiary of the Company), Parent and Merger Sub and holders who are entitled to and properly exercise appraisal rights under Delaware law, will be converted into the right to receive $46.25 in cash, without interest and less any applicable withholding taxes.

The Company will therefore become a privately held company, wholly owned by Parent. Parent will be owned by affiliates of the Buyer Group.

The Special Meeting (Page 21)

The special meeting will be held at [], on [], 2013, at [] local time.


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Record Date and Quorum (Page 21)

The holders of record of the common stock as of the close of business on [], 2013 (the record date for determination of stockholders entitled to notice of and to vote at the special meeting), are entitled to receive notice of and to vote at the special meeting.

The presence at the special meeting, in person or by proxy, of the holders of a majority of shares of common stock outstanding on the record date will constitute a quorum, permitting the Company to conduct its business at the special meeting.

Required Vote for the Merger (Page 22)

For the Company to complete the merger, under Delaware law, stockholders holding at least a majority of the shares of common stock outstanding at the close of business on the record date must vote “FOR” the proposal to adopt the merger agreement. In addition, under the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote against the proposal to adopt the merger agreement.

As of the record date, there were [] shares of common stock outstanding.

Voting Agreement (Page 67)

On May 4, 2013, the Company entered into a voting agreement (the “voting agreement”) with Parent and two of the Company’s stockholders, Elliott Associates, L.P. and Elliott International, L.P. (together referred to herein as “Elliott”), which collectively hold approximately 9.6% of the common stock of the Company. Under the voting agreement, Elliott has agreed, among other things, that during the period ending on the earliest to occur of (i) the time the Company’s stockholders have adopted the merger agreement, (ii) the termination of the merger agreement in accordance with its terms or (iii) such time as the board of directors of the Company (the “board”) withdraws (or qualifies or modifies in a manner adverse to Parent) its recommendation of the Merger solely in respect of an intervening event (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation), Elliott will vote its shares in favor of the adoption of the merger agreement, and against, among other things, any alternative proposal or other action in opposition to or competition with the merger agreement and any other proposal that would reasonably be expected to prevent, nullify, materially impede, interfere with, frustrate, delay, postpone, discourage or adversely affect the timely consummation of the merger or the other transactions contemplated by the merger agreement.

Conditions to the Merger (Page 96)

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

 

   

the adoption of the merger agreement by the required vote of the stockholders;

 

   

the absence of any order or law that prohibits, makes illegal or otherwise restrains the consummation of the merger; and

 

   

(i) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, referred to herein as the “HSR Act,” (ii) the issuance of a decision by the European Commission pursuant to the Council Regulation (EC) 139/2004 of the European Union, referred to herein as the “EC Merger Regulation,” declaring the transactions contemplated by the merger agreement compatible with the common market, (iii) the expiration of any applicable waiting period or receipt of any approval required under the Anti-Monopoly Law of the

 

 

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People’s Republic of China, (iv) the expiration of any applicable waiting period or receipt of any approval required under the Competition Act of South Africa and (v) if the parties determine it is required, the expiration of any applicable waiting period or receipt of any approval required under the Brazilian Competition Act (the foregoing conditions are referred to herein as the “antitrust/competition approvals condition”).

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

 

   

the accuracy of the representations and warranties of the Company (subject in certain cases to certain materiality, material adverse effect and other qualifications);

 

   

the Company’s performance of and compliance with its obligations and covenants under the merger agreement in all material respects;

 

   

the Company having available funds in the U.S. in an amount equal to or greater than the funding amount (as defined below under “The Merger Agreement—Conditions to the Merger”) on the closing date (the foregoing condition is referred to herein as the “available funds condition”);

 

   

the delivery of an officer’s certificate by the Company certifying that the above conditions have been satisfied; and

 

   

the issuance by the Committee on Foreign Investment in the United States (“CFIUS”) of a written notification that it has concluded a review of the notification voluntarily provided pursuant to the U.S. Defense Production Act of 1950, as amended (the “Defense Production Act”), and determined not to conduct a full investigation of the transactions contemplated by the merger agreement or, if a full investigation is deemed to be required, notification that the U.S. government will not take action to prevent the transactions contemplated by the merger agreement from being consummated (the foregoing condition is referred to herein as the “CFIUS approval condition”).

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

 

   

the accuracy of the representations and warranties of Parent and Merger Sub (subject in certain cases to certain materiality, knowledge and other qualifications);

 

   

Parent’s and Merger Sub’s performance of and compliance with their obligations and covenants under the merger agreement in all material respects; and

 

   

the delivery of an officer’s certificate by Parent certifying that the above conditions have been satisfied.

When the Merger Becomes Effective (Page 78)

We anticipate completing the merger in the third calendar quarter of 2013, subject to the adoption of the merger agreement by the Company’s stockholders as specified herein and the satisfaction of the other closing conditions.

Reasons for the Merger; Recommendation of the Company’s Board of Directors (Pages 38 and 41)

The board (with Mr. Carl James Schaper recusing himself) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement. For a description of the reasons considered by the board in deciding to recommend approval of the proposal to adopt the merger agreement, see “The Merger (Proposal 1)—Reasons for the Merger” beginning on page 38.

 

 

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Opinion of BoA Merrill Lynch (Page 41 and Annex B)

In connection with the merger, Merrill Lynch, Pierce, Fenner & Smith Incorporated (referred to herein as “BofA Merrill Lynch”), one of the Company’s financial advisors, delivered to the board a written opinion, dated May 3, 2013, as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by holders of the common stock.

The full text of the written opinion, dated May 3, 2013, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to the board (in its capacity as such) for the benefit and use of the board in connection with and for purposes of its evaluation of the merger consideration from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the merger. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.

Opinion of Morgan Stanley (Page 50 and Annex C)

Morgan Stanley & Co. LLC (referred to herein as “Morgan Stanley”) was retained by the board to act as one of its financial advisors in connection with the proposed merger. The board selected Morgan Stanley to act as one of its financial advisors based on Morgan Stanley’s qualifications, expertise and reputation and its knowledge of the business and affairs of the Company. On May 3, 2013, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the board that, as of that date, and based upon and subject to the assumptions made, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the $46.25 per share merger consideration to be received by holders of shares of common stock (other than holders that are, or are affiliates of, investors or persons that have committed to, or will commit to, become investors directly or indirectly in Parent or any of Parent’s direct or indirect subsidiaries, including the Company), which we refer to as the “holders,” pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of Morgan Stanley’s written opinion to the board, dated May 3, 2013, is attached as Annex C to this proxy statement. Holders of common stock should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Morgan Stanley in rendering its opinion. This summary is qualified in its entirety by reference to the full text of such opinion. Morgan Stanley’s opinion was addressed to, and provided for the information of, the board in connection with their evaluation of whether the merger consideration to be received by holders pursuant to the merger agreement as of the date of the opinion was fair, from a financial point of view, to such holders and did not address any other aspects or implications of the merger. The opinion does not constitute advice or a recommendation as to how such security holder should vote at any shareholders’ meeting to be held in connection with the merger or take any other action with respect to the merger.

Certain Effects of the Merger (Page 25)

If the conditions to the closing of the merger are either satisfied or, to the extent permitted, waived, Merger Sub will be merged with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the merger, with all of its rights, privileges, immunities, powers and franchises continuing unaffected by the merger. Upon completion of the merger, shares of common stock, other than shares owned by the Company (or any direct or indirect subsidiary of

 

 

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the Company), Parent, Merger Sub and holders who are entitled to and properly exercise appraisal rights under Delaware law, will be converted into the right to receive $46.25 per share, without interest and less any applicable withholding taxes. Following the completion of the merger, the common stock will no longer be publicly traded, and the Company’s existing stockholders will cease to have any ownership interest in the Company.

Treatment of Company Stock Options and Company and Other Stock Based Awards (Page 79)

Company Stock Options. Each option to purchase shares of common stock (which options are referred to as “Company stock options”), whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash equal to the product of (a) the total number of shares of common stock subject to such Company stock option and (b) the excess, if any, of $46.25 over the exercise price per share of common stock subject to such Company stock option, less such amounts as are required to be withheld or deducted under applicable tax provisions.

Company RSU Awards. Awards of restricted stock units with respect to shares of common stock (which awards are referred to as “Company RSU awards”) that are outstanding immediately prior to the effective time of the merger, will be treated as follows:

 

   

Each Company RSU award held by an employee at the level of Senior Vice President or above or by a member of the board will vest fully as of the effective time of the merger with respect to the full number of shares subject to the Company RSU award and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares of common stock subject to the award (net of applicable withholding), determined in the case of performance-based market stock unit awards by applying a 100% (target) vesting percentage.

 

   

For each Company RSU award held by an employee below the level of Senior Vice President, any portion of the award that is scheduled to vest on or prior to the first anniversary of the effective time of the merger will vest as of the effective time of the merger and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares of common stock subject to such portion of the award (net of applicable withholding). Any portion of the award that is scheduled to vest after the first anniversary of the effective time of the merger will be converted into an award (a “converted award”) representing a right to receive an amount in cash equal to the merger consideration of $46.25 per share, without interest, multiplied by the number of shares of common stock subject to that portion of the award. Each converted award will continue to vest and be settled in cash in accordance with the terms of the original award, except that (i) instead of the original vesting date, each portion of a converted award will instead vest on the date that is one year prior to the vesting date specified in the applicable award agreement, and (ii) the vesting of the converted award will accelerate fully if an award holder’s employment is terminated without cause or in other circumstances entitling the award holder to severance benefits.

Interests of the Company’s Directors and Executive Officers in the Merger (Page 68)

In considering the recommendation of the board with respect to the merger agreement, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of the Company’s stockholders generally. Interests of officers and directors that may be different from or in addition to the interests of the Company’s stockholders include:

 

   

The merger agreement provides for the vesting and cash-out of all Company stock options and for partial or full acceleration of the vesting of all Company RSU awards.

 

   

The Company’s executive officers are parties to employment agreements with the Company that provide for severance benefits in the event of certain qualifying terminations of employment in connection with or following the merger.

 

 

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Following the merger, the Company’s executive officers are expected to retain their positions with the surviving corporation.

 

   

The Company’s directors and executive officers are entitled to continued indemnification and insurance coverage under indemnification agreements and the merger agreement.

These interests are discussed in more detail in the section entitled “The Merger (Proposal 1)—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 68. The board was aware of the different or additional interests set forth herein and considered such interests along with other matters in approving the merger agreement and the transactions contemplated thereby, including the merger.

Financing (Page 65)

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 $8.7 billion. Parent expects this amount to be funded through a combination of the following:

 

   

debt financing in an aggregate principal amount of up to approximately $6.23 billion. See “The Merger (Proposal 1)—Financing—Debt Financing” beginning on page 66;

 

   

cash equity investments by Bain Capital Fund X, L.P., Golden Gate Capital Opportunity Fund, L.P., Westhorpe Investment Pte Ltd, Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners VII (Co-Investors), L.P., Insight Venture Partners (Delaware) VII, L.P. and Insight Venture Partners Coinvestment Fund II, L.P. (collectively referred to herein as the “Investors/Guarantors”) in an aggregate amount up to approximately $1.25 billion. See “The Merger (Proposal 1)—Financing—Equity Financing” beginning on page 66;

 

   

at least approximately $1.4 billion of available cash on hand at the Company and its subsidiaries in a U.S. bank account; and

 

   

The consummation of the merger is not subject to any financing condition (although funding of the debt and equity financing is subject to the satisfaction of the conditions set forth in the commitment letters under which the financing will be provided).

Limited Guarantees (Page 67)

Each of the Investors/Guarantors has executed a limited guarantee in favor of the Company pursuant to which each Investor/Guarantor has agreed, subject to the terms and conditions of the limited guarantee, to guarantee, on a several basis, the payment of its applicable percentage of Parent’s obligation to pay the Parent termination fee and certain expense reimbursement that may be payable by Parent under the merger agreement, subject to a cap equal to its applicable percentage of the sum of the Parent termination fee plus $10 million (less its applicable percentage of the amount of such obligations actually satisfied by Parent or Merger Sub), if and when due pursuant to the merger agreement. See “The Merger (Proposal 1)—Limited Guarantees” beginning on page 67.

Material U.S. Federal Income Tax Consequences of the Merger (Page 72)

If you are a U.S. holder, the receipt of cash in exchange for shares of common stock pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

 

 

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Regulatory Approvals (Page 74)

Under the HSR Act and related rules, certain transactions, including the merger, may not be completed until notifications have been given and information furnished to the Antitrust Division of the United States Department of Justice (“Antitrust Division”) and the Federal Trade Commission (“FTC”) and all statutory waiting period requirements have been satisfied. On May 15, 2013, both the Company and Parent filed their respective Notification and Report Forms with the Antitrust Division and the FTC.

The merger is also conditioned on (i) the European Commission issuing a decision pursuant to the EC Merger Regulation declaring the transactions contemplated by the merger agreement compatible with the common market, (ii) the expiration of any applicable waiting period or receipt of any approval required under the Anti-Monopoly Law of the People’s Republic of China, (iii) the expiration of any applicable waiting period or receipt of any approval required under the Competition Act of South Africa and (iv) if the parties determine it is required, the expiration of any applicable waiting period or receipt of any approval required under the Brazilian Competition Act. On May 14, 2013, an initial draft notification to staff of the European Commission was submitted. On May 21, 2013, a notification to the antitrust authorities in South Africa was submitted. On May 22, 2013, an initial draft notification to staff of the Ministry of Commerce in China was submitted. Also on May 22, 2013, a notification to the antitrust authorities in Brazil was submitted.

The merger is also conditioned on the issuance by CFIUS of a written notification to the parties to the merger agreement that it has concluded a review of the notification voluntarily provided pursuant to the Defense Production Act, and determined not to conduct a full investigation of the transactions contemplated by the merger agreement or, if a full investigation is deemed to be required, notification that the U.S. government will not take action to prevent the transactions contemplated by the merger agreement from being consummated.

Litigation (Page 75)

Prior to and following the announcement of the execution of the merger agreement on May 6, 2013, several lawsuits challenging the proposed acquisition of the Company were filed in state courts in Texas and in Delaware.

The outcome of these lawsuits is uncertain. An adverse monetary judgment could have a material adverse effect on the operations and liquidity of the Company, a preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. The Company believes these lawsuits are meritless.

Rights of Appraisal (Page 108 and Annex D)

Under Delaware law, holders of our common stock who do not vote in favor of the adoption of the merger agreement, who properly demand appraisal of their shares of common stock and who otherwise comply with the requirements of Section 262 of the General Corporation Law of the State of Delaware, referred to as the “DGCL,” will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined fair value of, their shares of common stock in lieu of receiving the merger consideration if the merger is completed, but only if they comply with all applicable requirements of the DGCL. This value could be more than, the same as, or less than the merger consideration. Any holder of common stock intending to exercise appraisal rights, among other things, must deliver a written demand for appraisal to us prior to the vote on the proposal to adopt the merger agreement and must not vote in favor of the proposal to adopt the merger agreement and must otherwise strictly comply with all of the procedures required by Delaware law. The relevant provisions of the DGCL are included as Annex D to this proxy statement. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with these provisions will result in loss of the right of appraisal.

 

 

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Alternative Proposals; No Solicitation (Page 85)

Pursuant to the merger agreement, until 11:59 p.m., New York time, on June 5, 2013, the Company and its subsidiaries, and their respective representatives, are permitted to:

 

   

solicit, initiate or encourage any inquiry or the making of any proposal or offer that constitutes an alternative proposal (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation), including by providing information (including non-public information and data) regarding, and affording access to the business, properties, assets, books, records and personnel of, the Company and its subsidiaries pursuant to confidentiality agreements meeting certain requirements (provided that the Company must promptly (and in any event within 48 hours) make available to Parent any non-public information concerning the Company and its subsidiaries provided to third parties that was not previously made available to Parent); and

 

   

engage in, enter into, continue or otherwise participate in any discussions or negotiations with any person or group of persons with respect to any alternative proposals, and cooperate with or assist or participate in or facilitate any such inquiries, proposals, discussions or negotiations or any effort or attempt to make any alternative proposal.

Except as may relate to any excluded party (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation) (but only for so long as such person or group is an excluded party) until 11:59 p.m., New York time, on June 15, 2013 or as permitted by the provisions of the merger agreement, after 11:59 p.m., New York time, on June 5, 2013, the Company and its subsidiaries are required to, and the Company is required to cause its and its subsidiaries’ representatives to cease any activities described above and any discussions or negotiations with any person or group that may be ongoing with respect to any alternative proposals.

Except as may relate to any excluded party (but only for so long as such person or group is an excluded party) until 11:59 p.m., New York time, on June 15, 2013 or as expressly permitted by the provisions of the merger agreement regarding alternative proposals, from 11:59 p.m., New York time, on June 5, 2013 until the effective time of the merger or, if earlier, the termination of the merger agreement, the Company must not, and must cause its subsidiaries and its and their respective affiliates and representatives not to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage or facilitate any inquiry, proposal or offer with respect to, or the making, submission or announcement of, any alternative proposal;

 

   

participate in any negotiations regarding an alternative proposal with, or furnish any non-public information regarding the Company or its subsidiaries to, any person that has made or, to the Company’s knowledge, is considering making an alternative proposal; or

 

   

engage in discussions regarding an alternative proposal with any person that has made or, to the Company’s knowledge, is considering making an alternative proposal, except to notify such person as to the existence of the provisions of the merger agreement regarding alternative proposals.

In addition, except as expressly permitted under the provisions of the merger agreement regarding, from the date of the merger agreement until the effective time of the merger, or, if earlier, the termination of the merger agreement, neither the board nor any committee thereof will:

 

   

grant any waiver, amendment or release under any takeover statutes or the Company’s rights plan;

 

   

grant any waiver, amendment or release under any confidentiality, standstill or similar agreement (or terminate or fail to enforce such agreement) except solely to the extent necessary to allow such person to make a confidential proposal to the board;

 

 

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effect any change of recommendation (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation); or

 

   

authorize, cause or permit the Company or any of its subsidiaries to enter into any letter of intent, agreement in principle, memorandum of understanding, confidentiality agreement or any other agreement relating to or providing for any alternative proposal (except for certain permitted confidentiality agreements).

Notwithstanding the foregoing, if following 11:59 p.m., New York time, on June 5, 2013 and prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, the Company receives an alternative proposal which the board determines in good faith, after consultation with the Company’s financial advisors and outside legal counsel, constitutes a superior proposal (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation) or could reasonably be expected to result in a superior proposal, the Company may take the following actions (subject to compliance with certain obligations set forth in the merger agreement):

 

   

furnish nonpublic information to the third party making such alternative proposal, if, and only if, prior to so furnishing such information, such third party has entered into a confidentiality agreement meeting certain requirements, which confidentiality agreement need not contain any standstill or similar provisions; and

 

   

engage in discussions or negotiations with such third party with respect to the alternative proposal.

Notwithstanding the foregoing, if following 11:59 p.m., New York time, on June 5, 2013 and prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, the Company receives an alternative proposal that the board determines in good faith after consultation with its financial advisors and outside legal counsel that such alternative proposal constitutes a superior proposal (taking into account any adjustment to the terms and conditions of the merger proposed by Parent in response to such alternative proposal), then, the board may, subject to compliance with certain obligations set forth in the merger agreement, including providing Parent with prior notice and allowing Parent the right to negotiate with the Company to match the terms of any superior proposal, terminate the merger agreement to enter into an acquisition agreement with respect to such superior proposal, subject to payment of the Company termination fee.

Notwithstanding the foregoing, at any time prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, other than in connection with a superior proposal, if an intervening event (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation) will have occurred, the board may, subject to compliance with certain obligations set forth in the merger agreement, including providing Parent with prior notice and allowing Parent the right to negotiate with the Company to make adjustments to the terms and conditions of the merger agreement, withdraw (or qualify or modify in a manner adverse to Parent), and exclude from this proxy statement, its recommendation for the Company’s stockholders to vote for the adoption of the merger agreement solely in respect of such intervening event, or publicly propose to do so.

Termination (Page 98)

The Company and Parent may terminate the merger agreement by mutual written consent at any time before the effective time of the merger. In addition, either the Company or Parent may terminate the merger agreement if:

 

   

the effective time of the merger has not occurred on or before 5:00 p.m. (New York City time) on November 6, 2013, and the party seeking to terminate the merger agreement pursuant to this provision has not breached in any material respect its obligations under the merger agreement in any manner that has contributed to the failure to consummate the merger on or before such date; provided that either Parent or the Company may extend such date to February 6, 2014 under specified circumstances;

 

 

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any court of competent jurisdiction has issued or entered an injunction or similar order permanently enjoining or otherwise prohibiting the consummation of the merger and such injunction has become final and non-appealable, so long as the party seeking to terminate the merger agreement pursuant to this provision has used the efforts required of it under the merger agreement to prevent, oppose and remove such injunction; or

 

   

the Company’s stockholders meeting for the purpose of obtaining the required vote of the Company’s stockholders to adopt the merger agreement (including any adjournments or postponements thereof) has concluded and such required vote has not been obtained.

The Company may also terminate the merger agreement:

 

   

if Parent or Merger Sub has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement which would result in the failure to satisfy a closing condition, as further described below under “The Merger Agreement—Termination.

 

   

at any time prior to the adoption of the merger agreement by the Company’s stockholders, if (i) the board has authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal, (ii) prior to or concurrent with such termination, the Company has paid the Company termination fee (defined below) to Parent and (iii) immediately after such termination, the Company enters into an alternative acquisition agreement with respect to such superior proposal; or

 

   

if (i) the merger was not consummated within two business days of the first date upon which Parent was required to consummate the closing pursuant to the merger agreement and (ii) at the time of such termination all conditions to Parent’s obligation to consummate the closing (other than those conditions that are to be satisfied by action taken at the closing) continue to be satisfied.

Parent may also terminate the merger agreement:

 

   

in the event of a change of recommendation;

 

   

if the Company breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement which would result in the failure to satisfy a closing condition, as further described below under “The Merger Agreement—Termination”; or

 

   

in the event that between the date on which the closing would have been required to occur pursuant to the merger agreement but for the failure of the available funds condition to be satisfied and the eighth business day after such date, the available funds condition has not been satisfied.

Termination Fees (Page 99)

The Company will pay to Parent (or one or more of its designees) a termination fee in the event that:

 

   

the merger is terminated under specified conditions and concurrently with or within 12 months after such termination, the Company enters into a definitive agreement providing for a qualifying transaction (as defined below under “The Merger Agreement—Termination Fees”) or consummates a qualifying transaction;

 

   

Parent has terminated the merger agreement in the event of a change of recommendation; or

 

   

the Company has terminated the merger agreement to enter into an alternative acquisition agreement related to a superior proposal.

 

 

 

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The amount of the termination fee that the Company will pay to Parent under such circumstances will be $210 million in cash, except that the amount of the termination fee will be $140 million in the event that the Company has terminated the merger agreement on or prior to 11:59 p.m., New York time, on June 15, 2013 (subject to limited exceptions as specified in the merger agreement) to enter into an acquisition agreement related to a superior proposal with a person or group that is an excluded party at the time of such termination. Certain specified parties that participated in the Company’s recent strategic review cannot be an “excluded party” under the merger agreement.

Parent will pay to the Company a reverse termination fee of $420 million in cash in the event that the Company has validly terminated the merger agreement because:

 

   

Parent or Merger Sub has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement which would result in the failure to satisfy a closing condition, as further described below under “The Merger Agreement—Termination”; or

 

   

the merger was not consummated within two business days of the first date upon which Parent was required to consummate the closing pursuant to the merger agreement and at the time of such termination all conditions to Parent’s obligation to consummate the closing (other than those conditions that are to be satisfied by action taken at the closing) continue to be satisfied.

Reimbursement of Expenses (Page 100)

The Company will be required to reimburse Parent for all reasonable out-of-pocket expenses incurred by Parent, Merger Sub, the Investors/Guarantors or their respective affiliates in connection with the merger agreement and the transactions contemplated by the merger agreement up to a maximum amount of $25 million if Parent has terminated the merger agreement because the meeting of the Company’s stockholders has concluded and the approval of the proposal to adopt the merger agreement by the required vote of the stockholders has not been obtained. If the Company subsequently becomes obligated to pay a termination fee to Parent, any such expense reimbursement paid by the Company will be credited against any Company termination fee payable to Parent.

If the merger agreement is terminated under certain specified circumstances, Parent will be required to reimburse the Company for certain expenses incurred by the Company in connection with repayment of the Company’s existing debt, assistance with the debt financing and cash repatriation pursuant to the merger agreement up to a maximum amount of $10 million.

 

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

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

 

  Q: Why am I receiving this proxy statement?

 

  A: On May 6, 2013, the Company entered into the merger agreement providing for the merger of Merger Sub, a wholly-owned subsidiary of Parent, with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent. You are receiving this proxy statement in connection with the solicitation of proxies by the board in favor of the proposal to adopt the merger agreement and the other matters to be voted on at the special meeting.

 

  Q: What is the proposed transaction?

 

  A: The proposed transaction is the merger of Merger Sub with and into the Company pursuant to the merger agreement. Following the effective time of the merger, the Company would be privately held as a wholly-owned subsidiary of Parent.

 

  Q: What will I receive in the merger?

 

  A: If the merger is completed, you will be entitled to receive $46.25 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own. For example, if you own 100 shares of common stock, you will be entitled to receive $4,625 in cash in exchange for your shares of common stock, less any applicable withholding taxes. You will not be entitled to receive shares in the surviving corporation or in Parent.

 

  Q: Where and when is the special meeting?

 

  A: The special meeting will take place on [], 2013, starting at [] local time at [].

 

  Q: What matters will be voted on at the special meeting?

 

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

 

   

to adopt the merger agreement;

 

   

to approve, on an advisory (non-binding) basis, specified compensation that may be payable to the named executive officers of the Company in connection with the merger;

 

   

to approve the adjournment of the special meeting to solicit additional proxies, if necessary or appropriate, if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement; and

 

   

to act upon other business that may properly come before the special meeting or any adjournment or postponement thereof by or at the direction of the board.

 

  Q: What vote of our stockholders is required to approve the merger agreement?

 

  A:

Under Delaware law, stockholders holding at least a majority of the shares of common stock outstanding at the close of business on the record date for the determination of stockholders entitled to vote at the meeting must vote “FOR” the proposal to adopt the merger agreement. In addition, under

 

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  the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote against the proposal to adopt the merger agreement.

As of [], 2013, the record date for the special meeting, there were [] shares of common stock outstanding.

 

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

 

  A: The directors and current officers of the Company have informed the Company that as of the date of this proxy statement, they intend to vote in favor of the proposal to adopt the merger agreement.

As of [], 2013, the record date for the special meeting, the directors and current executive officers owned, in the aggregate, []% of the outstanding common stock of the Company entitled to vote at the special meeting.

 

  Q: Are there any voting agreements with existing stockholders?

 

  A: In connection with the merger agreement, the Company, Parent and Elliott entered into the voting agreement, pursuant to which Elliott has agreed, among other things and subject to certain conditions, to vote its shares of common stock in favor of the proposal to adopt the merger agreement.

As of the record date, Elliott owned, in the aggregate, approximately []% of the outstanding common stock of the Company entitled to vote at the special meeting.

 

  Q: What is a quorum?

 

  A: A quorum will be present if holders of a majority of the shares of common stock outstanding on the record date are present in person or represented by proxy at the special meeting. If a quorum is not present at the special meeting, the special meeting may be adjourned or postponed from time to time until a quorum is obtained.

If you submit a proxy but abstain or fail to provide voting instructions on any of the proposals listed on the proxy card, your shares will be counted for purpose of determining whether a quorum is present at the special meeting.

If your shares are held in “street name” by your broker, bank or other nominee and you do not tell the nominee how to vote your shares, these shares will not be counted for purposes of determining whether a quorum is present for the transaction of business at the special meeting.

 

  Q: What vote of our stockholders is required to approve other matters to be discussed at the Special Meeting?

 

  A: The advisory (non-binding) proposal to approve specified compensation that may be payable to the named executive officers of the Company in connection with the merger and the proposal regarding adjournment of the special meeting each requires the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy at the special meeting and entitled to vote thereon.

 

  Q: How does the board recommend that I vote?

 

  A:

The board (with Mr. Schaper recusing himself) unanimously recommends that our stockholders vote “FOR” the proposal to adopt the merger agreement. The board also unanimously (with Mr. Schaper recusing himself) recommends that the stockholders of the Company vote “FOR” the advisory

 

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  (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger and “FOR” the proposal regarding adjournment of the special meeting.

 

  Q: What effects will the merger have on BMC?

 

  A: Our common stock is currently registered under the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act,” and is quoted on the NASDAQ Global Select Market, referred to as the “NASDAQ,” under the symbol “BMC.” As a result of the merger, the Company will cease to be a publicly traded company and will be wholly owned by Parent. Following the consummation of the merger, the registration of our common stock and our reporting obligations under the Exchange Act will be terminated. In addition, upon the consummation of the merger, our common stock will no longer be listed on any stock exchange or quotation system, including the NASDAQ.

 

  Q: What happens if the merger is not consummated?

 

  A: If the merger agreement is not approved by the Company’s stockholders, or if the merger is not consummated for any other reason, the Company’s stockholders will not receive any payment for their shares of common stock in connection with the merger. Instead, the Company will remain a public company and shares of our common stock will continue to be listed and traded on the NASDAQ. Under specified circumstances, the Company may be required to pay Parent a termination fee of $210 million or $140 million or reimburse Parent for reasonable out-of-pocket expenses incurred by Parent, Merger Sub, the Investors/Guarantors and their affiliates in connection with the merger up to a maximum amount of $25 million or Parent may be required to pay the Company a termination fee of $420 million and/or up to $10 million of certain expenses incurred by the Company. See “The Merger Agreement—Termination Fee” and “The Merger Agreement—Reimbursement of Expenses.

 

  Q: What will happen if stockholders do not approve the advisory proposal on executive compensation payable to the Company’s named executive officers in connection with the merger?

 

  A: The approval of this proposal is not a condition to the completion of the merger. The vote on this proposal is an advisory vote and will not be binding on the Company or Parent. If the merger agreement is adopted by the stockholders and completed, the merger-related compensation may be paid to the Company’s named executive officers even if stockholders fail to approve this proposal.

 

  Q: What do I need to do now? How do I vote my shares of common stock?

 

  A: We urge you to read this proxy statement carefully, including its annexes and the documents referred to as incorporated by reference in this proxy statement, and to consider how the merger affects you. Your vote is important. If you are a stockholder of record, you can ensure that your shares are voted at the special meeting by submitting your proxy via:

 

   

mail, using the enclosed postage-paid envelope;

 

   

telephone, using the toll-free number listed on each proxy card; or

 

   

the Internet, at the address provided on each proxy card.

If you hold your shares in “street name” through a broker, bank or other nominee you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

 

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  Q: Can I revoke my proxy?

Yes. You can revoke your proxy at any time before the vote is taken at the special meeting. If you are a stockholder of record, you may revoke your proxy by notifying the Company’s Corporate Secretary in writing at BMC Software, Inc., Attn: Corporate Secretary, 2101 CityWest Blvd., Houston, Texas 77042, or by submitting a new proxy by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked. In addition, you may revoke your proxy by attending the special meeting and voting in person (simply attending the special meeting will not cause your proxy to be revoked). Please note that if you hold your shares in “street name” and you have instructed a broker, bank or other nominee to vote your shares, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your voting instructions.

 

  Q: What happens if I do not vote?

 

  A: The vote to adopt the merger agreement is based on the total number of shares of common stock outstanding on the record date, not just the shares that are voted. If you do not vote, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

  Q: Will my shares held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

 

  A: No. Because any shares you may hold in “street name” will be deemed to be held by a different stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity must be voted by an authorized officer of the entity. Shares held in an individual retirement account must be voted under the rules governing the account.

 

  Q: What happens if I sell my shares of common stock before completion of the merger?

 

  A: If you transfer your shares of common stock, you will have transferred your right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares of common stock through completion of the merger.

The record date for stockholders entitled to vote at the special meeting is earlier than the consummation of the merger. So, if you transfer your shares of common stock after the record date but before the closing of the merger, you will have transferred your right to receive the merger consideration in the merger, but retained the right to vote at the special meeting.

 

  Q: Should I send in my stock certificates or other evidence of ownership now?

 

  A: No. After the merger is completed, you will receive a letter of transmittal from the paying agent for the merger with detailed written instructions for exchanging your shares of common stock for the merger consideration. If your shares of common stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the merger consideration. Do not send in your certificates now.

 

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  Q: I do not know where my stock certificate is—how will I get the merger consideration for my shares?

 

  A: If the merger is completed, the transmittal materials you will receive after the completion of the merger will include the procedures that you must follow if you cannot locate your stock certificate. This will include an affidavit that you will need to sign attesting to the loss of your stock certificate. The Company may also require that you provide a customary indemnity agreement to the Company in order to cover any potential loss.

 

  Q: Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares of common stock?

 

  A: Stockholders who do not vote in favor of the proposal to adopt the merger agreement and otherwise comply with the requirements of Section 262 of the DGCL are entitled to statutory appraisal rights under Delaware law in connection with the merger. This means that if you comply with the requirements of Section 262 of the DGCL, you are entitled to have the “fair value” (as defined pursuant to Section 262 of the DGCL) of your shares of 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 comply with the requirements of the DGCL. See “Appraisal Rights” and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex D to this proxy statement.

 

  Q: Will I have to pay taxes on the merger consideration I receive?

 

  A: If you are a U.S. holder, the receipt of cash in exchange for shares of common stock pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes. You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

 

  Q: What does it mean if I get more than one proxy card or voting instruction card?

 

  A: If your shares are registered differently or are held in more than one account, you will receive more than one proxy card or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies by telephone or the Internet, if available to you) to ensure that all of your shares are voted.

 

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

 

  A: The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable 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. Certain brokerage firms may have instituted householding for beneficial owners of common stock held through brokerage firms. If your family has multiple accounts holding 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.

 

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  Q: Who can help answer my other questions?

 

  A: If you have more questions about the merger, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact D.F. King & Co., Inc., which is acting as the proxy solicitation agent and information agent for the Company in connection with the merger.

D.F. King & Co., Inc.

48 Wall Street

New York, NY 10005

(212) 269-5550 (call collect)

(800) 269-6427 (toll free)

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING

STATEMENTS

This proxy statement, and the documents incorporated by reference in this proxy statement, include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which are identified by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “contemplate,” “would” and similar expressions that contemplate future events. Such forward-looking statements are based on management’s reasonable current assumptions and expectation, including the expected completion and timing of the merger and other information relating to the merger. You should be aware that forward-looking statements involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise, except as required by law. In addition to other factors and matters contained in or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

   

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

 

   

the failure to obtain the required vote of the Company’s stockholders to adopt the merger agreement, the failure to obtain any required regulatory approval, or the failure to satisfy any of the other closing conditions to the merger, and any delay in connection with the foregoing;

 

   

the failure to obtain the necessary financing arrangements set forth in the debt and equity commitment letters delivered pursuant to the merger agreement or have the required amount of cash in the United States available at closing;

 

   

risks related to disruption of management’s attention from the Company’s ongoing business operations due to the pendency of the merger;

 

   

the effect of the announcement of the merger on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers, operating results and business generally;

 

   

the outcome of any legal proceedings that have been or may be instituted against the Company and others relating to the merger agreement;

and other risks detailed in our filings with the SEC, including our most recent filing on Form 10-K. See “Where You Can Find Additional Information.” Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements.

 

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THE COMPANIES

BMC Software, Inc.

BMC Software, Inc. is a Delaware corporation with principal executive offices located at 2101 CityWest Boulevard, Houston, Texas 77042. The Company is one of the world’s largest software companies. The Company provides IT management solutions for large, mid-sized and small enterprises and public sector organizations around the world. The Company’s extensive portfolio of IT management software solutions simplifies and automates the management of IT processes, mainframe, distributed, virtualized and cloud computing environments, as well as applications and databases. The Company also provides its customers with maintenance and support services for its products and assists customers with software implementation, integration, IT process and organizational transformation, and education services. A detailed description of the Company’s business is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, which is incorporated by reference into this proxy statement. See “Where You Can Find Additional Information.”

Boxer Parent Company Inc. and Boxer Merger Sub Inc.

Boxer Parent Company Inc. is a Delaware corporation. Boxer Merger Sub Inc. is a Delaware corporation and a wholly owned subsidiary of Parent. Parent and Merger Sub are formed by affiliates of investment funds advised by Bain Capital, LLC, Golden Gate Private Equity, Inc. and Insight Venture Management, LLC (referred to as “Insight”), and Westhorpe Investment Pte Ltd. The principal executive offices of both Parent and Merger Sub are located at 200 Clarendon Avenue, Boston, MA 02116. Both Parent and Merger Sub were formed solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, and have not engaged in any business except for activities incidental to their formation and as contemplated by the merger agreement.

Bain Capital, LLC

Bain Capital, LLC (referred to as “Bain Capital”) is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity, credit products and absolute return with approximately $70 billion in assets under management. Bain Capital has a team of over 300 professionals dedicated to investing and to supporting its portfolio companies. Since its inception in 1984, Bain Capital has made private equity, growth, and venture capital investments in over 450 companies around the world, including such leading technology and software companies as SunGard Data Systems, NXP, LinkedIn, SolarWinds, SurveyMonkey, SevOne, DynaTrace Software, WorldPay, Skillsoft, MYOB, Applied Systems, Archer Technologies and Cerved Group SpA. The firm has offices in Boston, New York, Chicago, Palo Alto, London, Munich, Tokyo, Shanghai, Hong Kong and Mumbai.

Golden Gate Private Equity, Inc.

Golden Gate Private Equity, Inc. (referred to as “Golden Gate Capital”) is a San Francisco-based investment firm with more than $12 billion of capital under management. Founded in 2000, Golden Gate Capital has a long and successful history of investing in growth businesses and partnering with world-class management teams where there is a demonstrable opportunity to significantly enhance a company’s value. The firm is one of the most active software investors in the world, having invested in or acquired more than 65 software companies with combined portfolio revenues of approximately $6 billion. Notable software investments include Infor, Lawson, SUSE Linux, Novell, Attachmate, NetIQ, Micro Focus, Data Direct and Ex Libris.

Insight Venture Management, LLC

Insight Venture Partners is a leading global venture capital and private equity firm founded in 1995 which has raised more than $6.5 billion and made more than 190 investments in technology

 

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companies. Based in New York, the mission of the firm is to find, fund and work successfully with visionary executives who are driving change in their industries. Insight has made investments in leading infrastructure, Internet, on-premise and SaaS-based software and data-services companies including Quest Software, SolarWinds, Medidata Solutions, Exact Target, Shutterstock and Twitter.

Westhorpe Investment Pte Ltd

Westhorpe Investment Pte Ltd is a company affiliated with GIC Special Investments Pte Ltd (referred to as “GICSI”), the private equity arm of Government of Singapore Investment Corporation Private Limited (referred to as “GIC”). GIC is a global investment management company established in 1981 to manage Singapore’s foreign reserves. With a network of nine offices in key financial capitals around the world, GIC invests internationally in equities, fixed income, money-market instruments, real estate and special investments. GICSI is one of the world’s largest private equity investors and manages a multi-billion dollar portfolio of fund investments and direct investments in companies.

 

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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. This proxy statement provides the Company’s stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting.

Date, Time and Place of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the board for use at the special meeting to be held on [], 2013, starting at [] local time at [], or at any adjournment or postponement thereof.

Purpose of the Special Meeting

The purpose of the special meeting is for our stockholders to consider and vote upon the proposal to adopt the merger agreement. Our stockholders must adopt the merger agreement for the merger to occur. If our stockholders fail to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Annex A and the material provisions of the merger agreement are described under “The Merger Agreement.” Our stockholders are also being asked 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.

In addition, in accordance with Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to its named executive officers in connection with the merger, the value of which is disclosed in the table in the section of the proxy statement entitled “The Merger (Proposal 1)—Interests of the Company’s Directors and Executive Officers in the Merger.” The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to approve the merger. Accordingly, a stockholder may vote to approve the executive compensation and vote not to adopt the merger and vice versa. Because the vote is advisory in nature only, it will not be binding on either the Company or Parent. Accordingly, because the Company is contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the merger is approved and regardless of the outcome of the advisory vote.

This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about [], 2013.

Recommendation of the Company’s Board of Directors

After careful consideration, the board (with Mr. Schaper recusing himself) has unanimously approved the merger agreement, the merger and the transactions contemplated thereby and determined that the merger agreement is advisable, fair to and in the best interests of the Company and its stockholders. Certain factors considered by the board in reaching its decision to approve the merger agreement and approve the merger can be found in the section entitled “The Merger—Reasons for the Merger.”

The board unanimously (with Mr. Schaper recusing himself) recommends that the Company’s stockholders vote “FOR” the proposal to adopt the merger agreement, “FOR” the adjournment proposal and “FOR” the named executive officer merger-related compensation proposal.

Record Date and Quorum

The holders of record of common stock as of the close of business on [], 2013, the record date for the determination of stockholders entitled to notice of and to vote at the special meeting, are entitled to receive notice of and to vote at the special meeting. On the record date, [] shares of common stock were outstanding.

 

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The presence at the special meeting, in person or by proxy, of the holders of a majority of shares of common stock outstanding on the record date will constitute a quorum, permitting the Company to conduct its business at the special meeting. Treasury shares, which are shares owned by the Company itself, are not voted and do not count for this purpose. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting. However, if a new record date is set for the adjourned special meeting, then a new quorum will have to be established. Proxies received but marked as abstentions will be included in the calculation of the number of shares considered to be present at the special meeting. Broker non-votes, as described below under the sub-heading “—Voting; Proxies; Revocation—Providing Voting Instructions by Proxy,” will not be considered to be present at the special meeting.

Required Vote

For the Company to complete the merger, under Delaware law, stockholders holding at least a majority of the shares of common stock outstanding at the close of business on the record date must vote “FOR” the proposal to adopt the merger agreement. In addition, under the merger agreement, the receipt of such required vote is a condition to the consummation of the merger. A failure to vote your shares of common stock, an abstention from voting or a broker non-vote will have the same effect as a vote against the proposal to adopt the merger agreement.

Approval of each of the adjournment proposal and the advisory (non-binding) proposal on executive compensation payable to the Company’s named executive officers in connection with the merger requires the affirmative vote of the holders of a majority of the shares of common stock present or represented by proxy at the special meeting and entitled to vote thereon. Abstentions will have the same effect as a vote against these proposals but the failure to vote your shares and broker non-votes will have no effect on the outcome of these proposals.

As of the record date, there were [] shares of common stock outstanding.

Voting by the Company’s Directors and Executive Officers

At the close of business on the record date, directors and executive officers of the Company and their subsidiaries were entitled to vote [] shares of common stock, or approximately []% of the shares of common stock issued and outstanding on that date. The Company’s directors and executive officers have informed the Company that as of the date of this proxy statement, they intend to vote their shares in favor of the proposal to adopt the merger agreement and the other proposals to be considered at the special meeting, although none of them is obligated to do so.

Voting; Proxies; Revocation

Attendance

All holders of shares of common stock as of the close of business on [], 2013, the record date for voting at the special meeting, including stockholders of record and beneficial owners of common stock registered in the “street name” of a bank, broker or other nominee, are invited to attend the special meeting. If you are a stockholder of record, please be prepared to provide proper identification, such as a driver’s license. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or voting instruction form provided by your bank, broker or other nominee or other similar evidence of ownership, along with proper identification.

Voting in Person

Stockholders of record will be able to vote in person at the special meeting. If you are not a stockholder of record, but instead hold your shares in “street name” through a bank, broker or other nominee, you must provide a proxy executed in your favor from your bank, broker or other nominee in order to be able to vote in person at the special meeting.

 

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Submitting a Proxy or Providing Voting Instructions

To ensure that your shares are voted at the special meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the special meeting in person.

Shares Held by Record Holder. If you are a stockholder of record, you may submit a proxy using one of the methods described below.

Submit a Proxy by Telephone or via the Internet. This proxy statement is accompanied by a proxy card with instructions for submitting voting instructions. You may vote by telephone by calling the toll-free number or via the Internet by accessing the Internet address as specified on the enclosed proxy card. Your shares will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card, as described below.

Submit a Proxy Card. If you complete, sign, date and return the enclosed proxy card by mail so that it is received in time for the special meeting, your shares will be voted in the manner directed by you on your proxy card.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of the proposal to adopt the merger agreement, the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger, and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. If you are a stockholder of record and fail to return your proxy card, unless you are a holder of record on the record date and attend the special meeting and vote in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the proposal to adopt the merger agreement, but will not affect the vote regarding the adjournment of the special meeting or the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger, if necessary or appropriate, to solicit additional proxies.

Shares Held in “Street Name.” If your shares are held by a bank, broker or other nominee on your behalf in “street name,” your bank, broker or other nominee will send you instructions as to how to provide voting instructions for your shares. Many banks and brokerage firms have a process for their customers to provide voting instructions by telephone or via the Internet, in addition to providing voting instructions by a voting instruction form.

In accordance with the rules of the NASDAQ, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposal to adopt the merger agreement. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of such shares they may not vote such shares with respect to the proposal to adopt the merger agreement. Under such circumstance, a “broker non-vote” would arise. Broker non-votes, if any, will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, but will have no effect on the adjournment proposal or the advisory (non-binding) proposal on executive compensation payable to the Company’s named executive officers in connection with the merger. For shares of common stock held in “street name,” only shares of common stock affirmatively voted “FOR” the proposal to adopt the merger agreement will be counted as a favorable vote for such proposal.

Revocation of Proxies

Any person giving a proxy pursuant to this solicitation has the power to revoke and change it any time before it is voted. If you are a stockholder of record, you may revoke your proxy at any time before the vote is taken at the special meeting by:

 

   

submitting a new proxy with a later date, by using the telephone or Internet proxy submission procedures described above, or by completing, signing, dating and returning a new proxy card by mail to the Company;

 

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attending the special meeting and voting in person; or

 

   

delivering to the Corporate Secretary of the Company a written notice of revocation c/o BMC Software, Inc., 2101 CityWest Blvd., Houston, Texas 77042.

Please note, however, that only your last-dated proxy will count. Attending the special meeting without taking one of the actions described above will not in itself revoke your proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to the Company or by sending a written notice of revocation to the Company, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by the Company before the special meeting.

If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee in order to revoke your proxy or submit new voting instructions.

Abstentions

An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting. Abstentions will be included in the calculation of the number of shares of common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. Abstaining from voting will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, a vote “AGAINST” the advisory (non-binding) proposal on executive compensation payable to the Company’s named executive officers in connection with the merger and a vote “AGAINST” the adjournment proposal.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. In the event that there is present, in person or by proxy, sufficient favorable voting power to secure the vote of the stockholders of the Company necessary to approve the proposal to adopt the merger agreement, the Company does not anticipate that it will adjourn or postpone the special meeting unless it is advised by counsel that failure to do so could reasonably be expected to result in a violation of applicable law.

The special meeting may be adjourned by the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy at the special meeting and entitled to vote at the special meeting. Any signed proxies received by the Company in which no voting instructions are provided on such matter will be voted in favor of an adjournment in these circumstances.

Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

Solicitation of Proxies

The board is soliciting your proxy, and we will bear the cost of soliciting proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. D.F. King & Co., Inc., a proxy solicitation firm, has been retained to assist it in the solicitation of proxies for the special meeting and we will pay D.F. King approximately $100,000, plus reimbursement of out-of-pocket expenses. Proxies may be solicited by mail, personal interview, e-mail, telephone, or via the Internet by D.F. King or, without additional compensation by certain of the Company’s directors, officers and employees.

Other Information

You should not return your stock certificate or send documents representing common stock with the proxy card. If the merger is completed, the paying agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of common stock for the merger consideration.

 

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THE MERGER (PROPOSAL 1)

Certain Effects of the Merger

If the merger agreement is adopted by the Company’s stockholders and certain other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company with the Company being the surviving corporation in the merger.

Upon the consummation of the merger each share of common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held by the Company, and direct or indirect subsidiary of the Company, Parent and Merger Sub that will be cancelled and holders who are entitled to and properly exercise appraisal rights under Delaware law) will be converted into the right to receive $46.25 in cash, without interest and less any applicable withholding taxes.

Our common stock is currently registered under the Exchange Act and is quoted on the NASDAQ under the symbol “BMC.” As a result of the merger, the Company will cease to be a publicly traded company and will be wholly owned by Parent. Following the consummation of the merger, the registration of our common stock and our reporting obligations under the Exchange Act will be terminated. In addition, upon the consummation of the merger, our common stock will no longer be listed on any stock exchange or quotation system, including the NASDAQ.

Background of the Merger

The Company’s senior management and board regularly review the Company’s operations, financial performance and industry conditions as they may affect the Company’s long-term strategic goals and plans, including the evaluation of potential strategic alternatives available to the Company to enhance stockholder value.

On July 2, 2012, the board established a special ad-hoc strategic review committee (the “strategic review committee”) to assist it in reviewing strategic alternatives potentially available to the Company to enhance stockholder value, including, but not limited to, a sale, merger, leveraged recapitalization or other extraordinary transaction involving the Company, sale of the Company’s enterprise service management or mainframe service management business, a spin-off of the mainframe service management business, acquisitions, dividends, and stock repurchases, as compared to the continued operation of the Company on a stand-alone basis.

Also on July 2, 2012, the Company and Elliott Associates, L.P. and Elliott International, L.P. (“Elliott”) entered into a settlement agreement in connection with a proxy contest that had been initiated by Elliott earlier in the year in which Elliott had sought the election of four of its nominees to the board. Pursuant to the settlement agreement, the Company increased the size of the board from ten to twelve directors, effective as of the 2012 annual meeting, and agreed to nominate two of Elliott’s candidates, John M. Dillon and Mr. Schaper, for election as new directors at the 2012 annual meeting. The Company and Elliott also entered into a confidentiality agreement requiring, among other things, Elliott to maintain the confidentiality of Company information shared with Elliott and abide by certain customary standstill provisions for a specified period.

The strategic review committee met on July 25, 2012, along with certain members of management and representatives of Morgan Stanley, the Company’s independent financial advisor, and Wachtell, Lipton, Rosen and Katz (“Wachtell Lipton”), the board’s legal counsel. The strategic review committee initiated a study of potential alternatives to return capital to stockholders and also agreed to recommend to the board the engagement of another independent financial advisor to assist the review of the various paths to maximize stockholder value. In the following days, after discussions among members of the strategic review committee and members of the board, BofA Merrill Lynch was chosen to assist the Company as a financial advisor in its review of the various paths to maximize stockholder value.

 

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On August 7, 2012, at a meeting of the board attended by certain members of management and representatives of Morgan Stanley and Wachtell Lipton, Messrs. Beauchamp and Schaper updated the board on discussions with certain stockholders of the Company who were urging the board to consider a sale of the Company. Mr. Schaper also updated the board on the workplan of the strategic review committee.

On August 19, 2012, at a meeting of the strategic review committee attended by Patrick Tagtow, the Company’s Senior Vice President, General Counsel, and representatives of Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, the representatives of Morgan Stanley and BofA Merrill Lynch discussed the current market valuation of the Company and the logistics associated with various potential strategic alternatives, including a separation of the Company’s businesses, a return of capital to stockholders, transformative acquisitions and a sale of the Company.

On August 21, 2012, at a meeting of the board attended by certain members of management, Mr. Beauchamp updated the board on the Company’s quarterly performance to date and reviewed recent feedback from the Company’s stockholders, and the members of the strategic review committee reviewed for the board the information discussed at the strategic review committee meeting held on August 19, 2012.

On August 28, 2012, at a meeting of the board attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, the financial advisors discussed with the board the possible financial impact of a potential spin- or split-off of the Company’s business units, hypothetical transformational acquisition scenarios and capital restructuring alternatives. The financial advisors also gave an overview of a potential process for a sale of the Company, including possible strategic entities and financial sponsors that might be interested in such a transaction. Following a discussion, the board authorized Morgan Stanley to contact certain financial sponsors to gauge their interest in an acquisition of the Company and to have Mr. Beauchamp, and representatives of BofA Merrill Lynch, to reach out to certain strategic entities regarding a merger with, or acquisition of, the Company. The board determined that simultaneous with this outreach, it would continue to review the Company’s capital structure strategy and undertake an internal review of the Company’s expenses.

From August 30, 2012 until September 4, 2012, Morgan Stanley contacted six financial sponsors, including Bain Capital, regarding a potential acquisition of the Company. Following each of these discussions, Morgan Stanley sent each of the financial sponsors a draft confidentiality agreement. From early September through the middle of October, the Company entered into confidentiality agreements with six financial sponsors and began sharing confidential information about the Company.

From September 1 to 7, 2012, Mr. Beauchamp contacted five strategic entities regarding a potential acquisition of the Company and BofA Merrill Lynch subsequently discussed a potential acquisition of the Company with each of these strategic entities. In addition, BofA Merrill Lynch contacted two additional strategic entities regarding a potential acquisition of the Company. From early September through the middle of October, the Company entered into confidentiality agreements with two of the strategic entities. Representatives of the Company shared confidential information with these two parties and met with one additional strategic entity to discuss a transaction without exchanging confidential information. None of the strategic entities submitted an indication of interest for the Company.

On September 9, 2012, one of the financial sponsors contacted Morgan Stanley and asked permission to work with another financial sponsor who had also been contacted by Morgan Stanley in evaluating a potential acquisition of the Company because prior to being contacted by Morgan Stanley, these two financial sponsors (the “Alternate Sponsor Group” ) had independently been working together in assessing the Company.

 

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On September 10, 2012, at a meeting of the board attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, the board considered and approved the prior day’s request made by the Alternate Sponsor Group to allow the two financial sponsors comprising the Alternate Sponsor Group to work together in their evaluation of a potential acquisition of the Company.

On October 2, 2012, the strategic review committee held a meeting attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Watchell Lipton at which the financial advisors provided an update on the outreach that had been initiated and the response of the parties that had been contacted.

During the period from October 2 to 10, 2012, Morgan Stanley sent each of the six financial sponsors (two of which were the members of the Alternate Sponsor Group) who had signed confidentiality agreements an information package which included financial projections prepared by management.

On October 3, 2012, certain members of management, together with representatives from Morgan Stanley and BofA Merrill Lynch, met with representatives of one of the financial sponsors (“Financial Sponsor A”). Messrs. Beauchamp, Stephen B. Solcher, the Company’s Senior Vice President, Chief Financial Officer and Ken Berryman, the Company’s Senior Vice President, Strategy and Corporate Development, discussed with the representatives of Financial Sponsor A the Company’s strategy and provided an overview of the Company’s product portfolio, financials and plans for business development. On October 9, 10, 11, and 12, 2012, similar meetings took place with representatives of five other financial sponsors, one of which was a meeting between the Company and representatives from the Alternate Sponsor Group on October 9, 2012 and one of which was a meeting between the Company and representatives of Bain Capital on October 11, 2012.

On October 10, 2012, Financial Sponsor A informed Morgan Stanley that it would not be submitting an indication of interest for the Company.

On or around October 15, 2012, the Company asked the remaining financial sponsors to submit indications of interest to the Company by October 19, 2012.

On October 19, 2012, representatives of the Alternate Sponsor Group submitted a conditional and non-binding indication of interest with a valuation of $48 per share of the Company’s common stock. That same day, two other financial sponsors informed Morgan Stanley that they would not be providing indications of interest based on their assessment of the Company.

On October 20, 2012 representatives of Bain Capital submitted a conditional and non-binding indication of interest with a proposed valuation of $45-47 per share of the Company’s common stock.

From October 22 through October 24, 2012, the board together with certain members of management and representatives of Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton met and discussed a number of items related to the Company’s recent discussions with financial sponsors, including a review of the indications of interest received from Bain Capital and the Alternate Sponsor Group and the potential next steps in the process, including due diligence. The financial advisors advised the board that the pool of financial sponsors that had been approached thus far was a good sampling, and that identifying additional financial sponsors having fundamentally different levels of interest in an acquisition of the Company was unlikely.

During these meetings, the board engaged in discussions related to reaching out to certain additional strategic entities regarding a potential transaction. The board discussed strategic alternatives relating to the Company’s capital structure, including the possibility of executing an accelerated stock repurchase program. Messrs. Beauchamp and Solcher presented for the board the Company’s financial performance in the second quarter of 2012, followed by a presentation by Mr. Berryman, discussing the Company’s corporate strategy and trends in the industry. At the invitation of the board, representatives of McKinsey & Company joined the meeting on

 

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October 23, 2012, to discuss their assessment of the Company’s internal investments, products and growth opportunities. The board discussed the likelihood of a successful transaction if the Company continued with a process exploring a sale of the Company. The board also discussed the likely negative impact on the Company of a sale process, including upon the Company’s management, employees and sales. The board agreed that given the current strategic and operational plans for the Company, and the risks associated with the sale process, it would defer a decision on the continuation of the sale process, pending further analysis of the Company’s strategic options.

The board also discussed the strategic options related to the return of capital to the Company’s stockholders. Following this discussion, the board unanimously authorized the creation of a pricing committee, consisting of directors Louis J. Lavigne, Jr., Mark J. Hawkins and Chet Fenner, a Vice President of Corporate Finance for the Company, and Mr. Solcher for the purpose of raising additional debt financing. Following this, the board unanimously authorized management to purchase up to an additional $1 billion worth of the Company’s common stock through open market purchases, unsolicited or solicited private purchases or through the forward purchase of the Company’s common stock with a bank.

At a meeting of the board on October 29, 2012, attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, the board reviewed updated analyses of the Company’s strategic options from Morgan Stanley and BofA Merrill Lynch. The board also discussed materials received from Elliott on October 28, 2012, which presented Elliott’s support for a potential sale of the Company. The board also discussed the lack of interest shown by potential strategic entity bidders in an acquisition of the Company. Following this and a discussion of the matters considered at the prior week’s board meetings, the board unanimously agreed not to pursue the indications of interest received from Bain Capital and the Alternate Sponsor Group and to discontinue the sale process.

On November 1, 2012, the Company reported that total revenue for the quarter ended September 30, 2012 was $548.2 million, representing a decrease of $8.5 million, or 1.5%, from the prior year quarter, and for the first half of the fiscal year 2013 was $1,052.6 million, representing a decrease of $6.5 million, or 0.6%, from the prior year period. The decrease for the quarter was reflective of decreases in license and professional services revenue, partially offset by a maintenance revenue increase.

On November 20, 2012, Messrs. Beauchamp and Solcher met with representatives of Elliott at Elliott’s offices in New York City to discuss the Company’s decision to not pursue the indications of interest received from the financial sponsors in October 2012.

On November 23, 2012, the Company entered into an agreement with Morgan Stanley to repurchase $750 million of the Company’s common stock under an accelerated share repurchase program, scheduled to be completed on or prior to July 2, 2013.

On December 10, 2012, the Company received a letter from Elliott discussing its view that the Company’s accelerated stock repurchase was inadequate. Elliott also stated that it believed the Company should pursue other strategic alternatives, including a sale of the Company to a financial sponsor or a separation or spin-off of the Company’s mainframe business.

On January 7, 2013, at a telephonic meeting of the board with certain members of Company management present, Mr. Beauchamp provided the board with preliminary results of the Company’s financial performance in the third quarter of 2012. Mr. Beauchamp provided information regarding the shortfall in license bookings as compared to the Company’s expectations, indicating that possible factors for the shortfall included fiscal cliff macro-economic concerns of customers as well as a difficulty in sales forecasting and the fact that certain customers postponed deals expected to be finalized in the third quarter to later quarters.

 

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On January 14, 2013, at a meeting of the board attended by certain members of management and a representative of each of Morgan Stanley and Wachtell Lipton, management discussed the Company’s potential paths for growth, including a modified execution plan for the Company focused on stabilizing the Company’s financials, a potential merger with, or acquisition of a strategic entity (“Company A”), and also discussed reinitiating the process of considering a potential sale of the Company.

At a meeting of the board from January 21, 2013 through January 22, 2013 attended by certain members of management, as well representatives from each of Morgan Stanley and Wachtell Lipton, Messrs. Beauchamp and Solcher provided the board with an update regarding the Company’s quarterly performance and the forecast for the fourth quarter. The attendees also discussed a potential acquisition of Company A, including expected synergies, Company A’s current investors and the Company’s previous interactions with Company A. The board also determined to have Messrs. Schaper and Lavigne work with Mr. Beauchamp and representatives from Morgan Stanley to contact those financial sponsors who had previously engaged with the Company in the fall of 2012 to gauge their interest in re-engaging with the Company.

On January 23, 2012, at a telephonic meeting between Messrs. Beauchamp, Lavigne, Schaper and Tagtow and a representative of Morgan Stanley, it was determined that the representative of Morgan Stanley should schedule telephonic meetings between the Company and certain financial sponsors who had previously engaged with the Company, as well as one other financial sponsor that had not previously engaged with the Company. That same day, Mr. Beauchamp reached out to representatives of Company A and scheduled a meeting between the representatives of the Company and Company A to be held on January 30, 2013.

On January 25, 2013, Messrs. Beauchamp and Schaper reached out telephonically to the Alternate Sponsor Group and Financial Sponsor A. The Alternate Sponsor Group and Financial Sponsor A each expressed an interest to re-engage in discussions with the Company.

On January 28, 2013, Messrs. Beauchamp and Schaper reached out telephonically to Bain Capital. Bain Capital expressed an interest to reengage in discussions with the Company.

On January 30, 2013, Messrs. Beauchamp and Lavigne and representatives from Company A met at Company A’s headquarters to discuss business opportunities arising from a potential combination of the two companies.

On January 31, 2013 at a meeting of the board attended by certain members of management, the board discussed the process of re-initiating the process of selling the Company. Mr. Beauchamp described the prior day’s meeting with Company A and the board considered the potential synergies for such a transaction, and discussed plans for future communications with Company A.

Later that same day, representatives of Morgan Stanley engaged with the new financial sponsor considered at the January 23, 2012 telephonic meeting between Messrs. Beauchamp, Lavigne, Schaper and Tagtow and the representative of Morgan Stanley to gauge the financial sponsor’s interest in considering an acquisition of the Company. That financial sponsor subsequently declined to engage in future discussions regarding the Company.

In early February, 2013, representatives from Morgan Stanley communicated with representatives from Company A’s financial advisor and representatives from each of the interested financial sponsors to arrange in-person meetings with representatives from the Company.

On February 4, 2013, a representative from Bain Capital spoke to a representative from Morgan Stanley and requested to partner with Golden Gate Private Equity, Inc. (“Golden Gate”) in their evaluation of a transaction with the Company.

At a meeting of the board on February 7, 2013, attended by certain members of management and representatives from Morgan Stanley and Wachtell Lipton, management updated the board on the prior week’s communications with Company A and the negotiations concerning entry into a confidentiality agreement with Company A. A

 

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representative from Morgan Stanley then described the steps that had been taken to re-initiate the process of selling the Company and gave the board background on the current state of the debt financing markets for leveraged transactions. Next, Mr. Beauchamp advised the board that the Alternate Sponsor Group had contacted Morgan Stanley to request a breakfast meeting with Mr. Solcher and himself. The board instructed Mr. Beauchamp that although such a meeting to discuss the Company with the Alternate Sponsor Group was acceptable, at this time it would not be appropriate for members of management to engage in a discussion of management’s participation in any future transaction involving financial sponsors. Mr. Beauchamp then recommended that the board delegate the authority to review certain current and anticipated requests from entities involved in the sale process, including requests by bidders to form a group, to Messrs. Lavigne and Hawkins, which recommendation was unanimously approved.

On February 8, 2013, Messrs. Lavigne and Hawkins discussed via telephone with Mr. Tagtow and representatives of Morgan Stanley and BofA Merrill Lynch the request of Bain Capital to include Golden Gate as a potential partner to Bain Capital. The representative of Morgan Stanley advised Messrs. Lavigne and Hawkins that such a request was reasonable given his view that allowing such a pairing would not reduce competition in the sale process and instead would likely facilitate a bid from Bain in light of the size of the potential equity financing required to complete a leveraged-buyout of the Company. Following a discussion, Messrs. Lavigne and Hawkins agreed to allow Bain Capital to partner with Golden Gate.

On the morning of February 14, 2013, Messrs. Beauchamp and Solcher met with representatives of the Alternate Sponsor Group to discuss the Company’s business. Later that same day, at a meeting attended by certain members of Company management and representatives of Morgan Stanley and BofA Merrill Lynch, the Company met with representatives from the Alternate Sponsor Group to discuss a potential acquisition of the Company. During this meeting, certain members of Company management provided the representatives of the Alternate Sponsor Group with an update on the Company’s financial performance and strategy and discussed aspects of the Company’s product portfolio, financials and plans for business development. That same day, the Company and Company A executed a confidentiality agreement.

The following day, certain members of Company management and Company A, along with a representative from Morgan Stanley and representatives from Company A’s financial advisors, met to further discuss business opportunities arising from a potential combination of the two companies.

On February 19, 2013, Golden Gate entered into a confidentiality agreement with the Company. That same day, certain members of Company management and representatives of Morgan Stanley and BofA Merrill Lynch met with representatives from Financial Sponsor A to discuss a potential acquisition of the Company. During this meeting, certain members of Company management provided the representatives of Financial Sponsor A with an update on the Company’s financial performance and strategy and discussed aspects of the Company’s product portfolio, financials and plans for business development. On February 25, 2013 a similar meeting took place with representatives of Bain Capital and Golden Gate (together with Bain, the “Bain/Golden Gate Group”).

Over the next several weeks, in separate conversations with each of the financial sponsors participating in the sale process, Company management discussed the due diligence materials about the Company provided to such financial sponsors.

On March 5, 2013, representatives of the Bain/Golden Gate Group jointly submitted an indication of interest, proposing to acquire the Company at $46-$47 per share of the Company’s common stock. On that same day, Bloomberg publicly reported that the Company had attracted renewed buyout interest from financial sponsors. The following day, on March 6, 2013, the Alternate Sponsor Group informed representatives of Morgan Stanley that it planned to submit a written indication of interest, offering $48 per share of the Company’s common stock.

On March 7, 2013, at a meeting of the board, attended by certain members of management and initially representatives from Morgan Stanley and Wachtell Lipton, a representative from Morgan Stanley updated the board on discussions with Company A. He advised the board that he believed Company A was treating a potential transaction with the Company as a lower priority among the range of alternatives Company A was likely considering at that time.

 

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Representatives of BofA Merrill Lynch then joined the meeting and informed the board that the Company had received a joint indication of interest from the Bain/Golden Gate Group, of $46-$47 per share of the Company’s common stock. The representative from Morgan Stanley further informed the board that the Alternate Sponsor Group had informed Morgan Stanley and BofA Merrill Lynch orally that they intended to submit a written indication of interest putting forth an offer of $48 per share of the Company’s common stock. Finally, the representative from Morgan Stanley noted that Financial Sponsor A had informed Morgan Stanley and BofA Merrill Lynch that it would submit its indication of interest, if any, on March 8, 2013.

Mr. Solcher then presented materials to the board discussing the past and present growth rates and projections for the Company’s fourth quarter. Representatives from Morgan Stanley and BofA Merrill Lynch then described the current status of communications with the financial sponsors and discussed the trading price of the Company’s common stock. The board discussed changes since the first time the Company solicited indications of interest for a potential sale of the Company in October of 2012, including the following factors, which increased their belief that continuing with the sale process would be in the best interests of the Company’s stockholders: (1) the Company’s results, in particular the results for the third quarter of 2012, fell short of earlier expectations, (2) based on the Company’s third quarter results, the Company had revised its future growth rates downward, (3) the macro risks to a transaction associated with the “fiscal cliff” had passed, (4) the availability of debt financing on favorable terms (as suggested by the then-recent Dell transaction), and (5) the fact that the Company had received indications of interest from two, and possibly three, bidders or bidding groups, which indicated that there may be a competitive sale process. Following this discussion, the consensus of the board was to move forward with the due diligence process with the two financial sponsor groups that submitted indications of interest and to include Financial Sponsor A if it submitted a competitive indication of interest.

That same day, Financial Sponsor A communicated orally an offer to representatives of Morgan Stanley of $42-$44 per share of the Company’s common stock. Later that same day, representatives of Morgan Stanley and BofA Merrill Lynch informed the Bain/Golden Gate Group that, given their initial indication of interest, the Company would permit it to proceed with a due diligence review of the Company.

The following day, on March 8, 2013, the Alternate Sponsor Group submitted a written initial indication of interest for approximately $48 per share of the Company’s common stock. Later that day, pursuant to the board’s instructions, representatives of Morgan Stanley and BofA Merrill Lynch informed the Alternate Sponsor Group that, given their initial indication of interest, the Company would permit it to proceed with a due diligence review of the Company.

On March 8, representatives of Morgan Stanley and BofA Merrill Lynch informed Financial Sponsor A that its initial indication of interest would need to be materially raised in order for them to be invited to proceed with a due diligence review of the Company. Financial Sponsor A responded that it was not prepared to raise its offer. Representatives of Morgan Stanley and BofA Merrill Lynch subsequently informed Financial Sponsor A that the board would not invite it to continue in the sale process.

On March 13, 2012, representatives from Morgan Stanley received a request from Bain Capital to include GICSI and Insight in the Bain/Golden Gate Group, which request was passed on to Messrs. Lavigne and Hawkins for consideration.

On the morning of March 14, 2013, the board’s corporate governance & nominating committee (the “Governance Committee”) met, with Mr. Tagtow and representatives of Wachtell Lipton present, to discuss, among other things, the on-going process to pursue a sale of the Company. Mr. Tagtow informed the Governance Committee that Mr. Schaper had a consulting relationship with Golden Gate and had determined to recuse himself from the board’s management of the sale process and review of any potential transaction with Company A. The Governance Committee also discussed the previously disclosed immaterial investment of director Gary Bloom in one of the

 

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financial sponsors in the Alternate Sponsor Group. After a discussion, the Governance Committee determined to recommend to the board that potential conflicts, if any, were well disclosed to the board, and that a special negotiating committee was unnecessary and would deprive the board of a full range of experience and expertise available among the directors.

Following the meeting of the Governance Committee, the board held a meeting, attended by certain members of Company management, along with a representative of Wachtell Lipton, at which the Governance Committee reported the results of its meeting. After a discussion, the board accepted the Governance Committee’s recommendation that no special committee was necessary at that time. Representatives of Morgan Stanley then joined the meeting telephonically to provide an update on discussions relating to a potential acquisition of Company A, noting that the due diligence process was moving slowly. Next, representatives of BofA Merrill Lynch joined the meeting to, jointly with Morgan Stanley, provide an update on the current status of due diligence efforts by the financial sponsors in connection with the sale of the Company, which representatives from both Morgan Stanley and BofA Merrill Lynch agreed was moving quickly.

On March 15, 2013, the Company provided the Bain/Golden Gate Group and its representatives access to the Company’s data room for the purpose of their due diligence.

On March 16, 2013, the Company agreed to permit the Bain/Golden Gate Group to add GICSI and Insight to the Bain/Golden Gate Group.

From March 20 through March 21, 2013, the Company held due diligence meetings with representatives of the Bain/Golden Gate Group.

On March 21, 2013, the board held a meeting, attended by certain members of Company management and a representative from Wachtell Lipton. Following this discussion, representatives of Morgan Stanley and BofA Merrill Lynch joined the meeting. The representative from Morgan Stanley summarized the prior day’s meetings with the Bain/Golden Gate Group and described the expected future events in the transaction process. Later that day, the Company consented to the addition of a third financial sponsor into the Alternate Sponsor Group. That same day, Reuters reported, citing anonymous sources, that at least two consortia were participating in an auction for the Company.

From March 25 through March 26, 2013, the Company held due diligence meetings with representatives of the Alternate Sponsor Group at the Company’s headquarters.

On March 28, 2013, the board held a meeting, attended by certain members of management and a representative from Wachtell Lipton. The representative from Wachtell Lipton described the draft merger agreement that would be provided to the two financial sponsor groups and the process for negotiating that agreement. Representatives from Morgan Stanley and BofA Merrill Lynch then joined the call, providing the board with an update on the status of negotiations with the two financial sponsor groups. Mr. Beauchamp then informed the board that a representative from the Bain/Golden Gate Group had inquired as to the appropriate time to discuss the possible participation of management in a transaction and the post-closing role of management. The board agreed that the representatives from Morgan Stanley and BofA Merrill Lynch should inform the representatives from the Bain/Golden Gate Group that such discussions would not be permitted to occur at this time.

Later that same day, the draft merger agreement and related legal documentation were provided to the two financial sponsor groups. That same day, representatives from Morgan Stanley and BofA Merrill Lynch distributed the auction process letter to the two bidding groups seeking binding offers for the acquisition of the Company by April 22, 2013.

On April 4, 2013, the board held a meeting attended by certain members of management, as well as representatives from Morgan Stanley and Wachtell Lipton. A representative from Morgan Stanley provided an update on Company A’s recent financial performance. Next, a representative from BofA Merrill Lynch joined the call and the representatives from BofA Merrill Lynch and Morgan Stanley described the current status of the financial sponsors’ due diligence process. That same day, a financial advisor of a strategic entity (“Company B”) inquired on a preliminary basis of a representative of Morgan Stanley whether the Company would be interested in selling “a portion”

 

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of its enterprise software management assets, and entering into an arrangement that provided a commission to the Company for every one of its mainframe customers it transitioned to Company B.

From April 4 through April 5, 2013, representatives from the Bain/Golden Gate Group held due diligence meetings with the Company’s management at the Company’s headquarters. Over the same time period, the Company met telephonically with representatives from the Alternate Sponsor Group to discuss due diligence.

In the evening on April 9, 2013, the Company received an initial markup of the merger agreement from the Bain/Golden Gate Group.

On April 11, 2013, the board held a meeting, attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton. Following an update on the Company’s fourth quarter results from Mr. Solcher, the representative from Morgan Stanley provided an update on the communications with Company A. The representative from Morgan Stanley informed the board that it was unlikely Company A would provide the due diligence items requested by the Company in the near term, thus making it difficult for the Company to update its valuation of any opportunity with Company A given Company A’s recent poor financial performance. Next, the financial advisors described the current status of the Company’s sale process. The representative of Morgan Stanley then described the preliminary inquiry made by the representative of Company B. The financial advisors, as well as members of management, informed the board that they believed that the arrangement proposed by Company B would be complex and value destructive for the Company. Upon discussion, the board concluded that they had no further questions related to or interest in this preliminary inquiry and that a response to Company B’s financial advisor was unnecessary.

Mr. Beauchamp then informed the board of a meeting with representatives of the Bain/Golden Gate Group which had been proposed for the following week, at which the topic of management compensation and participation in the Company following the closing of the transaction might be discussed. After discussion, the board authorized such a meeting to take place if an independent director was present.

Next, the representatives from Morgan Stanley and BofA Merrill Lynch discussed valuation methodologies in relation to stock-based compensation expense. The representatives provided a description of how this valuation methodology varies between various industries and among companies in the technology sector. The financial advisors also provided a comparison of the Company to peers on the amount of stock-based compensation used by the entities, along with analyses of the Company’s valuation, both including and excluding stock-based compensation. Finally, Mr. Beauchamp described for the board the current state of communications with Elliott following the expiration of Elliott’s standstill the prior week, including the fact that Elliott had requested a meeting between Messrs. Beauchamp, Tagtow and two representatives from Elliott. After a discussion, the board agreed that it was in the best interests of the Company for Mr. Beauchamp to continue communicating with Elliott so long as such communications remained subject to Elliott’s confidentiality agreement.

Later that same day, on April 11, 2013, Reuters reported that the sale process for the Company had moved beyond the first round of bids. Reuters reiterated that two consortia were working to present a bid for the Company.

On April 15, 2012, representatives of Wachtell Lipton and Kirkland & Ellis LLP (“Kirkland & Ellis”), legal counsel to the Bain/Golden Gate Group, had an initial discussion on the merger agreement markup sent by the Bain/Golden Gate Group on April 9, 2012. The following day, on April 16, 2013, representatives of Kirkland & Ellis provided additional comments to the merger agreement.

On April 17, 2013, following a meeting between certain members of Company management and representatives of the Bain/Golden Gate Group regarding the Bain/Golden Gate Group representatives’ due diligence findings, Messrs. Beauchamp and Solcher, with Mr. Lavigne (an independent director) present met with the Bain/Golden Gate Group representatives for a general

 

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discussion regarding how the consortia typically thinks about how to compensate and incentivize a management team. The representatives from Bain and Golden Gate emphasized that management participation was not a condition of their transaction proposal for the Company and informed Messrs. Beauchamp and Solcher that they would not present terms regarding management’s participation in the transaction until after the merger agreement was signed.

The following day, on April 18, 2013, the board held a meeting, attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton. Mr. Solcher first provided a preliminary high level outlook for the first quarter of fiscal year 2014. Mr. Beauchamp then described the meeting that occurred the prior day with the Bain/Golden Gate Group representatives. The financial advisors then described the current state of negotiations with the Alternate Sponsor Group. Next, a representative from Wachtell Lipton described certain differences between the Company’s draft merger agreement and the drafts received from the Bain/Golden Gate Group, including provisions regarding the Company’s ability to conduct a post-signing market check (often referred to as a “go shop”) and fiduciary out provisions, as well as the Company’s request that it be permitted to waive standstill agreements with previously interested financial sponsors, and various termination fees payable under a number of specific scenarios. The Company’s financial advisors discussed with the board the role of a go shop provision. The financial advisors also advised that if the Company demanded the ability to waive the Alternate Sponsor Group’s standstill obligations, it could result in a lower offer from the Bain/Golden Gate Group, as the Bain/Golden Gate Group might wish to reserve future value for expected future rounds of bidding. During an executive session of the board, Mr. Lavigne described to the board his observations at the prior day’s meeting between Messrs. Beauchamp, Solcher and representatives from the Bain/Golden Gate Group.

That same day, on April 18, 2013, the Company learned through representatives of Morgan Stanley and BofA Merrill Lynch that one of the financial sponsors comprising the Alternate Sponsor Group was less interested in participating in the process and that although its prior indication of interest could no longer be supported, the continuing financial sponsor in the Alternate Sponsor Group was considering how it might proceed in the process, including potentially with an alternative partner, at a valuation closer to the then current trading price of the commons stock, which closed that day at $43.75 per share.

On April 23, 2013, Bloomberg reported that the Company had received two bids before the April 22, 2013 deadline. Bloomberg reported that the buyout offers were not much higher than the Company’s recent stock price.

On April 24, 2013, Messrs. Beauchamp, Solcher and Tagtow met with representatives of Elliott to provide the representatives of Elliott with certain details regarding the status of the Company’s process.

Later that same day, a representative from the Bain/Golden Gate Group responded, with what such representative termed to be its final offer package, to the Company’s financial advisors. The package included an offer letter sent on behalf of Bain Capital, Golden Gate, GICSI and Insight (collectively, the “Buyer Group”) setting forth a per-share offer of $45.25 to acquire 100% of the Company. The offer letter also proposed a termination fee of 3.5% of equity value payable by the Company if the Company accepts a superior proposal, a fee of 1% of equity value payable by the Company in the event the Company’s stockholders failed to approve the adoption of the merger agreement and a reverse termination fee of 4% of equity value payable by Parent. The Buyer Group’s offer assumed up to $6 billion in debt financing and $1.23 billion in equity financing. The offer did not include a go shop.

That same day, a representative of the third financial sponsor to join the Alternate Sponsor Group called Mr. Beauchamp to inform them they remained interested in a transaction.

On April 25 through April 26, 2013, the board held meetings attended by certain members of management and representatives from Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton. A representative from Wachtell Lipton discussed with the directors their legal and fiduciary obligations in the context of the Company’s sale process.

 

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The financial advisors informed the board that one of the financial sponsors comprising the Alternate Sponsor Group was no longer interested in participating in the process and that the remaining financial sponsor in the Alternate Sponsor Group continued to be interested in a sale of the Company, but at a price below their initial indication of interest. The financial advisors also reviewed with the board the process to date regarding a potential sale of the Company, and an analysis of the Buyer Group’s offer submitted the prior day. The board also established an ad-hoc planning committee, whose members were Messrs. Schaper, Dillon, Hawkins and Lavigne, to assist the board in its planning in the event a sale of the Company did not occur or if such sale were to fail to be consummated in the future. The board instructed the financial advisors to continue with negotiations with the Buyer Group.

After the meeting on April 26, 2013, representatives of Morgan Stanley and BofA Merrill Lynch contacted representatives of the Buyer Group at the Company’s request, requesting that they raise their offer price to at least $48.00 per share and proposing the inclusion of a 30-day go shop period, a two-tier Company termination fee of 1% and 3% of equity value, respectively (based on whether the termination occurred due to a superior proposal with an excluded party who submitted an alternative proposal during the go shop period), a reverse termination fee of 8% of equity value. The representatives of Morgan Stanley and BofA Merrill Lynch also requested that the Buyer Group modify the efforts they would be obligated to make to obtain antitrust approvals under the terms of the merger agreement. Representatives of the Buyer Group responded later the same day, raising their offer to $45.75 per share and accepting a go shop period of 30 days, but proposing a single-tier Company termination fee of 3.5% of equity value without regard to whether the termination is due to a superior proposal from an excluded party, a reverse termination fee of 5% of equity value, and stating that they were not willing to modify their obligation to obtain antitrust approvals. The representatives of the Buyer Group also informed the representatives of Morgan Stanley and BofA Merrill Lynch that they would require a commitment by Elliott to vote in favor of a transaction. Later that day, representatives of Morgan Stanley and BofA Merrill Lynch re-engaged with the representatives of the Buyer Group, asking the Buyer Group to raise their offer to $46.50 per share of common stock and to accept a two-tier Company termination fee of 1.5% and 3% of equity value and a reverse termination fee of 6.5%. The representatives of Morgan Stanley informed the Buyer Group that the Company’s executive management team was prepared to forfeit their upcoming award of restricted stock units, scheduled for May 2013, in exchange for the Buyer Group raising its current price per share offer. The representatives of Morgan Stanley and BofA Merrill Lynch informed the representatives of the Buyer Group that a voting agreement with Elliott would be acceptable from the Company’s perspective, provided that Elliott’s obligation to vote in favor of the transaction would terminate in the event the Company were to enter into a superior proposal and terminate the merger agreement.

In the early morning of April 27, 2013, representatives from the Buyer Group contacted representatives of Morgan Stanley and BofA Merrill Lynch to propose a final offer of $46.25 per share, a two-tier Company termination fee of 2% and 3% of equity value, a reverse termination fee of 6% of equity value and the forfeiture of the Company’s executive management team’s restricted stock unit awards scheduled to be granted in May 2013.

Later on the morning of April 27, 2013, at a telephonic meeting of the board attended by certain members of management and representatives of Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, the board discussed whether a financial sponsor would likely be able to offer more than the current offer of $46.25 per share. The board also discussed the request by the Buyer Group that, although any third party would be permitted to make a private proposal to acquire the Company after signing the merger agreement, any offers presented by participants in the Company’s recent sale process be subject to the higher Company termination fee, even if such a proposal arose during the go shop period. The financial advisors advised the board that, in light of the Company’s execution of two sale processes and the multiple public reports of the Company’s process, in their view it was unlikely that an offer would be presented by another financial sponsor or group of financial sponsors, and that the Company termination fee would likely not be an impediment to a strategic entity bidder if it wanted to make a competing offer to acquire the Company. Following a discussion, the board authorized its advisors to continue negotiations with the Buyer Group.

 

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Later that same day, the Company’s ad-hoc planning committee met to discuss preparations for alternatives to a sale of the Company, including changes to the Company’s capital structure and strategies for mergers and acquisitions.

On April 28, 2013, a representative of Elliott indicated to a representative of Morgan Stanley that Elliott was interested in purchasing an equity interest in the surviving company as part of any transaction in which the Company were to be acquired by financial sponsors. The representative of Morgan Stanley indicated to the representative of Elliott that none of the potential interested buyers had indicated any need for additional equity contributions to facilitate a transaction, but that if Elliott were willing to participate on a basis that improved the transaction terms available to the Company’s stockholders that would be a matter worth further discussion. Representatives of Bain Capital and Golden Gate also indicated to a representative of Morgan Stanley that Elliott had made a similar expression of Elliott’s interest in purchasing an equity interest in the surviving company as part of any transaction in which the Company were to be acquired by the Buyer Group. Representatives of Bain Capital and Golden Gate indicated to Morgan Stanley that they were open to Elliott rolling over some of its shares, but that they required the Company’s consent to have discussions with Elliott pursuant to their existing confidentiality agreements with the Company. As part of the Voting Agreement with Elliott the Company granted such consent. The Company has since been informed by representatives of the Buyer Group that discussions between the Buyer Group and Elliott are on-going.

In the early morning of April 29, 2013, representatives of Wachtell Lipton sent a revised draft of the merger agreement and other transaction documents to Kirkland & Ellis. Later that morning, representatives of Kirkland & Ellis arrived at the offices of Wachtell Lipton. From April 30, 2013 through May 3, 2013, representatives from Wachtell Lipton and Kirkland & Ellis continued negotiations on the merger agreement and other transaction documents.

On May 2, 2013, at a special telephonic meeting of the board, attended by certain members of management and representatives of Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, representatives of Wachtell Lipton discussed the key terms of the merger agreement with the board, including closing conditions, termination provisions, regulatory issues and the structure of the go shop period. A representative from BofA Merrill Lynch described the recommended process for the go shop period in the event the board determined to proceed with a transaction, including the projected timetable and strategic entities and financial sponsors it recommended for engagement. A representative from Morgan Stanley also discussed with the board the earlier communications Morgan Stanley had with representatives of Elliott, Bain Capital and Golden Gate, regarding Elliott’s interest in purchasing an equity interest in the Company as part of any transaction in which the Company were to be acquired by the Buyer Group.

The following day, on May 3, 2013, at a special telephonic meeting of the board, attended by certain members of management and representatives of Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton, the board discussed the proposed transaction with the Buyer Group. A representative from Wachtell Lipton discussed with the board its fiduciary duties under Delaware law in connection with the transaction. The representative from Wachtell Lipton then reviewed the current terms of the merger agreement and other transaction documents that had been negotiated. Next, representatives of Morgan Stanley reviewed for the board the analyses they had used in connection with the preparation of their fairness opinion. Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the board that, as of that date, and based upon and subject to the assumptions made, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the $46.25 per share merger consideration to be received by holders of shares of common stock (other than holders that are, or are affiliates of, investors or persons that have committed to, or will commit to, become investors directly or indirectly in Parent or any of Parent’s direct or indirect subsidiaries, including the Company), pursuant to the merger agreement was fair from a financial point of view to such holders. BofA Merrill Lynch then reviewed with the board its financial analysis of the merger consideration and delivered to the board an oral opinion, which was subsequently confirmed by delivery of a written opinion dated May 3, 2013, to the effect that, as of that date and based on and subject to various

 

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assumptions and limitations described in its opinion, the merger consideration to be received by holders of the Company’s common stock, was fair, from a financial point of view, to such holders. The full text of the written opinions of BofA Merrill Lynch and Morgan Stanley to the board, each dated May 3, 2013, are attached as Annex B and Annex C, respectively, to this proxy statement, and are described in more detail below under “The Merger (Proposal 1)—Opinion of BofA Merrill Lynch” and “The Merger (Proposal 1)—Opinion of Morgan Stanley & Co. LLC,” respectively. Upon a unanimous vote of the directors present at the meeting, the board approved the merger and the merger agreement, in substantially the form presented to the board, and resolved to recommend that the stockholders of the Company adopt the merger agreement. The board authorized the members of management to execute definitive transaction agreements on substantially the same terms as described to the board. Mr. Schaper, who had recused himself from deliberations relating to a potential transaction, was not present at the meeting, and did not vote. The board also determined to have its representatives move forward to negotiate a voting agreement, securing Elliott’s support for the transaction, as well as to finalize an amendment to the Company’s rights plan to ensure entry into the merger agreement and other agreements contemplated thereby, did not trigger the distribution of rights under the Company’s rights plan. The board then authorized the representatives of Morgan Stanley, BofA Merrill Lynch and Wachtell Lipton and management to proceed with the Buyer Group to finalize the merger agreement and the other transaction documents on the basis outlined in the meeting.

Following the board meeting, representatives of Wachtell Lipton and Kirkland & Ellis continued to finalize the transaction documents, and representatives of Wachtell Lipton, Kirkland & Ellis and Elliott finalized the terms of the proposed voting agreement with Elliott.

In the evening of May 4, 2013, the Buyer Group and the Company entered into a voting agreement with Elliott under which Elliott agreed to vote for the transaction, provided that a definitive merger agreement was entered into prior to 11:59 Pacific Time on May 6, 2013. The Company also amended its rights plan to provide that the merger agreement and the other agreements contemplated thereby, including the voting agreement, would not result in a distribution of rights under the Company’s rights plan.

On the morning of May 6, 2013, the parties executed the merger agreement and related transaction documents prior to the opening of the financial markets.

The merger agreement provides that after the execution and delivery of the merger agreement and until 11:59 p.m. (New York time) on June 5, 2013 (the “go shop period”), the Company and its subsidiaries and their respective representatives may initiate, solicit and encourage the making of alternative acquisition proposals, including by providing nonpublic information to, and participating in discussions and negotiations with, third parties in respect of alternative acquisition proposals.

On May 6, 2013 and in the days following, representatives of BofA Merrill Lynch contacted a number of potential strategic entities and financial sponsors that might have interest in making a proposal to acquire the Company. On May 6, 2013, two financial sponsors asked representatives of BofA Merrill Lynch for draft confidentiality agreements permitting them to engage with the Company in respect of the go shop period. The Company also sent waivers to the confidentiality agreements previously entered into with third parties to allow the submission of private proposals to the board. On May 14, 2013, one strategic entity asked representatives of BofA Merrill Lynch for a draft confidentiality agreement permitting them to engage with the Company in respect of the go shop period. From May 6 until May 21, 2013, the representatives of BofA Merrill Lynch contacted seven financial sponsors, two of which have executed confidentiality agreements with the Company, and nine strategic entities, none of which have executed a confidentiality agreement with the Company.

On May 10, 2013, the Company amended its rights plan to, among other things, extend its term to the close of business on February 11, 2014, which date is five days following the final end date provided for by the merger agreement.

 

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Reasons for the Merger

The board evaluated, with the assistance of its legal and financial advisors, the merger agreement and the merger and (with Mr. Schaper recusing himself) unanimously recommended that the merger agreement, the merger and the other transactions contemplated thereby, were advisable, fair to, and in the best interests of the Company and its stockholders.

In the course of making the unanimous recommendation described above, the directors present considered the following positive factors relating to the merger agreement, the merger and the other transactions contemplated thereby, each of which the directors believed supported their decision:

 

   

The current and historical market prices of the common stock, including the market performance of the common stock relative to those of other participants in the Company’s industry and general market indices, and the fact that the merger consideration of $46.25 per share represented an attractive premium to estimates of the Company’s unaffected stock price.

 

   

That the merger consideration of $46.25 per share was more favorable to the Company’s stockholders than the potential value that might result from other alternatives reasonably available to the Company, including, but not limited to, a merger with a different buyer, leveraged recapitalization or other extraordinary transaction involving the Company, a sale of the Company’s ESM or MSM business, a spin-off of the MSM business, acquisitions, dividends, stock repurchases and the continued operation of the Company on a stand-alone basis in light of a number of factors, including the risks and uncertainty associated with those alternatives.

 

   

That, as a result of the negotiations between the parties, the merger consideration of $46.25 per share was the highest price per share for the common stock that the Buyer Group was willing to pay at the time of those negotiations, and that the combination of the Buyer Group’s agreement to pay that price and the go shop process described below and under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation” would result in a sale of the Company at the highest price per share for the common stock that was reasonably attainable.

 

   

That the Company had conducted two lengthy and thorough processes that were the subject of multiple public reports, during which representatives of the Company contacted multiple potential bidders who were both financial sponsors and strategic entities, none of which produced a higher definitive offer than the offer made by the Buyer Group.

 

   

The board’s understanding of the Company’s business, assets, financial condition and results of operations, its competitive position and historical and projected financial performance, and the nature of the industry and regulatory environment in which the Company competes.

 

   

That the proposed merger consideration is all cash, so that the transaction provides stockholders certainty of value and liquidity for their shares, especially when viewed against the risks and uncertainties inherent in the Company’s business, including the following:

 

   

that the Company’s business plan is based, in part, on projections for a number of variables, including economic growth, the Company’s ability to attract new customers and retain existing customers at a reasonable cost and overall business performance that are difficult to project and are subject to a high level of uncertainty and volatility;

 

   

general macroeconomic challenges and economic weaknesses that could continue to result in reduced business spending;

 

   

the uncertain outlook for global information technology spending generally, and the related challenges for the Company and other companies in the technology industry in accurately forecasting future demand for their products and services;

 

   

that the process for developing new products requires long-term investments that often require a time horizon of a year or more from the initial development of the concept to when the product is ready to be sold to customers;

 

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the risks associated with executing strategic changes to reduce the turnover of its sales force, which is the driving factor in the Company’s performance, the outcome of which is uncertain; and

 

   

the belief that the Company’s failure to achieve forecasted revenue and earnings per share in recent fiscal quarters had undermined investors’ and analysts’ confidence in the Company, to the detriment of the Company’s ability to execute long-term strategic plans that, in the short term, may not increase, or may have a negative effect on, revenue, expenses or earnings per share.

 

   

The fact that the Buyer Group did not require management participation in the transaction.

 

   

The financial analysis presented to the board and the oral opinion of Morgan Stanley rendered to the board on May 3, 2013, which was subsequently confirmed in writing, that, as of that date, and based upon and subject to the assumptions made, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the $46.25 per share merger consideration to be received by holders of shares of common stock (other than holders that are, or are affiliates of, investors or persons that have committed to, or will commit to, become investors directly or indirectly in Parent or any of Parent’s direct or indirect subsidiaries, including the Company), pursuant to the merger agreement was fair from a financial point of view to such holders, as more fully described below in the section entitled “The Merger (Proposal 1)—Opinion of Morgan Stanley & Co. LLC.

 

   

The financial analysis presented to the board and the opinion of BofA Merrill Lynch, dated May 3, 2013, to the board as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by holders of the Company’s common stock, as more fully described below in the section entitled “The Merger (Proposal 1)—Opinion of BofA Merrill Lynch.

 

   

The terms and conditions of the merger agreement and related transaction documents, including:

 

   

the Company’s right to solicit offers with respect to alternative acquisition proposals during a thirty (30) day go shop period and to continue discussions with certain third parties that make acquisition proposals during the go shop period for a period of ten (10) days, and in certain circumstances, longer, following the go shop period;

 

   

the Company’s right, subject to certain conditions, to respond to and negotiate with respect to certain unsolicited acquisition proposals made after the end of the go shop period and prior to the time the Company’s stockholders approve the proposal to adopt the merger agreement;

 

   

the provision of the merger agreement allowing the board to terminate the merger agreement, in specified circumstances relating to a superior proposal, subject, in specified cases, to payment of a termination fee of $210 million (which amount is reduced to $140 million under specified circumstances relating to the go shop period), which amounts the members of the board present believed were reasonable in light of, among other matters, the benefits of the merger to the Company’s stockholders, the typical size of such termination fees in similar transactions and the likelihood that a fee of such size would not be a meaningful deterrent to alternative acquisition proposals, as more fully described under “The Merger Agreement—Termination Fees;”

 

   

the provision of the merger agreement allowing the board to withdraw its recommendation of the merger upon the occurrence of certain intervening events that were not known to the board at or prior to the execution of the merger agreement;

 

   

the absence of a financing condition in the merger agreement;

 

   

the fact that Parent and Merger Sub had already obtained committed debt and equity financing for the transaction, the limited number and nature of the conditions to the debt and equity financing and the obligation of Parent to use reasonable best efforts to consummate the debt financing;

 

   

the Company’s ability, under circumstances specified in the merger agreement, to seek specific performance of Parent’s obligation to cause, and pursuant to the equity commitment letters, to

 

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seek specific performance to directly cause, the equity financing sources to fund their contributions as contemplated by the merger agreement and the equity commitment letters;

 

   

the fact that the Investors/Guarantors have executed limited guarantees in favor of the Company with respect to Parent’s payment obligations under the merger agreement; and

 

   

the requirement that, in the event of a failure of the merger to be consummated under specified circumstances, the Buyer Group will pay the Company a termination fee of $420 million, and the guarantee of such payment obligation by the Investors/Guarantors, pursuant to the terms of the limited guarantees, as more fully described under “—Limited Guarantees” and The Merger Agreement—Termination Fees.

 

   

The availability of appraisal rights under Delaware law to holders of shares of common stock who do not vote in favor of the proposal to adopt the merger agreement and comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have a Delaware court determine the fair value of their shares, which may be more than, less than, or the same as the amount such stockholders would have received under the merger agreement.

In the course of reaching the determinations and decisions and making the recommendation described above, the board considered the following risks and potentially negative factors relating to the merger agreement, the merger and the other transactions contemplated thereby:

 

   

That the Company’s stockholders generally will have no ongoing equity participation in the Company following the merger, and that such stockholders will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the common stock, and will not participate in any potential future sale of the surviving corporation to a third party.

 

   

The risk that there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, and as a result, it is possible that the merger may not be completed even if the merger agreement is adopted by the Company’s stockholders.

 

   

The risk that, if the merger is not completed:

 

   

the Company will be required to pay its expenses related to the merger, which are substantial, including expenses incurred in connection with any litigation that may result from the announcement or pendency of the merger;

 

   

the market’s perception of the Company’s continuing business could potentially result in a loss of customers, vendors, business partners and employees; and

 

   

the trading price of the Company’s common stock could be adversely effected.

 

   

The risk that the debt financing contemplated by the debt commitment letters will not be obtained, resulting in the Buyer Group not having sufficient funds to complete the merger.

 

   

The merger agreement’s restrictions on the conduct of the Company’s business prior to the completion of the merger, generally requiring the Company to conduct its business only in the ordinary course, subject to specific limitations, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the merger.

 

   

The potential negative effect of the pendency of the merger on the Company’s business, including uncertainty about the effect of the proposed merger on the Company’s employees, customers and other parties, which may impair the Company’s ability to attract, retain and motivate key personnel, and could cause customers, suppliers and others to seek to change existing business relationships with the Company.

 

   

That the receipt of cash by stockholders in exchange for shares of common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes.

 

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The possibility that, under certain circumstances under the merger agreement, the Company may be required to pay a termination fee of $210 million or $140 million as more fully described under “The Merger Agreement—Termination Fees.

 

   

The fact that Parent and Merger Sub are newly formed corporations with essentially no assets and that the Company’s remedy in the event of breach of the merger agreement by Parent and Merger Sub may be limited to a receipt of a $420 million termination fee payable by Parent and that, under certain circumstances, the Company may not be entitled to receive such a fee.

 

   

The fact that the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of the Company’s stockholders generally. The board was fully informed of these interests, which are described in more detail in the section entitled “The Merger (Proposal 1)—Interests of the Company’s Directors and Executive Officers in the Merger.”

The foregoing discussion of the information and factors considered by the board includes the material factors considered by the board. In view of the variety of factors considered in connection with its evaluation of the merger, the board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board (with Mr. Schaper recusing himself) recommended the merger agreement and the merger based upon the totality of the information it considered.

Recommendation of the Company’s Board of Directors

After careful consideration, the board (with Mr. Schaper having recused himself) has unanimously approved the merger agreement and determined that the merger agreement is advisable, fair to and in the best interests of the Company and its stockholders.

The board (with Mr. Schaper recusing himself) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement.

Opinion of BofA Merrill Lynch

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

On May 3, 2013, at a meeting of the board held to evaluate the merger, BofA Merrill Lynch delivered to the board an oral opinion, which was subsequently confirmed by delivery of a written opinion dated May 3, 2013, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the merger consideration to be received by holders of the Company’s common stock was fair, from a financial point of view, to such holders.

The full text of BofA Merrill Lynch’s written opinion to the board, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to the board for the benefit and use of the board (in its capacity as such) in connection with and for purposes of its evaluation of the merger

 

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consideration from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the merger. BofA Merrill Lynch’s opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.

In connection with rendering its opinion, BofA Merrill Lynch:

 

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

 

  (2) reviewed certain publicly available financial forecasts relating to the Company as extrapolated by or at the direction of and approved by the management of the Company, a summary of which is set forth below in “—Projected Financial InformationExtrapolated Public Forecasts” referred to herein as the Company extrapolated public forecasts;

 

  (3) reviewed certain internal financial and operating information with respect to the business, operations and prospects of the Company furnished to or discussed with BofA Merrill Lynch by the management of the Company, including certain financial forecasts relating to the Company prepared by or at the direction of and approved by the management of the Company, a summary of which is set forth below in “—Projected Financial InformationProjections” and referred to herein as the Projections;

 

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

 

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

 

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

 

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

 

  (8) considered the results of its efforts on behalf of the Company to solicit, at the direction of the Company, indications of interest and definitive proposals from third parties with respect to a possible acquisition of the Company;

 

  (9) reviewed a draft, dated May 3, 2013, of the merger agreement, referred to herein as the draft merger agreement; and

 

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

In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the management of the Company that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Company extrapolated public forecasts, BofA Merrill Lynch was advised by the Company, and assumed, that the Company extrapolated public forecasts were a reasonable basis upon which to evaluate the future financial performance of the Company. With respect to the Projections, BofA Merrill Lynch was advised by the Company, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company. BofA Merrill Lynch did not make or was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor did it make any physical inspection of the properties or assets of the Company. BofA Merrill Lynch did not evaluate the solvency or fair value of the Company or Parent under any state, federal or other laws

 

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relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of the Company, that the merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on the Company, Parent or the contemplated benefits of the merger.

BofA Merrill Lynch also assumed, at the direction of the Company, that the final executed merger agreement would not differ in any material respect from the draft merger agreement reviewed by BofA Merrill Lynch.

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

BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by BofA Merrill Lynch’s Americas Fairness Opinion Review Committee.

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

Company Financial Analyses.

Selected Publicly Traded Companies Analysis. BofA Merrill Lynch reviewed publicly available financial and stock market information for the Company and the following twelve publicly traded companies in the software industry, which is where the Company operates:

 

•    CA, Inc.

•    Citrix Systems, Inc.

•    Compuware Corporation

•    Informatica Corporation

•    Microsoft Corporation

•    Open Text Corporation

  

•    Oracle Corporation

•    SAP AG

•    SolarWinds, Inc.

•    Symantec Corporation

•    Tibco Software Inc.

•    VMware, Inc.

 

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BofA Merrill Lynch reviewed, among other things, per share equity values, based on closing stock prices on April 30, 2013, of the selected publicly traded companies as a multiple of projected calendar year 2013 and projected calendar year 2014 non-GAAP earnings per share, commonly referred to as EPS, or, with respect to CA, Inc. and Citrix Systems, Inc., estimated free cash flow per share, each such key valuation metric burdened by stock-based compensation. BofA Merrill Lynch also reviewed aggregate values, also referred to as enterprise value, of the selected publicly traded companies, calculated as equity values based on closing stock prices on April 30, 2013, plus debt, less cash, and referred to herein as AV, as a multiple of projected calendar year 2013 and projected calendar year 2014 earnings before interest, taxes, depreciation and amortization, but less capitalized software development cost and burdened by stock-based compensation, referred to herein as EBITDA. These multiples are referred to herein as P/KVM and AV/EBITDA, respectively.

 

Ratio

   Selected Publicly Traded Company
Multiple Reference Range

CY2013 P/KVM

   11.0x - 35.3x

CY2014 P/KVM

   10.1x - 30.1x

CY2013 AV/EBITDA

   6.2x - 21.5x

CY2014 AV/EBITDA

   5.6x - 17.7x

BofA Merrill Lynch then applied the multiple ranges derived from the selected publicly traded companies, taking into account a regression analysis performed to evaluate the relationship between each such company’s P/KVM and AV/EBITDA multiples (other than Compuware due to the potential effect of media reports of a possible strategic transaction on its stock price), to the Company’s projected calendar year 2014 revenue growth, each burdened by stock-based compensation, and as estimated in the Company extrapolated public forecasts and the Projections. BofA Merrill Lynch highlighted its consideration of the financial data of CA, Inc. because of similarities between the Company and CA, Inc., and applied its multiples to the Company’s financial data on a standalone basis. The multiple ranges used, together with the implied per share equity reference ranges for the Company are set forth in the table below:

 

     Burdened by Stock-Based Compensation  
      P/E      AV/EBITDA  

Company Extrapolated

Public Forecasts

   Multiple      Value      Multiple      Value  
   Low      High      Low      High      CA      Low      High      Low      High      CA  

CY2013

     12.5x         14.5x       $ 38       $ 44       $ 34         7.0x         9.0x       $ 29       $ 38       $ 29   

CY2014

     11.0x         13.0x       $ 36       $ 43       $ 33         6.0x         8.0x       $ 27       $ 36       $ 30   

Projections

                                                                     

CY2013

     13.0x         15.0x       $ 38       $ 44       $ 33         7.5x         9.5x       $ 31       $ 39       $ 29   

CY2014

     11.5x         13.5x       $ 38       $ 45       $ 34         7.0x         9.0x       $ 33       $ 42       $ 31   

BofA Merrill Lynch then averaged the resulting value ranges to identify implied per share value ranges for the Company. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates, and estimated financial data of the Company were based on each of the Company extrapolated public forecasts and the Projections. This analysis indicated the following approximate implied per share equity value reference ranges for the Company, as compared to the merger consideration:

 

Implied Per Share Equity Value Reference Ranges for the Company

Company Extrapolated

Public Forecasts

   Projections    CA Multiples    Consideration

$32 - $40

   $35 - $43    $29 - $34    $46.25

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

 

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In addition, at the request of the Company’s board of directors and for informational purposes only, BofA Merrill Lynch also performed an analysis substantially similar to the above, except that the metrics used in such additional analysis were unburdened by stock-based compensation. Such unburdened analysis indicated approximate implied per share equity value reference ranges for the Company of $37 - $45 based on the Company extrapolated public forecasts, $39 - $48 based on the Projections and $34 - $39 based on CA multiples. The multiple and value ranges used to determine such unburdened implied per share equity value reference ranges are set forth in the following table:

For Informational Purposes Only:

 

     Unburdened by Stock-Based Compensation  
      P/E      AV/EBITDA  

Company Extrapolated

Public Forecasts

   Multiple      Value      Multiple      Value  
   Low      High      Low      High      CA      Low      High      Low      High      CA  

CY2013

     11.0x         13.0x       $ 42       $ 49       $ 39         6.0x         8.0x       $ 31       $ 41       $ 34   

CY2014

     10.0x         12.0x       $ 41       $ 49       $ 39         6.0x         7.5x       $ 33       $ 41       $ 35   

Projections

                                                                     

CY2013

     11.5x         13.5x       $ 43       $ 50       $ 39         7.0x         9.0x       $ 36       $ 46       $ 34   

CY2014

     10.0x         12.0x       $ 42       $ 50       $ 39         6.0x         8.0x       $ 34       $ 46       $ 36   

Present Value of Future Stock Price Analysis. BofA Merrill Lynch performed an analysis of the present value of the future stock price of the Company to calculate the estimated present value of the standalone stock price that the Company was forecasted to achieve in 2015 and 2016 based on each of the Company extrapolated public forecasts and the Projections. BofA Merrill Lynch applied the one year forward multiples derived from the projected fiscal year 2016 and projected fiscal year 2017 non-GAAP EPS or free cash flow per share, as applicable, and AV as a multiple of EBITDA of the selected publicly traded companies listed above, taking into account the regression analysis described above, to the Company’s projected fiscal year 2016 and projected fiscal year 2017 non-GAAP EPS and EBITDA, each burdened by stock-based compensation and as estimated in the Company extrapolated public forecasts and the Projections, then discounted to present value as of June 30, 2013 using a 10.5% cost of equity for the discount rate. The multiple ranges used, together with the implied per share equity references ranges for the Company are set forth in the table below:

 

     Burdened by Stock-Based Compensation  
     P/KVM      AV/EBITDA  

Company Extrapolated

Public Forecasts

   Multiple      Value      Multiple      Value  
   Low      High      Low      High      Low      High      Low      High  

FY2016

     12.0x         14.0x       $ 35       $ 41         7.0x         9.0x       $ 33       $ 41   

FY2017

     12.0x         14.0x       $ 34       $ 40         7.0x         9.0x       $ 34       $ 42   

Projections

                                         

FY2016

     12.5x         14.5x       $ 39       $ 46         7.5x         9.5x       $ 37       $ 46   

FY2017

     12.5x         14.5x       $ 38       $ 45         7.5x         9.5x       $ 37       $ 46   

 

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BofA Merrill Lynch then averaged the resulting value ranges to identify implied per share value ranges. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates, and estimated financial data of the Company were based on each of the Company extrapolated public forecasts and the Projections. This analysis indicated the following approximate implied per share equity value reference ranges for the Company as compared to the merger consideration:

 

Average Implied Per Share Equity Value Reference Ranges for the Company

   Merger
Consideration

Company Extrapolated Public Forecasts

   Projections     

            2016             

           2017                 2016    2017     

$34 - $41

   $34 - $41    $38 - $46    $38 - $45    $46.25

In addition, at the request of the Company’s board of directors and for informational purposes only, BofA Merrill Lynch also performed an analysis substantially similar to the above, except that the metrics used in such additional analysis were unburdened by stock-based compensation. Such unburdened analysis indicated approximate implied per share equity value reference ranges for the Company of $36-$45 and $36-$44 for 2016 and 2017, respectively, based on the Company extrapolated public forecasts and $40-$49 and $39-$48 for 2016 and 2017, respectively, based on the Projections. The multiple and value ranges used to determine such unburdened implied per share equity value reference ranges are set forth in the following table:

For Informational Purposes Only:

 

     Unburdened by Stock-Based Compensation  
     P/KVM      AV/EBITDA  

Company Extrapolated

Public Forecasts

   Multiple      Value      Multiple      Value  
   Low      High      Low      High      Low      High      Low      High  

FY2016

     10.5x         12.5x       $ 38       $ 45         6.0x         8.0x       $ 34       $ 44   

FY2017

     10.5x         12.5x       $ 36       $ 43         6.0x         8.0x       $ 35       $ 45   

Projections

                                                       

FY2016

     11.0x         13.0x       $ 42       $ 49         6.5x         8.5x       $ 38       $ 49   

FY2017

     11.0x         13.0x       $ 40       $ 48         6.5x         8.5x       $ 38       $ 49   

Discounted Cash Flow Analysis. BofA Merrill Lynch performed a discounted cash flow analysis of the Company to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that the Company was forecasted to generate during the Company’s fiscal years 2014 (from the period starting July 1, 2013) through March 31, 2017 based on each of the Company extrapolated public forecasts and the Projections. BofA Merrill Lynch calculated terminal values for the Company by applying terminal forward multiples of 7.0x – 9.0x, determined by taking into account the regression analysis described above, to the Company’s next twelve months EBITDA, burdened by stock-based compensation and as estimated in each of the Company extrapolated public forecasts and the Projections. The cash flows and terminal values were then discounted to present value as of June 30, 2013 using a discount rate of 9.0%, which was based on an estimate of the Company’s weighted average cost of capital. This analysis indicated the following approximate implied per share equity value reference ranges for the Company as compared to the merger consideration:

 

Implied Per Share Equity Value Reference Ranges for the Company

   Merger
Consideration

    Company Extrapolated Public Forecasts    

       Projections         

$41 - $49

   $42 - $51    $46.25

In addition, at the request of the Company’s board of directors and for informational purposes only, BofA Merrill Lynch also performed an analysis substantially similar to the above, but using EBITDA unburdened by stock-based compensation. Such unburdened analysis indicated approximate implied per share equity value reference ranges for the Company of $41-$51 based on the Company extrapolated public forecasts and $42-$53 based on the Projections.

 

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Selected Precedent Technology Premiums Analysis. BofA Merrill Lynch reviewed, to the extent publicly available, premium information relating to transactions involving companies in the software industry, which is where the Company operates, announced from February 12, 2010 through November 1, 2012 with aggregate transaction values greater than $1 billion. Of twenty-two such transactions, thirteen were strategic buyer transactions and nine were financial buyer transactions. Using information from S&P Capital IQ, BofA Merrill Lynch calculated the premium over the target company’s closing stock price thirty days prior to the announcement of the transaction of the per share price paid in each selected transaction.

 

Financial Buyer Transactions

   30-Day Premium  

25th Percentile

     23

75th Percentile

     38

Strategic Buyer Transactions

      

25th Percentile

     31

75th Percentile

     52

BofA Merrill Lynch then applied a range of calculated premiums from 23%-52% to the implied unaffected Company price per share of $37. BofA Merrill Lynch determined such unaffected price by (1) analyzing the results of the publicly traded company analysis detailed above, (2) analyzing changes in the Company’s share price as compared to changes in CA, Inc.’s share price and changes in the share prices of the selected publicly traded companies listed above, averaged as a group, from the start of the accumulation of Company common stock by Elliot, referred to herein as the Elliot accumulation, and the date on which the Company disclosed that Elliot had acquired an ownership stake in the Company and intended to initiate a proxy contest with respect to the Company’s 2012 annual meeting, referred to herein as the Elliot disclosure, (3) analyzing the change in the Company’s per share equity value as a multiple of its non-GAAP EPS and the Company’s AV as multiple of its EBITDA, each burdened by stock-based compensation, as compared to the comparable multiples of CA, Inc. and those of the selected publicly traded companies listed above, averaged as a group, from the start of the Elliot accumulation and the date of the Elliot disclosure, and (4) applying the Company’s AV as a multiple of EBITDA, burdened by stock-based compensation, at the start of the Elliot accumulation and the date of the Elliot disclosure to the Company extrapolated public forecasts and the Projections. BofA Merrill Lynch then applied its judgment in the weighting of the results of the foregoing.

Estimated financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Estimated financial data of the Company were based on each of the Company extrapolated public forecasts and the Projections. This analysis indicated the following approximate implied per share equity value reference ranges for the Company, as compared to the merger consideration:

 

Implied Per Share Equity Value Reference Ranges for the Company

Precedent Transaction Premium

   Consideration

$45 - $56

   $46.25

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

 

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Other Factors.

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

 

   

historical trading prices and trading volumes of the Company’s common stock during the period from January 1, 2011 through April 30, 2013;

 

   

targets for the Company’s common stock price published by eleven equity analysts during the period from January 29, 2013 to April 15, 2013 and ranging from a low of $34 per share to a high of $52 per share, with a mean of $44 per share and a median of $46 per share, discounted to present value as of June 30, 2013 using a 10.5% cost of equity for the discount rate, resulting in an approximate implied per share equity value reference range of $31-$47; and

 

   

information other than transaction premiums relating to certain of the recent software industry transactions referenced above.

In addition, BofA Merrill Lynch estimated the price per share a hypothetical financial buyer would pay in a leveraged buyout of the Company. BofA Merrill Lynch assumed a financial buyer would complete the transaction by June 30, 2013, seek to achieve a target rate of return of 17.5% to 25.0%, exit by March 31, 2017 and raise debt of 7.0x the Company’s EBITDA for the last twelve months, unburdened by stock-based compensation. BofA Merrill Lynch also assumed the Company’s leverageable EBITDA included $60 million of credit for announced restructuring, $20 million of annual cost savings during the projection period, at the direction of and as approved by the Company’s management, and the repatriation of $700 million of offshore cash. To estimate the value of the Company at exit, BofA Merrill Lynch applied terminal forward EBITDA multiples of 7.0x-9.0x, determined taking into account the regression analysis described above, to the estimated FY2018 EBITDA, burdened by stock-based compensation, and adjusted the projected future AV by the net debt of the Company on March 31, 2017. The resulting estimated per share prices ranged from $42-$49 based on the Company extrapolated public forecasts and from $42-$51 based on the Projections, as compared to the $46.25 merger consideration. In addition, at the request of the Company’s board of directors and for informational purposes only, BofA Merrill Lynch also performed an analysis substantially similar to the above, but using EBITDA unburdened by stock-based compensation. The resulting estimated per share prices ranged from $42-$50 based on the Company extrapolated public forecasts and from $42-$52 based on the Projections.

Miscellaneous

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

In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. The estimates of the future performance of the Company in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view, of the merger consideration and were provided to the board in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not

 

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purport to be appraisals or to reflect the prices at which the Company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual values of the Company.

The type and amount of consideration payable in the merger was determined through negotiations between the Company and Parent, rather than by any financial advisor, and was approved by the board. The decision to enter into the merger agreement was solely that of the board. As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by the board in its evaluation of the proposed merger and should not be viewed as determinative of the views of the board or management with respect to the merger or the merger consideration.

The Company has agreed to pay BofA Merrill Lynch for its services in connection with the merger an aggregate fee currently estimated to be approximately $25 million , $1 million of which was payable upon the rendering of its opinion and the remainder of which is contingent upon the completion of the merger. The Company also has agreed to reimburse BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch, any affiliates of BofA Merrill Lynch and each of their respective directors, officers, employees, agents and each other person controlling BofA Merrill Lynch or any of its affiliates against specified liabilities relating to the engagement, including liabilities under the federal securities laws.

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

BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to the Company and certain of its affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as administrative agent, lead arranger and bookrunner for, and as a lender (including, as applicable, a swing-line lender) under, certain term loans and other credit arrangements of the Company, (ii) having acted as a joint bookrunner on various high-grade registered debt offerings of the Company, and (iii) having provided or providing certain treasury and trade management products or services and certain derivatives and foreign exchange trading services to the Company. In addition, BofA Merrill Lynch and certain of its affiliates maintain significant commercial (including vendor and/or customer) relationships with the Company. From January 1, 2011 through April 30, 2013, BofA Merrill Lynch and its affiliates received or derived, directly or indirectly, aggregate revenues from the Company and/or its subsidiaries for commercial, corporate and investment banking services of approximately $26.5 million.

In addition, BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Bain, Golden Gate, Insight and GICSI, and certain of their respective affiliates and portfolio companies and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as financial advisor to Bain and Golden Gate and certain of their respective affiliates and/or portfolio companies in connection with mergers and acquisitions transactions, (ii) having acted or acting as joint arranger and joint bookrunner for, and a lender to, Bain and Golden Gate and certain of their respective affiliates and/or portfolio

 

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companies in connection with the financing for various acquisition transactions; (iii) having acted or acting as administrative agent, collateral agent, arranger and bookrunner for, and/or a lender (including, in certain cases, a letter of credit lender and a swing line lender) under, certain term loans, letters of credit, credit and leasing facilities and other credit arrangements of certain affiliates and/or portfolio companies of each of Bain, Golden Gate, Insight and GICSI; (iv) having acted or acting as underwriter, initial purchaser and placement agent for various public offerings (including initial, follow-on and secondary offerings) and private placements of equity, equity-linked and debt securities undertaken by certain affiliates and/or portfolio companies of each of Bain and Golden Gate; (v) having acted as an agent in connection with a consent solicitation of a portfolio company of Golden Gate and as a dealer-manager and solicitation agent of a debt tender offer of a portfolio company of Bain; (vi) having provided or providing certain derivatives and foreign exchange trading services to certain affiliates and/or portfolio companies of Bain, Golden Gate, Insight and GICSI; and (vii) having provided or providing certain treasury and trade services and products to certain affiliates and/or portfolio companies of each of Bain, Golden Gate and Insight. In addition, BofA Merrill Lynch and certain of its affiliates maintain significant commercial (including vendor and/or customer) relationships with certain affiliates and portfolio companies of Bain. From January 1, 2011 through April 30, 2013, BofA Merrill Lynch and its affiliates received or derived, directly or indirectly, aggregate revenues from Bain, Golden Gate, Insight and GICSI and entities that BofA Merrill Lynch understands may be Bain’s, Golden Gate’s, Insight’s and GICSI’s affiliates and portfolio companies for commercial, corporate and investment banking services of approximately $430 million.

Opinion of Morgan Stanley

Morgan Stanley was retained by the board to act as its financial advisor in connection with the proposed merger. The board selected Morgan Stanley to act as one of its financial advisors based on Morgan Stanley’s qualifications, expertise and reputation and its knowledge of the business and affairs of the Company. On May 3, 2013, Morgan Stanley rendered its oral opinion, which was subsequently confirmed in writing, to the board that, as of that date, and based upon and subject to the assumptions made, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its opinion, the $46.25 per share merger consideration to be received by holders of shares of common stock (other than holders that are, or are affiliates of, investors or persons that have committed to, or will commit to, become investors directly or indirectly in Parent or any of Parent’s direct or indirect subsidiaries, including the Company), which we refer to as the “holders,” pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of Morgan Stanley’s written opinion to the board, dated May 3, 2013, is attached as Annex C to this proxy statement. Holders of common stock should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Morgan Stanley in rendering its opinion. This summary is qualified in its entirety by reference to the full text of such opinion. Morgan Stanley’s opinion was addressed to, and provided for the information of, the board in connection with their evaluation of whether the merger consideration to be received by holders pursuant to the merger agreement as of the date of the opinion was fair, from a financial point of view, to such holders and did not address any other aspects or implications of the merger. The opinion does not constitute advice or a recommendation as to how such security holder should vote at any shareholders’ meeting to be held in connection with the merger or take any other action with respect to the merger.

In arriving at its opinion, Morgan Stanley, among other things:

 

 

reviewed certain publicly available financial statements and other business and financial information of the Company that Morgan Stanley deemed relevant, including publicly available research analysts’ estimates for the Company;

 

 

reviewed certain non-public internal financial statements and other financial and operating data concerning the Company prepared and furnished to Morgan Stanley by the management of the Company;

 

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reviewed certain non-public financial and operating projections prepared and furnished to Morgan Stanley by the management of the Company;

 

 

discussed the past and current operations, financial projections and financial condition and the prospects of the Company with senior executives of the Company;

 

 

reviewed the reported historical prices and trading activity for common stock;

 

 

compared the financial performance of the Company and the historical prices and trading activity of 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 that Morgan Stanley deemed relevant;

 

 

participated in certain discussions and negotiations among representatives of the Company and Parent;

 

 

reviewed a draft of the merger agreement dated May 3, 2013, the draft commitment letters from certain lenders substantially in the form of the drafts dated May 3, 2013, which we refer to as the “commitment letters,” and certain related documents; and

 

 

performed such other analyses 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 available to Morgan Stanley by the Company, and that formed a substantial basis for its opinion. Morgan Stanley further relied upon the assurances of the management of the Company that it is not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the Company’s management of the future financial performance of the Company. In addition, Morgan Stanley assumed that the merger would be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay in any terms or conditions and that Parent would obtain the required financing in accordance with the terms set forth in the commitment letters. Morgan Stanley’s opinion did not address the relative merits of the merger as compared to any other alternative business transactions, or whether or not such alternative business transactions could be achieved or are available. In connection with Morgan Stanley’s engagement and at the direction of the board of the Company, Morgan Stanley was requested to approach, and held discussions with, selected third parties to solicit indications of interest in the possible acquisition of the Company. Morgan Stanley’s opinion is limited to and addresses only the fairness, from a financial point of view, as of the date of the opinion, of the merger consideration to be received by the holders pursuant to the merger agreement. 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 its 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 merger consideration to be received by the holders in the transaction. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was Morgan Stanley 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 the date of its opinion, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with the preparation of its opinion to the board. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection

 

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with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. The financial analyses summarized below 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. The analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.

In performing its financial analyses summarized below and in arriving at its opinion, Morgan Stanley utilized two sets of financial projections including (1) the Projections (as described under “Projected Financial Information”) and (2) the Company extrapolated public forecasts (as described under “Projected Financial Information”).

Historical Trading Range Analysis

Morgan Stanley reviewed the historical trading range of shares of common stock for the 52 week period ending April 30, 2013. Morgan Stanley noted that, during this time period, the closing trading price of common stock ranged from a low of $35 per share to a high of $48 per share. Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Analyst Price Target Analysis

Morgan Stanley reviewed undiscounted stock price targets for the shares of common stock prepared and published by eleven equity research analysts that had been published during the time period from January 29, 2013 to April 15, 2013. These undiscounted stock price targets for the shares of common stock as of April 15, 2013 ranged from a low of $34 per share to a high of $52 per share, with a mean of $44 per share. In order to better compare the equity research analysts’ stock price targets with the merger consideration, Morgan Stanley discounted such undiscounted stock price targets to present value to June 30, 2013 by applying a discount rate of 10.5%, which discount rate was selected based on Morgan Stanley’s professional judgment and taking into consideration, among other things, the Company’s assumed cost of equity calculated utilizing a capital asset pricing model, which is a financial valuation method that takes into account both returns in equity markets generally and relative volatility in a company’s common stock. This analysis indicated an implied range of equity values for common stock of $31 per share to $47 per share. Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

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

Comparable Company Analysis

Morgan Stanley performed a comparable company analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared, using publicly available information, certain current and historical financial information for the Company corresponding to current and historical financial information, ratios and public market multiples for publicly–traded companies in the software industry that have certain similar business and operating characteristics. The following list sets forth the twelve selected publicly–traded comparable companies that were reviewed in connection with this analysis, which we refer to as the “comparable companies”:

 

   

CA, Inc.

 

   

Citrix Systems, Inc.

 

   

Compuware Corporation

 

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Informatica Corporation

 

   

Microsoft Corporation

 

   

OpenText Corporation

 

   

Oracle Corporation

 

   

SAP AG

 

   

SolarWinds, Inc.

 

   

Symantec Corporation

 

   

TIBCO Software Inc.

 

   

VMware, Inc.

The comparable companies were chosen based on Morgan Stanley’s knowledge of the software industry and because they have businesses that may be considered similar to the Company. Although none of the comparable companies are identical or directly comparable to the Company, the comparable companies are publicly traded companies with operations and/or other criteria, such as lines of business, markets, business risks, growth prospects, maturity of business and size and scale of business, that for purposes of its analysis Morgan Stanley considered similar to the Company.

Morgan Stanley calculated and reviewed, among other things, the following statistics for comparative purposes:

 

   

the ratio of stock price to key valuation metric (“P/KVM”), which is defined as, (1) with respect to all of the comparable companies other than CA and Citrix, closing stock price per share on April 30, 2013 divided by non-GAAP earnings per share (burdened by stock based compensation expense), or EPS, and (ii) with respect to CA and Citrix, closing stock price per share on April 30, 2013 divided by estimated free cash flow per share (defined as estimated cash flow from operations (burdened by stock based compensation expense) less capital expenditures per share), or FCPS, in each case, for calendar year 2013 (“CY2013”) and calendar year 2014 (“CY2014”); and

 

   

the ratio of aggregate value to EBITDA (“AV/EBITDA”), which is defined as (1) fully diluted market capitalization (based on the closing stock price of the comparable companies on April 30, 2013) plus total debt and minority interest less cash and cash equivalents divided by (2) estimated non-GAAP earnings before interest, taxes, depreciation and amortization but less capitalized software development cost and burdened by stock based compensation expense, for CY2013 and CY2014.

For purposes of its analysis, Morgan Stanley calculated the P/KVM and AV/EBITDA multiples for each of the comparable companies. The analysis resulted in the following multiple reference ranges:

 

Ratio

   Comparable Company Multiple
Reference Range

CY2013 P/KVM

   11.0x - 35.3x

CY2014 P/KVM

   10.1x - 30.1x

CY2013 AV/EBITDA

   6.2x - 21.5x

CY2014 AV/EBITDA

   5.6x - 17.7x

Due to the operating and financial variability across the group of comparable companies, Morgan Stanley performed a regression analysis to evaluate the relationship between each of the P/KVM and AV/EBITDA multiples for the comparable companies (excluding Compuware due to the impact that media reports of a possible strategic transaction may have had on its stock price) and the forecasted revenue growth of such companies, in each case as reflected by consensus equity research analyst estimates (the “Regression Analysis”). Morgan Stanley noted that the Regression Analysis indicated, in the case of each the P/KVM and AV/EBITDA multiples, a statistically significant relationship between the respective valuation multiple and the forecasted growth rate.

 

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Based on an application of the Regression Analysis to the Company’s forecasted revenue growth rates in each of the Company extrapolated public forecasts and Projections, as applicable, and Morgan Stanley’s professional judgment and experience, Morgan Stanley selected representative multiple ranges and applied these ranges of multiples to the relevant Company financial statistic for CY2013 and CY2014. Based on this analysis, Morgan Stanley derived the following average range of implied equity values per share for the Company:

 

Company Extrapolated Public Forecasts

  Comparative Company
Representative Multiple
Range
  Implied Equity Value
Range per Share

AV/EBITDA

   

CY2013

  7.0x - 9.0x   $29 - $38

CY2014

  6.0x - 8.0x   $27 - $36

P/KVM

   

CY2013

  12.5x - 14.5x   $38 - $44

CY2014

  11.0x - 13.0x   $36 - $43

Average Implied Equity Value Range Per Share

    $32 - $40

 

Projections

  Comparative Company
Representative Multiple
Range
  Implied Equity Value
Range per Share

AV/EBITDA

   

CY2013

  7.5x - 9.5x   $31 - $39

CY2014

  7.0x - 9.0x   $33 - $42

P/KVM

   

CY2013

  13.0x - 15.0x   $38 - $44

CY2014

  11.5x - 13.5x   $38 - $45

Average Implied Equity Value Range Per Share

    $35 - $43

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

In addition, because of the similarities between the Company and CA, Morgan Stanley also applied the CA multiples to the Company’s estimated EBITDA and EPS for CY2013 and CY2014 for each of the Projections and the Company extrapolated public forecasts. Based on this analysis, Morgan Stanley derived the following average range of implied equity values per share for the Company:

 

Company Extrapolated Public Forecasts

  CA Multiple   Implied Equity Value per Share

AV/EBITDA

   

CY2013

  7.0x   $29

CY2014

  6.7x   $30

P/KVM

   

CY2013

  11.3x   $34

CY2014

  10.1x   $33

Average Implied Equity Value Range Per Share

    $29 - $34

 

Projections

  CA Multiple   Implied Equity Value per Share

AV/EBITDA

   

CY2013

  7.0x   $29

CY2014

  6.7x   $31

P/KVM

   

CY2013

  11.3x   $33

CY2014

  10.1x   $34

Average Implied Equity Value Range Per Share

    $29 - $34

 

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Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Upon request of the board, Morgan Stanley also performed, for reference and informational purposes only, a comparable company analysis, substantially similar to the analysis described above, in which EBITDA and EPS were not burdened by stock based compensation.

Based on an application of the Regression Analysis (calculated based upon the KVM and EBITDA unburdened by stock based compensation) to the Company’s forecast revenue growth rates in each of the Company extrapolated public forecasts and Projections, as applicable, and Morgan Stanley’s professional judgment and experience, Morgan Stanley selected representative multiple ranges and applied these ranges of multiples to the relevant Company financial statistic in which EBITDA and EPS were not burdened by stock based compensation for CY2013 and CY2014. Based on this analysis, Morgan Stanley derived the following average range of implied equity values per share for the Company:

 

Unburdened Company Extrapolated Public Forecasts

  Comparative Company
Representative Multiple
Range
  Implied Equity Value
Range per Share

AV/EBITDA

   

CY2013

  6.0x - 8.0x   $31 - $41

CY2014

  6.0x - 7.5x   $33 - $41

P/KVM

   

CY2013

  12.5x - 14.5x   $42 - $49

CY2014

  11.0x - 13.0x   $41 - $49

Average Implied Equity Value Range Per Share

    $37 - $45

 

Unburdened Projections

  Comparative Company
Representative Multiple
Range
  Implied Equity Value
Range per Share
AV/EBITDA    
CY2013   7.5x - 9.5x   $36 - $46
CY2014   7.0x - 9.0x   $34 - $46
P/KVM    
CY2013   13.0x - 15.0x   $43 - $50
CY2014   11.5x - 13.5x   $42 - $50

Average Implied Equity Value Range Per Share

    $39 - $48

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

In addition, because of the similarities between the Company and CA, Morgan Stanley also applied the CA multiples to the Company’s estimated EBITDA and EPS not burdened by stock based compensation for CY2013 and CY2014 for each of the Projections and the Company extrapolated public forecasts. Based on this analysis, Morgan Stanley derived the following average range of implied equity values per share for the Company:

 

Unburdened Company Extrapolated Public Forecasts

   CA Multiple    Implied Equity Value
per Share

AV/EBITDA

     

CY2013

   6.7x    $34

CY2014

   6.4x    $35

P/KVM

     

CY2013

   10.4x    $39

CY2014

   9.4x    $39

Average Implied Equity Value Range Per Share

      $34 - $39

 

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Unburdened Projections

   CA Multiple    Implied Equity Value
per Share

AV/EBITDA

     

CY2013

   6.7x    $34

CY2014

   6.4x    $36

P/KVM

     

CY2013

   10.4x    $39

CY2014

   9.4x    $39

Average Implied Equity Value Range Per Share

      $34 - $39

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

No company utilized in this analysis is identical to the Company. In evaluating the 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 business of the Company and the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of the Company or the industry or in the financial markets in general, which could affect the public trading value of the companies selected for comparison. Mathematical analysis (such as determining the mean or median) is not in itself a meaningful method of using selected company data.

Present Value of Future Stock Price Analysis

Morgan Stanley calculated illustrative future stock prices for common stock in 2015 and in 2016 by applying (1) for the Company extrapolated public forecasts, (x) a P/KVM multiple reference range of 12.0x to 14.0x to estimated EPS of the Company for fiscal year 2016 (“FY2016”) and fiscal year 2017 (“FY2017”), and (y) a AV/EBITDA multiple reference range of 7.0x to 9.0x to estimated EBITDA of the Company for FY2016 and FY2017 (and adjusted the resulting enterprise value by forecast net debt of the Company as of March 31, 2015 and March 31, 2016, respectively), and (2) for the Projections, (x) a P/KVM multiple reference range of 12.5x to 14.5x to estimated EPS of the Company for FY2016 and FY2017, and (y) AV/EBITDA multiple reference range of 7.5x to 9.5x to estimated EBITDA of the Company for FY2016 and FY2017 (and adjusted the resulting enterprise value by forecast net debt of the Company as of March 31, 2015 and March 31, 2016, respectively). These multiple reference ranges were derived based on an application of the Regression Analysis to the Company’s forecast revenue growth rates in each of the Company extrapolated public forecasts and Projections, as applicable, and Morgan Stanley’s professional judgment and experience. Morgan Stanley then applied such reference ranges to the Company’s estimated EBITDA and EPS for FY2016 and estimated EBITDA and EPS for FY2017, respectively, for each of the Company extrapolated public forecasts and the Projections.

The illustrative future market equity values for the Company in 2015 and 2016, were then discounted back to June 30, 2013, using a discount rate of 10.5% (which discount rate was selected based on Morgan Stanley’s professional judgment and taking into consideration, among other things, the Company’s assumed cost of equity calculated utilizing a capital asset pricing model) and divided by the estimated projected fully diluted share count of the Company. Based on this analysis, Morgan Stanley derived the following estimated range of implied equity values per share for the Company:

 

 

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Company Extrapolated Public Forecasts

   Implied Equity Value Range per Share

FY2016

  

P/KVM

   $35 - $41

AV/EBITDA

   $33 - $41

Average Implied Equity Value Range Per Share

   $34 - $41

FY2017

  

P/KVM

   $34 - $40

AV/EBITDA

   $34 - $42

Average Implied Equity Value Range Per Share

   $34 - $41

 

Projections

   Implied Equity Value Range per Share

FY2016

  

P/KVM

   $39 - $46

AV/EBITDA

   $37 - $46

Average Implied Equity Value Range Per Share

   $38 - $46

FY2017

  

P/KVM

   $38 - $45

AV/EBITDA

   $37 - $46

Average Implied Equity Value Range Per Share

   $38 - $45

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Upon request of the board, Morgan Stanley also calculated, for reference and informational purposes only, illustrative future stock prices, by applying a substantially similar analysis as described above, in which EBITDA and EPS were not burdened by stock based compensation. Morgan Stanley calculated illustrative future stock prices for common stock in 2015 and 2016 by applying (1) for the Company extrapolated public forecasts, (x) a P/KVM multiple reference range of 10.5x to 12.5x to estimated EPS of the Company not burdened by stock based compensation for fiscal year 2016 (“FY2016”) and fiscal year 2017 (“FY2017”), and (y) a AV/EBITDA multiple reference range of 6.0x to 8.0x to estimated EBITDA of the Company not burdened by stock based compensation for FY2016 and FY2017 (and adjusted the resulting enterprise value by forecast net debt of the Company as of March 31, 2015 and March 31, 2016, respectively), and (2) for the Projections, (x) a P/KVM multiple reference range of 11.0x to 13.0x to estimated EPS of the Company not burdened by stock based compensation for FY2016 and FY2017, and (y) a AV/EBITDA multiple reference range of 6.5x to 8.5x to estimated EBITDA of the Company not burdened by stock based compensation for FY2016 and FY2017 (and adjusted the resulting enterprise value by forecast net debt of the Company as of March 31, 2015 and March 31, 2016, respectively). These multiple reference ranges were derived based on an application of the Regression Analysis (calculated based upon the KVM and EBITDA unburdened by stock based compensation) to the Company’s forecast revenue growth rates in each of the Company extrapolated public forecasts and Projections, as applicable, and Morgan Stanley’s professional judgment and experience.

 

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Based on its analysis, Morgan Stanley derived the following estimated range of implied equity values per share for the Company:

 

Unburdened Company Extrapolated Public Forecasts

   Implied Equity Value Range per Share

FY2016

  

P/KVM

   $38 - $45

AV/EBITDA

   $34 - $44

Average Implied Equity Value Range Per Share

   $36 - $45

FY2017

  

P/KVM

   $36 - $43

AV/EBITDA

   $35 - $45

Average Implied Equity Value Range Per Share

   $36 - $44

 

Unburdened Projections

   Implied Equity Value Range per Share

FY2016

  

P/KVM

   $42 - $49

AV/EBITDA

   $38 - $49

Average Implied Equity Value Range Per Share

   $40 - $49

FY2017

  

P/KVM

   $40 - $48

AV/EBITDA

   $38 - $49

Average Implied Equity Value Range Per Share

   $39 - $48

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis, which is designed to provide an implied value of a company by calculating the present value of the estimated future cash flows and terminal value of the company. Morgan Stanley calculated a range of implied equity values per share of common stock based on estimates of future cash flows for FY2014 (for the period starting July 1, 2013) through FY2017 (or March 31, 2017). Morgan Stanley first calculated the estimated unlevered free cash flows of the Company for the period of FY2014 to FY2017, assuming a normalized tax rate of 25.0%. Morgan Stanley then calculated a terminal value for the Company by applying a range of EBITDA multiples of 7.0x to 9.0x to the next twelve month EBITDA of the Company burdened by stock based compensation for each of the Projections and the Company extrapolated public forecasts. This multiple reference range was derived based on an application of the Regression Analysis to the Company’s forecast revenue growth rates in each of the Company extrapolated public forecasts and Projections, as applicable, and Morgan Stanley’s professional judgment and experience. These values were then discounted to present value as of June 30, 2013 using a discount rate of 9%, which was selected by Morgan Stanley based on the application of its professional judgment, to calculate an aggregate value for the Company. In order to arrive at an implied per share equity value reference range for common stock, Morgan Stanley adjusted the total implied aggregate value ranges by the Company’s estimated total debt and excess cash and cash equivalents as of June 30, 2013 based on guidance provided by Company management and divided the resulting implied total equity value ranges by the Company’s fully diluted shares outstanding determined utilizing the treasury stock method. Based on this analysis, Morgan Stanley derived the following range of implied equity values per share for the Company:

 

     Implied Equity Value Range per Share

Company Extrapolated Public Forecasts

   $41 - $49

Projections

   $42 - $51

 

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Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Upon request of the board, Morgan Stanley also performed, for reference and informational purposes only, a discounted cash flow analysis, substantially similar to the analysis described above except that the terminal value for the Company was calculated by applying a range of AV/EBITDA multiples of 6.0x to 8.0x to the next twelve month EBITDA of the Company not burdened by stock based compensation for each of the Projections and the Company extrapolated public forecasts. Based on this analysis, Morgan Stanley derived the following range of implied equity values per share for the Company:

 

    Implied Equity Value Range per Share

Unburdened Company Extrapolated Public Forecasts

  $41 - $51

Unburdened Projections

  $42 - $53

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Sale of Company Analysis

Morgan Stanley performed a hypothetical sale of company analysis to determine the internal rate of return, or IRR, that a financial sponsor might achieve in a leveraged buyout of the Company based upon the Company extrapolated public forecasts and the Projections. Morgan Stanley assumed a transaction date of June 30, 2013, the use of approximately $250MM of excess US cash and approximately $700 million of repatriated offshore cash in the financing of the transaction, a target internal rate of return ranging from 17.5% to 25% and a 4-year investment period ending on March 31, 2017. Morgan Stanley also assumed a ratio of total debt to last twelve months EBITDA (unburdened by stock based compensation and assuming, at the direction of and as approved by the Company’s management, that leverageable EBITDA included $60MM of credit for announced restructuring and $20MM of annual cost savings during the projection period) as at June 30, 2013 of 7.0x and a 1-year forward AV/EBITDA multiple reference range of 7.0x to 9.0x EBITDA burdened by stock based compensation on the exit date. This multiple reference range was derived based on an application of the Regression Analysis to the Company’s forecast revenue growth rates in each of the Company extrapolated public forecasts and Projections, as applicable, and Morgan Stanley’s professional judgment and experience. Based on this analysis, Morgan Stanley derived the following range of implied equity values per share for the Company:

 

    Implied Equity Value Range per Share

Company Extrapolated Public Forecasts

  $42 - $49

Projections

  $42 - $51

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Upon request of the board, Morgan Stanley also performed, for reference and informational purposes only, a hypothetical sale of company analysis, substantially similar to the analysis described above except that Morgan Stanley assumed a 1-year forward AV/EBITDA multiple reference range of 6.0x to 8.0x EBITDA not burdened by stock based compensation on the exit date. Based on this analysis, Morgan Stanley derived the following range of implied equity values per share for the Company:

 

    Implied Equity Value Range per Share

Company Extrapolated Public Forecasts

  $42 - $50

Projections

  $42 - $52

Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

 

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Precedent Technology Premiums Analysis

Morgan Stanley reviewed the premiums paid for selected precedent software transactions announced from February 12, 2010 through November 1, 2012 with aggregate transaction values greater than $1 billion, of which there were 22. Thirteen of the transactions involved strategic buyers (“strategic transactions”) and nine of the transactions involved financial sponsor buyers (“sponsor transactions”).

Using information from S&P Capital IQ, premiums paid were calculated as the percentage by which the per share consideration paid in each such transaction exceeded the closing price per share of the target companies thirty days prior to the announcement date of such transactions. The results of this analysis are provided in the table below:

 

     30-Day Premium  

9 Sponsor Transactions

      

25th Percentile

     23

75th Percentile

     38

13 Strategic Transactions

      

25th Percentile

     31

75th Percentile

     52

Based on its professional judgment and experience, Morgan Stanley then applied a range of premiums derived from the selected transactions of 23% to 52% to the Company’s estimated unaffected stock price. Morgan Stanley performed an analysis of the unaffected trading value of Company’s common stock by (1) analyzing the results of the comparable company analysis detailed above, (2) analyzing changes in the Company’s share price as compared to changes in CA’s share price and changes in the share prices of the selected comparable companies listed above, averaged as a group, from the start of the accumulation of common stock by Elliott, referred to herein as the Elliott accumulation, and the date on which the Company disclosed that Elliott had acquired an ownership stake in the Company and intended to initiate a proxy contest with respect to the Company’s 2012 annual meeting, referred to herein as the Elliott disclosure, (3) analyzing the change in the Company’s per share equity value as a multiple of its non-GAAP EPS and the Company’s AV/EBITDA multiple, each burdened by stock-based compensation, as compared to the comparable multiples of CA and those of the comparable companies listed above, averaged as a group, from the start of the Elliott accumulation and the date of the Elliott disclosure, and (4) applying the Company’s AV/EBITDA multiple, burdened by stock-based compensation, at the start of the Elliott accumulation and the date of the Elliott disclosure to the Company extrapolated public forecasts and the Projections. Morgan Stanley then applied its judgment in the weighting of the results of the foregoing. This analysis indicated an approximate unaffected per share equity value for the Company of $37. Based on this analysis, Morgan Stanley derived a reference range of implied equity values per share for the Company of $45 per share to $56 per share. Morgan Stanley noted that the merger consideration to be received by the holders of common stock pursuant to the merger agreement is $46.25 per share.

Miscellaneous

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

 

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respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters. Many of these assumptions are beyond the control of the Company and variations to such financial assumptions and methodologies may impact the results of Morgan Stanley’s analyses. 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 in connection with its opinion to the board as to the fairness from a financial point of view of the $46.25 per share merger consideration to be received by the holders pursuant to the merger agreement. These analyses do not purport to be appraisals or to reflect prices at which common stock might actually trade. The $46.25 per share merger consideration was determined through negotiations between the Company and Parent and was approved by the board. Morgan Stanley acted as financial advisor to the board during these negotiations. Morgan Stanley did not, however, recommend any specific merger consideration to the board or that any specific merger consideration constituted the only appropriate consideration for the merger.

Morgan Stanley’s opinion and its presentation to the board was one of many factors taken into consideration by the board in deciding to approve, adopt and authorize the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the board with respect to the merger consideration or of whether the board would have been willing to agree to different consideration.

Morgan Stanley acted as financial advisor to the board in connection with the merger and will receive a fee currently estimated to be approximately $31 million for its services, $6 million of which Morgan Stanley was entitled to receive upon execution of the merger agreement and the balance of which is contingent upon the closing of the merger. A portion of Morgan Stanley’s fees will be credited against fees previously received in connection with Morgan Stanley’s proxy advisory representation. In addition to such fee, the Company has agreed to reimburse Morgan Stanley for its expenses incurred in performing its services, including reasonable fees of outside counsel and other professional advisors. The Company also has agreed to indemnify Morgan Stanley and its affiliates, their respective officers, directors, employees and agents 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, related to or arising out of Morgan Stanley’s engagement. From January 1, 2011 through May 3, 2013, Morgan Stanley and its affiliates received aggregate revenues from the Company and/or its subsidiaries for financial advisory and financing services of approximately $21 million. In the period between January 1, 2011 and the date of the opinion, Morgan Stanley provided financial advisory and financing services to Bain, Golden Gate, and Insight, the controlling shareholders of Parent, and their affiliates in which they have a controlling stake of 50% or more, for which Morgan Stanley received customary fees in an aggregate amount of approximately $125 million. Morgan Stanley also may seek to provide such services to Bain, Golden Gate, Insight and GICSI in the future and expects to receive fees for the rendering of such services.

Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. 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 the accounts of its customers, in debt or equity securities or loans of the Company, Bain, Golden Gate, Insight or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument. In addition, Morgan Stanley, its affiliates, directors or officers, including individuals working with the Company in connection with this transaction, may have committed and may commit in the future to invest in private equity funds managed by Bain, Golden Gate, Insight, GICSI or any of their respective affiliates.

 

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Projected Financial Information

Projections

The Company’s senior management does not as a matter of course make public projections as to future performance or earnings beyond the current fiscal year and is especially wary of making projections for extended earnings periods due to the unpredictability of the underlying assumptions and estimates. However, financial forecasts for fiscal years 2014, 2015 and 2016 prepared by management were made available to Parent and Merger Sub as well as to the board and our financial advisors in connection with their respective considerations of the merger. In addition, financial forecasts for fiscal years 2017 and 2018 were extrapolated by the Company’s financial advisors from prior years’ forecasts at the direction of, and were approved by, the management of the Company and were made available to the board and our financial advisors in connection with their respective considerations of the merger. We have included a summary of these projections below (the “Projections”) to give our stockholders access to certain nonpublic information provided to Parent, Merger Sub and our financial advisors for purposes of considering and evaluating the merger. The inclusion of the Projections should not be regarded as an indication that Parent, Merger Sub or the board, BofA Merrill Lynch, Morgan Stanley, or any other recipient of this information considered, or now considers, it to be an assurance of the achievement of future results.

The Company advised the recipients of the Projections that its internal financial forecasts upon which the Projections were based are subjective in many respects. The Projections reflect numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are difficult to predict, subject to significant economic and competitive uncertainties and beyond the Company’s control. As a result, there can be no assurance that the Projections will be realized or that actual results will not be significantly higher or lower than projected. The Projections were prepared for internal use and to assist Parent, Merger Sub and the financial advisors to the board with their respective due diligence investigations of the Company and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The Projections included herein have been prepared by or at the direction of, and are the responsibility of, the Company. Ernst & Young LLP, the Company’s independent registered public accounting firm, has not examined or compiled any of the Projections, and accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto. The Ernst & Young LLP report included in the Annual Report on Form 10-K for the Fiscal Year Ended March 31, 2013, incorporated by reference in this proxy statement, relates to the Company’s historical financial information. It does not extend to the Projections and should not be read to do so.

Projections of this type are based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of the Company, including the factors described under “Cautionary Statement Concerning Forward-Looking Statements,” which factors may cause the Projections or the underlying assumptions to be inaccurate. Since the Projections cover multiple years, such information by its nature becomes less reliable with each successive year. The Projections do not take into account any circumstances or events occurring after the date they were prepared.

Since the date of the Projections, the Company has made publicly available its actual results of operations for the fiscal year ended March 31, 2013. You should review the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 to obtain this information. See “Where You Can Find Additional Information.” Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the Projections set forth below. No one has made or makes any representation to any stockholder regarding the information included in the Projections.

For the foregoing reasons, as well as the basis and assumptions on which the Projections were compiled, the inclusion of specific portions of the Projections in this proxy statement should not be regarded as an indication that such Projections will be an accurate prediction of future events, and they should not be relied on as such.

 

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Except as required by applicable securities laws, the Company does not intend to update, or otherwise revise the Projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error.

The following is a summary of the Projections:

Summary of the Projections

 

(dollars in million)                                   
     Fiscal Year Ending  
     31-Mar-14      31-Mar-15      31-Mar-16      31-Mar-17      31-Mar-18  

Revenue

   $ 2,278       $ 2,403       $ 2,549       $ 2,677       $ 2,804   

Operating Income (Non-GAAP) (1)

     802         869         950         1,011         1,059   

Net Income (Non-GAAP) (1)

     562         613         673         720         758   

Share-based Compensation Expense

     162         162         156         157         158   

Depreciation & Amortization (2)

     150         136         133         141         146   

Cash Flow from Operations

     825         885         940         990         1,033   

Capital Expenditures

     26         28         30         29         31   

Capitalized Software Development Costs

     116         114         116         128         135   

 

(1) Non-GAAP operating income and Non-GAAP net income exclude share-based compensation expense, amortization of intangible assets and severance, exit costs and other restructuring charges.
(2) Excludes amortization of intangible assets and amortization of amounts previously capitalized related to share-based compensation costs.

Set forth below is a reconciliation of Non-GAAP operating income and Non-GAAP net income to the most comparable GAAP financial measures based on financial information available to, or projected by, the Company (totals may not add due to rounding):

Operating Income—GAAP to Non-GAAP Reconciliation

 

(dollars in million)                               
     Fiscal Year Ending  
     31-Mar-14     31-Mar-15     31-Mar-16     31-Mar-17     31-Mar-18  

Operating Income (Non-GAAP)

   $ 802      $ 869      $ 950      $ 1,011      $ 1,059   

Share-based compensation expense

     (162     (162     (156     (157     (158

Amortization of intangible assets

     (85     (80     (77     (68     (57

Severance, exit costs and other restructuring charges

     (16     (5     (5     0        0   

Operating Income (GAAP)

     539        623        712        786        844   

Net Income—GAAP to Non-GAAP Reconciliation

 

(dollars in million)                               
     Fiscal Year Ending  
     31-Mar-14     31-Mar-15     31-Mar-16     31-Mar-17     31-Mar-18  

Net Income (Non-GAAP)

   $ 562      $ 613      $ 673      $ 720      $ 758   

Share-based compensation expense

     (162     (162     (156     (157     (158

Amortization of intangible assets

     (85     (80     (77     (68     (57

Severance, exit costs and other restructuring charges

     (16     (5     (5     0        0   

Tax effect of above pre-tax items

     76        72        69        65        62   

Net Income (GAAP)

     376        438        504        560        605   

 

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Extrapolated Public Forecasts

In addition to the Projections, certain publicly available financial forecasts relating to the Company and covering a period through March 31, 2015 were reviewed by the management of the Company and were extrapolated by or at the direction of and approved by the management of the Company to cover a period through March 31, 2018. These extrapolations were developed by taking into account commentary by analysts about the future performance of the Company. These extrapolated public forecasts, referred to herein as the Company extrapolated public forecasts, were made available to the board and to BofA Merrill Lynch and Morgan Stanley as financial advisors to the Company for purposes of issuing their opinions described above in “—Opinion of BofA Merrill Lynch” and “—Opinion of Morgan Stanley.” We have included a summary of the Company extrapolated public forecasts.

The inclusion of the extrapolated public forecasts should not be regarded as an indication that Parent, Merger Sub or the board, BofA Merrill Lynch, Morgan Stanley, or any other recipient of this information considered, or now considers, it to be an assurance of the achievement of future results. The extrapolated public forecasts reflect numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are difficult to predict, subject to significant economic and competitive uncertainties and beyond the Company’s control. As a result, there can be no assurance that the extrapolated public forecasts will be realized or that actual results will not be significantly higher or lower than projected.

Public forecasts of this type are based on estimates and assumptions that are inherently subject to factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of the Company, including the factors described under “Cautionary Statement Concerning Forward-Looking Statements,” which factors may cause the extrapolated public forecasts or the underlying assumptions to be inaccurate. Since the extrapolated public forecasts cover multiple years, such information by its nature becomes less reliable with each successive year. The extrapolated public forecasts do not take into account any circumstances or events occurring after the date they were prepared.

Since the date of the extrapolated public forecasts, the Company has made publicly available its actual results of operations for the fiscal year ended March 31, 2013. You should review the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013 to obtain this information. See “Where You Can Find Additional Information.” Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the extrapolated public forecasts set forth below. No one has made or makes any representation to any stockholder regarding the information included in the extrapolated public forecasts.

For the foregoing reasons, as well as the basis and assumptions on which the extrapolated public forecasts were compiled, the inclusion of specific portions of the extrapolated public forecasts in this proxy statement should not be regarded as an indication that such extrapolated public forecasts will be an accurate prediction of future events, and they should not be relied on as such.

Except as required by applicable securities laws, the Company does not intend to update, or otherwise revise the extrapolated public forecasts or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error.

 

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Company Extrapolated Public Forecasts                                   
(dollars in millions)                                   
     Fiscal Year Ending  
     Projections      Extrapolations  
     31-Mar-14      31-Mar-15      31-Mar-16      31-Mar-17      31-Mar-18  

Revenue

   $ 2,321       $ 2,427       $ 2,536       $ 2,644       $ 2,750   

Operating Income (Non-GAAP) (1)

     795         850         893         944         982   

Net Income (Non-GAAP) (1)

     561         598         630         671         701   

Share-based Compensation Expense

     150         158         160         159         155   

Depreciation & Amortization (2)

     145         148         132         139         141   

Cash Flow from Operations

     791         888         901         938         970   

Capital Expenditures

     31         28         30         29         30   

Capitalized Software Development Costs

     136         138         139         140         137   

 

(1) Non-GAAP operating income and Non-GAAP net income exclude share-based compensation expense, amortization of intangible assets and severance, exit costs and other restructuring charges.
(2) Excludes amortization of intangible assets and amortization of amounts previously capitalized related to share-based compensation costs.

Set forth below is a reconciliation of Non-GAAP operating income and Non-GAAP net income to the most comparable GAAP financial measures based on financial information available to, or projected by, the Company (totals may not add due to rounding):

Operating Income—GAAP to Non-GAAP Reconciliation

 

(dollars in millions)                               
     Fiscal Year Ending  
     Projections     Extrapolations  
     31-Mar-14     31-Mar-15     31-Mar-16     31-Mar-17     31-Mar-18  

Operating Income (Non-GAAP)

     795        850        893        944        982   

Share-based compensation expense

     (150     (158     (160     (159     (155

Amortization of intangible assets

     (86     (81     (77     (67     (56

Operating Income (GAAP)

     559        611        656        718        771   

Net Income—GAAP to Non-GAAP Reconciliation

 

(dollars in millions)                               
     Fiscal Year Ending  
     Projections     Extrapolations  
     31-Mar-14     31-Mar-15     31-Mar-16     31-Mar-17     31-Mar-18  

Net Income (Non-GAAP)

     561        598        630        671        701   

Share-based compensation expense

     (150     (158     (160     (159     (155

Amortization of intangible assets

     (86     (81     (77     (67     (56

Tax effect of above pre-tax items

     68        69        69        65        61   

Net Income (GAAP)

     393        428        462        511        551   

Financing

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 $8.7 billion. Parent expects this amount to be funded through a combination of the following:

 

   

debt financing in an aggregate principal amount of up to approximately $6.23 billion. See “—Debt Financing”;

 

   

cash equity investments by the Investors/Guarantors in an aggregate amount up to $1.25 billion. See “—Equity Financing”; and

 

   

at least approximately $1.4 billion of available cash on hand at the Company and its subsidiaries in a U.S. bank account.

 

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Equity Financing

On May 6, 2013, each of the Investors/Guarantors entered into an equity commitment letter (collectively referred to as the “equity commitment letters” and, together with the debt commitment letters described below, the “commitment letters”) with Parent pursuant to which the equity investors committed to contribute (or cause to be contributed) to Parent up to $1.25 billion in cash in the aggregate. The equity commitment of the Investors/Guarantors is subject to the following conditions:

 

   

satisfaction or waiver by Parent of the conditions precedent to Parent’s and Merger Sub’s obligations to complete the merger;

 

   

the substantially concurrent funding by all Investors/Guarantors of their commitments under the equity commitment letters;

 

   

the substantially concurrent funding of the debt financing if the equity financing is funded; and

 

   

the (i) contemporaneous consummation of the merger in accordance with the terms of the merger agreement or (ii) the Company having irrevocably confirmed in writing to Parent that if specific performance is granted and the equity financing is funded, the closing of the merger will occur.

The obligation of each Investor/Guarantor to fund the equity commitment will automatically and immediately terminate upon the earliest to occur of (subject to specified exceptions and qualifications): (a) the valid termination of the merger agreement in accordance with its terms, (b) at the closing of the merger, if the equity commitment has been funded, (c) the Company or any of its controlled affiliates asserting certain specified claims prohibited by the equity commitment letter or a claim under the limited guarantee and (d) one year after the end date.

The Company is an express third-party beneficiary of the equity commitment letters and has the right to seek specific performance of the Investors/Guarantors’ obligations under the equity commitment letters under circumstances in which the Company has, pursuant to and subject to the conditions of the merger agreement, obtained an order of specific performance requiring Parent to cause the equity commitments to be funded (subject to the satisfaction of the conditions to funding under the equity commitment letters, which are described above).

Debt Financing

In connection with the entry into the merger agreement, Barclays Bank PLC, Credit Suisse AG Cayman Islands Branch and Royal Bank of Canada, and in some cases, certain of their affiliates (collectively, the “lenders”), provided commitments to Parent and Merger Sub under two alternative debt commitment letters dated May 6, 2013 (each, a “debt commitment letter”), each of which provides for commitment for the full amount of the debt financing subject to its terms and express conditions. Parent will select one of the debt commitment letters on or prior to June 5, 2013 and the other will automatically terminate pursuant to its terms. Under each debt commitment letter, the lenders have committed to provide up to an aggregate principal amount of $6.23 billion in debt financing (the “debt financing”), consisting of a $4.2 billion senior secured term loan facility, a $350 million senior secured revolving credit facility, and a $1.68 billion senior unsecured bridge facility.

The lenders’ obligation to provide the debt financing under each debt commitment letter is subject to customary conditions, including, without limitation, the following (subject to certain exceptions and qualifications as set forth in the debt commitment letter):

 

   

the substantially simultaneous closing of the merger in accordance in all material respects with the merger agreement;

 

   

the substantially simultaneous funding of the equity financing;

 

   

the receipt of certain specified financial statements of the Company and the borrower;

 

   

the execution and delivery of definitive documentation with respect to the debt financing;

 

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the absence of a material adverse effect (as defined in the merger agreement and subject to certain exceptions) on the Company since March 31, 2012;

 

   

the accuracy of certain specified representations and warranties in the merger agreement and in the definitive documents with respect to the debt financing; and

 

   

the delivery by the Company of documentation and other information reasonably requested by the lenders.

The commitment of the lenders under the debt commitment letter not terminated on or prior to June 5, 2013 expires upon the earliest to occur of (i) the end date under the merger agreement (if the initial borrowing has not occurred prior to that date), (ii) the consummation of the merger without the use of the debt financing, and (iii) the valid termination of the merger agreement.

Limited Guarantees

Concurrently with the execution of the merger agreement, each of the Investors/Guarantors has executed and delivered a limited guarantee in favor of the Company (collectively, the “limited guarantees”), pursuant to which each Investor/Guarantor has agreed to, subject to the terms and conditions of the limited guarantee, guarantee, on a several basis, the payment of its applicable percentage of Parent’s obligation to pay the Parent termination fee and certain expense reimbursements (each as described in more detail under “The Merger Agreement—Termination Fees” and “The Merger Agreement—Reimbursement of Expenses”), which are referred to as the “guaranteed obligations,” subject to a cap equal to its applicable percentage of the sum of the Parent termination fee plus $10 million (less its applicable percentage of the guaranteed obligations actually satisfied by Parent or Merger Sub), if and when due pursuant to the merger agreement.

Each of the limited guarantees will terminate upon the earliest to occur of:

 

   

the effective time of the merger;

 

   

the payment in full of the guaranteed obligations; and

 

   

the valid termination of the merger agreement (other than a termination by the Company due to Parent’s material breach of the merger agreement or Parent’s failure to consummate the closing when required).

In the event that the Company or any of its controlled affiliates or subsidiaries expressly asserts in any litigation or other legal proceeding relating to a limited guarantee (i) that certain provisions of the limited guarantee are illegal, invalid or unenforceable or (ii) any theory of liability against the Investor/Guarantor party thereto or certain of its related parties (other than certain specified permitted claims), then (a) the obligations of such Investor/Guarantor under such limited guarantee will terminate, (b) if such Investor/Guarantor has previously made any payments under such limited guarantee, it will be entitled to recover such payments from the Company and (c) neither such Investor/Guarantor nor certain of its related parties will have any liability to the Company or certain of its related parties with respect to such limited guarantee.

Voting Agreement

On May 4, 2013, the Company entered into the voting agreement. Under the voting agreement, Elliott has agreed, among other things, that during the period (the “voting period”) ending on the earliest to occur of (i) the time the Company’s stockholders have adopted the merger agreement, (ii) the termination of the merger agreement in accordance with its terms or (iii) such time as the board withdraws (or qualifies or modifies in a manner adverse to Parent) its recommendation of the Merger solely in respect of an intervening event (as defined below under “The Merger Agreement—Other Covenants and Agreements—Alternative Proposals; No Solicitation), Elliott will vote its shares in favor of the proposal to adopt the merger agreement, and against, among other things, any alternative proposal or other action in opposition to or competition with the merger agreement and any other proposal that would reasonably be expected to prevent, nullify, materially impede, interfere with, frustrate, delay, postpone, discourage or adversely affect the timely consummation of the merger or the other transactions contemplated by the merger agreement. Elliott has also agreed that during the voting period it will not make any public statements that are inconsistent with its support of the merger agreement and

 

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the transactions contemplated thereby and to cease, and not initiate or engage in, any solicitations with persons that may be ongoing with respect to any alternative acquisition proposal.

The voting agreement will terminate upon the earliest to occur of (i) the termination of the merger agreement in accordance with its terms, (2) the effective time of the merger, (3) the making of any change to the merger agreement that decreases the amount, changes the form, or imposes any material restrictions on the payment of the merger consideration, or otherwise adversely affects the Company’s stockholders, or extends the end date, or (4) the six-month anniversary of the date of the merger agreement (unless the end date is extended pursuant to the terms of the merger agreement).

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

In considering the recommendation of the board that you vote to adopt the merger agreement, you should be aware that aside from their interests as stockholders of the Company, the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, those of other stockholders of the Company generally. Members of the board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the stockholders of the Company that the merger agreement be adopted. See the section entitled “The Merger (Proposal 1)—Background of the Merger” and the section entitled “The Merger (Proposal 1)—Reasons for the Merger.” The Company’s stockholders should take these interests into account in deciding whether to vote “FOR” the proposal to adopt the merger agreement. These interests are described in more detail below, and certain of them are quantified in the narrative and the tables below.

The Company’s executive officers are as follows:

 

Name

  

Position

Robert E. Beauchamp

   Chairman of the Board, President and Chief Executive Officer

Paul Avenant

   Senior Vice President of Solutions

Kia Behnia

   Senior Vice President and Chief Technology Officer

Brian Bergdoll

   Senior Vice President of Sales

Ken Berryman

   Senior Vice President, Strategy and Corporate Development

T. Cory Bleuer

   Vice President, Controller and Chief Accounting Officer

Hollie Castro

   Senior Vice President, Administration

Steve Goddard

   Senior Vice President, Business Operations

William D. Miller

   Chief Operating Officer

Carv Moore

   Senior Vice President of Sales

Stephen B. Solcher

   Senior Vice President, Chief Financial Officer

Patrick K. Tagtow

   Senior Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer

 

Pursuant to the merger agreement, equity-based awards held by the Company’s directors and executive officers as of the effective time of the merger will be treated at the effective time of the merger as follows:

Company Stock Options. Each Company stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash equal to the product of (a) the total number of shares of common stock subject to such Company stock option and (b) the excess, if any, of $46.25 over the exercise price per share of common stock subject to such Company stock option, less such amounts as are required to be withheld or deducted under applicable tax provisions.

Company RSU Awards. Company RSU awards that are outstanding immediately prior to the effective time of the merger, will be treated as follows:

 

   

Each Company RSU award held by an employee at the level of Senior Vice President or above (including all of the executive officers other than Mr. Bleuer) or by a member of the board will vest

 

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fully as of the effective time of the merger with respect to the full number of shares of common stock subject to the Company RSU award and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares subject to the award (net of applicable withholding), determined in the case of performance-based market stock units awards by applying a 100% (target) vesting percentage (the terms of the market stock unit award agreements would have determined the number of shares based on pre-change in control performance, which was anticipated to be below target).

 

   

For each Company RSU award held by an employee below the level of Senior Vice President, any portion of the award that is scheduled to vest on or prior to the first anniversary of the effective time of the merger will vest as of the effective time of the merger and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares of common stock subject to such portion of the award (net of applicable withholding). Any portion of the award that is scheduled to vest after the first anniversary of the effective time of the merger will be converted into a converted award representing a right to receive an amount in cash equal to $46.25 multiplied by the number of shares subject to that portion of the award. Each converted award will continue to vest and be settled in cash in accordance with the terms of the original award, except that (1) instead of the original vesting date, each portion of a converted award will instead vest on the date that is one year prior to the vesting date specified in the applicable award agreement, and (2) the vesting of the converted award will accelerate fully if an award holder’s employment is terminated without cause or in other circumstances entitling the award holder to severance benefits.

Quantification of Payments. For an estimate of the amounts that would be payable to each of the Company’s named executive officers on settlement of their unvested equity-based awards, see “—Quantification of Payments and Benefits to the Company’s Named Executive Officers” below.

The estimated aggregate amount that would be payable to the Company’s executive officers in settlement of their unvested equity-based awards if the merger were completed on August 1, 2013 is $65,706,358. This value is based on the merger consideration of $46.25 in cash, without interest, for each share of common stock, net of the applicable exercise price (for stock options), multiplied by the total number of shares subject to each applicable award.

As described under “The Merger Agreement—Other Covenants and Agreements—Non-Employee Director Compensation” below, in lieu of the annual grant to non-employee directors of Company RSUs with a value of $288,000 per director, each non-employee director will receive a cash amount equal to $288,000, pro-rated based on the number of days of the non-employee director’s service on the Company’s board of directors from July 25, 2013 through the date that the merger is completed.

Short-Term Incentive Program

Pursuant to the terms of the Company’s Amended and Restated Short-Term Incentive Program, each participant who is employed by the Company immediately prior to the effective time of the merger will become vested in a bonus payment under the program (to the extent that performance goals are achieved) as of the effective time of the change in control. Bonus payments will be made as soon as administratively feasible after (i) the last day of such performance period, for any participant who remains employed through the end of the performance period, (ii) at the effective time of the merger for any participant whose employment terminates due to death or disability prior to the effective time of the merger, and (iii) after termination, for any participant whose employment terminates for any reason after the effective time of the merger. As described under “The Merger Agreement—Other Covenants and Agreements—Employee Matters” below, the merger agreement provides that, prior to completion of the merger, the Company’s compensation committee may determine and certify the achievement of performance goals under the Company’s program, including for the portion of the performance period in which the effective time of the merger occurs (with respect to pre-closing performance only). After consummation of the merger, the Parent agrees to honor any such determinations and certifications by the

 

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Company’s compensation committee. Each of the executive officers other than Mr. Bleuer participates in the Amended and Restated Short-Term Incentive Program.

Legal Fee Reimbursements

In connection with the merger, certain executives of the Company are eligible for payment or reimbursement of legal fees and expenses incurred in connection with compensation negotiations relating to the merger in aggregate amounts not to exceed $150,000 for Mr. Beauchamp and $500,000 for ten other executives including all of the executive officers other than Mr. Bleuer.

Employment Agreements

Certain executives, including all of the Company’s executive officers, are party to employment or change of control agreements that provide for severance benefits in the event of a termination of employment by the Company without cause, or by the executive officer for good reason, within one year following a change in control (a “qualifying termination”), subject to the execution of a general release of claims in favor of the Company and its affiliates within 45 days of the termination of employment. The contemplated merger would constitute a change in control under the executive agreements.

The employment agreements provide that in the event of a qualifying termination, the executive officer would be entitled to (i) a cash severance payment equal to one times base salary plus target bonus (two times base salary plus target bonus for Messrs. Beauchamp and Solcher), (ii) a pro-rated bonus (determined based on actual performance for the year of termination), (iii) full vesting of outstanding equity awards to the extent provided under the terms of the applicable equity award agreements, (iv) a lump sum payment equal to the cost of COBRA coverage and life insurance premiums for 18 months and (v) a lump sum payment equal to the aggregate of 18 months of life insurance premiums. In consideration of the payments and benefits under their employment agreements, each executive officer is restricted from engaging in competitive activities and prohibited from soliciting the Company’s clients and employees for 18 months (24 months in the case of Messrs. Beauchamp and Solcher) after termination of employment, and all of the executive officers are prohibited from disclosing the Company’s confidential information. Mr. Bergdoll is party to a change of control and severance agreement which provides that in the event of a qualifying termination, he would be entitled to (i) a cash severance payment equal to one times base salary plus target bonus and (ii) full vesting of outstanding equity awards.

In the event that payments or benefits owed to the executive officer constitute “parachute payments” (within the meaning of Section 280G of the Code) and would be subject to the excise tax imposed by Section 4999 of the Code, the Company will reduce the amount of the executive officer’s severance benefits if such reduction would leave the executive officer in a better after tax position than if the executive officer were subject to the excise tax.

The estimated aggregate amount that would be payable to the Company’s executive officers under their employment or change of control agreements (excluding the value of the accelerated vesting of equity awards) if the merger were to be completed and they were to experience a qualifying termination on May 17, 2013, is $18,291,162.

As noted above under The Merger (Proposal 1)—Background of the Merger,” Carl James Schaper has a consulting relationship with Golden Gate Capital, which is part of the buyer group. As noted throughout this proxy statement, Mr. Schaper has recused himself from voting on the merger.

Quantification of Payments and Benefits. For an estimate of the value of the payments and benefits described above that would be payable to each of the Company’s named executive officers, see below.

 

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Quantification of Payments and Benefits to the Company’s Named Executive Officers

The table below sets forth the amount of payments and benefits that each of the Company’s named executive officers would receive in connection with the merger, assuming that the merger were consummated and each such executive officer experienced a qualifying termination on May 17, 2013.

 

Name

   Cash
($)(1)
     Equity
($)(2)
     Perquisites/
Benefits
($)(3)
     Other
($)(4)
     Total ($)  

Robert E. Beauchamp

     5,297,907         41,083,838         150,176         150,000         46,681,921   

Stephen B. Solcher

     2,270,822         7,184,228         84,456         50,000         9,589,506   

Kia Behnia

     1,120,822         6,705,728         35,967         50,000         7,912,517   

Kenneth W. Berryman

     862,151         5,136,803         54,514         50,000         6,103,468   

William D. Miller

     1,374,247         7,540,274         131,445         50,000         9,095,966   

 

(1) The cash amounts payable to each of the named executive officers consist of (a) a severance payment, payable in a lump sum within 60 days of termination, in an amount equal to the sum of the named executive officer’s annual base salary and then-current target bonus (in the case of Messrs. Beauchamp and Solcher, two times such sum), and (b) a pro rata portion of the annual bonus the named executive officer would have earned for the year of termination based on the Company’s actual results. For purposes of the table, target performance is assumed. These payments are “double-trigger” and would be due in the event of a qualifying termination of the named executive officer’s employment within one year after completion of the merger. Severance payments are subject to reduction, to the extent such reduction would leave the named executive officer in a better after-tax position than if the full amount of change-in-control payments and benefits were provided to the named executive officer. These payments are subject to the executive’s execution and non-revocation of a release of claims against the Company within 45 days after termination. Each named executive officer is restricted from engaging in competitive activities and prohibited from soliciting the Company’s clients and employees for 18 months (24 months in the case of Messrs. Beauchamp and Solcher) after termination of employment, and all of the named executive officers are prohibited from disclosing of the Company’s confidential information.

Set forth below are the values of the cash amounts that are attributable to cash severance and pro-rata annual bonus.

 

Name

   Cash Severance
($)
     Pro-Rata
Bonus

($)
 

Robert E. Beauchamp

     5,096,000         201,907   

Stephen B. Solcher

     2,200,000         70,822   

Kia Behnia

     1,050,000         70,822   

Kenneth W. Berryman

     810,000         52,151   

William D. Miller

     1,282,500         91,747   

 

(2) As described above, all unvested equity awards held by the named executive officers will vest “single-trigger” upon consummation of the change in control. Each Company stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash equal to the product of (a) the total number of shares of common stock subject to such Company stock option and (b) the excess, if any, of $46.25 over the exercise price per share of common stock subject to such Company stock option. Each Company RSU award held by any of the named executive officers will vest fully as of the effective time with respect to the full number of shares subject to the Company RSU award and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares subject to the award, determined in the case of performance-based market stock unit (MSU) awards by applying a 100% (target) vesting percentage.

 

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Name

   Company Stock
Options
($)
     Company
RSU Awards
($)
 

Robert E. Beauchamp

     16,689,830         24,394,008   

Stephen B. Solcher

     308,009         6,876,219   

Kia Behnia

     385,850         6,319,878   

Kenneth W. Berryman

     0         5,136,803   

William D. Miller

     524,427         7,015,848   

 

(3) These amounts include the estimated value of 18 months of COBRA and life insurance premiums that would be paid to each named executive officer within 60 days of termination in the event of a qualifying termination within one year after completion of the merger. These benefits are subject to the named executive officers execution and non-revocation of a release of claims against the Company within 45 days after termination. Individual amounts are set forth below:

 

Name

   COBRA
Premiums
($)
     Life
Insurance
Premiums

($)
 

Robert E. Beauchamp

     39,062         111,114   

Stephen B. Solcher

     24,757         59,699   

Kia Behnia

     6,513         29,454   

Kenneth W. Berryman

     24,757         29,757   

William D. Miller

     39,062         92,383   

 

(4) Represents a legal fee reimbursement maximum of $150,000 for Mr. Beauchamp, and, assuming that the aggregate $500,000 legal fee reimbursement maximum for the other executives who are eligible for reimbursement is distributed evenly for each of the ten of them, a pro-rata reimbursement benefit up to $50,000 for each named executive officer other than Mr. Beauchamp.

Material U.S. Federal Income Tax Consequences of the Merger

The following is a general discussion of the material U.S. federal income tax consequences of the merger to holders of common stock whose shares are exchanged for cash pursuant to the merger. This discussion does not address U.S. federal income tax consequences with respect to non-U.S. holders. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations, judicial opinions, and administrative rulings and published positions of the Internal Revenue Service, each as in effect as of the date hereof. These authorities are subject to change, possibly on a retroactive basis, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion is not binding on the Internal Revenue Service or the courts and, therefore, could be subject to challenge, which could be sustained. No ruling is intended to be sought from the Internal Revenue Service with respect to the merger.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of common stock that is:

 

   

a citizen or individual resident of the United States;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

   

a trust if (1) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the

 

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trust or (2) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or

 

   

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

For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of common stock, other than a partnership or other entity taxable as a partnership for U.S. federal income tax purposes, that is not a U.S. holder.

This discussion applies only to U.S. holders of shares of common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a U.S. holder in light of its particular circumstances, or that may apply to a U.S. holder that is subject to special treatment under the U.S. federal income tax laws (including, for example, insurance companies, controlled foreign corporations, passive foreign investment companies, dealers or brokers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting, holders subject to the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar, tax-exempt organizations, banks and certain other financial institutions, mutual funds, certain expatriates, partnerships, S corporations, or other pass-through entities or investors in partnerships or such other entities, U.S. holders who hold shares of common stock as part of a hedge, straddle, constructive sale or conversion transaction, U.S. holders who will hold, directly or indirectly, an equity interest in the surviving corporation, and U.S. holders who acquired their shares of common stock through the exercise of employee stock options or other compensation arrangements.

If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partners and the activities of the partnership. If you are a partner of a partnership holding shares of common stock, you should consult your tax advisor.

Holders of common stock are urged to consult their own tax advisors to determine the particular tax consequences to them of the merger, including the applicability and effect of the alternative minimum tax, and any state, local, foreign or other tax laws.

Consequences to U.S. Holders

The receipt of cash by U.S. holders in exchange for shares of common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, for U.S. federal income tax purposes, a U.S. holder who receives cash in exchange for shares of common stock pursuant to the merger will recognize gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received and (2) the U.S. holder’s adjusted tax basis in such shares.

If a U.S. holder’s holding period in the shares of common stock surrendered in the merger is greater than one year as of the date of the merger, the gain or loss will be long-term capital gain or loss. Long term capital gains of certain non-corporate holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of a capital loss recognized on the exchange is subject to limitations. If a U.S. holder acquired different blocks of common stock at different times and different prices, such U.S. holder must determine its adjusted tax basis and holding period separately with respect to each block of common stock.

Consequences to Non-U.S. Holders

A non-U.S. holder whose shares of common stock are converted into the right to receive cash in the merger generally will not be subject to U.S. federal income taxation unless:

 

   

gain resulting from the merger is effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business (and, if required by any applicable income tax treaty, is attributable to a United States permanent establishment of the non-U.S. holder);

 

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the non-U.S. holder is an individual who is present in the United States for 183 days or more in the individual’s taxable year in which the merger occurs and certain other conditions are satisfied; or

 

   

the Company is or has been a U.S. real property holding corporation (such corporation is referred to as a “USRPHC”) as defined in Section 897 of the Code at any time within the five-year period preceding the merger, the non-U.S. holder owned more than five percent of the common stock at any time within that five-year period, and certain other conditions are satisfied. We believe that, as of the effective date of the merger, we will not have been a USRPHC at any time within the five-year period ending on the date thereof.

Any gain recognized by a non-U.S. holder described in the first bullet above generally will be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a “U.S. person” as defined under the Code. A non-U.S. holder that is a corporation may also be subject to an additional “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on after-tax profits effectively connected with a U.S. trade or business to the extent that such after-tax profits are not reinvested and maintained in the U.S. business.

Gain described in the second bullet above generally will be subject to U.S. federal income tax at a flat 30% rate, but may be offset by certain U.S. source capital losses, if any, of the non-U.S. holder.

Information Reporting and Backup Withholding

Payments made to in exchange for shares of common stock pursuant to the merger may be subject, under certain circumstances, to information reporting and backup withholding (currently at a rate of 28%). To avoid backup withholding, a U.S. holder that does not otherwise establish an exemption should complete and return Internal Revenue Service Form W-9, certifying that such U.S. holder is a U.S. person, the taxpayer identification number provided is correct and such U.S. holder is not subject to backup withholding. In general, a non-U.S. holder will not be subject to U.S. federal backup withholding and information reporting with respect to cash payments to the non-U.S. holder pursuant to the merger if the non-U.S. holder has provided an Internal Revenue Service Form W-8BEN (or an Internal Revenue Service Form W-8ECI if the non-U.S. holder’s gain is effectively connected with the conduct of a U.S. trade or business).

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the Internal Revenue Service in a timely manner.

This summary of the material U.S. federal income tax consequences is for general information purposes only and is not tax advice. Holders of common stock should consult their tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of the alternative minimum tax and the effect of any federal, state, local, foreign and other tax laws.

Regulatory Approvals

Antitrust Approval in the U.S.

Under the HSR Act and related rules, certain transactions, including the merger, may not be completed until notifications have been given and information furnished to the Antitrust Division and the FTC and all statutory waiting period requirements have been satisfied. On May 15, 2013, both the Company and Parent filed their respective Notification and Report Forms with the Antitrust Division and the FTC.

At any time before or after the effective time of the merger, the Antitrust Division or the FTC could take action under the antitrust laws, including seeking to prevent the merger, to rescind the merger or to conditionally approve the merger upon the divestiture of assets of the Company or Parent or subject to regulatory conditions or other remedies. In addition, U.S. state attorneys general could take action under the antitrust laws as they deem

 

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necessary or desirable in the public interest, including, without limitation, seeking to enjoin the completion of the merger or permitting completion subject to regulatory conditions. Private parties may also seek to take legal action under the antitrust laws under some circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

Antitrust Approval in Non-U.S. Jurisdictions

The merger is also conditioned on (i) the European Commission issuing a decision pursuant to the EC Merger Regulation declaring the transactions contemplated by the merger agreement compatible with the common market, (ii) the expiration of any applicable waiting period or receipt of any approval required under the Anti-Monopoly Law of the People’s Republic of China, (iii) the expiration of any applicable waiting period or receipt of any approval required under the Competition Act of South Africa and (iv) if the parties determine it is required, the expiration of any applicable waiting period or receipt of any approval required under the Brazilian Competition Act.

On May 14, 2013, an initial draft notification to staff of the European Commission was submitted. On May 21, 2013, a notification to the antitrust authorities in South Africa was submitted. On May 22, 2013, an initial draft notification to staff of the Ministry of Commerce in China was submitted. Also on May 22, 2013, a notification to the antitrust authorities in Brazil was submitted.

Foreign antitrust authorities in these or other jurisdictions may take action under the antitrust laws of their jurisdictions including, without limitation, seeking to enjoin the completion of the merger or permitting completion of the merger subject to regulatory conditions. There can be no assurance that a challenge to the merger under foreign antitrust laws will not be made or, if such a challenge is made, that it would not be successful.

CFIUS Approval

The merger is also conditioned on the issuance by CFIUS of a written notification that it has concluded a review of the notification voluntarily provided pursuant to the Defense Production Act, and determined not to conduct a full investigation of the transactions contemplated by the merger agreement or, if a full investigation is deemed to be required, notification that the U.S. government will not take action to prevent the transactions contemplated by the merger agreement from being consummated.

Section 721 of the Defense Production Act, as well as related Executive Orders and regulations, authorize the President or CFIUS to review transactions which could result in control of a U.S. business by a foreign person. Under the Defense Production Act and Executive Order 13456, the Secretary of the Treasury acts through CFIUS to coordinate review of certain covered transactions that are voluntarily submitted to CFIUS or that are unilaterally reviewed by CFIUS. In general, CFIUS review of a covered transaction occurs in an initial 30-day review period that may be extended by CFIUS for an additional 45-day investigation period. At the close of its review or investigation, CFIUS may decline to take any action relative to the covered transaction, may impose mitigation terms to resolve any national security concerns with the covered transaction, or may send a report to the President recommending that the transaction be suspended or prohibited, or providing notice to the President that CFIUS cannot agree on a recommendation relative to the covered transaction. The President has 15 days under the Defense Production Act to act on the Committee’s report.

Pursuant to the merger agreement, the parties have agreed to submit the voluntary notice to CFIUS promptly.

Litigation

Prior to and following the announcement of the execution of the merger agreement on May 6, 2013, several lawsuits challenging the proposed acquisition of the Company were filed in state courts in Texas and in Delaware. Those actions are captioned: Henzel v. BMC Software, Inc., et. al., C.A. No. 8542-VCL (Del. Ch.); Steinberg v. BMC Software, Inc. et al., C.A. No. 8544-VCL (Del. Ch.); Alaska Electrical Pension Fund v. BMC

 

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Software, Inc., et al., C.A. No. 8565-VCL (Del. Ch.); Purnell, et al. v. BMC Software, Inc., et al., C.A. No. 8582-VCL (Del. Ch.); Alaska Electrical Pension Fund v. BMC Software, Inc., et al., No. ED101J017416034, (Tex. D. Ct., Harris Cty.); and Abekian v. BMC Software, Inc., et al., No. ED101J017493759, (Tex. D. Ct., Harris Cty.).

The Delaware actions were filed on May 9, May 10, May 16, and May 21, 2013, respectively. Each is a putative class action filed on behalf of the stockholders of the Company, and each names as defendants the Company, its directors, Bain Capital Partners, LLC, Golden Gate, GICSI, Insight, Parent and Merger Sub. The complaints allege that the directors of the Company breached their fiduciary duties by agreeing to the merger agreement and selling the Company for an inadequate price and following an insufficient process; the complaints also allege that the remaining defendants aided and abetting those alleged breaches. The complaints seek, among other relief, declaratory and injunctive relief against the merger, and costs and fees.

The Abekian Texas action was filed on May 13, 2013 as a putative class action on behalf of the stockholders of the Company, and it names the same defendants, asserts substantially the same allegations, and seeks substantially the same relief as the Delaware actions.

The Texas action commenced by Alaska Electrical Pension Fund was filed on April 5, 2013 as an individual action on behalf of the named plaintiff only, and it names as defendants the Company and its directors. The Alaska Electrical Pension Fund’s Texas petition, filed before any transaction was announced, alleges that the individual defendants would breach their fiduciary duties if they allowed the Company’s management to take the Company private for an inadequate price and pursuant to an insufficient sales process, and it alleged that the Company itself would be aiding and abetting those alleged breaches. The Alaska Electrical Pension Fund’s Texas petition seeks, among other relief, declaratory and injunctive relief enjoining any transaction, and costs and fees.

The outcome of these lawsuits is uncertain. An adverse monetary judgment could have a material adverse effect on the operations and liquidity of the Company, a preliminary injunction could delay or jeopardize the completion of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the merger. The Company believes these lawsuits are meritless.

 

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THE MERGER AGREEMENT

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

Explanatory Note Regarding the Merger Agreement

The following summary of the merger agreement, and the copy of the merger agreement attached hereto as Annex A to this proxy statement, are intended to provide information regarding the terms of the merger agreement and are not intended to modify or supplement any factual disclosures about the Company in its public reports filed with the SEC. In particular, the merger agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company or any of its subsidiaries or affiliates. The merger agreement contains representations and warranties by the Company, Parent and Merger Sub which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may apply contractual standards of materiality or material adverse effect that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Moreover, the description of the merger agreement below does not purport to describe all of the terms of such agreement, and is qualified in its entirety by reference to the full text of such agreement, a copy of which is attached hereto as Annex A and is incorporated herein by reference.

Additional information about the Company may be found elsewhere in this proxy statement and the Company’s other public filings. See “Where You Can Find Additional Information.

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

At the effective time of the merger, Merger Sub will merge with and into the Company and the separate corporate existence of Merger Sub will cease. The Company will be the surviving corporation in the merger and will continue its corporate existence as a Delaware corporation after the merger. The certificate of incorporation of the Company as in effect immediately prior to the effective time of the merger will be amended and restated in its entirety to read as set forth in Exhibit A to the merger agreement, and, as so amended, will be the certificate of incorporation of the surviving corporation until thereafter amended in accordance with the DGCL and such certificate of incorporation. The bylaws of the surviving corporation will be amended and restated in their entirety to read as set forth in Exhibit B to the merger agreement, and, as so amended, will be the bylaws of the surviving corporation until thereafter amended in accordance with the DGCL and such bylaws. Subject to applicable law, the directors of Merger Sub as of immediately prior to the effective time of the merger will be the initial directors of the surviving corporation, and the officers of the Company immediately prior to the effective time of the merger will be the initial officers of the surviving corporation.

 

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When the Merger Becomes Effective

The closing of the merger will take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52 Street, New York, New York, on a date which will be the third business day after the satisfaction or waiver by the party having the benefit of the applicable condition of the closing conditions stated in the merger agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver by the party having the benefit of the applicable condition of such conditions) or at such other place, date and time as the Company and Parent may agree in writing. However, the closing will not occur prior to the earlier of (i) a date during the marketing period (as defined below) specified by Parent on no fewer than five business days’ notice to the Company or (ii) if no such date has been specified by Parent, the third business day following the final day of the marketing period. The merger agreement also provides that in no event will the closing occur during the first three business days of a quarter, and if the closing would otherwise have occurred during such three business day period, then the closing will instead occur on the fourth business day of such quarter.

The merger will become effective at the time, which we refer to as the effective time of the merger, when the Company files a certificate of merger with the Secretary of State of the State of Delaware or at such later date or time as Merger Sub and the Company agree in writing and specify in the certificate of merger.

For purposes of the merger agreement, “marketing period” means the first period of 20 consecutive days after the date of the merger agreement throughout which (a) Parent has the required bank information (as defined under “—Financing”), (b) the required bank information is at all times compliant (as defined below) (except that if the required bank information is at any time during such period not compliant pursuant to clause (c) of the definition thereof, but during such period becomes compliant as a result of a supplement to the required bank information, the marketing period will be extended by five business days, but will not restart), (c) all mutual conditions to the parties’ obligations to complete the merger have been (and remain) satisfied, other than (i) the adoption of the merger agreement by the Company’s stockholders, (ii) from and after January 6, 2014, the antitrust/competition approvals condition (as defined above under “Summary”) and (iii) those conditions that by their nature can only be satisfied at closing and (d) all of Parent’s and Merger Sub’s conditions to their obligations to complete the merger are satisfied or waived by Parent (and remain satisfied or waived), other than (x) from and after January 6, 2014, the CFIUS approval condition and (y) those conditions that by their nature can only be satisfied at Closing. However, (A) July 4, 2013, July 5, 2013, November 28, 2013, November 29, 2013, November 30, 2013 and December 1, 2013 will not be considered days for the purposes of the marketing period, (B) the marketing period will either end on or prior to August 16, 2013 or, if the marketing period has not ended on or prior to August 16, 2013, then the marketing period will commence no earlier than September 3, 2013, (C) the marketing period will either end on or prior to December 21, 2013 or, if the marketing period has not ended on or prior to December 21, 2013, then the marketing period will commence no earlier than January 6, 2014, (D) the marketing period will end no earlier than the first business day following the date on which the Company’s stockholders adopt the merger agreement, the antitrust/competition approvals condition and CFIUS approval condition are satisfied or waived and (E) the marketing period will end on any earlier date that is the date on which the debt financing otherwise is obtained by Parent.

For purposes of the merger agreement, “compliant” means, with respect to the required bank information, that: (a) the Company’s auditors have not withdrawn, or advised the Company in writing that they intend to withdraw, any audit opinion with respect to any audited financial statements contained in the required bank information; (b) the Company or its auditors have not determined to undertake a restatement of any financial statements included in the required bank information (it being understood the required bank information will be compliant if such restatement is completed or the Company has determined no such restatement is required); (c) such required bank information does not contain any untrue statement of a material fact or omit to state any material fact, in each case with respect to the Company and its subsidiaries, necessary in order to make the statement contained in such required bank information, in the context in which it was made, not misleading; and (d) the financial statements included in the required bank information that is available to Parent on the first day of the marketing period would be sufficiently current on any day during such period to satisfy the requirements of Rule 3-12 of Regulation S-X to permit a registration statement of the Company using such financial statements to be declared effective by the SEC on the last day of such period.

 

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Effect of the Merger on the Common Stock

At the effective time of the merger, each issued and outstanding share of the common stock outstanding immediately prior to the effective time of the merger, other than shares owned by the Company (or any direct or indirect subsidiary of the Company), Parent, Merger Sub and holders who are entitled to and properly exercise appraisal rights under Delaware law, will be converted automatically into and will represent the right to receive $46.25 in cash, without interest and less any applicable withholding taxes.

At the effective time of the merger, each share that is owned directly by Company (or any direct or indirect subsidiary of the Company), Parent or Merger Sub immediately prior to the effective time of the merger will be cancelled and retired and will cease to exist (such shares are referred to as the “excluded shares”) and no consideration will be delivered in exchange for such cancellation and retirement.

At the effective time of the merger, each share of common stock of Merger Sub issued and outstanding immediately prior to the effective time of the merger will be converted into and become one validly issued, fully paid and nonassessable share of common stock of the surviving corporation and will constitute the only outstanding shares of capital stock of the surviving corporation.

Treatment of Company Stock Options and Other Stock Based Awards

Company Stock Options. At the effective time of the merger, each Company stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will be converted into the right to receive an amount in cash equal to the product of (a) the total number of shares of common stock subject to such Company stock option and (b) the excess, if any, of $46.25 over the exercise price per share of common stock subject to such Company stock option, less such amounts as are required to be withheld or deducted under applicable tax provisions.

Company RSU Awards. At the effective time of the merger, Company RSU awards that are outstanding immediately prior to the effective time of the merger, will be treated as follows:

 

   

Each Company RSU award held by an employee at the level of Senior Vice President or above or by a member of the board will vest fully as of the effective time of the merger with respect to the full number of shares subject to the Company RSU award and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares of common stock subject to the award (net of applicable withholding), determined in the case of performance-based market stock unit awards by applying a 100% (target) vesting percentage.

 

   

For each Company RSU award held by an employee below the level of Senior Vice President, any portion of the award that is scheduled to vest on or prior to the first anniversary of the effective time of the merger will vest as of the effective time of the merger and be converted into the right to receive an amount in cash equal to $46.25 multiplied by the number of shares of common stock subject to such portion of the award (net of applicable withholding). Any portion of the award that is scheduled to vest after the first anniversary of the effective time of the merger will be converted into an a converted award representing a right to receive an amount in cash equal to $46.25 multiplied by the number of shares subject to that portion of the award. Each converted award will continue to vest and be settled in cash in accordance with the terms of the original award, except that (i) instead of the original vesting date, each portion of a converted award will instead vest on the date that is one year prior to the vesting date specified in the applicable award agreement, and (ii) the vesting of the converted award will accelerate fully if an award holder’s employment is terminated without cause or in other circumstances entitling the award holder to severance benefits.

 

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Treatment of the Company’s ESPP

Under the merger agreement, the current option period under the Company’s 2013 Employee Stock Purchase Plan (the “ESPP”) will continue through the earlier of the completion of the merger or the scheduled conclusion of the current option period on June 30, 2013. Following the date of the merger agreement, no new participants may join the ESPP nor may any existing participants increase their rate of contribution or make any non-payroll contributions to the ESPP. Thereafter, there will be no subsequent option periods under the ESPP and the ESPP will be terminated in accordance with its terms, subject to completion of the merger.

Payment for the Common Stock and Stock Based Awards in the Merger

Prior to or concurrently with the closing, Parent will deposit, or cause to be deposited, with a U.S. bank or trust company that will be appointed by Parent (and reasonably acceptable to the Company), as paying agent, in trust for the benefit of the holders of the common stock (other than the excluded shares), sufficient cash to pay to the holders of the common stock the merger consideration of $46.25 per share. As soon as reasonably practicable after the effective time of the merger and in any event not later than the second business day following the closing date, the paying agent is required to mail to each record holder of shares of common stock that were converted into the merger consideration a letter of transmittal and instructions for use in effecting the surrender of certificates that formerly represented shares of the common stock or non-certificated shares represented by book-entry in exchange for the merger consideration (less any applicable withholding taxes).

Unless otherwise agreed to in writing prior to the effective time of the merger by Parent and the holder thereof, the surviving corporation or one of its subsidiaries will pay to each holder of Company stock options and each holder of Company RSU awards, the cash amounts described above under “—Treatment of Company Stock Options and Other Stock Based Awards” no later than the second payroll cycle of the surviving corporation following the effective time of the merger.

Representations and Warranties

The merger agreement contains representations and warranties of each of the Company and of Parent and Merger Sub as to, among other things:

 

   

corporate organization, existence, good standing and authority to carry on its business as presently conducted, including, as to the Company, with respect to its subsidiaries;

 

   

corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement;

 

   

required regulatory filings and authorizations, consents or approvals of governmental entities;

 

   

the absence of certain violations, defaults or consent requirements under certain contracts, organizational documents and law, in each case arising out of the execution and delivery of, and consummation of the transactions contemplated by, the merger agreement;

 

   

matters relating to information to be included in required filings with the SEC in connection with the merger;

 

   

the absence of certain litigation, orders and judgments and governmental proceedings and investigations related to Parent and Merger Sub or the Company, as applicable; and

 

   

the absence of any fees owed to investment bankers or brokers in connection with the merger, other than those specified in the merger agreement.

 

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The merger agreement also contains representations and warranties of the Company as to, among other things:

 

   

the capitalization of the Company, including the Company’s incentive equity awards, and the absence of certain rights to purchase or acquire equity securities of the Company of any of its subsidiaries, the absence of any bonds or other obligations allowing holders the right to vote with stockholders of the Company, the absence of stockholder agreements or voting trusts to which the Company or any of its subsidiaries is a party (other than the voting agreement), the absence of certain indebtedness and the Company’s accelerated repurchase program;

 

   

the accuracy of the Company’s filings with the SEC and of financial statements included in the SEC filings;

 

   

the implementation and maintenance of disclosure controls and internal controls over financial reporting and the absence of certain claims, complaints or allegations with respect thereto;

 

   

the absence of certain undisclosed liabilities for the Company and its subsidiaries;

 

   

compliance with laws and possession of necessary permits and authorizations by the Company and its subsidiaries;

 

   

environmental matters and compliance with environmental laws by the Company and its subsidiaries;

 

   

the Company’s employee benefit plans and other agreements with its employees;

 

   

labor matters related to the Company and its subsidiaries;

 

   

conduct of the Company’s business and the absence of certain changes since March 31, 2012;

 

   

the absence of certain actions by the Company and its subsidiaries since December 31, 2012;

 

   

the payment of taxes, the filing of tax returns and other tax matters related to the Company and its subsidiaries;

 

   

ownership of or rights with respect to the intellectual property of the Company and its subsidiaries;

 

   

privacy and security matters, including policies of the Company and its subsidiaries;

 

   

real property owned or leased by the Company and its subsidiaries;

 

   

the receipt by the board of an opinion of BofA Merrill Lynch and an opinion of Morgan Stanley;

 

   

the vote of stockholders required to adopt the merger agreement;

 

   

material contracts of the Company and its subsidiaries;

 

   

insurance policies of the Company and its subsidiaries;

 

   

absence of certain interested party transactions; and

 

   

the limitation of the Company’s representations and warranties to those set forth in the merger agreement.

The merger agreement also contains representations and warranties of Parent and Merger Sub as to, among other things:

 

   

the financing (as defined below) that has been committed in connection with the merger;

 

   

the limited guarantees delivered by the Investors/Guarantors;

 

   

Parent’s ownership of Merger Sub and the absence of any previous conduct of business by Merger Sub other than in connection with the transactions contemplated by the merger agreement;

 

   

the absence of any required vote by Parent’s stockholders to approve the merger agreement;

 

   

the limitation of Parent’s and Merger Sub’s representations and warranties to those set forth in the merger agreement;

 

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absence of agreements with any beneficial owner of more than five percent of the outstanding shares of common stock or any member of the Company’s management or the board relating in any way to the Company, the merger or the operations of the Company following the effective time of the merger;

 

   

absence of ownership equal to or above five percent by Parent, Merger Sub or Investors/Guarantors or any of their controlling or controlled affiliates of the common stock of certain specified persons or entities or securities convertible into or exchange for such common stock;

 

   

absence of any direct or indirect ownership by Parent, Merger Sub or any of their affiliates of common stock or securities convertible into or exchange for common stock; and

 

   

the solvency of the surviving corporation immediately after giving effect to the transactions contemplated by the merger agreement.

Some of the representations and warranties in the merger agreement are qualified by materiality qualifications or a “Company material adverse effect” or a “Parent material adverse effect” clause.

For purposes of the merger agreement, a “Company material adverse effect” means:

a fact, circumstance, event, change or effect that (a) is, or would reasonably be expected to be, materially adverse to the business, assets, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole, or (b) prevents or would reasonably be expected to prevent the Company’s ability to perform in all material respects its obligations under the merger agreement and consummate the merger in accordance with the terms of the merger agreement. However, the foregoing clauses (a) and (b) will not include events or effects resulting from:

 

   

changes in general economic or political conditions or the securities, credit or financial markets in general;

 

   

any decline in the market price or trading volume of the common stock (provided that this exception will not prevent or otherwise affect a determination that any fact, circumstance, event, effect or change underlying such decline has or may reasonably be expected to result in, or contribute to, a Company material adverse effect);

 

   

general changes or developments after the date of the merger agreement in the industries in which the Company and its subsidiaries operate, including general changes after the date of the merger agreement in law or regulation across such industries;

 

   

the public announcement of the merger agreement, the merger or other transactions contemplated by the merger agreement, including the impact thereof on the relationships, contractual or otherwise, of the Company or any of its subsidiaries with employees, customers, suppliers or partners;

 

   

the identity of Parent or any of its affiliates as the acquiror of the Company;

 

   

compliance with the terms of, or the taking of any action required by the merger agreement (other than the requirement to operate in the ordinary course of business consistent with past practice) or consented to in writing by Parent;

 

   

any acts of terrorism or war;

 

   

any hurricane, tornado, flood, earthquake, natural disasters, acts of God or other comparable events;

 

   

changes after the date of the merger agreement in GAAP or the interpretation thereof;

 

   

any shareholder litigation relating to the merger agreement or the transactions contemplated by the merger agreement; or

 

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any failure to meet internal or published projections, forecasts or revenue or earning predictions for any period (provided that this exception will not prevent or otherwise affect a determination that any fact, circumstance, event, change or effect underlying such failure has or may reasonably be expected to result in, or contribute to, a Company material adverse effect);

provided that, with respect to the first, third, seventh, eighth and ninth bullet, such facts, circumstances, events, changes or effects will be taken into account to the extent they disproportionately adversely affect the Company and its subsidiaries, taken as a whole, compared to other companies operating in the industries in which the Company and its subsidiaries operate.

For the purpose of the merger agreement, a “Parent material adverse effect” with respect to Parent or Merger Sub means to, individually or in the aggregate, prevent or materially delay the closing or prevent or materially delay or materially impair the ability of Parent or Merger Sub to perform their obligations under the merger agreement or to consummate the merger and the other transactions contemplated by the merger agreement.

Conduct of Business Pending the Merger

The merger agreement provides that, subject to certain exceptions in the merger agreement and the disclosure schedules delivered by the Company in connection with the merger agreement, during the period from the signing of the merger agreement to the effective time of the merger, except as may be required by law or as consented to by Parent in writing or as expressly required or permitted by the merger agreement, the Company, among other things, will conduct the business of the Company and its subsidiaries in the ordinary course of business consistent with past practice and will not, and will not permit any of its subsidiaries to, take the following actions (subject, in some cases, to certain exceptions):

 

   

authorize or pay any dividend on, or make any other distribution with respect to, any shares of its capital stock;

 

   

split, combine or reclassify any capital stock or issue or authorize or propose the issuance of securities in respect of shares of its capital stock;

 

   

except as required by existing written agreements or Company benefit plans, (i) except in the ordinary course of business consistent with past practice, increase the compensation or other benefits payable or provided to the Company’s directors, executive officers or employees, or (ii) enter into any material employment, change of control, severance or material retention agreement (other than retention arrangements not in excess of $2 million in the aggregate) with any employee of the Company or any of its subsidiaries;

 

   

enter into any collective bargaining agreement or any material agreement with any labor organization, works council, trade union, labor association, or other employee representative;

 

   

implement any facility closings or employee layoffs that do not comply with the Workers Adjustment and Retraining Notification Act of 1988 or any similar or related law;

 

   

enter into or make any loans or advances to any of its executive officers, directors, employees, agents or consultants (other than loans or advances to officers, directors and employees in the ordinary course of business consistent with past practice) or make any change in its existing borrowing or lending arrangements for or on behalf of any of such persons, except with respect to officers, directors and employees as required by the terms of any Company benefit plan;

 

   

materially change accounting policies or procedures or any of its methods of reporting income, deductions or other material items for accounting purposes, except as required by GAAP, SEC rules or interpretations, or local statutory requirements prescribed by applicable international financial reporting standards;

 

   

amend any provision of its certificate of incorporation or bylaws or similar applicable charter or organizational documents;

 

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issue, sell, pledge, dispose of or encumber or otherwise subject to a lien (other than a permitted lien), or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of its capital stock or other equity interest in the Company or any of its subsidiaries or any securities convertible into or exchangeable or exercisable for any such shares or ownership interest, or any rights, warrants or options to acquire or with respect to any such shares of capital stock, ownership interest or convertible or exchangeable securities or take any action to cause to be exercisable any otherwise unexercisable Company stock option (except as otherwise provided by the terms of the merger agreement or the express terms of any unexercisable options outstanding on the date of the merger agreement), other than issuances of shares of common stock in respect of any exercise of Company stock options, exercise of options (as such term is used in the ESPP) under the ESPP in accordance with the merger agreement, and settlement of any Company RSU awards in each case outstanding on the date of the merger agreement;

 

   

purchase, redeem, or otherwise acquire any shares of its capital stock or any rights, warrants, or options to acquire any such shares except for pre-funded transactions in connection with the Company’s accelerated stock repurchase program publicly announced October 31, 2012, the acquisition of shares of common stock from a holder of a Company stock option or Company RSU award in satisfaction of withholding obligations or in payment of the exercise price or as otherwise provided in the merger agreement;

 

   

incur, offer, place, arrange, syndicate, assume, guarantee, prepay or otherwise become liable for any indebtedness (as defined in the merger agreement);

 

   

sell, assign, lease, license, transfer, exchange or swap, mortgage or otherwise encumber, or subject to any lien (other than permitted liens) or otherwise dispose of any material portion of its material properties or assets, including any capital stock of its subsidiaries;

 

   

modify, amend, terminate or waive any rights or claims under any material contract or principal lease in any material respect in a manner which is adverse to the Company other than in the ordinary course of business consistent with past practice, or enter into any new agreement that (i) would have been considered a material contract if it were entered into prior to the date of the merger agreement, other than in the ordinary course of business consistent with past practice, or (ii) contains a change in control provision in favor of the other party or parties thereto that would require a material payment to or give rise to any material rights to such other party or parties in connection with the consummation of the merger;

 

   

(i) make, change or revoke any material tax election, (ii) file any income or other material amended tax return that would reasonably be expected to have the effect of increasing the tax liability of the Company or any of its subsidiaries, (iii) adopt or change any material method of tax accounting or change any annual tax accounting period, (iv) settle or compromise any material tax proceeding or assessment, (v) enter into any “closing agreement” within the meaning of Section 7121 of the Code (or any predecessor provision or similar provision of state, local or foreign law) with respect to taxes, (vi) surrender any right to claim a material refund of taxes, (vii) seek any tax ruling from any taxing authority, or (viii) consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment other than extensions consented to in the ordinary course of business and consistent with past practice of the Company and its subsidiaries in filing their respective tax returns;

 

   

voluntarily settle, pay, discharge or satisfy any action, other than any action that involves only the payment of monetary damages not in excess of $1 million individually or $5 million in the aggregate;

 

   

adopt any plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring or other reorganization of the Company or any of its subsidiaries (other than the merger);

 

   

(i) acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or any assets from any other person (excluding ordinary course purchases of goods, products and off-the-shelf intellectual property), or (ii) make any material capital contributions or investments in any person (other than the Company or any direct or indirect wholly owned subsidiary of the Company);

 

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make or authorize any capital expenditure in excess of $2 million individually or in the aggregate, other than any capital expenditure (or series of related capital expenditures) consistent in all material respects with the capital expenditure budget of the Company for the fiscal year ending March 31, 2014;

 

   

sell, assign, transfer, convey, license (as licensor) or otherwise dispose of any material intellectual property other than non-exclusive licenses of intellectual property granted to customers of the Company in the ordinary course of business consistent with past practice;

 

   

disclose any material trade secrets of the Company of any of its subsidiaries;

 

   

enter into or amend any interested party transaction; and

 

   

agree, authorize or make any commitment, in writing or otherwise, to take any of the foregoing actions.

The merger agreement also provides that, between the date of the merger agreement and the earlier of the effective time and the date the merger agreement is terminated, Parent and Merger Sub will not, and will not permit any of the Investors/Guarantors or any of their respective subsidiaries or certain of their controlling or controlled affiliates to, hold or agree to hold five percent of greater of the voting securities of specified entities, subject to certain exceptions. The merger agreement also provides that, between the date of the merger agreement and the earlier of the effective time and the date of receipt of certain regulatory approvals, Parent and Merger Sub will not, and will not permit any of the Investors/Guarantors or any of their respective subsidiaries or certain of their controlling or controlled affiliates to, hold or agree to hold five percent of greater of the voting securities of specified entities, subject to certain exceptions.

Other Covenants and Agreements

Access and Information

Subject to certain exceptions and limitations, the Company must afford to Parent and to its officers, employees, accountants, consultants, legal counsel, financial advisors and agents and other representatives acting on Parent’s behalf in connection with the transactions contemplated by the merger agreement reasonable access during normal business hours, throughout the period prior to the earlier of the effective time of the merger and the termination of the merger agreement, to the Company’s and its subsidiaries’ properties, contracts, commitments, books and records, tax returns and workpapers, other than any such matters that relate to the negotiation and execution of the merger agreement, or to transactions potentially competing with or alternative to the transactions contemplated by the merger agreement or proposals from other parties relating to any competing or alternative transactions.

Alternative Proposals; No Solicitation

Until 11:59 p.m., New York time, on June 5, 2013, the Company and its subsidiaries, and their respective representatives, are permitted to:

 

   

solicit, initiate or encourage any inquiry or the making of any proposal or offer that constitutes an alternative proposal (as defined below), including by providing information (including non-public information and data) regarding, and affording access to the business, properties, assets, books, records and personnel of, the Company and its subsidiaries pursuant to confidentiality agreements meeting certain requirements (provided that the Company must promptly (and in any event within 48 hours) make available to Parent any such non-public information concerning the Company and its subsidiaries provided to third parties that was not previously made available to Parent); and

 

   

engage in, enter into, continue or otherwise participate in any discussions or negotiations with any person or group of persons with respect to any alternative proposals, and cooperate with or assist or participate in or facilitate any such inquiries, proposals, discussions or negotiations or any effort or attempt to make any alternative proposal.

 

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The Company is required to promptly (and in any event within one business day) notify Parent in writing of the identity of each person or group of persons from whom the Company received a written alternative proposal after the execution of the merger agreement and prior to 11:59 p.m., New York time, on June 5, 2013, and must promptly provide Parent a copy of such written alternative proposal.

As used in the merger agreement, “alternative proposal” means any bona fide proposal or offer made by any person (other than Parent and its affiliates) for:

 

   

a merger, reorganization, share exchange, consolidation, business combination, recapitalization, dissolution, liquidation or similar transaction involving the Company which would result in any person beneficially owning more than 20% of the outstanding equity interests of the Company or any successor or parent company thereto;

 

   

the acquisition by any person (including by any asset acquisition, joint venture or similar transaction) of assets (including equity securities of any subsidiary of the Company) representing more than 20% of the assets, revenues or net income of the Company and its subsidiaries, on a consolidated basis;

 

   

any acquisition (including by tender or exchange offer) by any person that if consummated would result in any person beneficially owning more than 20% of the voting power of the outstanding shares of common stock; or

 

   

any combination of the foregoing and in each case whether in a single transaction or a series of related transactions.

Subject to certain specified exceptions, any person or group of persons or group of persons that includes any person or group of persons, from whom the Company or any of its representatives has received prior to 11:59 p.m., New York time, on June 5, 2013 a written alternative proposal that the board determines in good faith, after consultation with outside counsel and its financial advisors, is or could reasonably be expected to result in a superior proposal, will be deemed an “excluded party” for purpose of the merger agreement. However, the merger agreement provides that certain specified parties that participated in the Company’s recent strategic review cannot be an “excluded party” under the merger agreement. The board will make its determination of excluded parties within two business days after June 5, 2013. No later than 11:59 p.m., New York time, on June 10, 2013, the Company is required to provide to Parent a list of excluded parties (as defined below), including the identity of each excluded party and a copy of the alternative proposal submitted by such person on the basis of which the board made the determination that such person is an excluded party. A person will immediately and irrevocably cease to be an excluded party if, at any time after June 5, 2013, the alternative proposal submitted by such person is withdrawn or terminated. In addition, any group of persons or any member of such group will immediately and irrevocably cease to be an excluded party if, at any time after June 5, 2013, those persons who were members of such group immediately before 11:59 p.m., New York time, on June 5, 2013 cease to constitute at least 50% of the equity financing of such group.

As used in the merger agreement, “superior proposal” means a bona fide written alternative proposal, substituting “50%” for each reference to “20%” in the definition of alternative proposal, made by any person (other than Parent and its affiliates), which did not result from or arise in connection with any material breach of the non-solicitation restrictions contained in the merger agreement, that the board determines in good faith, after consultation with the Company’s financial advisor and outside legal counsel, and taking into account all of the terms and conditions the board considers to be appropriate (after taking into account any revisions to the terms and conditions to the merger agreement made or proposed and committed to in writing by Parent in response to such superior proposal):

 

   

to be more favorable to the Company and its stockholders than the transactions contemplated by the merger agreement; and

 

   

if such alternative proposal is from a financial sponsor or group of financial sponsors, a person or group that includes one or more financial sponsors, a person or group that proposes to obtain a material portion of its financing from one or more financial sponsors or a portfolio company of one or more financial sponsors, that the financing is fully committed.

 

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Except as may relate to any excluded party (but only for so long as such person or group is an excluded party) until 11:59 p.m., New York time, on June 15, 2013 or as permitted by the provisions of the merger agreement, after 11:59 p.m., New York time, on June 5, 2013, the Company and its subsidiaries are required to, and the Company is required to cause its and its subsidiaries’ representatives to cease any activities described above and any discussions or negotiations with any person or group that may be ongoing with respect to any alternative proposals.

Except as may relate to any excluded party (but only for so long as such person or group is an excluded party) until 11:59 p.m., New York time, on June 15, 2013 or as expressly permitted by the provisions of the merger agreement, from 11:59 p.m., New York time, on June 5, 2013 until the effective time of the merger or, if earlier, the termination of the merger agreement, the Company must not, and must cause its subsidiaries and its and their respective affiliates and representatives not to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage or facilitate any inquiry, proposal or offer with respect to, or the making, submission or announcement of, any alternative proposal;

 

   

participate in any negotiations regarding an alternative proposal with, or furnish any non-public information regarding the Company or its subsidiaries to, any person that has made or, to the Company’s knowledge, is considering making an alternative proposal; or

 

   

engage in discussions regarding an alternative proposal with any person that has made or, to the Company’s knowledge, is considering making an alternative proposal, except to notify such person as to the existence of the provisions of the merger agreement regarding alternative proposals.

In addition, except as expressly permitted under the provisions of the merger agreement, from the date of the merger agreement until the effective time of the merger, or, if earlier, the termination of the merger agreement, neither the board nor any committee thereof will:

 

   

grant any waiver, amendment or release under any takeover statutes or the Company’s rights plan;

 

   

grant any waiver, amendment or release under any confidentiality, standstill or similar agreement (or terminate or fail to enforce such agreement) except solely to the extent necessary to allow such person to make a confidential proposal to the board;

 

   

(i) approve, adopt, endorse or recommend any alternative proposal, or publicly propose to do so, (ii) withdraw (or qualify or modify in a manner adverse to Parent) the recommendation that the Company’s stockholders vote to adopt the merger agreement, or in each case publicly propose to do so, or fail to include the recommendation that the Company’s stockholders vote to adopt the merger agreement in this proxy statement or (iii) fail to recommend, in a Solicitation/Recommendation Statement on Schedule 14D-9, against any alternative proposal subject to Regulation 14D under the Exchange Act within ten business days after the commencement of such alternative proposal (any such action or inaction, a “change of recommendation”); or

 

   

authorize, cause or permit the Company or any of its subsidiaries to enter into any letter of intent, agreement in principle, memorandum of understanding, confidentiality agreement or any other agreement relating to or providing for any alternative proposal (except for certain permitted confidentiality agreements).

Except as may relate to an excluded party (but only for so long as such person or group is an excluded party), after 11:59 p.m., New York time, on June 5, 2013, the Company must promptly (and, in any event, within 48 hours of the Company’s knowledge of any such event) notify Parent of the receipt of any alternative proposal or any inquiry, proposal, offer or request for information with respect to, or that could reasonably be expected to result in, an alternative proposal, or any discussions or negotiations sought to be initiated or continued with the Company, any of its subsidiaries or, to the Company’s knowledge, any of their representatives concerning an alternative proposal, indicating, in each case, the identity of the person or group making such alternative proposal, inquiry, offer, proposal or request for information and a copy of any alternative proposal made in

 

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writing and the material terms and conditions of an acquisition proposal not made in writing, and thereafter must keep Parent informed in reasonable detail, on a prompt basis (and, in any event, within 48 hours of the Company’s or its representatives’ knowledge of any such event), of any material developments or modifications to the terms of any such alternative proposal, inquiry, proposal, offer or request (including copies of any written proposed agreements) and the status of any such discussions or negotiations.

Notwithstanding the foregoing, if following 11:59 p.m., New York time, on June 5, 2013 and prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, the Company receives an alternative proposal which the board determines in good faith, after consultation with the Company’s financial advisors and outside legal counsel, constitutes a superior proposal (as defined below) or could reasonably be expected to result in a superior proposal, the Company may take the following actions:

 

   

furnish nonpublic information to the third party making such alternative proposal, if, and only if, prior to so furnishing such information, such third party has entered into a confidentiality agreements meeting certain requirements; and

 

   

engage in discussions or negotiations with such third party with respect to the alternative proposal.

In this case, the Company must, among other things, promptly (and in any event within 48) hours make available to Parent any non-public information concerning the Company or its subsidiaries that is provided to any such third party that was not previously made available to Parent.

Notwithstanding the foregoing, if following 11:59 p.m., New York time, on June 5, 2013 and prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, the Company receives an alternative proposal that the board determines in good faith after consultation with its financial advisors and outside legal counsel that such alternative proposal constitutes a superior proposal (taking into account any adjustment to the terms and conditions of the merger proposed by Parent in response to such alternative proposal), then, the board may terminate the merger agreement if and only if:

 

   

the Company gives written notice to Parent at least four business days in advance to the effect that the Company has received such superior proposal (a “superior proposal notice”), and the board intends to terminate the merger agreement pursuant to the superior proposal termination right described below unless Parent proposes any revisions to the terms and conditions of the merger agreement that renders such alternative proposal no longer a superior proposal;

 

   

during the four business days following the delivery of such superior proposal notice (the “notice period”), the board negotiates and causes its representatives to negotiate with Parent and its representatives in good faith (to the extent Parent desires to negotiate) to make adjustments to the terms and conditions of the merger agreement; and

 

   

upon the expiration of the notice period, either (i) Parent did not propose revisions to the terms and conditions of the merger agreement, or (ii) if Parent within such period did propose revisions to the terms and conditions of the merger agreement, the board, after consultation with the Company’s financial advisors and outside legal counsel, determines in good faith that the third party’s alternative proposal remains a superior proposal with respect to Parent’s revised proposal;

provided, that each time material modifications to the terms of an alternative proposal determined to be superior proposal are made (any change to the financial term of such proposal will be deemed a material modification), the Company must notify Parent of such modification and the time period set forth in the second preceding bullet above will be extended for three business days.

Notwithstanding the foregoing, at any time prior to prior to obtaining the required vote of the Company’s stockholders to adopt the merger agreement, other than in connection with a superior proposal, if any material fact, event, change, development or set of circumstances (other than any alternative proposal) with respect to the Company that was not known to the board as of or prior to the date of the merger agreement (an “intervening

 

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event”) will have occurred, the board may withdraw (or qualify or modify in a manner adverse to Parent), and exclude from this proxy statement, its recommendation for the Company’s stockholder to vote for the proposal to adopt the merger agreement solely in respect of such intervening event, or publicly propose to do so, if:

 

   

the board determines in good faith, after consultation with the Company’s financial advisors and its outside legal counsel, that the failure of the board to effect such change of recommendation would be inconsistent with its fiduciary duties under applicable law;

 

   

the Company gives written notice to Parent at least four business days in advance to the effect that an intervening event has occurred, specifying the facts and circumstances of such intervening event in reasonable detail, and informing Parent that the board intends to effect a change of recommendation with respect to such intervening event;

 

   

during such four business day period, the board negotiates and causes its representatives to negotiate with Parent and its representatives in good faith (to the extent Parent desires to negotiate) to make adjustments to the terms and conditions of the merger agreement; and

 

   

upon the expiration of such four business day period, the board, after consultation with the Company’s financial advisors and outside legal counsel, determines in good faith that, after taking into account proposed revisions (if any) by Parent to the terms and conditions of the merger agreement, the failure to effect a change of recommendation with respect to such intervening event would be inconsistent with its fiduciary duties under applicable law;

provided, that the Company will deliver a new written notice to Parent in accordance with the third preceding bullet above in connection with any material change to the facts and circumstances relating to such intervening event and comply again with the requirements set forth in the last two preceding bullets above.

The merger agreement provides that nothing contained in the merger agreement will prohibit the Company or the board from (i) disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, (ii) issuing a “stop, look and listen” statement pending disclosure of its position thereunder or (iii) making any disclosure to its stockholders if the board determines in good faith, after consultation with the Company’s outside legal counsel, that the failure of the board to make such disclosure would be reasonably likely to be inconsistent with the directors’ exercise of their fiduciary obligations to the Company’s stockholders under applicable law. However, the merger agreement provides that any public disclosure (other than any “stop, look and listen” statement) by the Company or the board or any committee thereof relating to any determination or other action by the board or any committee thereof with respect to any alternative proposal will be deemed to be a change of recommendation unless the board expressly publicly reaffirms its recommendation for the Company’s stockholders to vote to adopt this agreement in such disclosure.

The merger agreement also provides that the Company may fail to enforce or waive any standstill or similar provision in any confidentiality agreement it has entered into with any person, whether prior to or after the date of the merger agreement, solely to the extent necessary to allow a person to make a confidential proposal to the board.

Filings and Other Actions

The Company will take all action necessary in accordance with the DGCL and its certificate of incorporation and bylaws and the rules of NASDAQ to duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of obtaining the approval of the Company’s stockholders to adopt the merger agreement, and unless there has been a change of recommendation, will use all reasonable best efforts to solicit from its stockholders proxies in favor of the adoption of the merger agreement and the transactions contemplated hereby.

 

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Employee Matters

For the period from completion of the merger through March 31, 2014 (or, if earlier, the date of termination of the relevant employee), the Company, as the surviving corporation in the merger, will provide to each Company employee (i) base compensation and non-equity bonus opportunities that are, in each case, no less favorable than were provided to such employee immediately before the effective time of the merger and (ii) non-equity-based employee benefits that are comparable in the aggregate to those provided to such employee immediately before the effective time of the merger. In addition, Parent will provide to any employee of the Company who is terminated during the one-year period following the merger without cause or due to a constructive termination, with severance benefits no lower than those set forth in a schedule to the merger agreement.

Prior to completion of the merger, the Company’s compensation committee may determine and certify the achievement of performance goals under the Company’s Amended and Restated Short-Term Incentive Program, including for the portion of the performance period in which the effective time of the merger occurs (with respect to pre-closing performance only). After consummation of the merger, the Parent agrees to honor any such determinations and certifications by the Company’s compensation committee.

For all purposes under the employee benefit (including severance) plans of the surviving corporation, each Company employee will be credited for service with the Company and its subsidiaries and their respective predecessors immediately before the effective time of the merger, to the same extent as the employee was previously entitled to credit for such service under any similar Company benefit plan in which the employee participated or was eligible to participate immediately prior to the effective time of the merger, except that the foregoing does not apply for any purpose with respect to defined benefit pension plans, equity-based or non-qualified deferred compensation plans or to the extent that its application would result in a duplication of benefits or compensation. In addition, (i) each such employee will be immediately eligible to participate, without any waiting time, in any and all plans of the surviving corporation following the merger (the “new plans”) to the extent coverage under any such new plan is comparable to a Company benefit plan in which such employee participated immediately before the effective time of the merger, and (ii) for purposes of each new plan providing medical, dental, pharmaceutical and/or vision benefits to any such employee, pre-existing condition exclusions and actively-at-work requirements of such new plan to be waived for such employee and his or her covered dependents, unless such conditions would not have been waived under the comparable plans of the Company or its subsidiaries in which such employee participated immediately prior to the effective time of the merger, and eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the old Company benefit plan ending on the date such employee’s participation in the corresponding new plan begins will be taken into account under such new plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such new plan.

Additionally, Parent has acknowledged that the merger would constitute a “change of control” within the meaning of the Company’s benefit plans.

Under the merger agreement, the Company is permitted to establish a retention program with a retention pool in the amount of $2 million in the aggregate. The Company may allocate retention awards to employees prior to completion of the merger.

Non-Employee Director Compensation

Under the merger agreement, prior to completion of the merger, the Company may continue to pay annual compensation to non-employee directors in the ordinary course of business consistent with past practice. However, in lieu of the annual grant to non-employee directors of Company RSUs with a value of $288,000 per director, each non-employee director will receive a cash amount equal to $288,000, pro-rated based on the number of days of the non-employee director’s service on the Company’s board of directors from July 25, 2013 through the date that the merger is completed.

 

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Efforts to Complete the Merger

Each of the parties to the merger agreement must use (and Parent will cause each of the Investors/Guarantors to use) its reasonable best efforts to take promptly, or to cause to be taken, all actions, and to do promptly, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective the merger and the other transactions contemplated by the merger agreement as soon as practicable.

The parties will (and Parent will cause each of the Investors/Guarantors to) promptly, and in no event later than 20 business days after the date of the merger agreement, file all required Notification and Report Forms under the HSR Act and will, among other things, use their reasonable best efforts to cause the expiration or termination of any applicable waiting periods under the HSR Act. However, in no event will Parent, Merger Sub, any Investor/Guarantor or any of their respective affiliates, be obligated in connection with the receipt of any consent, permit, authorization, ruling, waiver, clearance, approval, expiration or termination of any waiting period from any governmental entity or required under applicable law, to propose or agree to accept any undertaking or condition, to enter into any consent decree, to make any divestiture or accept any operational restriction, or take or commit to make payments or enter into any commercial arrangement, or commit, or commit to take, any action which action limits the freedom of action of Parent, Merger Sub, any Investor/Guarantor or any of their respective affiliates with respect to its or the Company’s businesses, product lines or assets, subject to specified exceptions.

The merger agreement provides that if a government entity required to grant a clearance or approval required to satisfy the antitrust/competition approvals condition or the CFIUS approval condition objects in writing to the merger, or an authorized representative of such governmental entity indicates a reasonable likelihood of objecting to the merger, on the basis of the participation of any Investor/Guarantor, then Parent will, and Parent will cause each of the Investors/Guarantors to, upon notice from the Company, use its reasonable best efforts promptly to (x) contact (as coordinated by Parent) up to ten potential investors (including up to five identified by the Company) in the aggregate for Parent and all of the Investors/Guarantors to solicit their interest in replacing such Investor/Guarantor on the same terms as are applicable to such Investor/Guarantor, (y) provide reasonable information of Parent and the Company and engage in good faith discussions with such potential investors regarding the Company’s business, in each case subject to an appropriate confidentiality agreement, and (z) cause a potential investor(s) to replace such Investor/Guarantor as promptly as practicable to enable such conditions to be satisfied prior to the end date (as defined below). Parent will be entitled in its sole discretion to determine whether to permit any such potential investor to replace such Investor/Guarantor and the failure to make such replacement would not constitute a breach of the merger agreement.

The merger agreement also provides that each of Parent, Merger Sub and the Company will use, and Parent will cause the Investors/Guarantors to use, their respective reasonable best efforts to obtain a written notification issued by CFIUS that it has concluded a review of the notification voluntarily provided pursuant to the Defense Production Act, and determined not to conduct a full investigation or, if a full investigation is deemed to be required, notification that the U.S. government will not take action to prevent the transactions contemplated by the merger agreement from being consummated (such notification is referred to as the “CFIUS approval”). Such reasonable best efforts include providing information requested by CFIUS or the Defense Security Service in connection with the merger.

Indemnification of Directors and Officers; Insurance

For a period of six years following the effective time of the merger, the surviving corporation will maintain in effect the exculpation, indemnification and advancement of expenses provisions of the Company’s and any Company subsidiary’s certificates of incorporation and bylaws or similar organizational documents as in effect immediately prior to the effective time of the merger or in any indemnification agreements of the Company or its subsidiaries with any of their respective directors or officers as in effect immediately prior to the effective time of the merger, and will not amend, repeal or otherwise modify any such provisions in any manner that would

 

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adversely affect the rights thereunder of any individuals who at the effective time of the merger were current or former directors or officers of the Company or any of its subsidiaries. All rights of indemnification with respect to any claim made within that six-year period will continue until the disposition of the action or resolution of the claim. Further, the surviving corporation will, to the fullest extent permitted under the DGCL, indemnify and hold harmless (and advance funds in respect of each of the foregoing, subject to the undertaking described below) each current and former director or officer of the Company or any of its subsidiaries and each person who served as a director, officer, member, trustee or fiduciary of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise at the Company’s request against any costs or expenses (including advancing attorneys’ fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each such person to the fullest extent permitted by the DGCL following receipt of an undertaking by or on behalf of such person to repay such amount if it is ultimately determined that such person was not entitled to such indemnification), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, charge, action, suit, litigation, proceeding, audit or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring or alleged to have occurred whether before or after the effective time of the merger.

For a period of six years from the effective time of the merger, Parent and the surviving corporation will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company and its subsidiaries with respect to matters arising on or before the effective time of the merger; provided that Parent will not be required to pay annual premiums in excess of 350% of the last annual premium paid by the Company prior to the date of the merger agreement. At the Company’s option, the Company may purchase, prior to the effective time of the merger, a six-year prepaid “tail” policy on terms and conditions providing substantially equivalent benefits as the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company and its subsidiaries with respect to matters arising on or before the effective time of the merger, covering without limitation the transactions contemplated the merger agreement; provided that the Company may not spend more than 350% of the last annual premium paid by the Company prior to the date of the merger agreement in respect of such “tail” policy.

Financing

Parent will use its reasonable best efforts to obtain the proceeds of the financing on the terms and conditions described in the commitment letters, including:

 

   

maintaining in effect the commitment letters in accordance with their terms;

 

   

negotiating definitive agreements with respect to the debt financing consistent with the terms and conditions contained therein (including, as necessary, the “flex” provisions contained in any related fee letter); and

 

   

satisfying (or obtaining the waiver of) on a timely basis all conditions in the commitment letters and the definitive agreements and complying in all material respects with its obligations thereunder.

In the event that all conditions contained in the commitment letters (other than, with respect to the debt financing, the availability of the cash equity) have been satisfied and Parent is required to consummate the closing, Parent will use reasonable best efforts to cause each lender and will cause each Investor/Guarantor to fund its respective committed portion of the financing required to consummate the transactions contemplated by the merger agreement and to pay related fees and expenses on the closing date (including by promptly commencing a litigation proceeding against any breaching lender or Investor/Guarantor to compel such breaching lender or Investor/Guarantor to provide its respective committed portion of the financing, provided that Parent will control all aspects of such proceeding, including litigation strategy and selection of counsel).

 

 

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Parent will not, without the prior written consent of the Company, permit any amendment or modification to, or any waiver of any material provision or remedy under, or voluntarily replace (it being understood that any alternative debt financing will not be deemed a voluntary replacement for purposes of the sentence), any commitment letters or related fee letters if such amendment, modification, waiver or remedy or voluntary replacement:

 

   

adds new (or adversely modifies any existing) conditions to the consummation of the financing as compared to those in the commitment letters and related fee letters as in effect on May 6, 2013;

 

   

adversely affects the ability of Parent to enforce its rights against other parties to the commitment letters or the definitive agreements as so amended, replaced, supplemented or otherwise modified, relative to the ability of Parent to enforce its rights against such other parties to the commitment letters as in effect on May 6, 2013 or in the definitive agreements;

 

   

reduces the aggregate amount of the financing; or

 

   

would or would reasonably be expected to prevent, impede or materially delay the consummation of the merger and the other transactions contemplated by the merger agreement.

In the event that any portion of the debt financing becomes unavailable, regardless of the reason therefor (other than (i) a breach by the Company of the merger agreement which prevents or renders impracticable the consummation of the financing or (ii) the termination of one, but only one, of the debt commitment letters on or prior to June 5, 2013 pursuant to the terms thereof) Parent will:

 

   

use its reasonable best efforts to obtain alternative debt financing (in an amount sufficient, when taken together with cash equity, the funding amount, and any then-available debt financing pursuant to any then-existing debt commitment letters, to consummate the transactions contemplated by the merger agreement and to pay related fees and expenses earned, due and payable as of the closing date) on substantially equivalent or more favorable terms in the aggregate from the same or other sources and which do not include any incremental conditionality to the consummation of such alternative debt financing that are more onerous to Parent (in the aggregate) than the conditions set forth in the debt commitment letters in effect as of May 6, 2013; and

 

   

promptly notify the Company of such unavailability and the reason therefor.

In no event will the reasonable best efforts of Parent required by the first bullet above be deemed or construed to require Parent to:

 

   

seek the cash equity from any source other than those counterparty to the equity commitment letters, or in any amount with respect to an Investor/Guarantor in excess of such Investor/Guarantor’s commitment;

 

   

pay any fees in excess of those contemplated by the financing commitments; or

 

   

agree to conditionality or economic terms of the alternative debt financing that are less favorable in the aggregate than those contemplated by the debt commitment letters or any related fee letter (including any flex provisions therein).

In furtherance of and not in limitation of the foregoing, in the event that (i) any portion of the debt financing structured as high yield financing is unavailable, regardless of the reason therefor, (ii) all closing conditions to Parent’s and Merger Sub’s obligation to consummate the merger are satisfied or waived (other than those conditions that by their nature are to be satisfied or waived at the closing, provided that such conditions are capable of being satisfied as of such day assuming the closing was to occur on such day) and (iii) the bridge facilities contemplated by the debt commitment letters (or alternative bridge facilities) are available on the terms and conditions described in the debt commitment letters (or replacements thereof), then each of Parent and Merger Sub will cause the proceeds of such bridge financing to be used in lieu of such affected portion of the high yield financing to consummate the closing when Parent is required to do so.

 

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For the purposes of the merger agreement, (i) the term “debt commitment letters” will be deemed to include any commitment letter (or similar agreement) with respect to any alternative debt financing arranged in compliance with the merger agreement (and any debt commitment letters remaining in effect at the time in question), (ii) the term “fee letter” will be deemed to include any fee letter (or similar agreement) with respect to any alternative debt financing arranged in compliance with the merger agreement, and (iii) the term “lenders” will be deemed to include any lenders providing the alternative debt financing arranged in compliance herewith.

On or prior to 11:59 p.m., New York time, on June 5, 2013, Parent will select, by written notice to the lead arrangers (and promptly provide a copy of such notice the Company), one of the debt commitment letters to be used in connection with the merger, and the other one will automatically terminate pursuant to its terms.

Parent will keep the Company reasonably informed on a reasonably current basis of the status of its efforts to consummate the financing. Parent will provide the Company with prompt oral and written notice of any material breach or default by any party to any commitment letters or the definitive agreements of which Parent gains knowledge and the receipt of any written notice or other written communication from any lender, Investor/Guarantor, or other financing source with respect to any material breach or default or, termination or repudiation by any party to any commitment letters or the definitive agreements or any provision thereof.

Prior to the closing, the Company will provide and will use its reasonable best efforts to cause its representatives with appropriate seniority and expertise, including its or their accounting firms, to provide all cooperation reasonably requested by Parent in connection with the arrangement of the debt financing (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of the Company), including by:

 

   

participating in a reasonable number of meetings (including customary one-on-one meetings with Lenders and potential financing sources and senior management and other representatives of the Company), conference calls, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies at mutually agreeable times and upon reasonable notice;

 

   

cooperating with the marketing and due diligence efforts of Parent and its lenders, including reasonably assisting with the preparation of rating agency presentations, pro forma financial statements, private placement memoranda, bank information memoranda, offering documents, lender presentations, similar documents and other customary marketing materials;

 

   

furnishing Parent and the lenders as promptly as reasonably practicable following the delivery of a request therefor to the Company by Parent such financial information regarding the Company as is customarily required in connection with the execution of financings of a type similar to the debt financing, including: (A) the audited consolidated balance sheet of the Company and its subsidiaries as at March 31, 2011, March 31, 2012 and March 31, 2013 and the related audited consolidated statements of income and cash flows of the Company and its subsidiaries for the fiscal years ended March 31, 2011, March 31, 2012 and March 31, 2013 (which Parent acknowledges receipt of such audited financial statements for 2011 and 2012), (B) the unaudited consolidated balance sheet of the Company and its subsidiaries for each subsequent fiscal quarter ended at least 45 days before the closing date, and the related consolidated statements of income and cash flows of the Company and its subsidiaries (which Parent acknowledge receipt of such unaudited consolidated balance sheet in respect of the fiscal quarters ending June 30, 2012, September 30, 2012 and December 31, 2012), in each case, prepared in accordance with GAAP (except in the case of the unaudited statements, as permitted by the SEC); provided that the filing of the required financial statements on form 10-K and form 10-Q within such time periods by the Company will satisfy the requirements of clause (A) and this clause (B), and (C) all other financial information of the Company and its subsidiaries that is specifically requested by the Parent from the Company and that is reasonably available to or readily obtainable by the Company and (x) is required to permit Parent to prepare a pro forma consolidated balance sheet and income statement of the Company and its subsidiaries as of the date of the most recent consolidated balance

 

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sheet and income statement delivered by (B) above for the twelve-month period ending on such date (or (A) above in the event that the closing date occurs prior to delivery of any statements pursuant to (B) above subsequent to the latest statement delivered pursuant to (A) above), as adjusted to give effect to the transactions and financings contemplated by the merger agreement and the debt commitment letters as in effect on May 6, 2013 as if such transactions had occurred on such date or on the first day of such period, as applicable, and to such other adjustments as will be agreed among the Parent and the lenders and (y) consists of financial statements or other data to be included in a customary preliminary prospectus or preliminary offering memorandum or preliminary private placement memorandum suitable for use in a customary (for high yield debt securities) “high-yield road show” (including all audited financial statements, all unaudited financial statements (which will have been reviewed by the independent accountants as provided in Statement on Auditing Standards No. 100) (subject to exceptions customary for a Rule 144A offering involving high yield debt securities) and all appropriate pro forma financial statements (which, for the avoidance of doubt, in no event will require financial information otherwise required by Rule 3-05, Rule 3-09, Rule 3-10 and Rule 3 16 of Regulation S-X (provided that information with respect to assets, liabilities, revenue and EBITDA with respect to non-Investors/Guarantors in the aggregate will be provided) or “segment reporting” and any compensation discussion and analysis required by Item 402 of Regulation S-K)), and all other data (including selected financial data) that would be necessary for any investment bank to receive customary (for high yield debt securities) “comfort” (including “negative assurance” comfort) from independent accountants in connection with such offering (all information required to be delivered pursuant to (A) through (C) above is referred to as the “required bank information”);

 

   

using reasonable best efforts to obtain from the Company’s accounting firm accountants’ comfort letters and consents customary for financings similar to the debt financing, and assisting Parent and its counsel with obtaining the customary legal opinions required to be delivered in connection with the debt financing and cooperating in obtaining valuations in connection with effectuating the transactions contemplated by the debt financing;

 

   

executing and delivering, effective as of the effective time of the merger, customary pledge and security documents and certificates, documents and instruments relating to guarantees, collateral and other matters ancillary to the financing;

 

   

to the extent requested by the Parent in writing at least ten business days prior to the due date therefor, furnishing all documentation and other information about the Company and its subsidiaries that the lenders have reasonably determined is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation the USA PATRIOT Act;

 

   

reasonably facilitating the taking of all corporate, limited liability company, partnership or other similar actions by the Company and its subsidiaries that are reasonably necessary to permit the consummation of the debt financing, including the provision of guarantees and the pledging of collateral by the Company’s subsidiaries;

 

   

using reasonable best efforts to cooperate with Parent to satisfy the conditions precedent to the debt financing to the extent within the control of the Company and its subsidiaries; and

 

   

using reasonable best efforts to cooperate with the lenders in their efforts to materially benefit from the existing lending relationships of the Company and its subsidiaries.

The foregoing notwithstanding, none of the Company or its subsidiaries nor any of their respective representatives will be required to pay any commitment or other similar fee or incur any other cost or expense in connection with the financing (other than expenses relating to the Company’s obligations to deliver its regular annual and quarterly financial statements) that is not promptly reimbursed by Parent.

Nothing will require the Company or any of its subsidiaries, prior to the closing, to be an issuer or other obligor with respect to the debt financing.

 

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Parent will promptly upon request by the Company, reimburse the Company for all reasonable out-of-pocket costs incurred by the Company or its subsidiaries or their respective representatives in connection with such cooperation (other than with respect to the Company’s obligations to deliver its regular annual and quarterly financial statements and other than compensation of their respective employees) and will indemnify and hold harmless the Company and its subsidiaries and their respective representatives from and against any and all losses actually suffered or incurred by them in connection with the arrangement of the debt financing, any action taken by them at the request of Parent and any information utilized in connection therewith (other than information provided by the Company or its subsidiaries), except to the extent (A) suffered or incurred as a result of any such indemnitee’s, or such indemnitee’s respective representative’s, gross negligence, bad faith, willful misconduct or material breach of the merger agreement, or (B) with respect to any material misstatement or omission in information provided hereunder by any of the foregoing persons.

Other Covenants

The merger agreement contains additional agreements between the Company, Parent and Merger Sub relating to, among other matters:

 

   

the filing of this proxy statement with the SEC (and cooperation in response to any comments from the SEC with respect to this proxy statement);

 

   

antitakeover statutes or regulations that become applicable to the transactions contemplated by the merger agreement;

 

   

the coordination of press releases and other public announcements or filings relating to the transactions contemplated by the merger agreement;

 

   

the control of the Company’s operations prior to the effective time of the merger;

 

   

ownership of the equity interests in Parent;

 

   

the notification of certain matters and the settlement of stockholder litigation in connection with the merger agreement;

 

   

actions to cause the disposition of equity securities of the Company held by each individual who is a director or officer of the Company pursuant to the transactions contemplated by the merger agreement to be exempt pursuant to Rule 16b-3 promulgated under the Exchange Act;

 

   

the treatment of certain outstanding indebtedness of the Company;

 

   

the cash repatriation required to be undertaken by the Company (including by liquidation of certain investments and making of certain cash transfers) in order to satisfy the available funds condition described below under “—Conditions to the Merger”; and

 

   

the de-listing of the common stock from the NASDAQ Global Select Market and the deregistration under the Exchange Act.

Conditions to the Merger

The obligations of the Company, Parent and Merger Sub to effect the merger are subject to the fulfillment or written waiver (if permissible under law, by Parent and the Company), at and as of the closing, of the following mutual conditions:

 

   

the adoption of the merger agreement by the required vote of the stockholders;

 

   

the absence of any injunction, order, ruling, decree, judgment or similar order by any governmental entity of competent jurisdiction which makes illegal or prohibits the consummation of the merger and any law enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that, in any case, prohibits or makes illegal or otherwise restrains the consummation of the merger; and

 

 

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(i) the expiration or termination of any applicable waiting period under the HSR Act, (ii) the issuance of a decision by the European Commission issuing a decision pursuant to the EC Merger Regulation declaring the transactions contemplated by the merger agreement compatible with the common market, (iii) the expiration of any applicable waiting period or receipt of any approval required under the Anti-Monopoly Law of the People’s Republic of China, (iv) the expiration of any applicable waiting period or receipt of any approval required under the Competition Act of South Africa and (v) if the parties determine it is required, the expiration of any applicable waiting period or receipt of any approval required under the Brazilian Competition Act.

The obligation of Parent and Merger Sub to consummate the merger is subject to the fulfillment or waiver in writing (if permissible under law, by Parent and Merger Sub) of the following additional conditions:

 

   

(i) the representations and warranties of the Company with respect to capital stock (including equity awards), the Company’s accelerated repurchase program, severance payments and deductibility of certain payments will be true and correct in all respects, as of the date of the merger agreement and as of the closing date, as though made on and as of such date (except to the extent any such representation and warranty speaks as of an earlier date, in which case as of such earlier date), except with respect to this clause (i) where the failure of such representations and warranties to be so true and correct would not cause the aggregate amount required to be paid by Parent or Merger Sub pursuant to the merger agreement to increase by $12,500,000 or more, (ii) the representations and warranties of the Company with respect to organization, qualification, voting agreements, indebtedness, exercise price of options, corporate authority, required vote to adopt the merger agreement and finders or brokers will be true and correct in all material respects, as of the date of the merger agreement and as of the closing date, as though made on and as of such date (except to the extent any such representation and warranty speaks as of an earlier date, in which case as of such earlier date), and (iii) the other representations and warranties of the Company will be true and correct (without giving effect to any “materiality,” “in all material respects,” “Company material adverse effect” or similar qualifiers contained in such representations and warranties) as of the date of the merger agreement and as of the closing date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except with respect to this clause (iii) where the failure of such representations and warranties to be so true and correct (without regard to any qualifications or exceptions contained as to “materiality, “in all material respects” or “Company material adverse effect” or similar qualifiers contained in such representations and warranties) has not had, individually or in the aggregate, a Company material adverse effect;

 

   

the Company will have performed in all material respects all obligations and complied in all material respects with all covenants required by the merger agreement to be performed or complied with by it at or prior to the closing;

 

   

the Company will have available cash in a U.S. bank account in an amount equal to or greater than the funding amount (as defined below) as of the opening of business (New York time) on the closing date;

 

   

the Company will have delivered to Parent a certificate, dated as of the closing date and signed by its Chief Executive Officer or another senior officer, certifying that the above three conditions have been satisfied; and

 

   

the CFIUS approval (as defined above under “—Other Covenants and Agreements—Efforts to Complete the Merger”) will have been obtained.

The obligation of the Company to effect the merger is subject to the fulfillment or waiver by the Company of the following additional conditions:

 

   

The representations and warranties of Parent and Merger Sub will be true and correct both when made and at and as of the closing date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations

 

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and warranties to be so true and correct (without regard to any qualifications or exceptions as to materiality or Parent material adverse effect contained in such representations and warranties) has not had, individually or in the aggregate, a Parent material adverse effect;

 

   

Parent and Merger Sub will have performed in all material respects all obligations and complied in all material respects with all covenants required by the merger agreement to be performed or complied with by them prior to the effective time of the merger; and

 

   

Parent will have delivered to the Company a certificate, dated as of the closing date and signed by its Chief Executive Officer or another senior officer, certifying that the above conditions have been satisfied.

None of the Company, Parent or Merger Sub may rely, either as a basis for not consummating the merger or terminating the merger agreement and abandoning the merger, on the failure of any condition set forth above to be satisfied if such failure was caused by such party’s material breach of any provision of the merger agreement.

As used in the merger agreement, “funding amount” means an amount of available funds equal to the sum of (a) $1,361 million and (b) the aggregate amount in excess of $20 million received (or deemed to have been received in any “cashless exercise”) by the Company between the date of the merger agreement and the effective time of the merger in connection with any and all exercises of Company stock options.

Termination

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

 

   

by mutual written consent of the Company and Parent;

 

   

by either the Company or Parent, if:

 

   

the effective time of the merger has not occurred on or before 5:00 p.m. (New York City time) on November 6, 2013 (referred to as the “end date”), whether such date is before or after the Company’s stockholders have adopted the merger agreement, and the party seeking to terminate the merger agreement pursuant to this provision has not breached in any material respect its obligations under the merger agreement in any manner that has contributed to the failure to consummate the merger on or before such date; provided that if, as of the end date, all mutual conditions and all conditions to the obligation of Parent and Merger to consummate the merger have been satisfied or waived (other than those conditions that are to be satisfied by action taken at the closing and other than the no injunction or similar order by any governmental entity condition (as it relates to the antitrust/competition approval condition or CFIUS approval condition), the antitrust/competition approval condition and the CFIUS approval condition), then, at the election of either Parent or the Company, the end date will be extended to February 6, 2014, which will be considered the “end date” for all purposes of the merger agreement;

 

   

any court of competent jurisdiction has issued or entered an injunction or similar order has been entered permanently enjoining or otherwise prohibiting the consummation of the merger and such injunction has become final and non-appealable, so long as the party seeking to terminate the merger agreement pursuant to this provision has used the efforts required of it under the merger agreement to prevent, oppose and remove such injunction; or

 

   

the Company’s stockholder meeting for the purpose of obtaining the required vote of the Company’s stockholders to adopt the merger agreement (including any adjournments or postponements thereof) has concluded and such vote has not been obtained;

 

   

by the Company:

 

 

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if Parent or Merger Sub have breached or failed to perform in any material respect any of their representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform, (i) would result in a failure of a condition to the Company’s obligation to complete the merger or the failure of the closing to occur, and (ii) cannot be cured by the end date, or, if curable, is not cured within 30 days following the Company’s delivery of written notice of such breach or failure to Parent stating the Company’s intention to terminate the merger agreement pursuant to this provision and the basis for such termination, so long as the Company is not then in material breach of any representation, warranty, agreement or covenant contained in the merger agreement;

 

   

at any time prior to the date of the adoption of the merger agreement by the Company’s stockholders, if (i) the board has authorized the Company to enter into an alternative acquisition agreement with respect to a superior proposal, (ii) prior to or concurrent with such termination, the Company has paid the Company termination fee (defined below) to Parent and (iii) immediately such termination, the Company enters into an alternative acquisition agreement with respect to such superior proposal; or

 

   

if (i) the merger was not consummated within two business days of the first date upon which Parent was required to consummate the closing pursuant to the merger agreement and (ii) at the time of such termination all conditions to Parent’s obligation to consummate the closing (other than those conditions that are to be satisfied by action taken at the closing) continue to be satisfied; or

 

   

by Parent:

 

   

in the event of a change of recommendation (as defined above under “—Other Covenants and Agreements—Alternative Proposals; No Solicitation”);

 

   

if the Company has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, which breach or failure to perform, (i) would result in a failure of a condition to Parent’s and Merger Sub’s obligations to complete the merger, and (ii) cannot be cured by the end date, or, if curable, is not cured within 30 days following Parent’s delivery of written notice of such breach or failure to the Company stating Parent’s intention to terminate the merger agreement pursuant to this provision and the basis for such termination, so long as Parent or Merger Sub is not then in material breach of any representation, warranty, agreement or covenant contained in the merger agreement; or

 

   

in the event that between the date on which the closing would have been required to occur pursuant to the merger agreement but for the failure of the available funds condition (as defined above under “Summary”) to be satisfied and the eighth business day after such date, the available funds condition has not been satisfied.

Termination Fees

Company Termination Fee

The Company will pay to Parent (or one or more of its designees) a termination fee in the event that:

 

   

(x) after the date of the merger agreement, any alternative proposal (substituting 50% for the 20% threshold set forth in the definition of “alternative proposal”) (such proposal is referred to as a “qualifying transaction”) is publicly proposed or publicly disclosed prior to, and not withdrawn at the time of, the Company’s stockholder meeting to adopt the merger agreement (or prior to the termination of the merger agreement if there has been no such meeting), (y) the merger agreement is terminated (1) by Parent or the Company because the effective time of the merger has not occurred on or before the end date (as long as this proxy statement has cleared SEC comments at least 45 days prior to the

 

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end date, the Company stockholder meeting to adopt this agreement has not occurred prior to such termination and there has been no injunction, order, ruling, decree, judgment or similar order by any governmental entity of competent jurisdiction which prevented the Company’s stockholder meeting from having occurred at or prior to the end date), (2) by Parent or the Company because the Company’s stockholder meeting to adopt the merger agreement has concluded and the adoption of the merger agreement by the required vote of the stockholders has not been obtained or (3) by Parent because the Company has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement (each as more fully described in “—Termination” above) and (z) concurrently with or within 12 months after such termination, the Company enters into a definitive agreement providing for a qualifying transaction or consummates a qualifying transaction (regardless of whether such qualifying transaction is the same one as referred to in clause (x) above;

 

   

Parent has terminated the merger agreement because of a change of recommendation; or

 

   

the Company has terminated the merger agreement to enter into a superior proposal.

The amount of the termination fee will be $210 million in cash, except that the amount of the termination fee will be $140 million (any such fee is referred to as the “Company termination fee”) in the event that the Company has terminated the merger agreement on or prior to 11:59 p.m., New York time, on June 15, 2013 (subject to limited exceptions as specified in the merger agreement) to enter into an acquisition agreement related to a superior proposal with a person or group that is an excluded party at the time of such termination.

Parent Termination Fee

Parent will pay to the Company a reverse termination fee of $420 million in cash (such fee is referred to as the “Parent termination fee”) in the event that the Company has validly terminated the merger agreement because: