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As filed with the Securities and
Exchange Commission on July 2, 2009
Registration
No. 333-159722
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 3
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
NetApp, Inc.
(Exact name of Registrant as
specified in its charter)
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Delaware
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3572
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77-0307520
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(State or other jurisdiction
of incorporation)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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495 East Java Drive
Sunnyvale, California
94089
(408) 822-6000
(Address, including Zip Code,
and Telephone Number, including Area Code, of Registrants
Principal Executive Offices)
Daniel J. Warmenhoven
Chief Executive Officer and
Director
NetApp, Inc.
495 East Java Drive
Sunnyvale, California
94089
(408) 822-6000
(Name, Address, including Zip
Code, and Telephone Number, including Area Code, of Agent for
Service)
With copies to:
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Steven E. Bochner, Esq.
Michael S. Ringler, Esq.
Nathaniel P. Gallon, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
(650) 493-9300
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Robert G. Specker, Esq.
Vice President, In-house Counsel
Data Domain, Inc.
2421 Mission College Blvd.
Santa Clara, California 95054
(408) 980-4800
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Gordon K. Davidson, Esq.
Dennis R. DeBroeck, Esq.
Robert A. Freedman, Esq.
R. Gregory Roussel, Esq.
Fenwick & West LLP
801 California Street
Mountain View, California 94041
(650) 938-5200
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Approximate date of commencement of the proposed sale of the
securities to the public: As soon as practicable
after this Registration Statement becomes effective and upon
completion of the merger described in the enclosed document.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender
Offer) o
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender
Offer) o
CALCULATION OF REGISTRATION
FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering
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Aggregate
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Registration
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Securities to be Registered(1)
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Registered(2)
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Price per Unit
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Offering Price(3)
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Fee(4)
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Common Stock, par value $0.001 per share
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54,695,347
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N/A
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$613,152,900
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$34,214
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(1)
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This Registration Statement relates
to shares of common stock, par value $0.001 per share, of the
Registrant (NetApp) issuable to holders of shares of
common stock, par value $0.0001 per share, of Data Domain, Inc.,
a Delaware corporation (Data Domain), in the
proposed acquisition of Data Domain by the Registrant pursuant
to the terms of the Agreement and Plan of Merger, dated as of
May 20, 2009, as amended on June 3, 2009, by and among
the Registrant, Kentucky Merger Sub One Corporation, Derby
Merger Sub Two LLC and Data Domain.
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(2)
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Based on the maximum number of
shares of NetApp common stock to be issued in connection with
the merger, calculated as the product of
(a) 70,275,404 shares, the maximum number of shares of
Data Domain common stock that may be cancelled and exchanged in
the merger and (b) the maximum exchange ratio of
0.7783 shares of the Registrants common stock for
each share of Data Domain common stock, which represents the
highest possible exchange ratio pursuant to the Agreement and
Plan of Merger.
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(3)
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Estimated solely for purposes of
calculating the registration fee in accordance with
Rules 457(c) and 457(f) of the Securities Act of 1933, as
amended, the market value of the securities to be registered was
calculated as the product of (A) $25.175, the average of
the high and low prices per share of Data Domain common stock on
May 29, 2009, as quoted on the NASDAQ Global Select Market,
multiplied by (B) 70,275,404, the maximum number of shares
of Data Domain common stock that may be cancelled and exchanged
in the merger; less $1,156,030,396, the aggregate amount of cash
that would be payable to the holders of Data Domain common stock
in the merger assuming 70,275,404 shares of Data Domain
common stock were outstanding and assuming a per share cash
amount of $16.45.
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(4)
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This fee has been previously paid.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such dates as
the Commission, acting pursuant to said Section 8(a), may
determine.
Information
contained herein is subject to completion or amendment. A
registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This document shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of
these securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such
jurisdiction.
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PRELIMINARY
SUBJECT TO COMPLETION DATED JULY 2,
2009
MERGER
PROPOSAL
YOUR VOTE IS VERY IMPORTANT
Dear Stockholder:
On May 20, 2009, Data Domain, Inc., referred to as Data
Domain, and NetApp, Inc., referred to as NetApp, announced a
business combination in which a direct, wholly owned subsidiary
of NetApp will merge with Data Domain, with Data Domain
continuing as the interim surviving entity, and, immediately
thereafter, subject to certain conditions, Data Domain will
merge with a second direct, wholly owned subsidiary of NetApp,
with such subsidiary continuing as the final surviving entity.
On June 3, 2009, NetApp and Data Domain amended the
original merger agreement to reflect the terms described in this
proxy statement/prospectus. The first merger is referred to
herein as the first-step merger, the second merger is referred
to herein as the second-step merger, and together such mergers
are referred to herein as the merger. If the first-step merger
is completed, you will have the right to receive $16.45 in cash,
without interest and less any applicable withholding, referred
to as the cash consideration, subject to adjustment, and a
number of shares of NetApp common stock equal to the exchange
ratio, referred to as the stock consideration, and together with
the cash consideration, referred to as the merger consideration,
for each outstanding share of common stock of Data Domain that
you hold immediately prior to the first-step merger.
The exchange ratio is equal to (i) 0.7783 shares of
NetApp common stock if the closing average (as described below)
is less than $17.41, (ii) 0.6370 shares of NetApp
common stock if the closing average is greater than $21.27, and
(iii) that fraction of a share of NetApp common stock
(rounded to the nearest ten thousandth) equal to the quotient
obtained by dividing $13.55 by the closing average, if the
closing average is (A) less than or equal to $21.27 and
(B) greater than or equal to $17.41. The closing average
means the average of the closing sales prices for NetApp common
stock (rounded to the nearest one-hundredth of a cent) as
reported on the NASDAQ Global Select Market for the 10 most
recent consecutive trading days ending on the third trading day
immediately prior to the closing of the first-step merger. Data
Domain stockholders may contact Innisfree M&A Incorporated,
Data Domains information agent, toll free at
(888) 750-5834,
and banks or brokers may call collect at
(212) 750-5833,
for information regarding the approximate merger consideration
payable in connection with the first-step merger based on
information available as of the date of inquiry. In addition, on
the third trading day preceding the date of the special meeting
of the Data Domain stockholders described below, NetApp and Data
Domain will issue a joint press release announcing the aggregate
merger consideration that would be payable to the Data Domain
stockholders, assuming that the merger closed on the date of the
special meeting. If the first-step merger closes after the date
of the special meeting, stockholders may not know on the date of
the special meeting the actual value of the merger
consideration. As further described in this proxy
statement/prospectus, the determination of whether the merger
will qualify as a tax-free reorganization will depend primarily
upon the value of NetApp common stock on the last business day
preceding the closing. If the first-step merger closes after the
date of the special meeting, stockholders will not know on the
date of the special meeting whether the merger will qualify as a
tax-free reorganization or will be a fully taxable transaction.
The parties anticipate that the first-step merger will close on
the date of the special meeting. Depending upon the closing
average, NetApp may issue between 44,765,433 and
54,695,347 shares of its common stock to the Data Domain
stockholders, in which case Data Domain stockholders will own
between 12 and 14% of NetApps outstanding common
stock, based on the number of shares of NetApp common stock
outstanding as of June 26, 2009. As further described in
this proxy statement/prospectus, under certain conditions,
NetApp may elect to reduce, or be required to reduce, the stock
consideration, and in the event of such a reduction, NetApp will
be required to increase the cash consideration. In connection
with the closing of the first-step merger, NetApp will issue
another press release confirming the aggregate merger
consideration payable to the Data Domain stockholders and
announcing whether the merger qualifies as a tax-free
reorganization or is a fully taxable transaction.
If the closing average is less than $17.41, the value of the
merger consideration will be less than the aggregate $30.00
value of the merger consideration on June 3, 2009, the date
on which the revised terms of the merger were announced. If the
closing average is greater than $21.27, the value of the merger
consideration will be greater than the aggregate $30.00 value of
the merger consideration on June 3, 2009. The following
table shows the closing sale prices of NetApp common stock and
Data Domain common stock as reported on the NASDAQ Global Select
Market on June 2, 2009, the last trading day before the
revised terms of the merger were announced, and on July 1,
2009, the last trading day before the distribution of the
enclosed proxy statement/prospectus for which data was
available. This table also shows the implied value of the merger
consideration proposed for each share of Data Domain common
stock, which was calculated by adding to $16.45, or the cash
consideration, the product obtained by multiplying the closing
price of NetApp common stock on those dates by the implied
exchange ratio for the stock consideration that would apply if
the closing average were equal to such closing price on such
dates.
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Implied Value of
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One Share of
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NetApp
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Data Domain
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Data Domain
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Common Stock
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Common Stock
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Common Stock
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June 2, 2009
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$
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19.34
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$
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31.58
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$
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30.00
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July 1, 2009
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$
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19.97
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$
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33.49
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$
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30.00
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The market prices of both NetApp common stock and Data Domain
common stock will fluctuate before the merger. You should obtain
current stock price quotations for NetApp common stock and Data
Domain common stock. NetApp common stock is quoted on the NASDAQ
Global Select Market under the symbol NTAP. Data
Domain common stock is quoted on the NASDAQ Global Select Market
under the symbol DDUP.
We cannot complete the merger unless Data Domains
stockholders adopt the merger agreement, the proposal to adopt
the merger agreement being referred to in the proxy
statement/prospectus as the merger proposal. Data Domain will
hold a special meeting of its stockholders to vote on the merger
proposal at 2421 Mission College Blvd., Santa Clara, CA
95054 at 9 a.m., local time, on August 14, 2009.
Your vote is important. The market price of NetApp common
stock will continue to fluctuate following the date of the
stockholder vote on the merger proposal at the special meeting.
Consequently, at the time of the stockholder vote, the value of
the stock consideration will not yet be determined. Regardless
of whether you plan to attend the special meeting, please take
the time to vote your shares in accordance with the instructions
contained in this proxy statement/prospectus. Failing to vote
will have the same effect as voting against the merger proposal.
You will also have an opportunity to vote to approve the
adjournment or postponement of the special meeting, if
necessary, to solicit additional proxies in favor of the
approval of the merger proposal, referred to as the adjournment
proposal.
The Data Domain board of directors unanimously recommends
that Data Domain stockholders vote FOR approval of
the merger proposal and FOR the adjournment
proposal.
This proxy statement/prospectus describes the special meeting,
the merger proposal and the adjournment proposal, the documents
related to each proposal, and other related matters. Please
carefully read this entire proxy statement/prospectus, including
Risk Factors beginning on page 14, for a
discussion of the risks relating to the merger proposal. You
also can obtain information about NetApp and Data Domain from
documents that each of us has filed with the Securities and
Exchange Commission.
By Order of the Board of Directors
Sincerely,
Frank Slootman
President and Chief Executive
Officer
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the NetApp
common stock to be issued under this proxy statement/prospectus
or determined if this proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal
offense.
The date of this proxy statement/prospectus is July 2,
2009, and it is first being mailed or otherwise delivered to
Data Domain stockholders on or about July 7, 2009.
DATA
DOMAIN, INC.
2421 Mission College Blvd.
Santa Clara, CA 95054
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
July 2,
2009
To the Stockholders of Data Domain, Inc.:
Data Domain, Inc., or Data Domain, will hold a special meeting
of stockholders at 2421 Mission College Blvd., Santa Clara,
CA 95054 at 9 a.m., local time, on August 14, 2009 to
consider and vote upon the following proposals:
1. To adopt the Agreement and Plan of Merger, dated as of
May 20, 2009, as amended on June 3, 2009, by and among
NetApp, Kentucky Merger Sub One Corporation, Derby Merger Sub
Two LLC and Data Domain, as the agreement may be amended from
time to time, which proposal is referred to as the merger
proposal; and
2. To approve the adjournment or postponement of the
special meeting, if necessary, to solicit additional proxies, in
the event that there are not sufficient votes at the time of the
special meeting to approve the merger proposal, which proposal
is referred to as the adjournment proposal.
The Data Domain board of directors has fixed the close of
business on June 17, 2009 as the record date for the
special meeting. Only Data Domain stockholders of record at that
time are entitled to notice of, and to vote at, the special
meeting, or any adjournment or postponement of the special
meeting. In order for the merger proposal to be approved, the
holders of at least a majority of the Data Domain shares
outstanding and entitled to vote thereon must vote in favor of
approval of the merger proposal. In the event that a quorum is
not present in person or represented by proxy at the special
meeting, the chairman of the meeting may adjourn the meeting to
another place, date or time. If a quorum is present in person or
represented by proxy at the special meeting, approval of the
adjournment proposal requires the affirmative vote of the
majority of the outstanding shares that are present in person or
represented by proxy and entitled to vote at the special meeting.
Regardless of whether you plan to attend the special meeting,
please submit your proxy with voting instructions. Please vote
as soon as possible. If you hold stock in your name as a
stockholder of record, please vote your shares by
(i) completing, signing, dating and returning the enclosed
proxy card, (ii) using the telephone number on your proxy
card, or (iii) using the Internet voting instructions on
your proxy card. If you hold your stock in street
name through a bank, broker, or other nominee, please
direct your bank, broker, or other nominee to vote in accordance
with the instructions you have received from your bank, broker,
or other nominee. This will not prevent you from voting in
person, but it will help to secure a quorum and avoid additional
solicitation costs. Any holder of Data Domain common stock who
is present at the special meeting may vote in person instead of
by proxy, thereby canceling any previous proxy. In any event, a
proxy may be revoked in writing at any time before the special
meeting in the manner described in the accompanying document.
The Data Domain board of directors has unanimously approved
the merger proposal and unanimously recommends that Data Domain
stockholders vote FOR approval of the merger
proposal and FOR approval of the adjournment
proposal.
BY ORDER OF THE BOARD OF DIRECTORS,
Sincerely,
Frank Slootman
President and Chief Executive Officer
July 2, 2009
YOUR VOTE IS IMPORTANT.
PLEASE VOTE YOUR SHARES PROMPTLY, REGARDLESS OF WHETHER
YOU PLAN TO ATTEND THE SPECIAL MEETING.
REFERENCES
TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business
and financial information about NetApp and Data Domain from
documents that are not included in or delivered with this
document. You can obtain documents incorporated by reference in
this proxy statement/prospectus, other than certain exhibits to
those documents, or filed as exhibits to the registration
statement of which this proxy statement/prospectus is a part, by
requesting them in writing or by telephone from the appropriate
company at the following addresses:
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NetApp, Inc.
495 East Java Drive
Sunnyvale, CA 94089
Attention: Investor Relations
Telephone:
(408) 822-7098
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Data Domain, Inc.
2421 Mission College Blvd.
Santa Clara, CA 95054
Attention: Investor Relations
Telephone: (408) 980-4909
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You will not be charged for any of these documents that
you request. Data Domain stockholders requesting documents
should do so by August 7, 2009 (which is five business days
prior to the date of the special meeting) to ensure that they
receive them before the special meeting.
See Where You Can Find More Information on
page 96.
ABOUT
THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus, which forms a part of a
registration statement on
Form S-4
filed with the Securities and Exchange Commission, referred to
as the SEC, by NetApp, constitutes a prospectus of NetApp under
Section 5 of the Securities Act of 1933, as amended,
referred to as the Securities Act, with respect to the shares of
NetApp common stock to be issued to Data Domain stockholders in
connection with the merger. This document also constitutes a
proxy statement under Section 14(a) of the Securities
Exchange Act of 1934, as amended, referred to as the Exchange
Act, and the rules thereunder, and a notice of meeting with
respect to the special meeting of Data Domain stockholders to
consider and vote upon the merger proposal and the adjournment
proposal.
Except as otherwise provided herein, all descriptions of and
calculations made under the terms of the merger agreement and
the transactions contemplated by the merger agreement, including
the merger, assume that no Data Domain stockholders exercise
appraisal rights under Delaware law.
To facilitate the reading of this proxy statement/prospectus, in
referring to we, us and other first
person declarations, we are referring to both NetApp and Data
Domain or, in some instances, the combined company as it would
exist following the completion of the merger.
QUESTIONS
AND ANSWERS ABOUT VOTING PROCEDURES FOR THE
DATA DOMAIN SPECIAL MEETING
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Why am I receiving this proxy statement/prospectus? |
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NetApp, Inc., referred to as NetApp, has agreed to acquire Data
Domain, Inc., referred to as Data Domain, by means of a merger
of Data Domain with a subsidiary of NetApp. Please see
Data Domain Proposal 1 The Merger
beginning on page 25 and The Merger Agreement
beginning on page 54 for a description of the merger and
the merger agreement. A copy of the merger agreement is attached
to this proxy statement/prospectus as Appendix A. |
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To complete the merger, Data Domain stockholders must vote to
approve the merger proposal. Data Domain will hold a special
meeting of stockholders to obtain this approval. You will also
be given an opportunity to vote to approve the adjournment or
postponement of the special meeting, if necessary, to solicit
additional proxies in favor of the merger proposal, referred to
as the adjournment proposal. |
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What will happen in the merger? |
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As the first step in the transaction, a direct, wholly owned
subsidiary of NetApp will merge with Data Domain, with Data
Domain continuing as the surviving entity, and as a direct,
wholly owned subsidiary of NetApp. Immediately thereafter,
provided that certain conditions described below are satisfied,
Data Domain will merge with a second direct, wholly owned
subsidiary of NetApp, with such second subsidiary continuing as
the surviving corporation. The first merger is referred to
herein as the first-step merger and the second merger is
referred to herein as the second-step merger. If the second-step
merger occurs, the first-step merger and the second-step merger
together are referred to herein as the merger. If the
second-step merger does not occur, references herein to the
merger shall mean the first-step merger. Upon completion of the
first-step merger, Data Domain common stock will cease trading
on the NASDAQ Global Select Market, and Data Domain common
stockholders will be entitled to receive the merger
consideration for each outstanding share of Data Domain common
stock held immediately prior to the first-step merger. |
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What will Data Domain stockholders receive in the merger? |
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In the merger, subject to the possible adjustments to the cash
consideration and the stock consideration described below, each
Data Domain stockholder will have a right to receive a cash
amount of $16.45, without interest and less any applicable
withholding, plus a number of shares of NetApp common stock
equal to the exchange ratio for each outstanding share of Data
Domain common stock. The exchange ratio will depend on the
closing average of NetApp common stock. The closing average is
the average of the closing sales prices for NetApp common stock
as reported on the NASDAQ Global Select Market for the 10 most
recent consecutive trading days ending on the third trading day
immediately prior to the closing of the first-step merger. |
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The exchange ratio is equal to (i) 0.7783 shares of
NetApp common stock if the closing average is less than $17.41,
(ii) 0.6370 shares of NetApp common stock if the
closing average is greater than $21.27, and (iii) that
fraction of a share of NetApp common stock equal to the quotient
obtained by dividing $13.55 by the closing average, if the
closing average is (A) less than or equal to $21.27 and
(B) greater than or equal to $17.41. |
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For example, if the closing average of NetApp common stock is
$16.00, a holder of 100 shares of Data Domain common stock
will receive $1,645 in cash and 77 shares of NetApp common
stock (i.e., 100 x $16.45 = $1,645 in cash and 100 x 0.7783 =
77 shares of common stock), plus cash equal to the value of
the fractional share of NetApp common stock to which such holder
would otherwise be entitled. |
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If the closing average of NetApp common stock is $18.00, a
holder of 100 shares of Data Domain common stock will
receive $1,645 in cash and 75 shares of NetApp common stock
(i.e., 100 x $16.45 = $1,645 in cash and 100 x ($13.55/$18.00) =
75 shares of common stock), plus cash equal to the value of
the fractional share of NetApp common stock to which such holder
would otherwise be entitled. |
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Finally, if the closing average of NetApp common stock is
$22.00, a holder of 100 shares of Data Domain common stock
will receive $1,645 in cash and 63 shares of NetApp common
stock (i.e., 100 x $16.45 = $1,645 in cash and 100 x 0.6370 =
63 shares of common stock), plus cash equal to the value of
the fractional share of NetApp common stock to which such holder
would otherwise be entitled. |
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The range of outcomes is illustrated by the following graph: |
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Stockholders of Data Domain should bear in mind, however, that
under the merger agreement, if the exchange ratio is greater
than or equal to 0.7006 and less than 0.7783, NetApp, in its
sole discretion may reduce the number of shares of NetApp common
stock you will receive and proportionately increase the amount
of cash you will receive. However, NetApp may not reduce the
amount of stock consideration and increase the cash
consideration to the extent that it would reasonably be expected
to cause the merger to fail to qualify as a tax-free
reorganization under the Internal Revenue Code, except as may be
required as described herein. |
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If the aggregate amount of the stock consideration issuable in
the merger (including the stock consideration issuable to
holders of Data Domain options and restricted stock units) would
exceed 19.5% of the outstanding shares of NetApp common stock
immediately prior to the effective time of the first-step
merger, the stock consideration will be decreased to the minimum
extent necessary so that no more than 19.5% of the outstanding
shares of NetApp common stock will be issued in the merger (with
such percentage measured immediately prior to the effective time
of the first-step merger). In such event, the cash consideration
will be increased by an amount equal to the product of
(a) the amount of the reduction in the stock consideration
multiplied by (b) the closing average. In the event that
the stock consideration is decreased in accordance with this
paragraph, the merger may fail to qualify as a tax-free
reorganization under the Internal Revenue Code. |
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Data Domain stockholders may contact Innisfree M&A
Incorporated, Data Domains information agent, toll free at
(888) 750-5834,
and banks or brokers may call collect at
(212) 750-5833,
for information regarding the approximate merger consideration
payable in connection with the merger. In addition, on the third
trading day preceding the date of the special meeting of the
Data Domain stockholders, NetApp and Data Domain will issue a
joint press release announcing the aggregate merger
consideration that would be payable to the Data Domain
stockholders, assuming that the merger closed on the date of the
special meeting. However, there can be no assurance that the
merger will close on the date of the special meeting of the
stockholders. As such, the assumptions in the joint press
release may differ from the actual merger consideration payable
in the merger at the closing. Further, the determination of
whether the merger will qualify as a tax-free reorganization
will depend upon the value of NetApp common stock on the last
business day preceding the closing. If the first-step merger
closes after the date of the special meeting, stockholders will
not know on the date of the special meeting whether the merger
will qualify as a tax-free reorganization or will be a fully
taxable transaction. The parties anticipate that the first-step
merger will close on the date of the special meeting. In
connection with the closing of the first-step merger, NetApp
will issue another press release confirming the aggregate merger
consideration payable to the Data Domain stockholders and
announcing whether the merger qualifies as a tax-free
reorganization or is a fully taxable transaction. |
iv
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Q: |
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What do I need to do now? |
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A: |
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After you have carefully read this proxy statement/prospectus
and have decided how you wish to vote your shares, please vote
your shares promptly. If you hold stock in your name as a
stockholder of record, please vote your shares by
(i) completing, signing, dating and returning the enclosed
proxy card, (ii) using the telephone number on your proxy
card or (iii) using the Internet voting instructions on
your proxy card. If you have Internet access, you are encouraged
to record your vote via the Internet. |
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If you hold your stock in street name through a
bank, broker or other nominee, you must direct your bank, broker
or other nominee to vote in accordance with the instructions you
have received from your bank, broker or other nominee.
Submitting your proxy card or directing your bank, broker or
other nominee to vote your shares will ensure that your shares
are represented and voted at the special meeting. |
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Q: |
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Why is my vote important? |
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If you do not vote by proxy or vote in person at the special
meeting, it will be more difficult for us to obtain the
necessary quorum to hold the special meeting. In addition, your
failure to vote, by proxy or in person, or failure to instruct
your broker, will have the same effect as a vote against the
merger proposal. The merger proposal must be approved by the
holders of a majority of the outstanding shares of Data Domain
common stock entitled to vote at the special meeting. In the
event that a quorum is not present in person or represented by
proxy at the special meeting, the chairman of the meeting may
adjourn the meeting to another place, date or time. Approval of
the adjournment proposal requires the affirmative vote of the
majority of the outstanding shares that are present in person or
represented by proxy and entitled to vote at the special
meeting. The Data Domain board of directors unanimously
recommends that you vote to approve the merger proposal and the
adjournment proposal. |
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Q: |
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If my shares of common stock are held in street name by my
broker, will my broker automatically vote my shares for me? |
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A: |
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No. Your broker cannot vote your shares without
instructions from you. You should instruct your broker as to how
to vote your shares, following the directions your broker
provides to you. Please check the voting form used by your
broker. |
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Q: |
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What if I abstain from voting or fail to instruct my
broker? |
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A: |
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If you abstain from voting, the abstention will be counted
toward a quorum at the special meeting, but it will have the
same effect as a vote against the merger proposal and against
the adjournment proposal. If you fail to instruct your broker, a
broker non-vote, those shares would be counted
towards a quorum at the special meeting, but the shares would
not be considered entitled vote, and thus it will have the same
effect as a vote against the merger proposal, but it will have
no effect on the adjournment proposal. |
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Q: |
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Can I attend the special meeting and vote my shares in
person? |
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A: |
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Yes. All stockholders, including stockholders of record and
stockholders who hold their shares through banks, brokers,
nominees or any other holder of record, are invited to attend
the special meeting. Holders of record of Data Domain common
stock can vote in person at the special meeting. If you are not
a stockholder of record, you must obtain a proxy, executed in
your favor, from the record holder of your shares, such as a
broker, bank or other nominee, to be able to vote in person at
the special meeting. If you plan to attend the special meeting,
you must hold your shares in your own name or have a letter from
the record holder of your shares confirming your ownership, and
you must bring a form of personal photo identification with you
to be admitted. Data Domain reserves the right to refuse
admittance to anyone without proper proof of share ownership or
without proper photo identification. |
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Q: |
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Can I change my vote? |
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A: |
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Yes. You may revoke any proxy at any time before it is voted by
signing and returning a proxy card with a later date, delivering
a written revocation letter to the Data Domain Corporate
Secretary, or by attending the special meeting in person,
notifying the Corporate Secretary and voting by ballot at the
special meeting. The Data Domain Corporate Secretarys
mailing address is 2421 Mission College Blvd., Santa Clara,
CA 95054. |
v
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Any stockholder entitled to vote in person at the special
meeting may vote in person regardless of whether a proxy has
been previously given, but the mere presence (without notifying
the Data Domain Corporate Secretary) of a stockholder at the
special meeting will not constitute revocation of a previously
given proxy. |
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Q: |
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If I am a Data Domain stockholder, should I send in my Data
Domain stock certificates now? |
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A: |
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No. You should not send in your Data Domain stock
certificates at this time. After the merger is completed, NetApp
will send you instructions for exchanging Data Domain stock
certificates for the merger consideration. Unless Data Domain
stockholders specifically request to receive NetApp stock
certificates, the shares of NetApp stock they receive in the
merger will be issued in book-entry form. |
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Q: |
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Is the merger subject to the approval of stockholders of
NetApp? |
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A: |
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No. NetApp is not required to obtain the approval of its
stockholders with respect to the merger proposal. |
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Q: |
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When do you expect to complete the merger? |
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A: |
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Data Domain currently expects to complete the merger within
60 to 120 days following May 20, 2009, the date
on which the merger agreement was initially executed. However,
there can be no assurance as to when, or if, the merger will
occur. Data Domain must first obtain the approval of Data Domain
stockholders at the special meeting and the necessary regulatory
approvals. |
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Q: |
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What are the material U.S. tax consequences of the merger? |
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A: |
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The U.S. tax consequences of the merger depend on whether the
second-step merger occurs. The second-step merger will occur
only if Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to NetApp, and Fenwick & West
LLP, counsel to Data Domain, deliver opinions to the effect that
the first-step merger and the second-step merger together will
qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended, or the Code. The tax opinions are conditioned upon
receipt of customary written representations from NetApp and
Data Domain, including representations that the stock
consideration, valued as of the last business day immediately
prior to the closing date of the first-step merger, will
constitute at least 40% of the total consideration paid or
payable to Data Domain stockholders in the first-step merger,
referred to as the continuity of interest test. The tax opinions
will be delivered, if at all, on the closing date of the
first-step merger. |
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Whether the continuity of interest test will be satisfied
depends primarily upon the market value of the NetApp common
stock immediately before the first-step merger. Other relevant
factors may include (i) whether the stock consideration is
required to be decreased, and the cash consideration
correspondingly increased, so that the aggregate amount of stock
consideration issuable in the merger (including the stock
consideration issuable to the holders of Data Domain options and
restricted stock units) will not exceed 19.5% of the outstanding
shares of NetApp common stock immediately prior to the
first-step merger, as more fully described above, (ii) the
potential payment of cash to Data Domain stockholders properly
exercising appraisal rights under Delaware law, and
(iii) the amount of cash paid in the merger in lieu of the
issuance of fractional shares of NetApp common stock. No
assurances can be given that the continuity of interest test
will be met. As a result, in deciding whether to approve the
merger, you should consider the possibility that it may be
taxable to you because the continuity of interest test is not
satisfied and the second-step merger does not occur. You will
not be entitled to change your vote in the event that the merger
is taxable. In connection with the closing of the first-step
merger, NetApp will issue a press release announcing whether the
merger qualifies as a tax-free reorganization or is a fully
taxable transaction. |
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If the second-step merger occurs and the merger qualifies as a
reorganization, a U.S. holder of Data Domain common stock
receiving NetApp common stock and cash in exchange for Data
Domain common stock in the merger generally will recognize gain
equal to the lesser of (i) the amount of cash received by
the U.S. holder (excluding any cash received in lieu of
fractional shares) and (ii) the excess of the amount
realized by the U.S. holder over the U.S. holders
tax basis in the Data Domain common stock. The amount
realized by the U.S. holder will equal the sum of the fair
market value of the NetApp common stock and the amount of cash
(including any cash received in lieu of fractional shares)
received by the U.S. holder. Losses will not be permitted to be
recognized. Realized gain or loss must be calculated separately
for each identifiable block of shares (i.e., shares |
vi
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acquired at different times and prices) exchanged in the merger,
and a loss realized on the exchange of one block cannot be used
to offset a gain recognized on the exchange of another block. |
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If the second-step merger does not occur, the exchange of Data
Domain common stock for NetApp common stock and cash in the
first-step merger will be a fully taxable transaction in which a
U.S. holder generally will recognize gain or loss equal to the
difference between the amount realized (as defined
above) and the U.S. holders tax basis in the Data Domain
common stock. Gain or loss must be calculated separately for
each identifiable block of shares (i.e., shares acquired at
different times and prices) exchanged in the first-step merger. |
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Please see Material U.S. Federal Income Tax Consequences
of the Merger beginning on page 73. |
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Q: |
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Whom should I call with questions? |
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A: |
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If you need any assistance in completing your proxy card or have
questions regarding the special meeting, you may call Innisfree
M&A Incorporated, Data Domains proxy solicitor, at
(888) 750-5834 (toll-free) if you are a stockholder or (212)
750-5833 (collect) if you are a bank or broker. |
vii
SUMMARY
This summary highlights material information from this proxy
statement/prospectus. It may not contain all of the information
that is important to you. Data Domain urges you to read
carefully the entire proxy statement/prospectus and the other
documents to which we refer to fully understand the merger and
the related transactions. See Where You Can Find More
Information on page 96. Each item in this summary
refers to the page of this proxy statement/prospectus on which
that subject is discussed in more detail.
Following the first-step merger, for each share of Data
Domain common stock held by them, Data Domain stockholders will
have a right to receive a cash amount of $16.45, without
interest and less any required withholding under United States
federal, state, or local law or under foreign law, plus a number
of validly issued, fully paid and non-assessable shares of
NetApp common stock equal to the exchange ratio. The exchange
ratio is equal to (i) 0.7783 shares of NetApp common
stock if the closing average (as described below) is less than
$17.41, (ii) 0.6370 shares of NetApp common stock if
the closing average is greater than $21.27, and (iii) that
fraction of a share of NetApp common stock equal to the quotient
obtained by dividing $13.55 by the closing average, if the
closing average is (A) less than or equal to $21.27 and
(B) greater than or equal to $17.41. The closing average
means the average of the closing sales prices for NetApp common
stock as reported on the NASDAQ Global Select Market for the 10
most recent consecutive trading days ending on the third trading
day immediately prior to the closing of the first-step merger.
Under certain conditions, NetApp may elect to reduce, or may be
required to reduce, the stock consideration, and, in the event
of such a reduction, NetApp will be required to increase the
cash consideration. See The Merger Agreement
Per Share Merger Consideration. Data Domain stockholders
may contact Innisfree M&A Incorporated, Data Domains
information agent, toll free at
(888) 750-5834,
and banks or brokers can call collect at
(212) 750-5833,
for information regarding the merger consideration to be
received upon exchange of each share of Data Domain common stock
in connection with the merger. In addition, on the third trading
day preceding the date of the special meeting of the Data Domain
stockholders, NetApp and Data Domain will issue a joint press
release announcing the aggregate merger consideration that would
be payable to the Data Domain stockholders, assuming that the
merger closed on the date of the special meeting. However, there
can be no assurance that the merger will close on the date of
the special meeting of the stockholders. As such, the
assumptions in the joint press release may differ from the
actual merger consideration payable in the merger at the
closing. Further, the determination of whether the merger will
qualify as a tax-free reorganization will depend upon the value
of NetApp common stock on the last business day preceding the
closing. If the first-step merger closes after the date of the
special meeting, stockholders will not know on the date of the
special meeting whether the merger will qualify as a tax-free
reorganization or will be a fully taxable transaction. The
parties anticipate that the first-step merger will close on the
date of the special meeting. In connection with the closing of
the first-step merger, NetApp will issue another press release
confirming the aggregate merger consideration payable to the
Data Domain stockholders and announcing whether the merger
qualifies as a tax-free reorganization or is a fully taxable
transaction.
On May 20, 2009, NetApp entered into an Agreement and Plan
of Merger, referred to as the original merger agreement, by and
among NetApp, Kentucky Merger Sub One Corporation, a wholly
owned subsidiary of NetApp, referred to as Merger Sub One, Derby
Merger Sub Two LLC, a wholly owned subsidiary of NetApp,
referred to as Merger Sub Two, and Data Domain, pursuant to
which for each share of Data Domain common stock held by them,
Data Domain stockholders would have had a right to receive a
cash amount of $11.45 plus a number of validly issued, fully
paid and non-assessable shares of NetApp common stock equal to
an exchange ratio of (i) 0.833 shares of NetApp common
stock if the closing average was less than $16.26,
(ii) 0.682 shares of NetApp common stock if the
closing average was greater than $19.88, and (iii) that
fraction of a share of NetApp common stock equal to the quotient
obtained by dividing $13.55 by the closing average, if the
closing average was (A) less than or equal to $19.88 and
(B) greater than or equal to $16.26. On June 3, 2009,
NetApp and Data Domain amended the original merger agreement to
reflect the terms described in this proxy statement/prospectus.
The merger agreement provides for the acquisition of Data Domain
by NetApp by means of a merger of Merger Sub One with and into
Data Domain, referred to as the first-step merger, with Data
Domain as the interim surviving entity. Immediately thereafter,
subject to certain conditions, Data Domain, as the interim
surviving entity, will merge with and into Merger Sub Two,
referred to as the second-step merger, with Merger Sub Two as
the final surviving entity. Unless otherwise
1
specified herein, the second-step merger, taken together with
the first-step merger, is referred to in this proxy
statement/prospectus as the merger. As a result of the
first-step merger, Data Domain will become a wholly owned
subsidiary of NetApp. See Material U.S. Federal Income Tax
Consequences of the Merger for an explanation of the
two-step merger structure. Based on NetApps stock trading
price as of June 2, 2009, the aggregate value of the
consideration payable in connection with the merger, is
$1.9 billion on a fully diluted basis (net of cash on Data
Domains balance sheet). The aggregate value of the
consideration payable at closing is subject to change, as
further described in this proxy statement/prospectus.
Each share of Data Domain common stock issued and outstanding
immediately prior to the effective time of the merger will be
cancelled and extinguished and automatically converted into the
right to receive a cash amount of $16.45, or the cash
consideration, without interest and less any required
withholding under United States federal, state, local or foreign
law, plus a number of validly issued, fully paid and
non-assessable shares of NetApp common stock equal to the
exchange ratio, referred to as the stock consideration, and
together with the cash consideration, the merger consideration.
The merger agreement is included as Appendix A to this
proxy statement/prospectus.
What
Holders of Data Domain Stock Options and Other Equity-Based
Awards Will Receive (page 55)
Each of the vested and unvested options to purchase shares of
Data Domain common stock that is outstanding at the effective
time of the first-step merger will be assumed and converted into
an option to acquire shares of NetApp common stock, subject to
the option exchange ratio, at the effective time of the merger,
and will otherwise be subject to the terms and conditions of
such award prior to the completion of the first-step merger,
including vesting and exercisability.
Each of Data Domains restricted stock units outstanding at
the effective time of the first-step merger will be assumed and
converted into a restricted stock unit representing the right to
receive the merger consideration payable for shares underlying
each assumed and converted Data Domain restricted stock unit.
The assumed and converted restricted stock units will otherwise
be subject to the same terms and conditions, including vesting
restrictions, applicable to such Data Domain restricted stock
units prior to the effective time of the first-step merger.
Each of Data Domains unvested shares of restricted stock
outstanding at the effective time of the first-step merger will
be assumed and converted into the right to receive the merger
consideration payable for such shares. The merger consideration
payable for such unvested shares of restricted stock will be
subject to the same terms and conditions, including vesting
restrictions, applicable to such shares of Data Domain
restricted stock prior to the effective time of the first-step
merger.
Material
U.S. Federal Income Tax Consequences of the Merger to Data
Domain Stockholders (page 73)
The U.S. tax consequences of the merger depend on whether
the second-step merger occurs. The second-step merger will occur
only if Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to NetApp, and Fenwick & West
LLP, counsel to Data Domain, deliver tax opinions to the effect
that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code. The tax
opinions are conditioned upon receipt of customary written
representations from NetApp and Data Domain, including
representations that continuity of interest test will be
satisfied, requiring that the stock consideration constitute at
least 40% of the total consideration paid or payable to Data
Domain stockholders in the first-step merger. The tax opinions
will be delivered, if at all, on the closing date of the
first-step merger.
Whether the continuity of interest test will be satisfied
depends primarily upon the market value of the NetApp common
stock immediately before the first-step merger. Other relevant
factors may include (i) whether the stock consideration is
required to be decreased, and the cash consideration
correspondingly increased, so that the aggregate amount of stock
consideration issuable in the merger (including the stock
consideration issuable to the holders of Data Domain options and
restricted stock units) will not exceed 19.5% of the outstanding
shares of NetApp common stock immediately prior to the
first-step merger, as more fully described above, (ii) the
potential payment of cash to Data Domain stockholders properly
exercising appraisal rights under Delaware law, and
(iii) the amount of cash paid in the merger in lieu of the
issuance of fractional shares of NetApp common stock. No
assurances can be given that the continuity of interest test
will be met. As a result, in deciding whether to approve the
merger, you should consider the possibility that the it may be
taxable to you because the continuity of interest test is not
satisfied and the second-step merger does not occur. You will
not be entitled to change your vote in the event that
2
the merger is taxable. In connection with the closing of the
first-step merger, NetApp will issue a press release announcing
whether the merger qualifies as a tax-free reorganization or is
a fully taxable transaction.
If the second-step merger occurs and the merger qualifies as a
reorganization, a U.S. holder of Data Domain common stock
receiving NetApp common stock and cash in exchange for such Data
Domain common stock in the merger generally will recognize gain
equal to the lesser of (i) the amount of cash received by
the U.S. holder (excluding any cash received in lieu of
fractional shares) and (ii) the excess of the amount
realized by the U.S. holder over the
U.S. holders tax basis in the Data Domain common
stock. The amount realized by the U.S. holder
will equal the sum of the fair market value of the NetApp common
stock and the amount of cash (including any cash received in
lieu of fractional shares) received by the U.S. holder.
Losses will not be permitted to be recognized. Realized gain or
loss must be calculated separately for each identifiable block
of shares (i.e., shares acquired at different times and prices)
exchanged in the merger, and a loss realized on the exchange of
one block cannot be used to offset a gain recognized on the
exchange of another block. Any gain recognized by a
U.S. holder of Data Domain common stock generally will be
long-term capital gain if the U.S. holders holding
period of the Data Domain common stock is more than one year,
and short-term capital gain if the U.S. holders
holding period is one year or less, at the time of the
first-step merger. Long-term capital gains of individuals are
eligible for reduced rates of taxation.
If the second-step merger does not occur, the exchange of Data
Domain common stock for NetApp common stock and cash in the
first-step merger will be a fully taxable transaction in which a
U.S. holder generally will recognize gain or loss equal to
the difference between the amount realized (as
defined above) and the U.S. holders tax basis in the
Data Domain common stock. Gain or loss must be calculated
separately for each identifiable block of shares (i.e., shares
acquired at different times and prices) exchanged in the
first-step merger. Any gain or loss recognized by a
U.S. holder of Data Domain common stock generally will be
long-term capital gain or loss if the U.S. holders
holding period of the Data Domain common stock is more than one
year, and short-term capital gain or loss if the
U.S. holders holding period is one year or less, at
the time of the first-step merger. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations.
The U.S. federal income tax consequences described above
may not apply to all holders of Data Domain common stock. Your
tax consequences will depend on your individual situation.
Accordingly, NetApp and Data Domain strongly urge you to consult
with your tax advisor for a full understanding of the particular
tax consequences of the merger to you.
Comparative
Market Prices and Dividends (page 94)
NetApp common stock trades on the NASDAQ Global Select Market
under the symbol NTAP, and Data Domain common stock
trades on the NASDAQ Global Select Market under the symbol
DDUP. The following table shows the closing sale
prices of NetApp common stock and Data Domain common stock as
reported on the NASDAQ Global Select Market on June 2,
2009, the last trading day before the signing of the amended
merger agreement, and on July 1, 2009, the last trading day
before the distribution of this proxy statement/prospectus for
which data was available. This table also shows the implied
value of the merger consideration proposed for each share of
Data Domain common stock, which was calculated by adding to
$16.45, or the cash consideration, the product obtained by
multiplying the closing price of a share of NetApp common stock
on those dates by the implied exchange ratio for the stock
consideration that would apply if the closing average were equal
to the closing sale price on those dates.
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Implied Value of
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One Share of
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NetApp
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Data Domain
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Data Domain
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Common Stock
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Common Stock
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Common Stock
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June 2, 2009
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$
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19.34
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$
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31.58
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$
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30.00
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July 1, 2009
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$
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19.97
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$
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33.49
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$
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30.00
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The market price of NetApp common stock and Data Domain
common stock will fluctuate prior to the closing of the
first-step merger. You should obtain current market quotations
for the shares.
3
The Data
Domain Board of Directors Unanimously Recommends that Data
Domain Stockholders Vote FOR the Proposals
(pages 25 and 95)
The Data Domain board of directors believes that the merger is
in the best interests of Data Domain and its stockholders and
has unanimously approved the merger and the merger agreement.
The Data Domain board of directors unanimously recommends that
Data Domain stockholders vote FOR the merger
proposal and FOR the adjournment proposal.
Qatalyst
Partners Provided an Opinion to the Data Domain Board of
Directors (page 40)
As financial advisor to Data Domain, on May 20, 2009,
Qatalyst Partners LP, which is referred to herein as Qatalyst,
rendered to the Data Domain board of directors its opinion that,
as of such date and based upon and subject to the various
assumptions, qualifications and limitations set forth in its
opinion, the merger consideration to be received by the holders
of shares of Data Domain common stock, other than affiliates who
have executed voting agreements, pursuant to the original merger
agreement was fair, from a financial point of view, to such
holders. Qatalysts opinion was based on the terms of the
original merger agreement, and the Data Domain board of
directors has not requested that Qatalyst provide an additional
or revised opinion reflecting the terms of the merger agreement,
as amended on June 3, 2009. Qatalysts opinion was
rendered to the Data Domain board of directors prior to the
announcement of EMCs tender offer. Thus, the impact of
EMCs offer on Qatalysts view, as of the date of the
amendment to the original merger agreement, as to the fairness,
from a financial point of view, of the merger consideration to
be received by the holders of shares of Data Domain common stock
pursuant to the amendment to the original merger agreement
cannot be presumed, and such view could be different than its
view, as of the date of the original merger agreement, as to the
fairness, from a financial point of view, of the original merger
consideration to be received by the holders of shares of Data
Domain common stock pursuant to the original merger agreement.
The full text of the written opinion of Qatalyst, dated
May 20, 2009, is attached hereto as Appendix D and is
incorporated by reference herein. The opinion sets forth, among
other things, the assumptions made, procedures followed, matters
considered and limitations and qualifications of the review
undertaken by Qatalyst in rendering its opinion. You should read
the opinion carefully in its entirety. Qatalysts opinion
was provided to the Data Domain board of directors and addresses
only the fairness, from a financial point of view, of the merger
consideration to be received by the holders of shares of Data
Domain common stock pursuant to the original merger agreement as
of the date of the opinion. It does not address any other aspect
of the transaction and does not constitute a recommendation to
the stockholders of Data Domain as to how to vote with respect
to the merger proposal or act on any other matter.
Data
Domains Officers and Directors Have Financial Interests in
the Merger That Differ From Your Interests
(page 46)
Data Domains executive officers and directors have
interests in the merger that are different from those of other
Data Domain stockholders. As of the record date, all directors
and executive officers of Data Domain, together with their
affiliates, beneficially owned approximately 23.6% of the
outstanding shares of Data Domain common stock, which includes
shares of common stock and shares of restricted stock that will
vest within 60 days of the record date, shares underlying
vested options and options that will vest within 60 days of
the record date, and shares issuable upon settlement of
restricted stock units and that will be issuable within
60 days of such date. Additionally, certain executive
officers and the non-employee directors of Data Domain will be
entitled to additional benefits as a result of the completion of
the merger or upon certain events following the completion of
the merger.
Directors
and Executive Officers of Data Domain Have Agreed to Vote in
Favor of the Merger Proposal (page 71)
In connection with the execution of the merger agreement,
directors and executive officers of Data Domain and certain of
their affiliates entered into voting agreements pursuant to
which they have agreed to vote all shares of Data Domain common
stock owned by them in favor of the merger proposal. As of the
record date these directors, executive officers and affiliates
owned shares representing approximately 20.6% of Data
Domains issued and outstanding common stock. They have
also agreed to comply with certain restrictions on the
disposition of their
4
shares, subject to the terms and conditions contained in the
voting agreements. Pursuant to their terms, these voting
agreements will terminate concurrently with any termination of
the merger agreement.
The form of voting agreement is included as Appendix B to
this proxy statement/prospectus.
Holders
of Data Domain Common Stock Are Entitled to Appraisal Rights
(page 50)
Under the Delaware General Corporation Law, referred to as the
DGCL, holders of Data Domain common stock who do not vote for
the approval of the first-step merger proposal have the right to
seek appraisal of the fair value of their shares as determined
by the Delaware Court of Chancery if the merger is completed,
but only if they comply with all requirements of Delaware law,
which are summarized in this proxy statement/prospectus. This
appraisal amount could be more than, the same as, or less than
the amount a Data Domain stockholder would be entitled to
receive under the merger agreement. Any holder of Data Domain
common stock intending to exercise appraisal rights, among other
things, must submit a written demand for appraisal to Data
Domain prior to the vote on the approval of the merger proposal
and must not vote or otherwise submit a proxy in favor of
approval of the merger proposal. Failure to follow exactly the
procedures specified under Delaware law will result in the loss
of appraisal rights. Because of the complexity of the Delaware
law relating to appraisal rights, if you are considering
exercising your appraisal right, Data Domain encourages you to
seek the advice of your own legal counsel.
A copy of Section 262 of the DGCL is also included as
Appendix C to this proxy statement/prospectus.
Conditions
That Must Be Satisfied or Waived for the Merger to Occur
(page 66)
Currently, NetApp and Data Domain expect to complete the
first-step merger within 60 to 120 days following May 20,
2009, the date on which the merger agreement was initially
executed. As more fully described in this proxy
statement/prospectus and in the merger agreement, the completion
of the first-step merger depends on a number of conditions being
satisfied or, where legally permissible, waived. These
conditions include, among others, approval of the merger
proposal by Data Domain stockholders, the expiration or
termination of the applicable
Hart-Scott-Rodino
waiting period, the receipt of all required regulatory approvals.
Neither NetApp nor Data Domain can be certain when, or if, the
conditions to the merger will be satisfied or waived, or that
the merger will be completed.
Termination
of the Merger Agreement (page 68)
Either NetApp or Data Domain may terminate the merger agreement
under certain circumstances, which would prevent the merger from
being completed.
Termination
Fee (page 70)
A termination fee of $57,000,000 may be payable by Data Domain
to NetApp upon the termination of the merger agreement under
several circumstances.
Regulatory
Approvals Required for the Merger (page 52)
NetApp and Data Domain have agreed to use reasonable best
efforts to obtain as promptly as practicable all regulatory
approvals that are required to complete the transactions
contemplated in the merger agreement. This includes filing all
required notices to governmental authorities, including the
required filings with the Department of Justice and the Federal
Trade Commission pursuant to the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, referred to
herein as the HSR Act. NetApp and Data Domain are not permitted
to complete the merger until the applicable waiting periods
under the HSR Act have expired or been terminated. On July 2,
2009, the Federal Trade Commission granted early termination of
the HSR waiting period. Although neither NetApp nor Data Domain
know of any reason why regulatory approvals would not be
obtained in a timely manner, NetApp and Data Domain cannot be
certain when, or if, the approvals will be obtained.
5
Board of
Directors and Management of NetApp following Completion of the
Merger (page 50)
The directors of Data Domain and its subsidiaries will resign in
connection with the first-step merger. The composition of
NetApps board of directors and management is not
anticipated to change in connection with the completion of the
first-step merger, although it is possible that following the
first-step merger, one or more members of Data Domains
management may be asked to join NetApps board of directors
and/or
management.
The
Rights of Data Domain Stockholders will Change as a Result of
the Merger (page 88)
The rights of Data Domain stockholders will change as a result
of the merger due to differences in NetApps and Data
Domains governing documents. This proxy
statement/prospectus contains a summary description of
stockholder rights under each of the NetApp and Data Domain
governing documents and describes the material differences
between them.
Data
Domain will Hold its Special Meeting on August 14, 2009
(page 20)
The special meeting will be held on August 14, 2009 at
9 a.m., local time, at 2421 Mission College Blvd.,
Santa Clara, CA 95054. At the special meeting, Data Domain
stockholders will be asked to:
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Adopt the merger agreement; and
|
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|
|
Approve the adjournment or postponement of the special meeting,
if necessary, to solicit additional proxies, in the event that
there are not sufficient votes at the time of the special
meeting to adopt the merger agreement.
|
Record Date. Only holders of record at the
close of business on June 17, 2009 will be entitled to vote
at the special meeting. Each share of Data Domain common stock
is entitled to vote. As of the record date,
62,885,090 shares of Data Domain common stock were
outstanding, held by approximately 114 registered holders.
Required Vote. Approval of the merger proposal
requires the affirmative vote of the holders of a majority of
the outstanding shares of Data Domain common stock entitled to
vote at the special meeting. Because approval of the merger
proposal is based on the affirmative vote of a majority of
shares outstanding, a Data Domain stockholders failure to
vote, abstention or failure to instruct a broker, a broker
non-vote, will have the same effect as a vote against the
merger proposal.
In the event that a quorum is not present in person or
represented by proxy at the special meeting, the chairman of the
meeting may adjourn the meeting to another place, date or time.
If a quorum is present in person or represented by proxy at the
special meeting, approval of the adjournment proposal requires
the affirmative vote of the majority of the outstanding shares
that are present in person or represented by proxy and entitled
to vote at the special meeting. A Data Domain stockholders
abstention will have the same effect as a vote against the
adjournment proposal. A broker non-vote will have no effect on
the adjournment proposal.
Information
about the Companies (page 24)
NetApp,
Inc.
NetApp, a Delaware corporation, was established in 1992. NetApp
is a leading provider of storage and data management solutions.
NetApp common stock is traded on the NASDAQ Global Select Market
under the symbol NTAP. The principal executive
offices of NetApp are located at 495 East Java Drive, Sunnyvale,
CA 94089, and its telephone number is
(408) 822-6000.
Additional information about NetApp and its subsidiaries is
included in documents incorporated by reference in this proxy
statement/prospectus. See Where You Can Find More
Information beginning on page 96.
Kentucky
Merger Sub One Corporation
Kentucky Merger Sub One Corporation, a wholly owned subsidiary
of NetApp, was formed solely for the purpose of completing the
merger. Kentucky Merger Sub One Corporation has not carried on
any activities to date, except for activities incidental to its
formation and activities undertaken in connection with the
transactions
6
contemplated by the merger agreement. The principal executive
offices of Kentucky Merger Sub One Corporation are located at
495 East Java Drive, Sunnyvale, CA 94089, and its telephone
number is
(408) 822-6000.
Derby
Merger Sub Two LLC
Derby Merger Sub Two LLC, a wholly owned subsidiary of NetApp,
was formed solely for the purpose of completing the merger.
Derby Merger Sub Two LLC has not carried on any activities to
date, except for activities incidental to its formation and
activities undertaken in connection with the transactions
contemplated by the merger agreement. The principal executive
offices of Derby Merger Sub Two LLC are located at 495 East Java
Drive, Sunnyvale, CA 94089, and its telephone number is
(408) 822-6000.
Data
Domain, Inc.
Data Domain, a Delaware corporation, was incorporated in
Delaware in October 2001. Data Domain is a leading provider of
storage solutions for backup and archive applications based on
deduplication technology.
Data Domain common stock is traded on the NASDAQ Global Select
Market under the symbol DDUP. The principal
executive offices of Data Domain are located at 2421 Mission
College Blvd., Santa Clara, CA 95054, and its telephone
number is
(408) 980-4800.
Additional information about Data Domain and its subsidiaries is
included in documents incorporated by reference in this proxy
statement/prospectus. See Where You Can Find More
Information beginning on page 96.
7
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF NETAPP
The tables below present selected consolidated financial data of
NetApp prepared in accordance with U.S. generally accepted
accounting principles, or GAAP. The data below are only a
summary and should be read in conjunction with NetApps
consolidated financial statements and accompanying notes, as
well as NetApps managements discussion and analysis
of financial condition and results of operations, all of which
can be found in publicly available documents, including those
incorporated by reference in this proxy statement/prospectus.
For a complete list of documents incorporated by reference in
this proxy statement/prospectus, see Where You Can Find
More Information beginning on page 96.
NetApp derived the consolidated statements of operations data
for the years ended April 24, 2009, April 25, 2008 and
April 27, 2007, and the consolidated balance sheet data as
of April 24, 2009 and April 25, 2008, from its audited
consolidated financial statements incorporated by reference in
this proxy statement/prospectus. NetApp derived the consolidated
statement of operations data for the year ended April 28,
2006 and April 29, 2005, and the consolidated balance sheet
data as of April 27, 2007, April 28, 2006 and
April 29, 2005, from its audited consolidated financial
statements not included or incorporated by reference in this
proxy statement/prospectus. NetApps historical results are
not necessarily indicative of the results to be expected in the
future.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
April 24,
|
|
|
April 25,
|
|
|
April 27,
|
|
|
April 28,
|
|
|
April 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues(1)
|
|
$
|
3,406,393
|
|
|
$
|
3,303,167
|
|
|
$
|
2,804,282
|
|
|
$
|
2,066,456
|
|
|
$
|
1,598,131
|
|
Total cost of revenue
|
|
|
1,416,478
|
|
|
|
1,289,791
|
|
|
|
1,099,782
|
|
|
|
809,995
|
|
|
|
623,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,989,915
|
|
|
|
2,013,376
|
|
|
|
1,704,500
|
|
|
|
1,256,461
|
|
|
|
975,048
|
|
Total operating expenses
|
|
|
1,942,740
|
|
|
|
1,699,776
|
|
|
|
1,403,258
|
|
|
|
948,170
|
|
|
|
721,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
47,175
|
|
|
|
313,600
|
|
|
|
301,242
|
|
|
|
308,291
|
|
|
|
253,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(1)
|
|
$
|
86,545
|
|
|
$
|
309,738
|
|
|
$
|
297,735
|
|
|
$
|
266,452
|
|
|
$
|
225,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic
|
|
$
|
0.26
|
|
|
$
|
0.88
|
|
|
$
|
0.80
|
|
|
$
|
0.72
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, diluted
|
|
$
|
0.26
|
|
|
$
|
0.86
|
|
|
$
|
0.77
|
|
|
$
|
0.69
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in basic net income per share calculation
|
|
|
330,279
|
|
|
|
351,676
|
|
|
|
371,204
|
|
|
|
371,061
|
|
|
|
361,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in diluted net income per share calculation
|
|
|
334,575
|
|
|
|
361,090
|
|
|
|
388,454
|
|
|
|
388,381
|
|
|
|
380,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 24,
|
|
|
April 25,
|
|
|
April 27,
|
|
|
April 28,
|
|
|
April 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents and short-term investments
|
|
$
|
2,604,206
|
|
|
$
|
1,164,390
|
|
|
$
|
1,308,781
|
|
|
$
|
1,322,892
|
|
|
$
|
1,169,965
|
|
Working capital
|
|
|
1,759,459
|
|
|
|
653,331
|
|
|
|
1,053,256
|
|
|
|
1,116,047
|
|
|
|
1,055,700
|
|
Total assets
|
|
|
5,472,819
|
|
|
|
4,070,988
|
|
|
|
3,658,478
|
|
|
|
3,260,965
|
|
|
|
2,372,647
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
85,110
|
|
|
|
166,211
|
|
|
|
|
|
Long-term debt and other long-term obligations
|
|
|
1,429,499
|
|
|
|
318,658
|
|
|
|
9,487
|
|
|
|
138,200
|
|
|
|
4,474
|
|
Total stockholders equity
|
|
|
1,662,346
|
|
|
|
1,700,339
|
|
|
|
1,989,021
|
|
|
|
1,923,453
|
|
|
|
1,660,804
|
|
|
|
|
(1) |
|
Net revenues and net income for the fiscal year ended
April 24, 2009 included a GSA settlement of $128,715. Net
income for fiscal 2006 included an income tax expense of $22,500
related to the American Jobs Creation Act and the repatriation
of foreign subsidiary earnings back to the U.S. |
8
SELECTED
CONSOLIDATED HISTORICAL FINANCIAL DATA OF DATA DOMAIN
The tables below present selected consolidated financial data of
Data Domain prepared in accordance with GAAP. The data below are
only a summary and should be read in conjunction with Data
Domains consolidated financial statements and accompanying
notes, as well as Data Domains managements
discussion and analysis of financial condition and results of
operations, all of which can be found in publicly available
documents, including those incorporated by reference in this
proxy statement/prospectus. The unaudited consolidated financial
statements have been prepared on the same basis as the audited
consolidated financial statements and include, in the opinion of
management, all adjustments, which include only normal recurring
adjustments that management considers necessary for the fair
presentation of the financial information set forth in those
statements. Historical results are not necessarily indicative of
future results. For a complete list of documents incorporated by
reference in this proxy statement/prospectus, see Where
You Can Find More Information beginning on page 96.
The consolidated statements of operations data for the three
months ended March 31, 2009 and 2008, and the consolidated
balance sheet data as of March 31, 2009 are derived from
the unaudited consolidated financial statements of Data Domain
and the related notes thereto that are incorporated by reference
into this proxy statement/prospectus. The consolidated statement
of operations data for the fiscal years ended December 31,
2008, 2007 and 2006, and the consolidated balance sheet data as
of December 31, 2008 and 2007 are derived from the audited
consolidated financial statements of Data Domain and the related
notes thereto that are incorporated by reference into this proxy
statement/prospectus. The consolidated statements of operations
data for the fiscal years ended December 31, 2005 and 2004,
and the consolidated balance sheet data as of December 31,
2006 and 2005 are derived from audited consolidated financial
statements not included, or incorporated by reference, in this
proxy statement/prospectus. The consolidated balance sheet data
as of December 31, 2004 are derived from unaudited
consolidated financial statements not included, or incorporated
by reference, into this proxy statement/prospectus.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
79,036
|
|
|
$
|
52,615
|
|
|
$
|
274,085
|
|
|
$
|
123,622
|
|
|
$
|
46,434
|
|
|
$
|
8,121
|
|
|
$
|
779
|
|
Total cost of revenue
|
|
|
22,831
|
|
|
|
13,806
|
|
|
|
76,180
|
|
|
|
35,901
|
|
|
|
14,523
|
|
|
|
5,170
|
|
|
|
1,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
56,205
|
|
|
|
38,809
|
|
|
|
197,905
|
|
|
|
87,721
|
|
|
|
31,911
|
|
|
|
2,951
|
|
|
|
(645
|
)
|
Total operating expenses
|
|
|
54,083
|
|
|
|
37,574
|
|
|
|
181,095
|
|
|
|
94,910
|
|
|
|
36,449
|
|
|
|
16,984
|
|
|
|
9,370
|
|
Operating income (loss)
|
|
|
2,122
|
|
|
|
1,235
|
|
|
|
16,810
|
|
|
|
(7,189
|
)
|
|
|
(4,538
|
)
|
|
|
(14,033
|
)
|
|
|
(10,015
|
)
|
Net income (loss)
|
|
$
|
1,250
|
|
|
$
|
2,741
|
|
|
$
|
21,593
|
|
|
$
|
(3,660
|
)
|
|
$
|
(4,026
|
)
|
|
$
|
(13,783
|
)
|
|
$
|
(9,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
|
$
|
0.37
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(2.38
|
)
|
|
$
|
(2.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, diluted
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.33
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.56
|
)
|
|
$
|
(2.38
|
)
|
|
$
|
(2.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) per share
|
|
|
60,157
|
|
|
|
56,414
|
|
|
|
58,254
|
|
|
|
31,482
|
|
|
|
7,128
|
|
|
|
5,801
|
|
|
|
4,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) per share
|
|
|
65,739
|
|
|
|
65,378
|
|
|
|
65,814
|
|
|
|
31,482
|
|
|
|
7,128
|
|
|
|
5,801
|
|
|
|
4,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short-term investments
|
|
$
|
246,852
|
|
|
$
|
233,892
|
|
|
$
|
207,136
|
|
|
$
|
11,857
|
|
|
$
|
12,505
|
|
|
$
|
9,358
|
|
Working capital
|
|
|
248,058
|
|
|
|
232,996
|
|
|
|
203,688
|
|
|
|
12,856
|
|
|
|
9,692
|
|
|
|
8,233
|
|
Total assets
|
|
|
400,713
|
|
|
|
386,981
|
|
|
|
261,364
|
|
|
|
30,913
|
|
|
|
18,896
|
|
|
|
11,394
|
|
Other liabilities
|
|
|
2,058
|
|
|
|
2,910
|
|
|
|
594
|
|
|
|
3,319
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,514
|
|
|
|
41,309
|
|
|
|
26,273
|
|
Common stock and additional paid-in capital
|
|
|
308,619
|
|
|
|
295,564
|
|
|
|
248,078
|
|
|
|
3,049
|
|
|
|
1,542
|
|
|
|
1,293
|
|
Total stockholders equity (deficit)
|
|
|
289,748
|
|
|
|
276,884
|
|
|
|
207,862
|
|
|
|
(33,566
|
)
|
|
|
(31,037
|
)
|
|
|
(17,516
|
)
|
10
SELECTED
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined
financial data was prepared using the purchase method of
accounting. The NetApp and Data Domain selected unaudited pro
forma condensed combined balance sheet data assume that the
merger of NetApp and Data Domain took place on April 24,
2009, and combines the NetApp historical consolidated balance
sheet at April 24, 2009 with Data Domains historical
consolidated balance sheet at March 31, 2009. The NetApp
and Data Domain selected unaudited pro forma condensed combined
statement of operations data assume that the merger of NetApp
and Data Domain took place as of April 26, 2008. The
selected unaudited pro forma condensed combined statement of
operations data for the fiscal year ended April 24, 2009
combines NetApps historical consolidated statement of
income for the fiscal year then ended with Data Domains
results of operations for the twelve months ended March 31,
2009.
The selected unaudited pro forma condensed combined financial
data is presented for illustrative purposes only and is not
necessarily indicative of the combined financial position or
results of operations of future periods or the results that
actually would have been realized had the entities been a single
entity during these periods. The selected unaudited pro forma
condensed combined financial data as of and for the fiscal year
ended April 24, 2009 is derived from the unaudited pro
forma condensed combined financial statements included elsewhere
in this proxy statement/prospectus and should be read in
conjunction with those statements and the related notes. See
Unaudited Pro Forma Condensed Combined Financial
Statements.
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
Ended
|
|
|
|
April 24,
|
|
|
|
2009
|
|
|
|
(In thousands,
|
|
|
|
except per share amounts)
|
|
|
Selected Unaudited Pro Forma Condensed Combined Statement of
Operations Data:
|
|
|
|
|
Net revenues
|
|
$
|
3,706,899
|
|
Gross profit
|
|
|
2,160,066
|
|
Loss before income taxes
|
|
|
(22,306
|
)
|
Net income
|
|
|
51,628
|
|
Net income per share: basic
|
|
$
|
0.14
|
|
Net income per share: diluted
|
|
$
|
0.14
|
|
Weighted average number of shares used in computing net income
per share:
|
|
|
|
|
Basic
|
|
|
374,485
|
|
Diluted
|
|
|
381,194
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
April 24,
|
|
|
|
2009
|
|
|
Selected Unaudited Pro Forma Condensed Combined Balance Sheet
Data:
|
|
|
|
|
Cash and cash equivalents and short-term investments
|
|
$
|
1,800,024
|
|
Working capital
|
|
|
967,848
|
|
Total assets
|
|
|
6,703,341
|
|
Long-term debt and other long-term obligations
|
|
|
1,575,248
|
|
Stockholders equity
|
|
|
2,656,333
|
|
11
COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table shows historical information about
NetApps and Data Domains respective income per share
and book value per share, and similar information reflecting the
merger, referred to as pro forma information. As NetApp has a
fiscal year ending on the last Friday in April and Data Domain
has a fiscal year ending on December 31, the unaudited pro
forma condensed combined balance sheet combines the historical
balances of NetApp as of April 24, 2009 with the historical
balances of Data Domain as of March 31, 2009, plus pro
forma adjustments as if the merger had occurred on April 26,
2008. In addition, the unaudited pro forma condensed combined
statement of operations combines the historical results of
NetApp for the year ended April 24, 2009 with the
historical results of Data Domain for the twelve months ended
March 31, 2009, plus pro forma adjustments as if the merger
had occurred on April 26, 2008. Data Domains data has
been calculated by combining its reported interim data for each
quarter within the respective period.
NetApp is required to account for the merger using the purchase
method of accounting under GAAP, for accounting and financial
reporting purposes. Under the purchase method of accounting, the
assets acquired and liabilities assumed from Data Domain as of
the completion of the merger will be recorded at their
respective fair values and added to those of NetApp. Any excess
of the purchase price over the fair value of assets acquired and
liabilities assumed will be recorded as goodwill. The
consolidated financial statements of NetApp issued after the
merger will reflect these fair values and will not be restated
retroactively to reflect the historical financial position or
results of operations of Data Domain.
The pro forma financial information includes estimates of the
purchase price and adjustments to record certain assets and
liabilities of Data Domain at their respective fair values.
These pro forma adjustments are subject to updates as additional
information becomes available and as additional analyses are
performed. Certain other assets and liabilities of Data Domain
will also be subject to adjustment to their respective fair
values. Pending more detailed analyses, no pro forma adjustments
are included for those assets and liabilities, including
additional intangible assets that may be identified. Any change
in the fair value of the net assets of Data Domain will change
the amount of the purchase price allocable to goodwill.
Additionally, changes to Data Domains stockholders
equity, including net income through the date the merger is
completed, will change the amount of goodwill recorded. The
final adjustments may differ materially from the pro forma
adjustments reflected in this proxy statement/prospectus.
NetApp also anticipates that the merger will provide it with
financial benefits that include, with respect to the combined
entity, revenue and operating expense synergies, but these
financial benefits are not reflected in the pro forma
information. Accordingly, the pro forma information does not
attempt to predict or suggest future results. It also does not
necessarily reflect what the historical results of NetApp would
have been had NetApp and Data Domain been combined during the
periods presented.
The information in the following table is based on historical
financial information and related notes for Data Domain and
NetApp, as well as the unaudited pro forma condensed combined
financial statements. You should read the summary financial
information provided in the following table together with
historical financial information and related notes. The
historical financial information of Data Domain and NetApp is
also incorporated by reference into this proxy
statement/prospectus. See Where You Can Find More
Information beginning on page 96 for a description of
where you can find this historical information. Neither NetApp
nor Data Domain has declared dividends on its common stock
during the last three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NetApp
|
|
|
Data Domain(1)
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
Twelve Months
|
|
|
|
Fiscal Year
|
|
|
Ended
|
|
|
Twelve Months
|
|
|
Ended
|
|
|
|
Ended
|
|
|
April 24, 2009
|
|
|
Ended
|
|
|
March 31, 2009
|
|
|
|
April 24, 2009
|
|
|
Pro Forma
|
|
|
March 31, 2009
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Combined
|
|
|
Historical
|
|
|
Combined Equivalent(2)
|
|
|
Income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
0.14
|
|
|
$
|
0.34
|
|
|
$
|
0.10
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.14
|
|
|
$
|
0.30
|
|
|
$
|
0.10
|
|
Book value per share at period end
|
|
$
|
5.00
|
|
|
$
|
7.06
|
|
|
$
|
4.78
|
|
|
$
|
4.96
|
|
12
|
|
|
(1) |
|
Data Domain book value per share is stockholders equity
divided by total shares outstanding reduced by shares subject to
repurchase. |
|
(2) |
|
The pro forma Data Domain equivalent per share amounts were
calculated by applying an exchange ratio of 0.7026 as described
in Note 4 to the Unaudited Pro Forma Condensed Combined
Financial Statements, to the pro forma combined net income and
book value per share. The exchange ratio used in this pro forma
table reflects the value of the per share merger consideration,
exclusive of the cash portion of $16.45, of $14.00 divided by
the value of a share of NetApp common stock of $19.92 (as of
June 11, 2009), with each of the numerator and denominator
calculated based on the average of the closing price for NetApp
common stock for the 10 trading day period ended June 8,
2009. The final ratio of the per share merger consideration to
the value of a share of NetApp common stock will vary based on
the trading price of NetApp common stock. |
13
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this proxy
statement/prospectus contains or incorporates by reference
certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are not historical facts but instead
represent NetApps beliefs and expectations regarding
future events, many of which are, by their nature, inherently
uncertain and outside NetApps control. Forward-looking
statements include statements preceded by, followed by, or
including the words could, would,
should, may, will,
target, plan, believe,
expect, intend, anticipate,
estimate, project,
potential, possible,
objective, outlook,
probably, seek, strategy and
other similar expressions. In particular, the forward-looking
statements contained in this proxy statement/prospectus include,
but are not limited to, statements regarding:
|
|
|
|
|
the expected financial condition, results of operations,
earnings outlook and prospects of NetApp, Data Domain and the
combined company;
|
|
|
|
the expected benefits and synergies of the merger;
|
|
|
|
the likelihood that NetApp and Data Domain will receive the
regulatory approvals required to complete the merger;
|
|
|
|
NetApps expectation that customers will continue to adopt
deduplication technology;
|
|
|
|
the expectation that the acquisition of Data Domain will
complement NetApps storage and data management business;
|
|
|
|
the expectation that the merger will allow NetApp to capture a
greater share of the capacity optimized disk market;
|
|
|
|
the expectation that the merger will result in increased
operational efficiency and create opportunities for cost
reduction through the elimination of redundant overhead expenses
and public company costs; and
|
|
|
|
the expectation that the second-step merger will occur.
|
The forward-looking statements contained or incorporated by
reference herein are subject to certain risks and uncertainties
that may cause actual results to differ materially from those
reflected in the forward-looking statements. Such risk and
uncertainties include those set forth on page 14 under the
heading Risk Factors, as well as, among others, the
following:
|
|
|
|
|
the expenses of the merger being greater than anticipated,
including as a result of unexpected factors or events and
unanticipated tax consequences of the merger;
|
|
|
|
the exposure to litigation, including the possibility that
litigation relating to the merger agreement and related
transactions could delay or impede the completion of the merger;
|
|
|
|
the integration of Data Domains business and operations
with those of NetApp taking longer than anticipated, being
costlier than anticipated and having unanticipated adverse
results relating to Data Domains or NetApps existing
businesses; and
|
|
|
|
the anticipated cost savings and other synergies of the merger
taking longer to be realized or failing to be achieved in their
entirety, and attrition in key client, partner and other
relationships relating to the merger greater than expected.
|
You are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as
of the date of this proxy statement/prospectus or the date of
any document incorporated by reference in this document. Except
to the extent required by applicable law or regulation, neither
NetApp nor Data Domain undertakes any obligation to update these
forward-looking statements to reflect events or circumstances
after the date of this proxy statement/prospectus or to reflect
the occurrence of unanticipated events.
All subsequent written and oral forward-looking statements
concerning the merger or other matters addressed in this proxy
statement/prospectus and attributable to NetApp or Data Domain
or any person acting on their behalf are expressly qualified in
their entirety by the preceding cautionary statement.
14
RISK
FACTORS
In addition to the other information included in and
incorporated by reference into this proxy statement/prospectus,
including the matters addressed in the section entitled
Cautionary Statement Regarding Forward-Looking
Statements beginning on page 13, you should carefully
consider the following risk factors before deciding whether to
vote for approval of the merger proposal and the adjournment
proposal. In addition, you should read and consider the risks
associated with the business of NetApp and the business of Data
Domain because these risks will also affect the combined
company. These risks can be found in NetApps Annual Report
on
Form 10-K,
as filed with the SEC on June 16, 2009, and Data
Domains Annual Report on
Form 10-K
and
Form 10-K/A,
as filed with the SEC on March 13, 2009 and April 30,
2009, respectively, each of which is incorporated herein by
reference. You should also read and consider the other
information in this proxy statement/prospectus and the other
documents incorporated by reference into this proxy
statement/prospectus. See the section entitled Where You
Can Find More Information beginning on page 96.
Risks
Relating to the Merger
The
consideration that you will receive in the merger depends upon
the price of NetApps common stock at the closing of the
first-step merger and may fall below $30 per share of Data
Domain stock.
At the closing of the first-step merger, each share of Data
Domain common stock will be converted into the right to receive
a cash payment of $16.45, plus a fraction of a share of NetApp
common stock equal to the exchange ratio. The exchange ratio is
based on the closing average of NetApp common stock and, within
a certain range of possible closing averages, will result in the
right to receive NetApp common stock with a market value of
$13.55 per share of Data Domain stock, or a total merger
consideration of $30 per share. Under the terms of the merger
agreement, the exchange ratio will be calculated as follows:
|
|
|
|
|
if the closing average is less than $17.41, then the exchange
ratio will be 0.7783;
|
|
|
|
if the closing average is greater than $21.27, then the exchange
ratio will be 0.6370; and
|
|
|
|
if the closing average is less than or equal to $21.27 and
greater than or equal to $17.41, then the exchange ratio will be
calculated as the fraction obtained by dividing $13.55 by the
closing average.
|
As a result of the collar mechanism described above, if the
closing average (as described in the second paragraph of the
section entitled Summary beginning on page 1)
is less than $17.41, then for each share of Data Domain stock
you own, you will receive less than $13.55 worth of NetApp
common stock, resulting in a total merger consideration of less
than $30 per share.
The
market price of NetApps common stock may decline as a
result of the merger.
The market price of NetApps common stock may decline as a
result of the merger for a number of reasons, including:
|
|
|
|
|
the integration of Data Domain by NetApp may be unsuccessful;
|
|
|
|
NetApp may not achieve the perceived benefits of the merger as
rapidly as, or to the extent, anticipated by financial or
industry analysts; or
|
|
|
|
the effect of the merger on NetApps financial results may
not be consistent with the expectations of financial or industry
analysts.
|
These factors are, to some extent, beyond NetApps control.
In addition, for Data Domain stockholders who hold their shares
in certificated form, there will be a time period between the
effective time of the merger and the time when Data Domain
stockholders actually receive book-entry shares evidencing
NetApp common stock. Until book-entry shares are received, Data
Domain stockholders will not be able to sell their shares of
NetApp common stock in the open market and, thus, will not be
able to avoid losses resulting from any decline in the market
price of NetApp common stock during this period.
15
The
failure of NetApp to operate and manage the combined company
effectively could have a material adverse effect on
NetApps business, financial condition and operating
results.
NetApp will need to meet significant challenges to realize the
expected benefits and synergies of the merger. These challenges
include:
|
|
|
|
|
integrating the management teams, strategies, cultures,
technologies and operations of the two companies;
|
|
|
|
retaining and assimilating the key personnel of each company;
|
|
|
|
retaining existing Data Domain customers; and
|
|
|
|
creating uniform standards, controls, procedures, policies and
information systems.
|
The accomplishment of these post-merger objectives will involve
considerable risk, including:
|
|
|
|
|
the potential disruption of each companys ongoing business
and distraction of their respective management teams;
|
|
|
|
the difficulty of incorporating acquired technology and rights
into NetApps operations;
|
|
|
|
unanticipated expenses related to the integration;
|
|
|
|
potential unknown liabilities associated with the
merger; and
|
|
|
|
managing the risks related to Data Domains business as
described in Data Domains Annual Report on
Form 10-K
for the period ending December 31, 2008, as amended, that
may continue to impact the business following the merger.
|
NetApp and Data Domain have operated and, until the completion
of the merger, will continue to operate, independently. It is
possible that the integration process could result in the loss
of the technical skills and management expertise of key
employees, the disruption of each companys ongoing
businesses or inconsistencies in standards, controls, procedures
and policies due to possible cultural conflicts or differences
of opinions on technical decisions and product roadmaps that
adversely affect NetApps ability to maintain relationships
with customers, suppliers and employees or to achieve the
anticipated benefits of the merger.
Even if NetApp is able to integrate the Data Domain business
operations successfully, this integration may not result in the
realization of the full benefits of synergies, cost savings,
innovation and operational efficiencies that may be possible
from this integration, and these benefits may not be achieved
within a reasonable period of time.
The
merger may be a fully taxable transaction for U.S. federal
income tax purposes.
The U.S. tax consequences of the merger depend on whether
it meets the requirements of Section 368(a) of the Code,
including the continuity of interest test, which will be
satisfied if the stock consideration, valued as of the last
business day immediately prior to the closing date of the
merger, constitutes at least 40% of the total consideration paid
or payable to Data Domain stockholders in the
first-step
merger. Whether the continuity of interest test will be
satisfied depends primarily upon the market value of the NetApp
common stock immediately before the
first-step
merger and the extent to which NetApp is required to substitute
cash for stock at the closing pursuant to the terms of merger
agreement. No assurances can be given that the continuity of
interest test will be met. If the test is not met, the
second-step merger will not occur, and the merger will be a
fully taxable transaction. In deciding whether to approve the
merger, you should consider the possibility that the merger may
be fully taxable to you, because you will not be entitled to
change your vote in that event.
Failure
to retain key employees could diminish the anticipated benefits
of the merger.
The success of the merger will depend in part on the retention
of personnel critical to the business and operations of the
combined company due to, for example, their technical skills or
management expertise. Employees may experience uncertainty about
their future role with Data Domain and NetApp until strategies
with regard to these employees are announced or executed. If
Data Domain and NetApp are unable to retain personnel, including
Data Domains key management, technical and sales
personnel, who are critical to the successful integration and
future operations of the companies, Data Domain and NetApp could
face disruptions in their operations, loss of existing
customers, loss of key information, expertise or know-how, and
unanticipated additional recruitment and training costs. In
addition, the loss of key personnel could diminish the
anticipated benefits of the merger.
16
Uncertainty
regarding the merger may cause customers, suppliers or strategic
partners to delay or defer decisions concerning NetApp and Data
Domain and adversely affect each companys ability to
attract and retain key employees.
The merger will happen only if stated conditions are met,
including the approval of the merger proposal by Data
Domains stockholders, the receipt of regulatory approvals,
and the absence of any material adverse effect in the business
of Data Domain or NetApp. Many of the conditions are outside the
control of Data Domain and NetApp, and both parties also have
stated rights to terminate the merger agreement. Accordingly,
there may be uncertainty regarding the completion of the merger.
This uncertainty may cause customers, suppliers or strategic
partners to delay or defer decisions concerning Data Domain or
NetApp, which could negatively affect their respective
businesses. Any delay or deferral of those decisions or changes
in existing agreements could have a material adverse effect on
the respective businesses of Data Domain and NetApp, regardless
of whether the merger is ultimately completed. Moreover,
diversion of management focus and resources from the
day-to-day
operation of the business to matters relating to the merger
could have a material adverse effect on each companys
business, regardless of whether the merger is completed. Current
and prospective employees of each company may experience
uncertainty about their future roles with the combined company.
This may adversely affect each companys ability to attract
and retain key management, sales, marketing and technical
personnel.
The
market price of NetApp common stock after the merger may be
affected by factors different from those affecting the shares of
Data Domain or NetApp currently.
The businesses of NetApp and Data Domain differ in important
respects and, accordingly, the results of operations of the
combined company and the market price of the combined
companys shares of common stock may be affected by factors
different from those currently affecting the independent results
of operations of NetApp and Data Domain. For a discussion of the
businesses of NetApp and Data Domain and of certain factors to
consider in connection with those businesses, see the documents
incorporated by reference in this proxy statement/prospectus and
referred to under Where You Can Find More
Information beginning on page 96.
The
merger may go forward in certain circumstances even if NetApp or
Data Domain suffers a material adverse effect.
In general, either party can refuse to complete the merger if a
material adverse effect (as defined below under the
heading The Merger Agreement Material Adverse
Effect) occurs with regard to the other party before the
closing. However, neither party may refuse to complete the
merger on that basis as a result of any fact, circumstance,
change or effect resulting from:
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changes in the general economic conditions in the United States
or any other country or region in the world, or changes in
conditions in the global economy generally, to the extent that
they do not have a disproportionate impact on NetApp or Data
Domain relative to other companies and operating in the same
industries in which NetApp or Data Domain operates;
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changes in general conditions in the industries in which NetApp
or Data Domain operates, to the extent that they do not have a
disproportionate impact on NetApp or Data Domain relative to
other companies operating in the same industries in which NetApp
or Data Domain, as a operates;
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changes in generally accepted accounting principles or other
accounting standards, or the interpretation of such principles
or standards by a third party, applicable federal, state, local,
municipal, foreign or other law or regulatory conditions, or the
interpretation of such law or regulations by a third party;
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any failure to take any action or the taking of any specific
action by NetApp or Data Domain taken with the prior written
consent or written direction of the other party;
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the taking of any specific action expressly required by the
merger agreement;
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acts of war, armed hostilities or terrorism, to the extent that
they do not have a disproportionate impact on NetApp or Data
Domain relative to other companies operating in the same
industries in which NetApp or Data Domain operates;
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changes in the trading price or trading volume of NetApps
or Data Domains common stock, in and of itself, provided
that the exception described in this bullet shall not in any way
prevent or otherwise affect a determination that any fact,
circumstance, change or effect that has resulted in, or
contributed to, a material adverse effect;
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the public announcement of the merger agreement or pendency of
the merger, including any loss of employees, provided that the
exception described in this bullet shall not apply to any fact,
circumstance, change or effect related to or caused by any legal
proceedings resulting from the announcement and pendency of the
merger and the transactions contemplated by the merger agreement;
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any failure of NetApp or Data Domain to meet any public or
internal estimates or expectations of revenue, earnings or other
financial performance or results of operations for any period,
or failure to meet any internal budgets, plans, or forecasts of
revenues, earnings or other financial performance or results of
operations (it being understood that any underlying cause of any
such failure may be deemed to constitute, in and of itself, a
material adverse effect and may be taken into consideration when
determining whether a material adverse effect has
occurred); or
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stockholder class action, derivative litigation or other legal
proceedings made or brought by any of the current or former
stockholders of NetApp or Data Domain against NetApp or Data
Domain arising out of the merger or any other transactions
contemplated by the merger agreement.
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If adverse changes occur but NetApp and Data Domain must still
complete the merger, NetApps stock price may suffer. This
in turn may reduce the value of the merger to Data Domain
stockholders.
Data
Domain stockholders will have a reduced ownership and voting
interest after the merger and will exercise less influence over
management.
Data Domain stockholders currently have the right to vote in the
election of the board of directors of Data Domain and on other
matters affecting Data Domain. When the merger occurs, each Data
Domain stockholder that receives shares of NetApp common stock
will become a stockholder of NetApp with a percentage ownership
of the combined company that is much smaller than the
stockholders percentage ownership of Data Domain. It is
expected that the former stockholders of Data Domain as a group
will own less than 15% of the outstanding shares of NetApp
immediately after the completion of merger. Because of this,
Data Domains stockholders will have less influence on the
management and policies of NetApp than they now have on the
management and policies of Data Domain.
The
merger agreement limits Data Domains ability to pursue
alternatives to the merger.
The merger agreement contains no shop provisions
that, subject to limited exceptions, limit Data Domains
ability to discuss, facilitate or commit to competing
third-party proposals, including, but not limited to, EMCs
cash tender offer to the Data Domain stockholders, to acquire
all or a significant part of Data Domain, as well as a
termination fee that is payable by Data Domain under certain
circumstances. These provisions might discourage other potential
competing acquirors that might have an interest in acquiring all
or a significant part of Data Domain from considering or
proposing that acquisition even if it were prepared to pay
consideration with a higher per share market price than that
proposed in the merger or might result in a potential competing
acquiror proposing to pay a lower per share price to acquire
Data Domain than it might otherwise have proposed to pay.
The
merger is subject to the receipt of consents and approvals from
regulatory authorities that may impose conditions that could
have an adverse effect on NetApp or, if not obtained, could
prevent completion of the merger.
Before the merger may be completed, various approvals or
consents must be obtained from various regulatory and other
authorities. While NetApp and Data Domain believe that they will
receive the requisite regulatory approvals from these
governmental authorities, there can be no assurance of this. If
such approvals are not obtained, the merger will not be
completed. In addition, these governmental authorities may
impose conditions on the completion of the merger or require
changes to the terms of the merger. Although NetApp and Data
Domain do not currently expect that any such conditions or
changes would be imposed, there can be no assurance that they
will not be, and such conditions or changes could have the
effect of delaying completion of the merger or imposing
additional costs on or limiting the revenues of NetApp following
the merger, any of which might have a material
18
adverse effect on NetApp following the merger. For a full
description of the regulatory clearances, consents and approvals
required for the merger, please see Data Domain
Proposal 1 The Merger Regulatory
Approvals Required for the Merger beginning on
page 52.
Failure
to complete the merger could negatively affect Data
Domains stock price and its future business and
operations.
If the merger is not completed for any reason, Data Domain may
be subject to a number of material risks, including the
following:
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Data Domain may be required under certain circumstances to pay
NetApp a termination fee of $57.0 million;
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the price of Data Domains common stock may
decline; and
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costs related to the merger, such as financial advisory, legal,
accounting and printing fees, must be paid even if the merger is
not completed.
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If the merger agreement is terminated, Data Domain may be unable
to pursue another business combination transaction on terms as
favorable as those set forth in the merger agreement, or at all.
This could limit Data Domains ability to pursue its
strategic goals.
NetApp
and Data Domain may waive one or more of the conditions of the
merger without re-soliciting stockholder approval for the
merger.
Each of the conditions to NetApps and Data Domains
obligations to complete the merger may be waived, in whole or in
part, to the extent permitted by applicable law, by agreement of
NetApp and Data Domain, if the condition is a condition to both
NetApps and Data Domains obligation to complete the
merger, or by the party for which such condition is a condition
of its obligation to complete the merger. The boards of
directors of NetApp and Data Domain may evaluate the materiality
of any such waiver to determine whether amendment of this proxy
statement/prospectus and re-solicitation of proxies are
necessary. NetApp and Data Domain, however, generally do not
expect any such waiver to be significant enough to require
re-solicitation of stockholders. In the event that any such
waiver is not determined to be significant enough to require
re-solicitation of stockholders, the companies will have the
discretion to complete the merger without seeking further
stockholder approval.
If
Data Domain stockholders sell the NetApp common stock received
in the merger, they could cause a decline in the market price of
NetApp common stock.
NetApps issuance of common stock in the merger will be
registered with the SEC. As a result, those shares will be
immediately available for resale in the public market. The
maximum number of shares of NetApp common stock to be issued to
Data Domain stockholders in connection with the merger and
immediately available for resale will equal approximately 14% of
the number of outstanding shares of NetApp common stock
currently in the public market. Data Domain stockholders may
sell the stock they receive commencing immediately after the
merger. If this occurs, or if other holders of NetApp common
stock sell significant amounts of NetApp common stock
immediately after the merger is completed, the market price of
NetApp common stock may decline.
A
shift or decline in the demand for deduplication technology
could substantially reduce the anticipated benefits of the
merger.
NetApp expects that customers will continue to adopt
deduplication technology and that the acquisition of Data Domain
will result in certain market synergies. However, if customer
demand in the deduplication market decreases or is less than
expected, or if customer preferences shift to a new or different
technology, then NetApp may not realize all of the anticipated
benefits of the merger.
Although
NetApp has traditionally used a single operating system,
NetApps ability to realize the expected benefits of the
merger will depend upon its ability to successfully operate the
Data Domain operating system as a separate
platform.
NetApp currently runs a single platform, Data ONTAP, and expects
to run the Data Domain operating system as a separate platform.
Running two platforms could require significant investments of
time and financial resources. If NetApp is unable to effectively
maintain and support both platforms or otherwise adjust its
infrastructure and
19
processes to accommodate the parallel operation of both
platforms in a timely manner, then the strategic benefits of the
merger may not be realized or could be significantly reduced.
Failure
to achieve significant cost synergies could harm NetApps
business and operating results.
NetApp anticipates that the merger will result in cost synergies
associated with combining facilities, IT infrastructure,
and certain functions such as finance, human resources and
administrative services. However, differences between the two
companies operations could cause unforeseen delays in the
integration process, result in lower savings than originally
anticipated, or both, which could adversely affect NetApps
business and operating results.
20
THE DATA
DOMAIN SPECIAL MEETING
This section contains information about the special meeting of
Data Domain stockholders that has been called to consider and
approve the merger proposal and the adjournment proposal.
Together with this proxy statement/prospectus, Data Domain is
also sending you a notice of the special meeting and a form of
proxy that is solicited by the Data Domain board of directors.
Time,
Date and Place
The special meeting will be held on August 14, 2009 at
9 a.m., local time, at 2421 Mission College Blvd.,
Santa Clara, CA 95054.
Matters
to Be Considered
The purpose of the special meeting is to vote on the following
proposals:
1. To adopt the Agreement and Plan of Merger, dated as of
May 20, 2009, as amended on June 3, 2009, by and among
NetApp, Kentucky Merger Sub One Corporation, Derby Merger Sub
Two LLC and Data Domain, as the agreement may be amended from
time to time, which proposal is referred to as the merger
proposal; and
2. To approve the adjournment or postponement of the
special meeting, if necessary, to solicit additional proxies, in
the event that there are not sufficient votes at the time of the
special meeting to approve the merger proposal, which proposal
is referred to as the adjournment proposal.
Proxies
Each copy of this proxy statement/prospectus mailed to holders
of Data Domain common stock is accompanied by a form of proxy
with instructions for voting. If you hold stock in your name as
a stockholder of record, you should vote your shares by
(i) completing, signing, dating and returning the enclosed
proxy card, (ii) using the telephone number on your proxy
card or (iii) using the Internet voting instructions on
your proxy card to ensure that your vote is counted at the
special meeting, or at any adjournment or postponement of the
special meeting, regardless of whether you plan to attend the
special meeting.
If you hold your stock in street name through a
bank, broker or other nominee, you must direct your bank, broker
or other nominee to vote in accordance with the instructions you
have received from your bank, broker or other nominee.
If you hold stock in your name as a stockholder of record, you
may revoke any proxy at any time before it is voted by signing
and returning a proxy card with a later date, delivering a
written revocation letter to Data Domains Secretary, or by
attending the special meeting in person, notifying Data
Domains Corporate Secretary, and voting by ballot at the
special meeting.
Any stockholder entitled to vote in person at the special
meeting may vote in person regardless of whether a proxy has
been previously given, but the mere presence (without notifying
Data Domains Corporate Secretary) of a stockholder at the
special meeting will not constitute revocation of a previously
given proxy.
Written notices of revocation and other communications about
revoking your proxy should be addressed to:
Data Domain, Inc.
2421 Mission College Blvd.
Santa Clara, CA 95054
Attention: Corporate Secretary
If your shares are held in street name by a bank,
broker or other nominee, you should follow the instructions of
your bank, broker or other nominee regarding the revocation of
proxies.
According to the Data Domain amended and restated bylaws,
business to be conducted at a special meeting of stockholders
may only be brought before the meeting by or at the direction of
the Data Domain board of directors, or by any Data Domain
stockholder who is entitled to vote at the meeting and who
complies with the notice provisions set forth in the Data Domain
amended and restated bylaws. No matters other than the matters
described in this document are anticipated to be presented for
action at the special meeting or at any adjournment or
postponement of the special meeting.
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Data Domain stockholders should not send Data Domain stock
certificates with their proxy cards. After the merger is
completed, NetApp will mail to holders of Data Domain common
stock a transmittal form with instructions on how to exchange
their Data Domain stock certificates for the merger
consideration.
Solicitation
of Proxies
Since many Data Domain stockholders may be unable to attend the
special meeting, Data Domains board of directors is
soliciting proxies to be voted at the special meeting to give
each stockholder an opportunity to vote on all matters scheduled
to come before the meeting and set forth in this proxy
statement/prospectus. Data Domains board of directors is
asking stockholders to designate Frank Slootman and Michael P.
Scarpelli, or any one of them, as their proxies.
NetApp will pay the costs of printing and mailing this proxy
statement/prospectus to Data Domains stockholders, and
Data Domain will pay all other costs incurred by it in
connection with the solicitation of proxies from its
stockholders on behalf of its board of directors, including the
entire cost of soliciting proxies from you. In addition to
solicitation of proxies by mail, Data Domain will request that
banks, brokers, and other record holders send proxies and proxy
material to the beneficial owners of Data Domain common stock
and secure their voting instructions. Data Domain will reimburse
the record holders for their reasonable expenses in taking those
actions. Data Domain has also made arrangements with Innisfree
M&A Incorporated to assist it in soliciting proxies and has
agreed to pay them $50,000 plus reasonable expenses for these
services over a three month period. Data Domain has agreed to
indemnify Innisfree M&A Incorporated for claims related to
these services. If necessary, Data Domain may use several of its
directors, executive officers and employees, who will not be
specially compensated, to solicit proxies from Data Domain
stockholders, either personally or by telephone, facsimile,
letter or other electronic means.
Record
Date
The close of business on June 17, 2009 has been fixed as
the record date for determining the Data Domain stockholders
entitled to receive notice of and to vote at the special
meeting. At that time, 62,885,090 shares of Data Domain
common stock were outstanding, held by approximately 114
registered holders.
Voting
Rights and Vote Required
The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Data Domain common stock
entitled to vote is necessary to constitute a quorum at the
special meeting. Abstentions will be counted for the purpose of
determining whether a quorum is present.
Approval of the merger proposal requires the affirmative vote of
the holders of a majority of the outstanding shares of Data
Domain common stock entitled to vote at the special meeting. You
are entitled to one vote for each share of Data Domain common
stock you hold as of the record date.
Because the affirmative vote of the holders of a majority of the
outstanding shares of Data Domain common stock entitled to vote
at the special meeting is needed to approve the merger proposal,
the failure to vote by proxy or in person will have the same
effect as a vote against the approval of the merger proposal.
Abstentions and broker non-votes will also have the same effect
as a vote against the approval of the merger proposal.
Accordingly, the Data Domain board of directors urges Data
Domain stockholders to promptly vote by (i) completing,
signing, dating and returning the enclosed proxy card,
(ii) using the telephone number on your proxy card, or
(iii) using the Internet voting instructions on your proxy
card, or, if you hold your stock in street name
through a bank, broker or other nominee, by following the voting
instructions of your bank, broker or other nominee.
Approval of the adjournment proposal requires the affirmative
vote of the holders of a majority of the shares entitled to vote
and present in person or by proxy. Because approval of this
proposal requires the affirmative vote of a majority of shares
present in person or by proxy, abstentions will have the same
effect as a vote against this proposal. However, the failure to
vote, either by proxy or in person, and broker non-votes, will
have no effect on the adjournment proposal.
Stockholders may vote at the meeting by ballot. Votes cast at
the meeting, in person or by proxy, will be tallied by Innisfree
M&A Incorporated, Data Domains proxy solicitor.
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As of the record date, directors and executive officers of Data
Domain, and their affiliates, had the right to vote
12,949,507 shares of Data Domain common stock, or 20.6% of
the outstanding Data Domain common stock at that date. Data
Domain currently expects that each of these individuals will
vote their shares of Data Domain common stock in favor of the
proposals to be presented at the special meeting. Certain
executive officers of Data Domain and their affiliates,
collectively holding 12,449,507 shares of Data Domain
common stock, or 19.8% of the outstanding Data Domain common
stock as of the record date have entered voting agreements with
NetApp. Pursuant to the voting agreements, these officers have
agreed to vote such shares of Data Domain common stock in favor
of the approval of the merger proposal, and have granted a proxy
to NetApp to vote the shares in such manner.
Recommendation
of the Data Domain Board of Directors
The Data Domain board of directors has unanimously approved and
adopted the merger agreement and the transactions contemplated
thereby. The Data Domain board of directors determined that the
merger agreement and the transactions contemplated thereby are
advisable and in the best interests of Data Domain and its
stockholders and unanimously recommends that you vote
FOR approval of the merger proposal and
FOR approval of the adjournment proposal. See
Data Domain Proposal 1 The
Merger Data Domains Reasons for the Merger;
Recommendation of the Data Domain Board of Directors on
page 37 for a more detailed discussion of the Data Domain
board of directors recommendation.
Attending
the Meeting
All holders of Data Domain common stock, including stockholders
of record and stockholders who hold their shares through banks,
brokers, nominees or any other holder of record, are invited to
attend the special meeting. Stockholders of record can vote in
person at the special meeting. If you are not a stockholder of
record, you must obtain a proxy executed in your favor, from the
record holder of your shares, such as a broker, bank or other
nominee, to be able to vote in person at the special meeting. If
you plan to attend the special meeting, you must hold your
shares in your own name or have a letter from the record holder
of your shares confirming your ownership and you must bring a
form of personal photo identification with you in order to be
admitted. Data Domain reserves the right to refuse admittance to
anyone without proper proof of share ownership and without
proper photo identification.
Voting By
Telephone or Via the Internet
In addition to voting by proxy or in person at the special
meeting, Data Domain stockholders that hold their shares as the
stockholder of record also may vote their shares by using the
telephone number on the proxy card or using the Internet voting
instructions on the proxy card. Data Domain stockholders that
hold their shares in street name through a bank,
broker or other nominee may also vote their shares by following
the telephone or Internet voting instructions provided by the
bank, broker or other nominee. If you have access to the
Internet, you are encouraged to vote via the Internet.
Adjournments
and Postponements
Although it is not currently expected, the special meeting may
be adjourned for the purpose of soliciting additional proxies if
Data Domain has not received sufficient votes to approve the
merger proposal at the special meeting of stockholders. Any
adjournments may be made without notice, other than an
announcement at the special meeting, by approval of the
affirmative vote of holders of at least a majority of shares of
Data Domain common stock who are present in person or
represented by proxy at the special meeting. Any adjournment of
the special meeting for the purpose of soliciting additional
proxies will allow stockholders who have already sent in their
proxies to revoke them at any time prior to their use.
At any time prior to convening the special meeting, Data
Domains board of directors may postpone the special
meeting for any reason without the approval of Data Domain
stockholders. If postponed, Data Domain will provide notice of
the new meeting date as required by law. Although it is not
currently expected, Data Domains board of directors may
postpone the special meeting for the purpose of soliciting
additional proxies if Data Domain has not received sufficient
proxies to constitute a quorum or sufficient votes for adoption
of the merger agreement. Similar to adjournments, any
postponement of the special meeting for the purpose of
soliciting additional proxies will allow stockholders who have
already sent in their proxies to revoke them at any time prior
to their use.
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Appraisal
Rights
Under Delaware law, Data Domain stockholders are entitled to
appraisal rights in connection with the merger. Failure to take
any of the steps required under Delaware law on a timely basis
may result in the loss of these appraisal rights, as more fully
described in Data Domain Proposal 1 The
Merger Appraisal Rights beginning on
page 50.
Other
Matters
As of the date of this proxy statement/prospectus, the Data
Domain board of directors does not know of any other business to
be presented for consideration at the special meeting. If other
matters properly come before the special meeting, the persons
named in the accompanying form of proxy intend to vote on such
matters based on their best judgment and they intend to vote the
shares as the Data Domain board of directors may recommend.
Questions
and Additional Information
Data Domain stockholders who would like additional copies,
without charge, of this proxy statement/prospectus or have
additional questions about the merger, including the procedures
for voting their shares of Data Domain common stock, should
contact:
Data Domain,
Inc.
2421 Mission College Blvd.
Santa Clara, CA 95054
Attention: Investor Relations
Telephone:
(408) 980-4909
or Data Domains solicitation agent:
Innisfree M&A Incorporated
501 Madison Avenue,
20th
Floor
New York, NY 10022
Stockholders Call Toll-Free at:
(888) 750-5834
Banks and Brokers Call Collect at:
(212) 750-5833
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INFORMATION
ABOUT THE COMPANIES
NetApp,
Inc.
NetApp is a supplier of enterprise storage and data management
software and hardware products and services. NetApp provides
solutions to help global enterprises meet major information
technology challenges such as managing storage growth, assuring
secure and timely information access, protecting data and
controlling costs by providing innovative solutions that
simplify the complexity associated with managing corporate data.
NetApp was incorporated in 1992 and shipped the worlds
first networked storage appliance a year later. Since then,
NetApp has brought to market many significant innovations and
industry firsts in storage and data management.
NetApp common stock is traded on the NASDAQ Global Select Market
under the symbol NTAP. The principal executive
offices of NetApp are located at 495 East Java Drive, Sunnyvale,
CA 94089, and its telephone number is
(408) 822-6000.
On May 22, 2009, NetApp commenced an option exchange
program pursuant to which employees of NetApp (other than
executive officers and directors) who hold certain options to
purchase shares of NetApps common stock are being given
the opportunity to exchange such options for restricted stock
units. The option exchange program was approved by NetApps
stockholders on April 21, 2009. Unless extended by NetApp,
the option exchange offer will expire on June 19, 2009. For
more information, please see NetApps tender offer
statement on Schedule TO, as filed with the SEC on
May 22, 2009, as may be amended from time to time.
Additional information about NetApp and its subsidiaries is
included in documents incorporated by reference in this
document. See Where You Can Find More Information
beginning on page 96.
Kentucky
Merger Sub One Corporation
Kentucky Merger Sub One Corporation, a wholly owned subsidiary
of NetApp, was formed solely for the purpose of completing the
merger. Kentucky Merger Sub One has not carried on any
activities to date, except for activities incidental to its
formation and activities undertaken in connection with the
transactions contemplated by the merger agreement. The principal
executive offices of Kentucky Merger Sub One Corporation are
located at 495 East Java Drive, Sunnyvale, CA 94089, and
its telephone number is
(408) 822-6000.
Derby
Merger Sub Two LLC
Derby Merger Sub Two LLC, a wholly owned subsidiary of NetApp,
was formed solely for the purpose of completing the merger.
Derby Merger Sub Two has not carried on any activities to date,
except for activities incidental to its formation and activities
undertaken in connection with the transactions contemplated by
the merger agreement. The principal executive offices of Derby
Merger Sub Two LLC are located at 495 East Java Drive,
Sunnyvale, CA 94089, and its telephone number is
(408) 822-6000.
Data
Domain, Inc.
Data Domain, a Delaware corporation, was incorporated in
Delaware in October 2001. Data Domain is a leading provider of
storage solutions for backup and archive applications based on
deduplication technology. Data Domain deduplication storage
systems are designed to deliver reliable, efficient and
cost-effective solutions that enable enterprises of all sizes to
manage, retain and protect their data.
Data Domain common stock is traded on the NASDAQ Global Select
Market under the symbol DDUP. The principal
executive offices of Data Domain are located at 2421 Mission
College Blvd., Santa Clara, CA 95054 and its telephone
number is
(408) 980-4800.
Additional information about Data Domain and its subsidiaries is
included in documents incorporated by reference in this proxy
statement/prospectus. See Where You Can Find More
Information beginning on page 96. Data Domain also plans
to file a proxy statement for its 2009 annual meeting of
stockholders with the SEC. The annual meeting is expected to be
held on July 2, 2009, and the purpose of the meeting is to
reelect three members of Data Domains board of directors
and to ratify Data Domains independent registered public
accounting firm for the fiscal year ending December 31,
2009.
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DATA
DOMAIN PROPOSAL 1 THE MERGER
The stockholders of Data Domain are being asked to adopt the
Agreement and Plan of Merger, dated as of May 20, 2009, as
amended on June 3, 2009, by and among NetApp, Inc.,
Kentucky Merger Sub One Corporation, Derby Merger Sub Two LLC
and Data Domain, as the agreement may be amended from time to
time. This proposal is referred to as the merger proposal.
Background
of the Merger
Since 2006, Frank Slootman, President and Chief Executive
Officer of Data Domain, and Daniel J. Warmenhoven, Chairman and
Chief Executive Officer of NetApp, have from time to time had
informal discussions regarding their respective businesses and
the data storage industry in general.
Goldman Sachs & Co., or Goldman Sachs, had served as
co-managing underwriters in Data Domains initial public
offering in June 2007. In November 2008, prior to the engagement
of Goldman Sachs by NetApp, a representative of Goldman Sachs
arranged for a meeting between Messrs. Slootman and
Warmenhoven to discuss the possibility of a business combination
involving NetApp and Data Domain.
On November 4, 2008, Messrs. Slootman and Warmenhoven
and a representative of Goldman Sachs met to discuss the merits
of a potential business combination involving NetApp and Data
Domain. Messrs. Slootman and Warmenhoven agreed that
although there was value in a potential business combination,
considering current market conditions and trading prices of the
stock of the respective companies, such a business combination
was not feasible at that time. Messrs. Slootman and
Warmenhoven agreed that no further discussions of a potential
business combination involving NetApp and Data Domain would
occur for the foreseeable future.
In early 2009, Mr. Slootman and a representative of Goldman
Sachs had ongoing discussions of potential strategic
transactions involving Data Domain. A representative of Goldman
Sachs arranged for a meeting on March 17, 2009, between
Mr. Slootman and Thomas Georgens, President and Chief
Operating Officer of NetApp to discuss potential strategic
opportunities involving NetApp and Data Domain.
On March 17, 2009, Messrs. Slootman and Georgens and a
representative of Goldman Sachs met to discuss potential
strategic opportunities involving NetApp and Data Domain.
Mr. Georgens inquired as to whether Data Domain would be
interested in a potential business combination with NetApp at
that time. Mr. Slootman agreed to discuss such a potential
business combination with members of the Data Domain board of
directors.
On March 17, 2009, Mr. Slootman briefed Aneel Bhusri,
Chairman of the Data Domain board of directors, and some of the
other members of the Data Domain board of directors on his
discussions with Mr. Georgens regarding a potential
business combination with NetApp. The members of the Data Domain
board of directors agreed to open a dialogue with NetApp
regarding a potential business combination dependent upon the
value of the consideration offered by NetApp.
On March 18, 2009, Mr. Slootman telephoned
Mr. Georgens to inform him that Data Domain was receptive
to a potential business combination with NetApp, but that
further discussions would be dependent upon the value of the
consideration offered by NetApp to the Data Domain stockholders.
On March 24, 2009, Mr. Slootman, Michael P. Scarpelli,
Senior Vice President and Chief Financial Officer of Data
Domain, Mr. Georgens and Steven J. Gomo, Executive Vice
President and Chief Financial Officer of NetApp, met to discuss
a potential business combination involving NetApp and Data
Domain. After discussing the potential synergies, cultural fit
and strategic benefits of a potential business combination
involving NetApp and Data Domain, the parties expressed their
respective continued interests in further exploring such a
business combination.
On March 26, 2009, the Data Domain board of directors held
a meeting to discuss a potential business combination with
NetApp. Mr. Slootman reviewed the conversation he and
Mr. Scarpelli had with Messrs. Georgens and Gomo
regarding a potential proposal from NetApp to acquire Data
Domain. Mr. Slootman proposed hiring Qatalyst Partners LP,
or Qatalyst, as Data Domains financial advisor to advise
the Data Domain board of directors regarding the evaluation of a
potential NetApp proposal and other strategic alternatives for
Data Domain. Mr. Slootman noted that Goldman Sachs had been
previously engaged by NetApp to serve as its financial advisor.
The Data Domain board of directors approved the engagement of
Qatalyst as Data Domains financial advisor.
26
Mr. Slootman also reviewed potential benefits and synergies
from a potential business combination with NetApp.
Representatives of Fenwick & West LLP, or
Fenwick & West, Data Domains legal counsel, then
reviewed considerations regarding the Data Domain board of
directors fiduciary duties in the context of such a
potential business combination. Representatives of Qatalyst led
a discussion regarding current macro economic market conditions,
recent strategic developments in the technology sector,
potential deal structures, processes and other issues to
consider in such a potential business combination. The Data
Domain board of directors expressed concerns regarding the
potential harm to Data Domains business relating to any
uncertainty perceived by its current or future customers should
they learn of discussions regarding a potential business
combination involving Data Domain and the ability of Data
Domains competition to take advantage of any such
perceived uncertainty. At the conclusion of the meeting, the
Data Domain board of directors confirmed that it had not been
seeking a sale of Data Domain, however should NetApp elect to
proceed with an offer it would merit further consideration.
On March 27, 2009, NetApp and Goldman Sachs executed an
engagement letter for Goldman Sachs to act as NetApps
financial advisor.
On April 1, 2009, the NetApp board of directors met to
discuss the potential business combination between NetApp and
Data Domain.
On April 2, 2009, Messrs. Slootman and Warmenhoven met
to further discuss the opportunities and strategic benefits of a
potential business combination involving NetApp and Data Domain.
Mr. Warmenhoven indicated his interest in Data
Domains business and his respect for the long-term value
of Data Domain as an enterprise. Mr. Warmenhoven indicated
that NetApp was serious about making an offer for Data Domain
and that the value of the consideration that NetApp would offer
would reflect NetApps commitment to securing such a
potential business combination with Data Domain. Later that day
representatives of Qatalyst had a call with Mr. Warmenhoven
in which he informed them that the NetApp board of directors had
authorized him to move forward with discussions regarding a
potential business combination with Data Domain and the parties
discussed the potential timing of a potential business
combination.
On April 3, 2009, Messrs. Warmenhoven and Bhusri met
to discuss the strategic rationale and benefits of a potential
business combination involving NetApp and Data Domain. Both
parties reiterated their interest in considering such a
potential business combination. Mr. Bhusri indicated that
the amount and certainty of the value of the consideration to be
delivered to the Data Domain stockholders at closing was a
priority of the Data Domain board of directors given the general
economic uncertainty and volatile stock market conditions over
the past several months. Mr. Bhusri indicated that the Data
Domain board of directors intended to continue operating Data
Domain as an independent entity absent a potential business
combination at a sufficient value and therefore he expressed
concern over the risks to Data Domains business if
competitors or customers became aware of discussions regarding a
business combination involving Data Domain. Mr. Warmenhoven
informed Mr. Bhusri that NetApp intended to place
discussions of a potential business combination with Data Domain
on hold temporarily. Mr. Bhusri agreed that the parties
should not move forward at all until such time as both of the
parties were in a position to move forward expeditiously.
On April 6, 2009, Mr. Slootman met with a
representative of Company A to discuss the terms of a proposed
commercial relationship that was being negotiated. The
representative of Company A indicated that Company A might be
interested in a business combination involving Data Domain and
asked Mr. Slootman when a discussion of such a potential
business combination would be appropriate. Mr. Slootman
informed the representative of Company A that such a discussion
should happen sooner rather than later. After this meeting, the
parties continued to discuss the proposed commercial
relationship, but no representatives of Company A contacted
Mr. Slootman or any other representatives of Data Domain
regarding a business combination involving Data Domain and
Company A.
On April 9, 2009, the Data Domain board of directors met to
further discuss the potential business combination with NetApp.
Mr. Bhusri reviewed the status of discussions with
Mr. Warmenhoven regarding NetApps potential interest
in pursuing a business combination, but noted that no offer or
specific terms had been proposed to date and that NetApp did not
wish to engage in further conversations regarding a business
combination for the time being and likely would not be in a
position to reengage in such discussions until near the end of
NetApps fiscal quarter. Mr. Slootman reviewed his
discussion with the representative of Company A. Representatives
of Qatalyst summarized their conversations with
Mr. Warmenhoven regarding the potential business
combination with NetApp.
27
Representatives of Fenwick & West reviewed the Data
Domain board of directors fiduciary duties and commented
on legal considerations in the event Data Domain were to receive
an offer from NetApp. At the conclusion of the meeting, the Data
Domain board of directors confirmed that it was not seeking a
sale of Data Domain absent a potential business combination
involving sufficient value. However, the Data Domain board of
directors acknowledged that should NetApp elect to proceed with
an offer that provided for significant value to Data
Domains stockholders a transaction with NetApp would merit
further consideration. The Data Domain board of directors
further determined that Data Domain would not initiate any
further discussions with NetApp or any other parties at this
time.
On April 14, 2009, the NetApp board of directors held a
meeting to discuss a potential business combination with Data
Domain. Certain members of management presented the board of
directors with a market analysis, as well as evaluations of the
potential market opportunities and Data Domains valuation
and discounted cash flows. Following discussion among the NetApp
board of directors and management, the NetApp board of directors
authorized NetApp management to approach Data Domain with an
offer to acquire Data Domain, subject to the parameters
discussed and approved by the NetApp board of directors.
On April 21, 2009, the Data Domain board of directors held
a meeting, during which it discussed, among other matters,
trends in the data storage market and potential consolidation in
the data storage market. Mr. Slootman reviewed the
opportunities and challenges of remaining an independent entity
in the current and foreseeable market environment in light of
the storage market trends toward vertically integrated product
offerings, noting that Data Domain may need to consider
strategic alternatives or partnerships in the future to provide
a more complete product offering in order to grow and remain
competitive in the marketplace.
On April 22, 2009, Data Domain and Qatalyst executed an
engagement letter for Qatalyst to act as Data Domains
financial advisor.
On April 24, 2009, Mr. Warmenhoven contacted
Mr. Slootman to arrange a meeting to reinitiate discussions
about a potential business combination involving NetApp and Data
Domain.
On April 27, 2009, Fenwick & West provided a
mutual non-disclosure agreement to Wilson Sonsini
Goodrich & Rosati P.C., or Wilson Sonsini,
NetApps legal counsel, which, after some discussions
between respective counsel, was executed later that day by Data
Domain and NetApp.
On April 27, 2009, Messrs. Slootman, Bhusri,
Warmenhoven and Georgens met to further discuss a potential
business combination involving NetApp and Data Domain.
Messrs. Warmenhoven and Georgens presented a written
summary of proposed terms for the potential transaction,
including, among other items, consideration consisting of a mix
of $7.00 to $8.00 per share in cash and 0.805 shares of
NetApp common stock per share of Data Domain common stock,
representing an implied value of $22.00 to $23.00 per share. The
proposed terms also provided for a limited period of exclusivity
for discussions with NetApp. Messrs. Slootman and Bhusri
indicated that an exclusivity agreement was not acceptable to
Data Domain, but that they would discuss the other aspects of
the proposal with the Data Domain board of directors.
Mr. Warmenhoven informed Mr. Bhusri of the potential
for a role on the NetApp board of directors for Mr. Bhusri
and a role in the management of NetApp for Mr. Slootman.
On April 28, 2009, the Data Domain board of directors met
to discuss the status of the potential business combination with
NetApp. Mr. Slootman reviewed the discussions that occurred
with Messrs. Warmenhoven and Georgens regarding
NetApps interest in a business combination with Data
Domain and the written terms that were proposed by NetApp,
including the proposed per share consideration. Mr. Bhusri
informed the Data Domain board of directors of the potential for
a role on the NetApp board of directors for Mr. Bhusri and
a role in the management of NetApp for Mr. Slootman. A
discussion then ensued among the Data Domain board of directors,
Qatalyst and Fenwick & West regarding the NetApp proposal
and potential responses thereto. Representatives of
Fenwick & West reviewed the Data Domain board of
directors fiduciary duties, the various processes the Data
Domain board of directors might adopt and discussed potential
responses to the offer from NetApp. Given the recent
fluctuations of the trading prices of the respective
companies stock and fluctuations in the market indices
generally, the Data Domain board of directors determined that
establishing a collar mechanism around any portion of the stock
consideration was important to providing some protection for the
value to be received to the Data Domain stockholders in the
event that the market price of NetApps common stock price
fluctuated within a given range
28
between signing and closing of the proposed transaction. The
Data Domain board of directors also expressed concerns regarding
the timing of a potential business combination and the certainty
of closing such a transaction once a definitive agreement was
signed. Of particular concern was the negative impact of any
uncertainty to Data Domains business perceived by its
current or future customers and the ability of Data
Domains competition to take advantage of any such
uncertainty. The Data Domain board of directors considered the
heightened risk of these harms to Data Domains business if
any of Data Domains competitors were contacted regarding a
potential strategic transaction. The Data Domain board of
directors agreed that Mr. Bhusri would talk to
Mr. Warmenhoven regarding NetApps offer, specifically
to seek to increase the amount of total consideration in the
potential transaction, to increase the cash component of the mix
of consideration and to provide further protection from
fluctuations in NetApps stock price between signing and
closing of the potential transaction. The Data Domain board of
directors also instructed representatives of Qatalyst to contact
representatives of NetApp to seek favorable financial terms
consistent with the objectives they provided to Mr. Bhusri.
Following the meeting of the Data Domain board of directors on
April 28, 2009, Mr. Bhusri called Mr. Warmenhoven
to discuss the potential business combination with NetApp.
Mr. Bhusri indicated that the Data Domain board of
directors was interested in pursuing a potential business
combination with NetApp, however, they believed enhanced
financial terms would be necessary for discussions to continue.
Mr. Bhusri also informed Mr. Warmenhoven that the Data
Domain board of directors thought the cash component of the mix
of consideration should be increased and that the Data Domain
board of directors wanted down-side protection around the stock
component of the consideration to protect the value to the Data
Domain stockholders in the event that the market price of
NetApps common stock price fluctuated between signing and
closing of the proposed transaction. Mr. Bhusri reiterated
that Data Domain could not agree to an exclusive negotiating
period for NetApp. Mr. Warmenhoven said that he would
review this information with the NetApp board of directors.
On April 28, 2009 Fenwick & West provided a form
of standstill agreement to Wilson Sonsini that provided that
NetApp would not acquire shares of Data Domain, subject to
limited exceptions.
On April 29, 2009, representatives of Qatalyst had a call
with representatives of Goldman Sachs seeking a proposal with
enhanced financial terms along the lines described above.
On May 1, 2009, Messrs. Slootman and Georgens met to
further discuss the potential market, customer, product and cost
synergies that could be achieved through a business combination
of NetApp and Data Domain, the corporate culture of the two
companies and how the companies would fit together and generally
discussed the business of their respective companies.
Messrs. Slootman and Georgens did not negotiate or discuss
the substantive terms of the proposed business combination at
this meeting.
On May 1, 2009, the NetApp board of directors held a
meeting to further discuss the potential acquisition of Data
Domain. The board of directors discussed with management the
status of negotiations with Data Domain and NetApps
strategy with respect to the transaction. The NetApp board of
directors then authorized management to present Data Domain with
a revised offer, subject to the parameters discussed and
approved by the board of directors.
On May 4, 2009, Mr. Warmenhoven called Mr. Bhusri
and indicated that NetApp would increase the proposed aggregate
consideration to Data Domain stockholders in the business
combination to $24.00 per share, comprised of $6.00 in cash and
$18.00 dollars worth of shares of NetApp common stock for each
share of Data Domain common stock, with a symmetrical 7.5%
collar on the stock portion of the consideration so that Data
Domain stockholders would receive a fixed amount of
consideration in the event that the market price of
NetApps common stock price fluctuated within that range
between signing and closing of the proposed transaction.
Mr. Bhusri informed Mr. Warmenhoven that while the
Data Domain board of directors was interested in the potential
business combination with NetApp, there were still several
issues with the offer that needed to be resolved before the
parties could move forward, including an increase in the
aggregate consideration, the need for a greater portion of the
aggregate consideration to be provided in cash and for a wider
collar to be placed around the stock component of the
consideration. On that same day, Mr. Slootman and
Mr. Georgens also discussed NetApps revised proposal.
Mr. Slootman also indicated that amount of the aggregate
consideration, price certainty and protection against
fluctuations NetApps common stock price were important to
Data Domain and that the terms of any business combination
involving Data Domain should include an increase in the
aggregate consideration, an increased amount of cash and an
appropriate collar on the stock portion of the consideration.
Also on May 4, 2009, a
29
representative of Qatalyst discussed the details of Data
Domains views regarding the financial terms of a potential
business combination involving Data Domain and NetApp with a
representative of Goldman Sachs.
On May 5, 2009, Mr. Warmenhoven emailed a revised
written summary of proposed terms of the potential business
combination with NetApp to Mr. Bhusri. The revised offer
consisted of $24.00 per share in aggregate consideration,
comprised of $9.50 per share in cash and $14.50 worth of shares
of NetApp common stock for each share of Data Domain common
stock, with a symmetrical 7.5% collar on the stock portion of
the consideration.
On May 6, 2009, the Data Domain board of directors held a
meeting at which it had an extensive discussion with Qatalyst
and Fenwick & West regarding, among other matters,
NetApps original offer, NetApps subsequent offers
and the current offer of $24.00 per share (consisting of $9.50
per share in cash and $14.50 per share in NetApp common stock,
with a 7.5% symmetrical collar around the stock portion of the
consideration), NetApps desire to sign a merger agreement
for any potential transaction by May 20, 2009 (the
scheduled date for the announcement of NetApps fiscal
fourth quarter results) and other parties that may potentially
be interested in a strategic transaction with Data Domain.
Representatives of Fenwick & West reviewed the
fiduciary duties of the Data Domain board of directors and the
various processes the Data Domain board of directors might
adopt. The Data Domain board of directors considered conducting
a market check prior to the signing of a merger agreement with
NetApp only if it could be conducted in a manner that did not
jeopardize securing a firm proposal from NetApp and did not
disrupt Data Domains relationships with its current and
future customers during the process. However, the Data Domain
board of directors ultimately determined that it was not clear
that Data Domain could come to mutually agreeable terms
regarding a business combination with NetApp and therefore such
a market check would involve a high degree of risk to Data
Domains customer relationships. The Data Domain board of
directors authorized Mr. Bhusri and representatives of
Qatalyst to propose a counteroffer to NetApp seeking a higher
price of $26.00 per share in the aggregate and wider collar of
15% around the stock portion of the consideration.
After the Data Domain board of directors meeting on May 6,
2009, Mr. Bhusri called Mr. Warmenhoven to make a
counter proposal at a higher price of $26.00 in aggregate
consideration per share. After further negotiation, the parties
tentatively agreed on $25.00 in aggregate consideration per
share, with the remaining financial terms to be negotiated the
following day at a meeting that included Mr. Bhusri,
representatives of Qatalyst, Messrs. Georgens and Gomo,
J.R. Ahn, Vice President, Corporate Development of NetApp, and
representatives of Goldman Sachs.
On May 6, 2009, representatives of Qatalyst contacted
representatives of Goldman Sachs to discuss the revised terms of
the proposed transaction.
On May 7, 2009, Data Domain and NetApp executed a revised
mutual non-disclosure agreement that contained a
standstill provision with respect to shares of Data
Domain common stock.
On May 7, 2009, Mr. Bhusri, representatives of
Qatalyst, Messrs. Georgens, Gomo and Ahn, and
representatives of Goldman Sachs met to discuss the detailed
financial terms of the proposed business combination between
NetApp and Data Domain. The parties agreed to a mix of
consideration consisting of $11.00 per share in cash and $14.00
per share in NetApp common stock. The parties also agreed to a
10% symmetrical collar so that Data Domain stockholders would
receive a fixed amount of consideration in the event that the
market price of NetApps common stock price fluctuated
within a that range between signing and closing of the proposed
transaction.
On May 7, 2009, Mr. Slootman, David L. Schneider,
Senior Vice President Worldwide Sales of Data Domain,
Mr. Georgens and Robert E. Salmon, Executive Vice
President, Field Operations of NetApp, met to get acquainted and
discuss potential product sales synergies to be derived from a
business combination between NetApp and Data Domain.
On May 7, 2009, a member of the board of directors of EMC,
a competitor of Data Domain, contacted Mr. Slootman. The
EMC board member sought to arrange a meeting between
Mr. Slootman and the Chief Executive Officer of EMC to
share with them EMCs vision for the future.
Mr. Slootman asked for more specific information on the
nature of the meeting, but the board member of EMC did not
provide any further detail.
On May 7, 2009, the Data Domain board of directors held a
meeting to further discuss the potential business combination
with NetApp. At this meeting, Mr. Bhusri reviewed for the
Data Domain board of directors his discussion with
Mr. Warmenhoven regarding valuation and informed the Data
Domain board of directors that they
30
had negotiated an increase in NetApps offer from $24.00 to
$25.00 per share in aggregate consideration, consisting of
$11.00 per share in cash and $14.00 per share in NetApp common
stock, with a 10% symmetrical collar around the value of the
stock portion of the consideration. The Data Domain board of
directors then discussed with representatives of Qatalyst the
negotiations regarding the collar mechanism around the value of
the stock portion of the consideration, the progression of the
proposed terms from NetApp and the value of the current NetApp
proposal. Mr. Slootman reviewed for the Data Domain board
of directors the call he received from a director of EMC asking
whether Mr. Slootman would be available to meet with the
Chief Executive Officer of EMC. The Data Domain board of
directors engaged in an extensive discussion regarding the
NetApp offer and the whether to call other companies, including
competitors, that could be candidates for a strategic
transaction prior to signing a definitive merger agreement with
NetApp. The Data Domain board of directors expressed further
concerns regarding the high risk of potential harm to Data
Domains business relating to any uncertainty perceived by
its current or future customers should they learn of discussions
regarding a business combination involving Data Domain prior to
the announcement of a definitive agreement and the ability of
Data Domains competition to take advantage of any such
perceived uncertainty. The Data Domain board of directors
further evaluated the heightened risk of these harms to Data
Domains business if any of Data Domains competitors
were contacted regarding a potential strategic transaction.
Representatives of Fenwick & West then discussed the
fiduciary duties of the Data Domain board of directors and the
various processes the Data Domain board of directors might
adopt. The Data Domain board of directors was concerned that
initiating a market check at this time could jeopardize securing
a firm agreement from NetApp and could disrupt Data
Domains relationships with its current and future
customers during the process. The Data Domain board of directors
determined that Data Domain should move forward with the
potential business combination with NetApp without contacting
other companies that might be candidates for a strategic
transaction with Data Domain, but that the Data Domain board of
directors would continue to evaluate this strategy and consider
the matter further based upon the progress and terms of the
potential business combination with NetApp.
On May 7, 2009, with the authorization of the Data Domain
board of directors, Mr. Bhusri called Mr. Warmenhoven
to inform him of the conversation between the EMC board member
and Mr. Slootman earlier that day.
On May 8, 2009, Wilson Sonsini delivered an initial draft
of the merger agreement to Data Domain and Fenwick &
West. Also on May 8, 2009, Fenwick & West granted
access to an online data room containing Data Domain due
diligence materials to representatives of NetApp, Wilson Sonsini
and Goldman Sachs.
On May 8, 2009, the Chief Executive Officer of EMC
contacted Mr. Slootman via email to request a meeting the
next time that the Chief Executive Officer was in the
San Francisco Bay Area and suggested proposed dates.
Mr. Slootman agreed via email to such dates, resulting in a
meeting being scheduled on May 27, 2009.
On May 9, 2009, Messrs, Scarpelli and Slootman and Robert
Specker, Vice President, In-house Counsel to Data Domain
provided financial and business due diligence on Data Domain to
representatives of NetApp and Goldman Sachs.
Between May 9 and May 20, 2009, Messrs. Warmenhoven,
Georgens and Gomo, other executive officers of NetApp, and other
employees of NetApp met numerous times with Messrs. Bhusri,
Slootman, Scarpelli and Specker, other executive officers and
employees of Data Domain to discuss various aspects of the
potential business combination. During this period, NetApp and
its advisors reviewed due diligence materials relating to Data
Domain made available to NetApp in an online data room,
requested and reviewed additional materials relating to Data
Domain and engaged in due diligence discussions with their
counterparts.
On May 11, 2009, the Data Domain board of directors met to
further discuss, among other matters, the potential business
combination with NetApp. Mr. Slootman informed the Data
Domain board of directors that the Chief Executive Officer of
EMC had contacted him to schedule a meeting and, based upon the
availability of the Chief Executive Officer of EMC, the meeting
had been scheduled for May 27, 2009. A representative of
Qatalyst reviewed a discussion with Mr. Warmenhoven in
which Mr. Warmenhoven had reiterated NetApps position
that NetApp would not engage in a bidding contest if additional
parties emerged seeking to acquire Data Domain. Representatives
of Fenwick & West reviewed key terms of the initial
draft of the merger agreement, including the omission of the
ability of Data Domain to accept such a superior proposal and
terminate the merger agreement with NetApp and the Data Domain
board of directors ability to change its recommendation in
favor of the proposed
31
business combination with NetApp for any reason consistent with
its fiduciary duties and NetApps initial request of a
termination fee of 5.00% of the transaction value, and then
discussed the fiduciary duties of the Data Domain board of
directors and the various processes the Data Domain board of
directors might adopt. The Data Domain board of directors and
its advisors determined that in the negotiations with NetApp,
Data Domain would insist on a process that would permit a
superior proposal from a third party to surface after the
signing of the merger agreement with NetApp and for the Data
Domain board of directors to consider and accept such a superior
proposal and terminate the merger agreement with NetApp, the
Data Domain board of directors ability to change its
recommendation in favor of the proposed business combination
with NetApp for any reason consistent with its fiduciary duties
and an amount of the termination fee that would not be
preclusive of a superior proposal. The Data Domain board of
directors reaffirmed the priority of its objectives of retaining
the compelling valuation of the proposed business combination
with NetApp, obtaining deal certainty with respect to the
proposed business combination with NetApp and not exposing Data
Domains business and customers to uncertainty and risk.
The Data Domain board of directors and its advisors discussed
the fact that NetApps board of directors would be meeting
on May 13, 2009, and that it would be important to assess
NetApps continued resolve to pursue a deal with Data
Domain before deciding whether to taking any action relative to
soliciting the interest of other parties with respect to a
strategic transaction with Data Domain. In the interim, the Data
Domain board of directors determined that Data Domain should
move forward with the due diligence and other aspects of the
potential business combination with NetApp.
On May 12, 2009, Fenwick & West delivered
proposed revisions to the draft merger agreement to NetApp and
Wilson Sonsini. Between May 12 and May 20, 2009, in
addition to continuing their due diligence investigations of
each other, NetApp and Data Domain, along with their respective
legal and financial advisors, negotiated the terms of the merger
agreement.
On May 12 and 13, 2009, Messrs. Warmenhoven, Georgens, Gomo
and Ahn, other employees of NetApp and representatives of
Goldman Sachs met with Messrs. Slootman, Scarpelli and
Specker, other employees of Data Domain and representatives of
Qatalyst to discuss specific functional areas of diligence with
respect to Data Domain and the potential business combination
between NetApp and Data Domain, including financial, sales and
marketing, human resources, services, product, supply chain and
manufacturing, information technologies and facilities, and
legal and intellectual property.
On May 13, 2009, the Data Domain board of directors held a
meeting at which it discussed with representatives of Qatalyst
the current financial terms of the transaction, the significant
premiums the proposed business combination from NetApp provided
and the likelihood that another party would offer more value to
the Data Domain stockholders. The Data Domain board of directors
engaged in further extensive discussions regarding the NetApp
offer. The Data Domain board of directors reviewed the value of
the NetApp offer, the significant premiums implied by the offer,
the current economic conditions and stock market volatility. The
Data Domain board of directors confirmed the desire to avoid the
downside risk of further economic and stock market uncertainties
by securing the attractive deal value reflected in the proposed
business combination with NetApp, while obtaining protection of
this deal value with the cash component of the offer and the
collar around the stock portion of the consideration.
Representatives of Fenwick & West discussed key terms
of the merger agreement and the fiduciary duties of the Data
Domain board of directors. The Data Domain board of directors
discussed with representatives of Fenwick & West the legal
issues surrounding its decision of whether to contact other
companies, including competitors, that could be candidates for a
strategic transaction with Data Domain prior to signing a
definitive merger agreement with NetApp in light of the
applicable merger agreement terms proposed by NetApp. The Data
Domain board of directors expressed further concerns regarding
the potential harm to Data Domains business relating to
any uncertainty perceived by its current or future customers
should they learn of discussions regarding a business
combination involving Data Domain prior to the announcement of a
definitive agreement and the ability of Data Domains
competition to take advantage of any such perceived uncertainty.
The Data Domain board of directors acknowledged the heightened
risk of these harms to Data Domains business if any of
Data Domains competitors were contacted regarding a
potential strategic transaction. The Data Domain board of
directors was concerned that initiating a market check at this
time could jeopardize securing the proposed business combination
with NetApp. The Data Domain board of directors also expressed
concerns regarding additional delay and uncertainty associated
with soliciting the interest of other parties with respect to a
strategic transaction with Data Domain. The Data Domain board of
directors determined that Data Domain should move forward with
the potential
32
business combination with NetApp without contacting other
companies and reaffirmed its commitment to insisting on merger
agreement terms that would not unduly preclude the possibility
of Data Domain receiving and implementing a superior proposal
after the signing of a merger agreement with NetApp.
On May 13, 2009, the NetApp board of directors held a
meeting to discuss the progress of the potential acquisition of
Data Domain. Members of NetApps management team were
present to update the board of directors on work completed to
date, initial findings from the due diligence process and next
steps. The board of directors reviewed with management the
preliminary terms of the potential transaction and discussed at
length the stand-alone prospects of the potential transaction as
well as expected net synergies. Following such discussion, the
members of the board of directors authorized management to
continue with its diligence review and discussions with Data
Domain regarding a potential transaction.
On May 14, 2009, Messrs. Warmenhoven, Georgens, Gomo
and Ahn, other employees of NetApp and representatives of
Goldman Sachs met with Messrs. Bhusri, Slootman, Scarpelli
and Specker, and representatives of Qatalyst to discuss due
diligence of NetApp with respect to the potential business
combination between NetApp and Data Domain. Between May 14 and
May 19, 2009, representatives of NetApp and its advisors
met with representatives of Data Domain and its advisors to
engage in further due diligence discussions regarding the
potential business combination between NetApp and Data Domain.
On May 14, 2009, Messrs. Bhusri and Warmenhoven met to
discuss the terms of the proposed merger agreement.
Mr. Bhusri indicated that, among other items, the Data
Domain board of directors considered it important that the
merger agreement allow for a process by which other parties
could submit offers for alternate strategic transactions after
the signing of a definitive merger agreement and that the Data
Domain board of directors maintain the ability to consider such
offers presented to it after the signing of a merger agreement
with NetApp consistent with its fiduciary duties. Specifically,
the Data Domain board of directors insisted on the ability to
change its recommendation in favor of the proposed business
combination with NetApp for any reason consistent with its
fiduciary duties, a right to terminate the merger agreement
after receipt of an alternative offer with respect to a
strategic transaction that it determines to be a superior
proposal and that the termination fee proposed by NetApp be
reduced. Mr. Warmenhoven also mentioned to Mr. Bhusri
that NetApp was currently conducting a search for a new member
of its board of directors of Directors and suggested that
Mr. Bhusri consider participating in the search process.
Both parties agreed that no determinations would be made with
respect to Mr. Bhusris consideration for a position
on the NetApp board of directors until after completion of the
business combination between Data Domain and NetApp. On the same
day, representatives of Qatalyst met with Mr. Warmenhoven
to underscore the views that Mr. Bhusri had communicated
regarding the deal protection terms of the merger agreement.
Also on May 14, 2009, Wilson Sonsini delivered an initial
draft of the form of voting agreement to Fenwick &
West.
On May 16, 2009, the Data Domain board of directors met to
further discuss the potential business combination with NetApp.
Representatives of Qatalyst reviewed due diligence that had been
conducted on NetApp with respect to, among other matters,
NetApps recent financial results and outlook.
Representatives of Fenwick & West then led a
discussion regarding the voting agreements that were requested
from officers, directors and associated funds and the status of
the previous days negotiations on key terms of the merger
agreement. Representatives of Fenwick & West informed
the Data Domain board of directors that NetApp agreed to include
a process that would permit a superior proposal from a third
party to surface after the signing of the merger agreement with
NetApp and for the Data Domain board of directors to consider
and accept such a superior proposal and terminate the merger
agreement with NetApp and had proposed a termination fee of
4.50% of the transaction value, and the impact of the outcome of
these negotiations on the Data Domain board of directors
fiduciary duties. The Data Domain board of directors discussed
the fact that NetApp still appeared to be committed to the
transaction. The Data Domain board of directors reaffirmed its
commitment to the need for a provision of the merger agreement
that provided for the Data Domain board of directors
ability to change its recommendation in favor of the proposed
business combination with NetApp for any reason consistent with
its fiduciary duties and agreeing to an amount of the
termination fee that would not be preclusive of a superior
proposal. At the conclusion of this meeting, the Data Domain
board of directors reiterated its commitment to continue
negotiating the potential business combination with NetApp.
33
On May 17, 2009, Fenwick & West delivered
proposed revisions to the draft form of voting agreement to
Wilson Sonsini. Between May 18 and May 20, 2009, NetApp,
Data Domain and certain parties that were asked to sign the
voting agreements, along with their respective legal advisors,
negotiated the terms of the form of voting agreement.
On May 16 and 17, 2009, Mr. Slootman exchanged emails with
Mr. Georgens regarding whether NetApp would be providing
offer letters to any Data Domain employees prior to the signing
of a merger agreement. No such offer letters were provided to
any Data Domain employees by NetApp prior to the signing of the
merger agreement.
On May 18, 2009, Messrs. Schneider and Warmenhoven,
James Lau, Co-Founder, Chief Strategy Officer and Executive Vice
President of NetApp and David Hitz, Co-Founder and Executive
Vice President of NetApp, met to get acquainted and discuss
potential synergies to be derived from a business combination
between NetApp and Data Domain.
On May 18, 2009, the Data Domain board of directors held a
meeting to further discuss the potential business combination
with NetApp. At this meeting, Mr. Bhusri and
representatives of Fenwick & West reviewed for the
Data Domain board of directors the results of the negotiations
that had taken place earlier that day between Mr. Slootman,
representatives of Fenwick & West, Mr. Georgens,
in-house attorneys for NetApp and representatives of Wilson
Sonsini. Specifically, they noted that as a result of the
negotiations the merger agreement would now provide for the Data
Domain board of directors ability to change its
recommendation in favor of the proposed business combination
with NetApp for any reason consistent with its fiduciary duties,
a right to terminate the merger agreement after receipt of an
alternative offer with respect to a strategic transaction that
the Data Domain board of directors determines to be a superior
proposal and the amount of the termination fee had been reduced
to 3.25% of the transaction value. Representatives of Qatalyst
reviewed the stock and cash components of the consideration to
be received by the Data Domain stockholders proposed by NetApp,
and other financial terms of the proposed merger. At the
conclusion of this meeting, the Data Domain board of directors
reiterated its commitment to finalize the terms of the potential
business combination with NetApp.
On May 19, 2009, several conversations occurred among
representatives of Qatalyst and Goldman Sachs and
Mr. Bhusri and Mr. Georgens to discuss the exchange
ratio, collar mechanics and final mix of consideration. As a
result of these meetings and conference calls, the parties
agreed to use the closing stock price of NetApp common stock on
May 19, 2009 of $18.07 in order to calculate the stock
exchange ratio for the basis for the 10% symmetrical collar on
the stock portion of the consideration that will provide
adjustments to maintain the $25 per share merger consideration
for variations in NetApps stock price of up to 10% in
either direction between signing and closing of the merger,
thereby providing downside protection for Data Domain
stockholders if NetApps stock declines by up to 10% while
maintaining the upside potential if NetApps stock
increases in value by more than 10%. The parties also agreed
that the cash portion of the merger consideration would be
increased from $11.00 to $11.45 and the stock portion of the
merger consideration would be decreased from $14.00 to $13.55.
On May 19, 2009, the NetApp board of directors held a
meeting to further discuss the potential business combination
with Data Domain. Representatives of Wilson Sonsini reviewed the
board of directors fiduciary duty obligations in the
context of the potential acquisition, and the board of directors
took note of the significant legal and financial due diligence
that had been conducted over the past several weeks, including
the analyses and various detailed models prepared by Goldman
Sachs. Next, the board of directors reviewed the key terms of
the merger agreement and engaged in extensive discussions in
this regard. Representatives of Goldman Sachs then provided a
summary of the potential transaction, presented various detailed
financial analyses, and provided a review of its fairness
opinion, which concluded that the merger consideration was fair
to NetApp from a financial point of view. The members of the
board of directors made inquiry of management and its advisors
in this regard, and further discussion then ensured. At the
conclusion of the meeting, the board of directors unanimously
approved the acquisition of Data Domain, the merger agreement
and related matters.
On May 20, 2009, the Data Domain board of directors held a
meeting at which the proposed business combination with NetApp
was further discussed and considered for final approval. At this
meeting, Mr. Bhusri updated the Data Domain board of
directors on the current status of negotiations with NetApp.
Representatives of Fenwick & West reviewed in detail
with the Data Domain board of directors the outcome of further
negotiations and the terms of the merger agreement and related
agreements, as well as the fiduciary duties of the Data Domain
board
34
of directors. Mr. Slootman reviewed an analysis of
strengths, weaknesses, opportunities and challenges of Data
Domain remaining as a stand alone company. Representatives of
Qatalyst presented to the Data Domain board of directors its
financial analysis of the proposed transaction and delivered to
the Data Domain board of directors its oral opinion,
subsequently confirmed in writing as of May 20, 2009, that,
as of that date the consideration to be received by holders of
shares of Data Domain common stock, other than affiliates who
had executed voting agreements, pursuant to the original merger
agreement, was fair, from a financial point of view, to such
holders. The full text of the written opinion of Qatalyst, dated
May 20, 2009, which sets forth, among other things, the
assumptions made, procedures followed, matters considered and
limitations and qualifications of the review undertaken by
Qatalyst in rendering its opinion, is attached hereto as
Appendix D. Following the presentations, and after further
review and discussion, the Data Domain board of directors
unanimously voted to approve the merger, the merger agreement
and related matters and resolved to recommend that Data Domain
stockholders adopt the merger agreement, which was subsequently
filed with the SEC as an exhibit to Data Domains Current
Report on Form
8-K filed on
May 21, 2009.
Following the adjournment of the meeting of the Data Domain
board of directors on May 20, 2009, the parties signed the
merger agreement. The signing of the merger agreement was
publicly announced later that day, following the closing of
trading on the NASDAQ Global Select Market.
On May 20, 2009, after the announcement of the signing of
the merger agreement, Mr. Slootman contacted the Chief
Executive Officer of EMC to cancel the meeting previously
scheduled for May 27, 2009.
Additional
Background to the Merger
On various occasions after the announcement of the signing of
the merger agreement on May 20, 2009 and through
June 1, 2009, individual representatives of EMC and members
of the board of directors of EMC contacted individual
representatives of Data Domain and members of the Data Domain
board of directors regarding an alternative acquisition proposal
from EMC. None of the representatives of Data Domain or members
of the Data Domain board of directors responded to such
inquiries other than to inform the respective representatives of
EMC and members of the board of directors of EMC that they could
not discuss the matter since they were bound by the
non-solicitation provisions of the merger agreement.
On June 1, 2009, EMC announced an unsolicited $30.00 per
share all cash tender offer to the stockholders of Data Domain.
EMC sent a letter to Mr. Slootman that same day regarding
the cash tender offer to the stockholders of Data Domain and
enclosed a proposed form of merger agreement.
On June 1, 2009, the Data Domain board of directors held a
meeting at which EMCs announcement of a cash tender offer
to the stockholders of Data Domain and the proposed business
combination with NetApp were discussed. Representatives of
Qatalyst and Fenwick & West reviewed the terms of
EMCs cash tender offer. After further review and
discussion, the Data Domain board of directors determined (after
consultation with Qatalyst and Fenwick & West) that
EMCs announcement of a $30.00 per share all cash tender
offer to the stockholders of Data Domain was reasonably likely
to lead to a Superior Proposal (as that term is defined in the
merger agreement). In accordance with the merger agreement, Data
Domain then informed NetApp of this determination and of Data
Domains intent to contact EMC and offer to enter into
discussions if EMC entered into a nondisclosure and standstill
agreement as required by the merger agreement.
On June 2, 2009, EMC formally commenced a $30.00 per share
all cash tender offer to the stockholders of Data Domain. Unless
extended by EMC, the tender offer expires at midnight, New York
City time, on Monday June 29, 2009.
On June 2, 2009, Mr. Warmenhoven called
Mr. Bhusri to inform him that NetApp would be willing to
increase the aggregate consideration in the proposed business
combination with Data Domain from $25.00 to $30.00, and
maintaining the 10% symmetrical collar around the value of the
stock portion of the consideration.
On June 2, 2009, the Data Domain board of directors held a
meeting at which both EMCs cash tender offer to the
stockholders of Data Domain and the proposed business
combination with NetApp were discussed. At this meeting,
Mr. Bhusri updated the Data Domain board of directors on
the revised proposal from NetApp to increase the aggregate
consideration from $25.00 to $30.00. Representatives of Qatalyst
and Fenwick & West reviewed the
35
terms of EMCs cash tender offer to the stockholders of
Data Domain. In addition, the Data Domain board of directors
discussed potential additional terms it might seek in connection
with the revised oral proposal from NetApp and determined to
review and seek to negotiate the terms of the revised proposal
from NetApp once they were received.
On June 2, 2009, a representative of Qatalyst called
Mr. Gomo to discuss the financial terms of NetApps
revised proposal regarding the proposed business combination
involving Data Domain and NetApp and proposed additional terms
that would enhance the proposal from Data Domains point of
view.
Late in the evening on June 2, 2009, Mr. Georgens
delivered a letter to Messrs. Bhusri and Slootman
containing the financial terms of the revised proposal regarding
the proposed business combination involving Data Domain and
NetApp, which provided for $30.00 per share in aggregate
consideration, consisting of $16.45 per share in cash and $13.55
per share in NetApp stock, with a 10% symmetrical collar around
the value of the stock portion of the consideration, based upon
the closing stock price of NetApp common stock on June 2, 2009
of $19.34. At this time, Mr. Georgens also delivered to
Messrs. Bhusri and Slootman an initial draft of the
amendment to the original merger agreement to effect this
revised proposal.
On June 2, 2009, the NetApp board of directors held a
meeting to discuss EMCs announcement of an all cash tender
offer and the business combination with Data Domain.
Representatives of Wilson Sonsini and Goldman Sachs reviewed the
key terms of EMCs cash tender offer to the stockholders of
Data Domain. Next, representatives of Goldman Sachs provided a
summary of potential responses and presented various detailed
financial analyses associated with these responses. Then, the
NetApp board of directors reviewed the key terms of a potential
response and engaged in extensive discussion in this regard.
Representatives of Goldman Sachs have provided a fairness
opinion to the NetApp board of directors, which concluded that
the revised proposal which provided for $30.00 per share in
aggregate consideration, consisting of $16.45 per share in cash
and $13.55 per share in NetApp stock, with a 10% symmetrical
collar around the value of the stock portion of the
consideration was fair to NetApp from a financial point of view.
The NetApp board of directors unanimously approved the terms of
NetApps revised proposal and approved the amendment to the
original merger agreement and related matters.
Following receipt of the revised proposal from NetApp,
representatives of Qatalyst and Goldman Sachs discussed the
financial terms of NetApps revised proposal regarding the
proposed business combination involving Data Domain and NetApp
and continued to request additional terms that would enhance the
proposal from Data Domains point of view.
On the morning of June 3, 2009, the Data Domain board of
directors held a meeting at which both EMCs cash tender
offer to the stockholders of Data Domain and the revised
financial terms of the proposed business combination with NetApp
were discussed. At this meeting, representatives of
Fenwick & West and Qatalyst updated the Data Domain
board of directors on the terms of the revised proposal
regarding the proposed business combination with NetApp and the
related amendment to the merger agreement, including the fact
that the stock portion of the merger consideration has a 10%
symmetrical collar around the closing stock price of NetApp
common stock on June 2, 2009 (the last trading day prior to
the Data Domain board of directors approval of the
amendment to the merger agreement) of $19.34 that will provide
adjustments to maintain the $30.00 per share merger
consideration for variations in NetApps stock price of up
to 10% in either direction between signing and closing of the
proposed business combination involving Data Domain and NetApp,
thereby providing downside protection for the Data Domain
stockholders if the NetApp common stock price declines by up to
10% while maintaining a portion of the upside potential if the
NetApp common stock price increases in value by more than 10%.
After further review and discussion, the Data Domain board of
directors unanimously determined that the revised terms of
NetApps proposal were advisable, fair to and in the best
interests of Data Domains stockholders and voted to
approve the amendment to the original merger agreement, which
was filed with the SEC as an exhibit to Data Domains
Current Report on
Form 8-K
filed later that day. The Data Domain board of directors further
considered and discussed EMCs cash tender offer to the
stockholders of Data Domain and, after consultation with
Qatalyst and Fenwick & West, the Data Domain board of
directors reaffirmed its determination that EMCs $30.00
per share all cash tender offer to the stockholders of Data
Domain was reasonably likely to lead to a Superior Proposal (as
that term is defined in the merger agreement). Later that day,
the parties executed the amendment to the
36
merger agreement and Data Domain issued a press release
announcing the execution of the amendment to the merger
agreement.
On June 3, 2009, a representative of Fenwick &
West delivered to a representative of Skadden, Arps, Slate,
Meagher & Flom LLP, legal counsel to EMC, a form of
mutual non-disclosure agreement that contained a
standstill provision with respect to shares of Data
Domain common stock, which, under the original merger agreement,
is a pre-condition to Data Domains discussions or
negotiations with a third party, such as EMC, with respect to a
potential Superior Proposal (as that term is defined in the
merger agreement). Later in the day, EMC issued a press release
reaffirming its $30.00 per share tender offer for all Data
Domain shares. As of June 16, 2009, EMC had not executed a
non-disclosure agreement that contains a standstill
provision with Data Domain and therefore Data Domain is still
prohibited from discussing or negotiating the terms of
EMCs cash tender offer with EMC by the terms of the merger
agreement with NetApp.
On June 4, 2009, NetApp and Data Domain filed the proxy
statement/prospectus with the SEC.
In addition, the Data Domain board of directors held meetings on
June 4, 5, 8, 11, 14, 17 and 22 and July 1, 2009, to
discuss the proposed business combination with NetApp,
EMCs cash tender offer and related matters. The Data
Domain board of directors consulted with representatives of
Fenwick & West and Qatalyst during the discussions at each
of these meetings.
On June 12, 2009, the Police & Fire Retirement System
of the City of Detroit, or PFRS Detroit, filed a lawsuit in
Delaware Chancery Court against the Data Domain board of
directors and NetApp alleging that the Data Domain board of
directors breached its fiduciary duties in connection with the
proposed business combination with NetApp and that NetApp aided
and abetted such breach. PFRS Detroit seeks unspecified damages,
preliminary and permanent injunctive relief against the proposed
business combination with NetApp, and costs and attorneys
fees.
On June 15, 2009, Data Domain filed a Schedule 14D-9 with
the SEC in which the Data Domain board of directors recommended
that the Data Domain stockholders reject EMCs cash tender
offer and in which the Data Domain board of directors reaffirmed
its unanimous recommendation that the Data Domain stockholders
vote to approve the adoption of the merger agreement with NetApp.
On June 17, 2009, NetApp and Data Domain filed an amendment
to the proxy statement/prospectus with the SEC in which the Data
Domain board of directors recommended that the Data Domain
stockholders reject EMCs cash tender offer and in which
the Data Domain board of directors reaffirmed its unanimous
recommendation that the Data Domain stockholders vote to approve
the adoption of the merger agreement with NetApp.
On June 18, 2009, Data Domain filed an amendment the
Schedule 14D-9
with the SEC in which the Data Domain board of directors
recommended that the Data Domain stockholders reject EMCs
cash tender offer and in which the Data Domain board of
directors reaffirmed its unanimous recommendation that the Data
Domain stockholders vote to approve the adoption of the merger
agreement with NetApp.
On June 19, 2009, David Kluger filed a lawsuit in the
Superior Court of the State of California, County of
Santa Clara, against the Data Domain board of directors,
Data Domain, NetApp and two NetApp subsidiaries alleging that
the Data Domain board of directors breached its fiduciary duties
in connection with the potential business combination with
NetApp and that Data Domain and NetApp aided and abetted such
breach. Mr. Kluger seeks, on behalf of an alleged class of
the Data Domain stockholders, unspecified damages and other
monetary relief, preliminary and permanent injunctive relief
against the potential business combination with NetApp, and
costs and attorneys fees.
On June 26, 2009, the Delaware Chancery Court granted PFRS
Detroits motion for expedited proceedings, scheduling a
hearing on PFRS Detroits motion for a preliminary
injunction of the proposed business combination with NetApp for
10:00 a.m. on August 13, 2009.
Also on June 26, 2009, EMC issued a press release
announcing that it had extended the expiration date of
EMCs cash tender offer until 12:00 midnight, New York
City time, on July 10, 2009.
On July 2, 2009, the Federal Trade Commission granted early
termination of the HSR waiting period.
37
Data
Domains Reasons for the Merger; Recommendation of the Data
Domain Board of Directors
In the course of reaching its decision to approve the merger,
adopt the merger agreement and recommend that Data Domain
stockholders vote FOR the adoption of the merger
agreement, the Data Domain board of directors consulted with
senior management, legal counsel and its financial advisor. The
Data Domain board of directors also consulted with outside legal
counsel regarding its fiduciary duties, legal due diligence
matters and the terms of the merger agreement and related
agreements. The following discussion includes all material
reasons and factors considered by the Data Domain board of
directors in making its recommendation, but is not, and is not
intended to be, exhaustive:
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Merger Consideration. The Data Domain board of
directors considered the following with respect to the merger
consideration to be received by the Data Domain stockholders:
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that our stockholders will receive merger consideration of
$30.00 per share consisting of $16.45 per share in cash and
$13.55 per share in NetApp stock upon the completion of the
merger (assuming NetApps common stock price remains within
the 10% symmetrical collar discussed below), as compared to the
uncertain future long-term value to our stockholders that might
be realized if we remained independent;
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the fact that the cash portion of the merger consideration will
provide liquidity and certainty of value to our stockholders;
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the fact that the stock portion of the merger consideration has
a 10% symmetrical collar around the closing stock price of
NetApp common stock on June 2, 2009 (the last trading day
prior to the Data Domain board of directors approval of
the Merger) of $19.34 that will provide adjustments to maintain
the $30.00 per share merger consideration for variations in
NetApps stock price of up to 10% in either direction
between signing and closing of the merger, thereby providing
downside protection for Data Domain stockholders if
NetApps stock declines by up to 10% while maintaining a
portion of the upside potential if NetApps stock increases
in value by more than 10%;
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the fact that the $30.00 per share value of the consideration
for Data Domain common stock in the merger (assuming
NetApps stock price remains within the 10% collar
discussed above) represents significant premiums to our
stockholders of approximately 115% premium over the average
closing price of our common stock on The NASDAQ Global Select
Market over the 60 trading day period ending on May 19,
2009 (the last trading day prior to the Data Domain board of
directors approval of the merger) and a 72% premium over
the closing price of our common stock on The NASDAQ Global
Select Market on May 19, 2009 (the last trading day prior
to the Data Domain board of directors approval of the
merger) and the levels of those premiums as compared to the
premiums in other comparable merger transactions; and
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the then current financial market conditions and the recent and
historical market prices of Data Domain common stock, including
the market price performance of Data Domain common stock
relative to those of other industry participants. See
Comparative Market Prices and Dividends for
information about our common stock prices over the past two
years.
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Synergy between NetApp and Data Domain. The
Data Domain board of directors considered NetApps
prospects following the closing of the merger. NetApps
sales and distribution channels and international reach to offer
the Data Domain product line to more customers, accelerating
growth and market adoption. The Data Domain board of directors
believed that the combination of the two companies would
increase the value of NetApp and thereby the value of the NetApp
common stock that Data Domain stockholders would receive in the
merger.
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Review of Prospects in Remaining
Independent. The Data Domain board of directors
considered the possibility of continuing to operate Data Domain
as an independent public company. The Data Domain board of
directors also considered the perceived risks and uncertainties
of remaining an independent public company, the range of
possible values to its stockholders arising from this
alternative and the timing and uncertainty of successfully
accomplishing meaningful growth under Data Domains
strategic plan. The Data
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Domain board of directors assessment was that pursuit of a
growth strategy as an independent company was not reasonably
likely to create greater value for the Data Domain stockholders
than the merger, after discounting for the elapse of time and
considering the factors reviewed below. In considering the
alternative of pursuing growth as an independent company, the
Data Domain board of directors considered the following factors:
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increased competition, especially from competitors with greater
name recognition, more resources, financial and otherwise,
broader product offerings and more vertically integrated product
offerings than Data Domain;
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Data Domains slowing growth rates and the challenge of
expanding beyond its core deduplication product offerings in the
context of enterprise customers and large data centers
increasing requests for a broader suite of data storage products
and services;
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the increasing preference of enterprises to consolidate vendors
and use one vendor for all of its data center needs instead of
using multiple vendors that offer best-of-breed products
independently;
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customer concern regarding Data Domains relatively small
size compared to its competitors due to the critical nature of
its storage products in customer data centers; and
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the time and risk involved in integrating new management members
and key employees if Data Domain were successful in recruiting
new management and key employees.
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Economic Conditions. The Data Domain board of
directors considered the fact that the United States economy, in
general, appears to be in a downturn. This turmoil and
uncertainty could adversely affect the demand for Data
Domains products and services. In addition, because Data
Domains sales are primarily to corporate customers, Data
Domains business depends on general economic and business
conditions.
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Opinion of Qatalyst Partners LP. The Data
Domain board of directors considered the financial presentation
of Qatalyst and the opinion of Qatalyst, dated May 20,
2009, that, as of the date of the opinion, and subject to and
based on the assumptions made, procedures followed, matters
considered and limitations and qualifications of the review
undertaken in such opinion, the merger consideration to be
received by holders of shares of Data Domain common stock, other
than affiliates who have executed voting agreements, pursuant to
the original merger agreement was fair, from a financial point
of view, to such holders, as more fully described in the section
entitled Data Domain Proposal 1 The
Merger Opinion of Qatalyst Partners LP on
page 40. Qatalysts opinion was based on the terms of
the original merger agreement, and the Data Domain board of
directors has not requested that Qatalyst provide an additional
or revised opinion reflecting the terms of the merger agreement,
as amended on June 3, 2009. Qatalysts opinion was
rendered to the Data Domain board of directors prior to the
announcement of EMCs tender offer. Thus, the impact of
EMCs offer on Qatalysts view, as of the date of the
amendment to the original merger agreement, as to the fairness,
from a financial point of view, of the merger consideration to
be received by the holders of shares of Data Domain common stock
pursuant to the amendment to the original merger agreement
cannot be presumed, and such view could be different than its
view, as of the date of the original merger agreement, as to the
fairness, from a financial point of view, of the original merger
consideration to be received by the holders of shares of Data
Domain common stock pursuant to the original merger agreement.
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Likelihood and Timing of Closing. The Data
Domain board of directors considered the likelihood that the
proposed acquisition would be completed on a timely basis, in
light of:
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the customary closing conditions included in the merger
agreement;
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the fact that the merger does not need to be approved by foreign
anti-trust authorities;
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the available cash resources of NetApp to pay the cash portion
of the merger consideration without the need for outside
financing and the representation that NetApp made in the merger
agreement to that effect; and
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the fact that the merger does not need to be approved by
NetApps stockholders and the representation that NetApp
made in the merger agreement to that effect.
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Terms of the Merger Agreement. The Data Domain
board of directors considered the terms and conditions of the
merger agreement and the course of negotiations thereof,
including:
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the limited conditions to NetApps obligation to complete
the merger, including the absence of a financing condition or
vote of NetApps stockholders and limited ability of NetApp
to terminate the merger agreement under clearly defined
circumstances;
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the structure of the transaction as a merger, requiring approval
by Data Domains stockholders, which would result in
detailed public disclosure and a period of time prior to
completion of the merger during which an unsolicited superior
proposal, if any, could be brought forth;
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the ability of the Data Domain board of directors, under certain
circumstances, to furnish information to and conduct
negotiations with a third party, if the Data Domain board of
directors determines in good faith (after consultation with its
financial advisor and its outside legal counsel) that
(A) the third party has made an acquisition proposal that
either constitutes or is reasonably likely to lead to a superior
proposal and (B) the failure to take such action is
reasonably likely to result in a breach of its fiduciary duties
to the Data Domain stockholders;
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the ability of the Data Domain board of directors, under certain
circumstances, to change its recommendation that the Data Domain
stockholders adopt the merger agreement if the Data Domain board
of directors determines in good faith (after consultation with
its outside counsel) that the failure to change its
recommendation is reasonably likely to be a breach of its
fiduciary duties to the Data Domain stockholders;
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the ability of Data Domain to terminate the merger agreement in
order to accept a superior proposal, subject to certain
conditions and payment to NetApp of $57.0 million,
representing approximately 2.7% of the total equity value of the
proposed transaction at the time of the execution of the merger
agreement;
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the belief of the Data Domain board of directors that the
termination fee is within the range of reasonable termination
fees provided for in comparable transactions and is not a
significant deterrent to possible competing offers; and
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that Data Domains stockholders will be entitled to
appraisal rights under Delaware law.
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NetApps Reputation. The Data Domain
board of directors considered the business reputation of NetApp
and its management and the substantial financial resources of
NetApp, which the Data Domain board of directors believed
supported the conclusion that the merger could be completed
relatively quickly and in an orderly manner.
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In the course of its deliberations, the Data Domain board of
directors also considered a variety of risks and factors
weighing against the merger, including:
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Risks of Announcement and Completion. The Data
Domain board of directors considered:
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the risks and contingencies related to the announcement of the
merger, including our ability to retain key employees and
maintain our relationships with customers, commercial partners
and third parties;
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the conditions to NetApps obligation to complete the
merger and the right of NetApp to terminate the merger agreement
under certain circumstances; and
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the risks and costs to Data Domain if the merger is not
completed, including the diversion of management and employee
attention, potential employee attrition, the potential impact on
our stock price and the effect on our business relationships.
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Limitations on Data Domains
Business. The Data Domain board of directors
considered the potential limitations on Data Domains
pursuit of business opportunities due to pre-closing covenants
in the merger agreement whereby Data Domain agreed that it will
carry on its business in the ordinary course of business
consistent with past practice, and subject to specified
exceptions, will not take certain actions related to the conduct
of its business without the prior written consent of NetApp.
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Absence of Pre-Signing Solicitation. The Data
Domain board of directors considered the absence of contacting
other companies or other effort to solicit interest from other
potential buyers that might be a likely candidates for a
strategic transaction with Data Domain prior to the execution
and delivery of the merger agreement.
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Potential Taxable Transaction. The Data Domain
board of directors considered that the merger agreement allows
for NetApp to increase the cash portion of the merger
consideration in the event that the issuance of additional
shares of its common stock would require NetApp to obtain a vote
of its stockholders to approve the issuance and that a decline
in the value of the NetApp common stock or an increase in the
cash portion could result in the stock portion of the merger
consideration being taxable to the Data Domain stockholders.
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Stockholder Vote. The Data Domain board of
directors considered the requirement that, unless the merger
agreement is earlier terminated by Data Domain as a result of a
receipt of a superior proposal, Data Domain must submit the
merger agreement for adoption by Data Domains stockholders
even if the Data Domain board of directors withdraws its
recommendation of the merger.
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Voting Agreements. The Data Domain board of
directors considered that the directors, executive officers and
affiliated entities holding shares that represent approximately
20.6% of Data Domain outstanding common stock as of May 20,
2009, would be entering into voting agreements to vote in favor
of the merger and that even if the Data Domain board of
directors changed its recommendation to vote against the merger
under circumstances in which Data Domain is not entitled to
terminate the merger agreement, those directors, executive
officers and affiliated entities would still be required to
approve the merger proposal.
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Termination Fee and Other Alternative
Acquirers. The Data Domain board of directors
considered the possibility that the $57.0 million
termination fee payable to NetApp under clearly defined
circumstances might discourage a competing proposal to acquire
Data Domain or reduce the price of any such proposal.
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Interests of Directors and Officers. The Data
Domain board of directors considered the interests that certain
of our directors and executive officers have with respect to the
merger in addition to their interests as Data Domain
stockholders generally, as described in Data Domain
Proposal 1 The Merger Data Domain
Officers and Directors Have Financial Interests in the
Merger on page 46.
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The preceding discussion of the information and factors
considered by the Data Domain board of directors is intended to
be illustrative and not exhaustive. In light of the variety of
factors considered in connection with its evaluation of the
merger and the complexity of these matters, the Data Domain
board of directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the
various factors considered in reaching its determination, and
individual directors may have given different weight to
different factors. In addition, the Data Domain board of
directors did not reach any specific conclusion with respect to
any of the factors or reasons considered. Instead, the Data
Domain board of directors conducted an overall analysis of the
factors and reasons described above and determined that, in the
aggregate, the potential benefits considered outweighed the
potential risks or possible negative consequences of approving
the merger, adopting the merger agreement and recommending that
Data Domain stockholders vote FOR the adoption of
the merger agreement.
Opinion
of Qatalyst Partners LP
Data Domain retained Qatalyst to act as its financial advisor in
connection with a potential transaction involving Data Domain.
Data Domain selected Qatalyst to act as its financial advisor
based on Qatalysts qualifications, expertise, reputation
and knowledge of the business and affairs of Data Domain. As
financial advisor to Data Domain, on May 20, 2009, Qatalyst
rendered to the Data Domain board of directors its written
opinion that, as of such date and based upon and subject to the
various assumptions, limitations and qualifications set forth in
its opinion, the merger consideration to be received by the
holders of shares of Data Domain common stock, other than
affiliates who have executed voting agreements, pursuant to the
original merger agreement was fair, from a financial point of
view, to such holders.
The full text of Qatalysts written opinion, dated
May 20, 2009, to the board of directors of Data Domain is
attached hereto as Appendix D and is incorporated by
reference herein. The opinion sets forth, among other things,
the assumptions made, procedures followed, matters considered
and limitations and
41
qualifications of the review undertaken by Qatalyst in
rendering its opinion. You should read the entire opinion
carefully in its entirety. Qatalysts opinion was provided
to the Data Domain board of directors and addressed only the
fairness, from a financial point of view, of the merger
consideration to be received by the holders of shares of Data
Domain common stock, other than affiliates who have executed
voting agreements, pursuant to the original merger agreement as
of the date of the opinion. It did not address any other aspect
of the transaction and does not constitute a recommendation to
the stockholders of Data Domain as to how to vote or act on any
matter with respect to the merger. The summary of
Qatalysts opinion set forth herein is qualified in its
entirety by reference to the full text of the opinion.
In arriving at its opinion, Qatalyst reviewed the original
merger agreement and certain publicly available financial
statements and other business and financial information of Data
Domain and NetApp. Qatalyst also reviewed certain financial
projections and operating data prepared by the management of
Data Domain (the Data Domain Projections) and by the
management of NetApp (the NetApp Projections) and
reviewed information relating to certain strategic, financial
and operational benefits anticipated from the merger, prepared
by the managements of Data Domain and NetApp, respectively.
Additionally, Qatalyst discussed the past and current operations
and financial condition and the prospects of Data Domain and
NetApp, including information relating to certain strategic,
financial and operational benefits anticipated from the merger,
with senior executives of Data Domain and NetApp. Qatalyst also
reviewed the historical market prices and trading activity for
Data Domain common stock and NetApp common stock and compared
the financial performance of Data Domain and the prices and
trading activity of Data Domain common stock with that of
certain other selected publicly-traded companies and their
securities. In addition, Qatalyst reviewed the financial terms,
to the extent publicly available, of selected acquisition
transactions and performed such other analyses, reviewed such
other information and considered such other factors as it deemed
appropriate.
In arriving at its opinion, Qatalyst 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, or discussed with, it by Data
Domain and NetApp. With respect to the Data Domain Projections
and the NetApp Projections, including information relating to
certain strategic, financial and operational benefits
anticipated from the merger and other matters covered thereby,
Qatalyst was advised by the management of Data Domain and
NetApp, respectively, and Qatalyst assumed, that they had been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Data
Domain and NetApp, respectively, of the future financial
performance of Data Domain and NetApp, respectively. Qatalyst
assumed that the merger would be completed in accordance with
the terms set forth in the original merger agreement, without
any modification or delay. In addition, Qatalyst assumed that in
connection with the receipt of all the necessary approvals of
the proposed merger, no delays, limitations, conditions or
restrictions would be imposed that would have an adverse effect
on Data Domain, NetApp or the contemplated benefits expected to
be derived in the proposed merger. Qatalyst also assumed that
the merger would qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended. Qatalyst did not make
any independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Data Domain or NetApp,
nor was it furnished with any such evaluation or appraisal. In
addition, Qatalyst relied, without independent verification,
upon the assessments of the managements of Data Domain and
NetApp as to (i) the existing and future technology and
products of Data Domain and NetApp and the risks associated with
such technology and products, (ii) their ability to
integrate the businesses of Data Domain and NetApp and
(iii) their ability to retain key employees of Data Domain
and NetApp. In arriving at its opinion, Qatalyst was not
authorized to solicit, and did not solicit, interest from any
party with respect to an acquisition, business combination or
other extraordinary transaction involving Data Domain.
Qatalysts opinion has been approved by its opinion
committee in accordance with its standard practice.
Qatalysts opinion does not constitute a recommendation to
any holder of shares of Data Domain common stock as to how to
vote with respect to the merger and does not in any manner
address the prices at which Data Domain common stock or NetApp
common stock will trade at any time. Qatalysts opinion was
necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available
to it as of, the date the opinion was delivered. Events
occurring after the date of the opinion may affect
Qatalysts opinion and the assumptions used in preparing
it, and Qatalyst has not assumed any obligation to update,
revise or reaffirm its opinion. Qatalysts opinion did not
address the underlying business decision of Data Domain to
engage in the
42
merger, or the relative merits of the merger as compared to any
strategic alternatives that may have been available to Data
Domain. Qatalysts opinion was limited to the fairness,
from a financial point of view, of the merger consideration to
be received by the holders of shares of Data Domain common
stock, other than affiliates who have executed voting
agreements, pursuant to the original merger agreement and
Qatalyst expressed no opinion with respect to the fairness of
the amount or nature of the compensation to any of Data
Domains officers, directors or employees, or any class of
such persons, relative to such merger consideration.
The following is a summary of the material analyses performed by
Qatalyst in connection with its opinion dated May 20, 2009.
The analyses described below must be considered as a whole;
considering any portion of such analyses and of the factor
considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying
Qatalysts opinion. Except as otherwise noted, for purposes
of its analyses, Qatalyst utilized equity research analyst
projections for both Data Domain and NetApp, or the street
projections, and the Data Domain Projections (which consisted of
two sets of projections, denoted as Management Case 1 and
Management Case 2 herein) for Data Domain.
Illustrative Discounted Cash Flow
Analysis. Qatalyst performed an illustrative
discounted cash flow analysis, which is designed to imply a
value of a company by calculating the net present value of
estimated future cash flows of the company. Qatalyst calculated
ranges of implied equity values per share for Data Domain based
on discounted cash flow analyses utilizing the Data Domain
Projections for the fiscal years 2009 through 2013. Qatalyst
computed the unlevered free cash flows for Data Domain for the
years 2009 through 2013 and calculated the terminal value based
on the year 2013 unlevered free cash flow by applying a range of
perpetual growth rates ranging from 3.0% to 5.0%. These values
were then discounted to present values using cost of equity
ranging from 12.0% to 15.0%. Qatalyst then applied a range of
dilution factors from 5.0% to 10.0% to illustrate the terminal
value dilution to current stockholders due to projected equity
compensation grants by Data Domain. Based on the calculations
set forth above, this analysis implied a range for Data Domain
common stock of approximately $18.70 to $29.22 per share based
on Management Case 1 and approximately $12.96 to $19.43 per
share based on Management Case 2, in each case, net of Data
Domains cash, in each case, including Data Domains
net cash balance.
Selected Company Analysis. Qatalyst performed
a selected company analysis, which attempts to provide an
implied value of a company by comparing it to selected
publicly-traded companies. Qatalyst compared selected financial
information and public markets multiples for Data Domain with
publicly available information and public market multiples for
selected technology ecosystems companies and data management
companies. The companies used in this comparison included those
companies listed below:
Technology Ecosystems Companies:
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Microsoft Corporation
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International Business Machines Corporation
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Cisco Systems, Inc.
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Oracle Corporation
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Hewlett-Packard Company
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EMC Corporation
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Dell Inc.
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VMware, Inc.
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Data Management Companies:
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Symantec Corporation
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Citrix Systems, Inc.
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F5 Networks, Inc.
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Open Text Corporation
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Riverbed Technology, Inc.
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CommVault Systems, Inc.
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3Par Inc.
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Netezza Corporation
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Based upon equity research analyst estimates for calendar year
2009 and the Data Domain Projections and using the closing
prices as of May 19, 2009 for shares of the selected
companies, Qatalyst calculated the following ratios for each of
these companies:
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the enterprise value divided by the estimated revenue for
calendar year 2009;
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the enterprise value divided by the estimated revenue for
calendar year 2010;
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the closing stock price divided by the estimated earnings per
share for calendar year 2009; and
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the closing stock price divided by the estimated earnings per
share for calendar year 2010.
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Based on the analysis of the relevant ratios for each of the
selected companies, Qatalyst selected representative ranges of
financial multiples of the selected companies and applied these
ranges of multiples to the relevant Data Domain statistic. Based
on the calculations set forth above, this analysis implied a
range for Data Domain common stock of approximately $11.34 to
$22.43 based on street projections, approximately $12.69 to
$24.24 based on Management Case 1 and approximately $10.25 to
$20.38 based on Management Case 2.
No company included in the selected company analysis is
identical to Data Domain. In evaluating the selected companies,
Qatalyst made judgments and assumptions with regard to industry
performance, general business, economic, market and financial
conditions and other matters. Many of these matters are beyond
the control of Data Domain, such as the impact of competition on
the business of Data Domain and the industry in general,
industry growth and the absence of any material adverse change
in the financial condition and prospects of Data Domain or the
industry or in the financial markets in general. Mathematical
analysis, such as determining the arithmetic mean or median, or
the high or low, is not in itself a meaningful method of using
selected company data.
44
Selected Transaction Analysis. Qatalyst
performed a selected transaction analysis, which is designed to
imply a value of a company based on publicly available financial
terms of selected transactions that share some characteristics
with the merger. Qatalyst compared the multiples paid in
(i) 10 transactions from June 2005 through April 2009
involving public and private companies in the hardware/systems
industry and (ii) 14 transactions from July 2003
through January 2009 involving public companies in the software
industry. These transactions are listed below:
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Target
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Acquiror
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Hardware/Systems Companies
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Sun Microsystems, Inc.
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Oracle Corporation
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Foundry Networks, Inc.
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Brocade Communications Systems, Inc.
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LeftHand Networks
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Hewlett-Packard Company
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Diligent Technologies
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International Business Machines Corporation
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XIV
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International Business Machines Corporation
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EqualLogic, Inc.
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Dell Inc.
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McDATA Corporation
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Brocade Communications Systems, Inc.
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Advanced Digital Information Corporation
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Quantum Corporation
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Maxtor Corporation
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Seagate Technology
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Storage Technology Corporation
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Sun Microsystems, Inc.
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Software Companies
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Interwoven, Inc.
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Autonomy Corporation plc
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BladeLogic, Inc.
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BMC Software, Inc.
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BEA Systems, Inc.
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Oracle Corporation
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Opsware Inc.
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Hewlett-Packard Company
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WebEx Communications, Inc.
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Cisco Systems, Inc.
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Altiris, Inc.
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Symantec Corporation
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Internet Security Systems, Inc.
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International Business Machines Corporation
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FileNet Corporation
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International Business Machines Corporation
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Mercury Interactive Corporation
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Hewlett-Packard Company
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RSA Security Inc.
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EMC Corporation
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MicroMuse Inc.
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International Business Machines Corporation
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Veritas Software Corporation
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Symantec Corporation
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Documentum, Inc.
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EMC Corporation
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Legato Systems, Inc.
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EMC Corporation
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For each of the transactions listed above, Qatalyst calculated
the following ratios:
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the ratio of the enterprise value to the estimated next twelve
months revenue; and
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the estimated next twelve months price to earnings multiple.
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Based on the analysis of the relevant metrics for each
transaction noted above, Qatalyst selected representative ranges
of multiples of the transactions and applied these ranges of
multiples to the relevant Data Domain financial statistic. Based
on the calculations set forth above, this analysis implied a
range for Data Domain common stock of approximately $15.96 to
$25.96 based on street projections, approximately $17.50 to
$27.05 based on Management Case 1 and approximately $14.26 to
$25.96 based on Management Case 2.
No company or transaction utilized in the selected transactions
analysis is identical to Data Domain, NetApp or the merger. In
evaluating the selected transactions, Qatalyst made judgments
and assumptions with regard to general business, market and
financial conditions and other matters, many of which are beyond
the control of Data Domain and NetApp, such as the impact of
competition on the business of Data Domain, NetApp or the
industry generally, industry growth and the absence of any
adverse material change in the financial condition of Data
Domain, NetApp or the industry or in the financial markets in
general, which could affect the public trading value of the
companies and the aggregate value of the transactions to which
they are being compared.
Qatalyst also performed and considered various other financial
statistics in connection with its opinion dated May 20,
2009 as set forth below.
Future Trading Analysis. Qatalyst performed an
illustrative analysis of the implied present value of the future
price per share of Data Domain common stock on a stand-alone
basis, which is designed to provide an
45
indication of the present value of a theoretical future value of
a companys equity as a function of its estimated future
earnings and assumed price to future earnings per share
multiple. For this analysis, Qatalyst used the street
projections for calendar year 2010 only and the Data Domain
Projections for Management Case 1 and Management Case 2 for
calendar years 2010 and 2011. Qatalyst first calculated the
implied value per share of Data Domain common stock for calendar
year 2010 with respect to the street projections and each of
calendar years 2010 and 2011 with respect to Management Case 1
and Management Case 2 by applying a representative range of
public market price to forward earnings per share multiples to
earnings per share estimates for Data Domain. Qatalyst then
discounted these values using a cost of equity of 13.5%. Based
on the calculations set forth above, this analysis implied a
range for Data Domain common stock of approximately $15.81 to
$19.76 per share based on street projections, approximately
$17.09 to $25.10 per share based on Management Case 1 and
approximately $12.04 to $15.69 per share based on Management
Case 2.
Contribution Analysis. Qatalyst reviewed
estimated 2009 and 2010 operating and financial information
based on the street projections for Data Domain and NetApp. Such
operating and financial information included, among other
things, revenues, gross profits, operating profits and net
income. Qatalyst analyzed the relative potential financial
contribution of Data Domain to the combined company following
completion of the merger, the implied equity ownership
determined by valuing such contributions and the implied value
per share. Based on the calculations set forth above, this
analysis implied a range for Data Domain common stock of
approximately $9.64 to $14.07 per share.
Premia Paid Statistics. Qatalyst reviewed the
premia paid in selected domestic public company cash and
cash/stock mix transactions that have been completed or are
pending since 2003 in which the target company was a
publicly-traded technology company and the transaction value was
greater than $500 million. Qatalyst selected a
representative range of implied premia (representing the 25th
percentile and 75th percentile) and applied this range of premia
to the price of Data Domain common stock of $17.43 as of
May 19, 2009, which implied a range for Data Domain common
stock of approximately $20.36 to $24.16 per share.
Equity Research Analyst Price Targets
Statistics. Qatalyst reviewed and analyzed the
price targets for Data Domain common stock prepared and
published by equity research analysts during the period from
April 23, 2009 through April 28, 2009. These targets
reflect each analysts estimate of the future public market
trading price of Data Domain common stock and are not discounted
to reflect present values.
Qatalyst noted that the range of undiscounted equity research
analyst price targets of Data Domain common stock was between
$11.00 and $24.00 per share. Qatalyst further calculated that
using a cost of equity of 13.5% and a discount period of one
year, the present value of the equity research analyst price
target range for Data Domain common stock was approximately
$9.69 to $21.15 per share.
The public market trading price targets published by equity
research analysts do not necessarily reflect current market
trading prices for Data Domain common stock and these estimates
are subject to uncertainties, including the future financial
performance of Data Domain and future financial market
conditions.
Miscellaneous
In connection with the review of the transaction by the Data
Domain board of directors, Qatalyst 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, Qatalyst
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. Qatalyst 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, Qatalyst 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 Qatalysts view of the
actual value of Data Domain or NetApp. In performing its
analyses, Qatalyst made numerous assumptions with respect to
industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond
the control of Data Domain and NetApp. Any estimates contained
in
46
Qatalysts 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.
Qatalyst conducted the analyses described above solely as part
of its analysis of the fairness of the merger consideration
pursuant to the original merger agreement, from a financial
point of view, to holders of shares of Data Domain common stock,
other than affiliates who have executed voting agreements, and
in connection with the delivery of its opinion to the Data
Domain board of directors. These analyses do not purport to be
appraisals or to reflect the prices at which shares of Data
Domain common stock might actually trade.
Qatalysts opinion and its presentation to the Data Domain
board of directors was one of many factors taken into
consideration by the Data Domain board of directors in deciding
to approve the merger agreement. Consequently, the analyses as
described above should not be viewed as determinative of the
opinion of the Data Domain board of directors with respect to
the merger consideration or of whether the Data Domain board of
directors would have been willing to agree to a different merger
consideration. The merger consideration was determined through
arms-length negotiations between Data Domain and NetApp
and was approved by the Data Domain board of directors. Qatalyst
provided advice to Data Domain during these negotiations.
Qatalyst did not, however, recommend any specific merger
consideration to Data Domain or that any specific merger
consideration constituted the only appropriate merger
consideration for the merger.
Qatalyst provides investment banking and other services to a
wide range of corporations and individuals, domestically and
offshore, from which conflicting interests or duties may arise.
In the ordinary course of these activities, affiliates of
Qatalyst may at any time hold long or short positions, and may
trade or otherwise effect transactions in debt or equity
securities or loans of Data Domain, NetApp or their respective
affiliates. During the two year period prior to the date of
Qatalysts opinion, no material relationship existed
between Qatalyst and its affiliates and Data Domain or NetApp
pursuant to which compensation was received by Qatalyst or its
affiliates; however Qatalyst and its affiliates may in the
future provide investment banking and other financial services
to Data Domain and NetApp and their respective affiliates for
which they would expect to receive compensation.
Under the terms of its engagement letter, Qatalyst provided Data
Domain with financial advisory services in connection with the
transaction for which it will be paid a fee based on the size of
the transaction which would be approximately $17 million
(all numbers herein based on an assumed closing date of
June 23, 2009), a portion of which became payable upon
execution of the engagement letter, a portion of which became
payable upon delivery of its opinion and approximately
$15.9 million, or 93.5%, of which is contingent upon, and
will become payable upon, completion of the merger. Data Domain
has also agreed to reimburse Qatalyst for its expenses incurred
in performing its services. In addition, Data Domain has agreed
to indemnify Qatalyst and its affiliates, their respective
members, directors, officers, partners, agents and employees and
any person controlling Qatalyst or any of its affiliates against
certain liabilities and expenses related to or arising out of
Qatalysts engagement.
Data
Domain Officers and Directors Have Financial Interests in the
Merger
In considering the recommendation of the Data Domain board of
directors that you vote to approve the merger proposal, you
should be aware that Data Domains executive officers and
directors have financial interests in the merger that are
different from, or in addition to, those of Data Domains
stockholders generally and that are described below. The members
of Data Domains board of directors were aware of and
considered these interests, among other matters, in evaluating
and negotiating the merger agreement, and in recommending to the
stockholders that the merger agreement be approved and adopted.
For purposes of all of the Data Domain and NetApp agreements and
plans described below, the completion of the transactions
contemplated by the merger agreement will constitute a change in
control.
Equity
Compensation Awards
The merger agreement provides that, upon completion of the
merger, each Data Domain option to purchase shares of Data
Domain common stock will be assumed and converted, based on the
option exchange ratio, into an option to purchase NetApp common
stock subject to the same vesting restrictions and other terms
and conditions of such Data Domain option. The merger agreement
also provides that, upon completion of the merger, each then
outstanding restricted stock unit or share of restricted stock
of Data Domain will be assumed and converted into the
47
right to receive the merger consideration, but will otherwise be
subject to the same vesting restrictions and other terms and
conditions of the Data Domain awards. Please see The
Merger Agreement Treatment of Data Domain Stock
Options and Other Equity-Based Awards beginning on
page 55 for a detailed discussion of the treatment of
equity-based awards.
Our executive officers, Frank Slootman, Michael P. Scarpelli,
David L. Schneider, Daniel R. McGee and Nick Bacica, are
participants in the Data Domain Management Change in Control
Plan, which provides for vesting acceleration of their equity
awards upon an involuntary termination (without cause or
voluntary resignation for good reason) following a change in
control of Data Domain. Pursuant to the Data Domain Management
Change in Control Plan, upon such an involuntary termination
following a change in control of Data Domain, 50% (or 100% in
the case of Mr. Slootman) of their then unvested equity
awards will immediately vest.
Pursuant to agreements with the non-employee directors of Data
Domain, namely Aneel Bhusri, Ronald Bernal, Ronald Codd, Reed
Hundt, Kai Li, Jeffrey Miller and Scott Sandell, certain of
their awards of Data Domain stock options and restricted stock
will fully vest as a result of the completion of the merger.
Upon completion of the merger, the directors of Data Domain will
cease to be directors. The following table identifies, for each
of Messrs. Bhusri, Bernal, Codd, Hundt, Li, Miller and
Sandell (A) the number of unvested options to acquire
shares of Data Domain common stock (at exercise prices ranging
from $1.00 to $8.90) that would vest upon completion of the
merger and the corresponding value representing the difference
between the exercise price and the assumed share price of $30.00
multiplied by the number of shares accelerated, and (B) the
number of shares of unvested Data Domain restricted stock that
would vest upon completion of the merger, and the corresponding
value of shares accelerated based on the assumed share price of
$30.00, assuming a closing date of August 31, 2009:
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Unvested Data
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Unvested Data
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Domain
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Value of
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Domain
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Value of
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Restricted Stock
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Accelerated
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Options Vesting
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Accelerated Option
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Vesting Upon
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Restricted Stock
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Upon Completion of
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Vesting Assuming
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Completion of the
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Vesting Assuming
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Name
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the Merger
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$30 Share Price
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Merger
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$30 Share Price
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Mr. Bernal
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39,584
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$
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835,222
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$
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Mr. Bhusri
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39,584
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835,222
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Mr. Codd
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58,334
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1,691,686
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Mr. Hundt
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79,167
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1,670,423
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Mr. Li
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83,997
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2,519,910
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Mr. Miller
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58,334
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1,750,020
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Mr. Sandell
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39,584
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835,222
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Severance
Benefits in Certain Employment Agreements
Each of Mr. Slootman, Mr. Scarpelli,
Mr. Schneider, Mr. McGee and Mr. Bacica are party
to employment agreements that provide for severance benefits in
the event their employment is terminated for any reason other
than cause or permanent disability, provided they sign a general
release of claims. In the event Mr. Slootmans
employment is terminated for any reason other than cause or
permanent disability, he would be entitled to receive continued
cash severance payments equal to his base salary for a period of
six months. In addition, the stock options granted to
Mr. Slootman prior to 2007 provide that if
Mr. Slootmans employment is terminated for any reason
other than cause or disability, he will receive 6 months of
additional vesting. In the event Mr. Scarpellis
employment is terminated for any reason other than cause or
permanent disability, he would be entitled to receive continued
cash severance payments equal to his base salary for a period of
three months and reimbursement for the premiums paid for
continued health coverage through COBRA for up to three months;
however, if such termination occurs within 12 months following a
change in control of Data Domain, the cash severance will
instead be a lump sum equal to six months of his base salary and
50% of his target bonus in effect at the time of termination.
Each of the employment agreements for Mr. Schneider,
Mr. McGee and Mr. Bacica provide that in the event
they are terminated for any reason other than cause or permanent
disability, they would be entitled to receive continued cash
severance payments equal to their base salary for a period of
three months and reimbursement for the premiums paid for
continued health insurance through COBRA for up to three months.
48
The information for each of Mr. Slootman,
Mr. Scarpelli, Mr. Schneider, Mr. McGee and
Mr. Bacica regarding vesting acceleration and severance
payments in the event their employment is terminated for certain
reasons, as of June 1, 2009 assuming a share price of
$30.00 per share, is set forth in the table below.
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Termination
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Termination
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Other Than
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Other Than
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for Cause or
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for Cause or
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Resignation
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Disability
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Disability
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for Good
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Prior to
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After a
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Reason After
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Change in
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Change in
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a Change in
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Name
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Benefit
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Control
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Control
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Control
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Frank Slootman
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Severance
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$
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175,000
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$
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175,000
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$
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Option Acceleration
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1,306,958
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17,130,958
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17,130,958
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RSU Acceleration
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1,500,000
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1,500,000
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COBRA Premiums
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Total Value
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1,481,958
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18,805,958
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18,630,958
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Michael P. Scarpelli
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Severance
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72,500
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217,500
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Option Acceleration
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4,365,385
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4,365,385
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RSU Acceleration
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375,000
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375,000
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COBRA Premiums
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5,141
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5,141
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Total Value
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77,641
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4,963,026
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4,740,385
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David L. Schneider
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Severance
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61,250
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61,250
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Option Acceleration
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1,947,852
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1,947,852
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RSU Acceleration
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350,010
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350,010
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COBRA Premiums
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5,141
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5,141
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Total Value
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66,391
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2,364,253
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2,297,862
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Daniel R. McGee
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Severance
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68,750
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68,750
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Option Acceleration
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2,019,069
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2,019,069
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RSU Acceleration
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300,000
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300,000
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COBRA Premiums
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3,544
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3,544
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Total Value
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72,294
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2,391,363
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2,319,069
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Nick Bacica
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Severance
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62,500
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62,500
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Option Acceleration
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1,071,700
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1,071,700
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|
|
RSU Acceleration
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300,000
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|
|
|
300,000
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|
|
|
COBRA Premiums
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|
|
3,544
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|
|
|
3,544
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|
|
|
|
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Total Value
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66,044
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1,437,744
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1,371,700
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Protection
of Data Domain Directors and Officers Against
Claims
NetApp has agreed to cause the surviving entity in the merger to
indemnify and hold harmless each present and former director and
officer of Data Domain and its subsidiaries from liability for
matters arising at or prior to the completion of the merger to
the fullest extent provided by applicable law. NetApp also has
agreed that it will maintain in place existing indemnification
and exculpation rights in favor of Data Domains and its
subsidiaries directors and officers for six years after
the merger, and that it will enter into a policy of
directors and officers liability insurance coverage
providing at least equivalent insurance coverage of Data
Domains and its subsidiaries directors and officers
for six years following completion of the merger, except that
NetApp is not required to incur annual premium expenses in
excess of two hundred percent (200%) of the amount paid by Data
Domain for coverage for its last fiscal year.
49
NetApps
Reasons for the Merger
NetApps board of directors approved the merger agreement
at a special meeting held on June 2, 2009, and determined
that the merger agreement and the merger are in the best
interests of NetApp and its stockholders. At a special meeting
on June 2, 2009, the board of directors approved an
amendment to the merger agreement and determined that the merger
agreement, as amended, and the merger are in the best interests
to NetApp and its stockholders. In reaching this decision,
NetApps board of directors considered the financial
performance and condition, business operations and prospects of
each of NetApp, Data Domain and the combined company, the terms
and conditions of the merger agreement and the ancillary
documents, the results of the due diligence investigation
conducted by NetApps management, accountants and legal
counsel, and the analysis of NetApps legal and financial
advisors.
NetApps board of directors also considered a number of
potential benefits of the merger, including those listed below:
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the acquisition of Data Domain is expected to complement
NetApps storage and data management business, and maximize
growth of the combined company and market adoption of NetApp and
Data Domain product offerings;
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the merger will permit NetApp to enhance product offerings to
international markets and a greater number of enterprise
customers;
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the merger will expand NetApps product portfolio,
including the addition of multi-vendor disk-based backup
solutions currently offered in the Data Domain product line;
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the merger will provide NetApps resellers with access to
an industry-leading deduplication solution for disk-based backup
solutions and channel partners with a more robust partner
program;
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the merger will allow NetApp to capture a greater share of the
capacity optimized disk market;
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|
the merger advances NetApps ability to enable customers to
adopt disk-based backup in any storage environment; and
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the merger is expected to increase operational efficiency and
create opportunities for cost reduction through the elimination
of redundant overhead expenses and public company costs.
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NetApps board of directors also considered a number of
potentially negative factors, including those listed below:
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the risk that the value of the Data Domain business could
decline after the execution of the merger agreement,
particularly in light of the fact that the merger consideration
would not be adjusted to reflect declines in the market price of
Data Domain common stock;
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|
the risk that the potential benefits of the merger would not be
realized fully as a result of challenges the companies might
face in integrating their technology, personnel and operations,
as well as general industry-wide or economic conditions or other
factors;
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the risk that, if the merger is not completed, NetApps
management would have devoted substantial time and resources to
the combination at the expense of attending to and growing
NetApps business or other business opportunities;
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the risk associated with the additional demands that the
acquisition of Data Domain would place on NetApp and its
management, including the potential disruption of NetApps
ongoing business as NetApps management and employees are
required to dedicate significant time and effort in order to
integrate the two companies systems, cultures, processes,
controls and two separate client experiences; and
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the risk that the potential growth, perceived synergies and
anticipated opportunities considered by NetApps board of
directors will not be achieved through the completion of the
merger.
|
The foregoing list comprises the material factors considered by
NetApps board of directors in its consideration of the
merger and intended to be a summary rather than an exhaustive
list. In view of the variety and complexity of factors and
information considered, NetApps board of directors did not
find it practicable to, and did
50
not, make specific assessments of, quantify or otherwise assign
relative weights to the specific factors considered in reaching
its decision. Rather, the decision was made after consideration
of all of the factors as a whole. In addition, individual
members of NetApps board of directors may have given
different weight to different factors.
Board of
Directors and Management of NetApp Following Completion of the
Merger
Upon completion of the merger, the current directors and
officers of NetApp are expected to continue in their current
positions. Information about the current NetApp directors and
executive officers can be found in the documents listed under
the heading NetApp SEC Filings in the section
entitled Where You Can Find More Information
beginning on page 96.
Public
Trading Markets
NetApps common stock trades on the NASDAQ Global Select
Market under the symbol NTAP. Data Domains
common stock trades on the NASDAQ Global Select Market under the
symbol DDUP. Upon completion of the merger, Data
Domain common stock will be delisted from the NASDAQ Global
Select Market and deregistered under the Exchange Act. The newly
issued NetApp common stock issuable pursuant to the merger
agreement will be listed on the NASDAQ Global Select Market. The
shares of NetApp common stock to be issued in connection with
the merger will be freely transferable under the Securities Act.
NetApps
Dividend Policy
NetApp has never paid cash dividends on its capital stock.
NetApp currently anticipates retaining all available funds, if
any, to finance internal growth and product development as well
as other possible management initiatives, including stock
repurchases and acquisitions. Payment of dividends in the future
will depend upon NetApps earnings and financial condition
and such other factors as the directors may consider or deem
appropriate at the time.
Appraisal
Rights
Under Section 262 of the DGCL, any holder of Data Domain
common stock who does not wish to accept the merger
consideration may elect to exercise appraisal rights in lieu of
receiving the merger consideration. A stockholder who exercises
appraisal rights may petition the Delaware Court of Chancery to
determine the fair value of his, her or its shares,
exclusive of any element of value arising from the
accomplishment or expectation of the first-step merger, and
receive payment of fair value in cash, together with interest,
if any. However, the stockholder must comply with the provisions
of Section 262 of the DGCL.
The following discussion is a summary of the law pertaining to
appraisal rights under the DGCL. The full text of
Section 262 of the DGCL is attached to this proxy
statement/prospectus as Appendix C. All references in
Section 262 of the DGCL and in this summary to a
stockholder are to the record holder of the shares
of Data Domain common stock who exercises appraisal rights.
Under Section 262 of the DGCL, when a merger is submitted
for approval at a meeting of stockholders, as in the case of the
merger agreement, the company, not less than 20 days prior
to the meeting, must notify each of its stockholders entitled to
appraisal rights that appraisal rights are available and include
in the notice a copy of Section 262 of the DGCL. This proxy
statement/prospectus constitutes the required notice, and the
applicable statutory provisions are attached to this proxy
statement/prospectus as Appendix C. This summary of
appraisal rights is not a complete summary of the law pertaining
to appraisal rights under the DGCL and is qualified in its
entirety by the text of Section 262 of the DGCL attached as
Appendix C. Any holder of Data Domain common stock who
wishes to exercise appraisal rights or who wishes to preserve
the right to do so should review the following discussion and
Appendix C carefully. Failure to comply with the procedures
of Section 262 of the DGCL in a timely and proper manner
will result in the loss of appraisal rights. A stockholder who
loses his, her or its appraisal rights, will be entitled to
receive the merger consideration described in the merger
agreement.
51
Stockholders wishing to exercise the right to seek an appraisal
of their shares must do ALL of the following:
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the stockholder must not vote in favor of the proposal to adopt
the merger agreement. Because a proxy that does not contain
voting instructions will, unless revoked, be voted in favor of
the proposal, a stockholder who votes by proxy and who wishes to
exercise appraisal rights must vote against the proposal,
abstain or not vote its shares;
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the stockholder must deliver to Data Domain a written demand for
appraisal before the vote on the merger agreement at the special
meeting;
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the stockholder must continuously hold the shares from the date
of making the demand through the effective time of the
first-step merger. A stockholder will lose appraisal rights if
the stockholder transfers the shares before the effective time
of the merger; and
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|
the stockholder or the surviving company must file a petition in
the Delaware Court of Chancery requesting a determination of the
fair value of the shares within 120 days after the
effective time of the first-step merger. The surviving company
is under no obligation to file any petition and has no intention
of doing so.
|
Voting, in person or by proxy, against, abstaining from voting
on or failing to vote on the proposal to adopt the merger
agreement will not constitute a written demand for appraisal as
required by Section 262 of the DGCL. The written demand for
appraisal must be in addition to and separate from any proxy or
vote.
Only a holder of record of shares of Data Domain common stock
issued and outstanding immediately prior to the effective time
of the first-step merger may assert appraisal rights for the
shares of stock registered in that holders name. A demand
for appraisal must be executed by or on behalf of the
stockholder of record, fully and correctly, as the
stockholders name appears on the stock certificates. The
demand must reasonably inform Data Domain of the identity of the
stockholder and that the stockholder intends to demand appraisal
of his, her or its common stock. STOCKHOLDERS WHO HOLD THEIR
SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS, AND
WHO WISH TO EXERCISE APPRAISAL RIGHTS, SHOULD CONSULT WITH THEIR
BROKERS TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE NOMINEE
HOLDER TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON
HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN
THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST
ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND
IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL
RIGHTS.
A stockholder who elects to exercise appraisal rights under
Section 262 of the DGCL should mail or deliver a written
demand to:
Data Domain, Inc.
2421 Mission College Blvd.
Santa Clara, CA 95054
Attention: Corporate Secretary
If the merger is completed, NetApp will give written notice of
the effective time of the merger within 10 days after the
effective time to each former Data Domain stockholder who did
not vote in favor of the merger proposal and who made a written
demand for appraisal in accordance with Section 262 of the
DGCL. Within 120 days after the effective time of the
merger, but not later, either the surviving company or any
dissenting stockholder who has complied with the requirements of
Section 262 of the DGCL may file a petition in the Delaware
Court of Chancery demanding a determination of the value of the
shares of Data Domain common stock held by all dissenting
stockholders. The surviving company is under no obligation to
file any petition and has no intention of doing so. Stockholders
who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights
within the time periods and in the manner prescribed in
Section 262 of the DGCL.
Within 120 days after the effective time of the first-step
merger, any stockholder who, to that point in time, has complied
with the provisions of Section 262 of the DGCL, may receive
from the surviving company, upon written request, a statement
setting forth the aggregate number of shares not voted in favor
of the merger proposal and with
52
respect to which Data Domain has received demands for appraisal,
and the aggregate number of holders of those shares. The
surviving company must mail this statement to the stockholder
within the later of 10 days of receipt of the request or
10 days after expiration of the period for delivery of
demands for appraisal.
If any party files a petition for appraisal in a timely manner,
the Delaware Court of Chancery will determine which stockholders
are entitled to appraisal rights and may require the
stockholders demanding appraisal who hold certificated shares to
submit their stock certificates to the court for notation of the
pendency of the appraisal proceedings and any stockholder who
fails to comply with this direction may be dismissed from the
proceedings. The Delaware Court of Chancery will thereafter
determine the fair value of the shares of Data Domain common
stock held by dissenting stockholders, exclusive of any element
of value arising from the accomplishment or expectation of the
merger, but together with interest, if any, to be paid on the
amount determined to be fair value.
In determining the fair value, the Delaware Court of Chancery
will take into account all relevant factors. The Delaware
Supreme Court has stated that proof of value by any
techniques or methods that are generally considered acceptable
in the financial community and otherwise admissible in
court should be considered in the appraisal proceedings.
In addition, Delaware courts have decided that the statutory
appraisal remedy, in cases of unfair dealing, may or may not be
a dissenters exclusive remedy. If no party files a
petition for appraisal in a timely manner, then stockholders
will lose the right to an appraisal, and will instead receive
the merger consideration described in the merger agreement. The
fair value of their shares as determined under Section 262
of the DGCL could be greater than, the same as, or less than the
merger consideration. An opinion of an investment banking firm
as to the fairness from a financial point of view of the
consideration payable in a merger is not an opinion as to, and
does not in any manner address, fair value under
Section 262 of the DGCL.
The Delaware Court of Chancery will determine the costs of the
appraisal proceeding and will allocate those costs to the
parties as the Delaware Court of Chancery determines to be
equitable under the circumstances. Upon application of a
stockholder, the Delaware Court of Chancery may order all or a
portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including reasonable
attorneys fees and the fees and expenses of experts, to be
charged pro rata against the value of all shares entitled to
appraisal.
Any stockholder who has duly demanded an appraisal in compliance
with Section 262 of the DGCL may not, after the effective
time of the first-step merger, vote the shares subject to the
demand for any purpose or receive any dividends or other
distributions on those shares, except dividends or other
distributions payable to holders of record of shares as of a
record date prior to the effective time of the first-step merger.
Any stockholder may withdraw a demand for appraisal and accept
the merger consideration by delivering a written withdrawal of
the demand for appraisal to the surviving company, except that
any attempt to withdraw made more than 60 days after the
effective time of the first-step merger will require written
approval of the surviving company, and no appraisal proceeding
in the Delaware Court of Chancery will be dismissed as to any
stockholder without the approval of the Delaware Court of
Chancery, and may be conditioned on the terms the Delaware Court
of Chancery deems just. If the stockholder fails to perfect,
successfully withdraws or loses the appraisal right, the
stockholders shares will be converted into the right to
receive the merger consideration.
Failure to follow the steps required by Section 262 of
the DGCL for perfecting appraisal rights may result in the loss
of appraisal rights. In that event, you will be entitled to
receive the consideration for your dissenting shares in
accordance with the merger agreement. In view of the complexity
of the provisions of Section 262 of the DGCL, if you are a
Data Domain stockholder and are considering exercising your
appraisal rights under the DGCL, you should consult your own
legal advisor.
Regulatory
Approvals Required for the Merger
NetApp and Data Domain have agreed to use reasonable best
efforts to obtain as promptly as practicable all regulatory
approvals that are required to complete the transactions
contemplated in the merger agreement. This includes filing all
required notices to governmental authorities, including the
required filings with the Department of Justice, or the DOJ, and
the Federal Trade Commission, or the FTC, pursuant to the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, referred to
herein as the HSR Act. NetApp and Data Domain have
53
completed, or will complete, the filing of the applications to
obtain the applicable regulatory approvals. NetApp and Data
Domain are not permitted to complete the merger until the
applicable waiting periods under the HSR Act have expired or
been terminated.
Based upon an examination of information available relating to
the businesses in which the companies are engaged, NetApp and
Data Domain believe that the completion of the merger will not
violate any U.S. antitrust laws. However, either the DOJ or
FTC could open an investigation of the merger that could extend
the statutory waiting period, and could also challenge or seek
to block the merger under the antitrust laws, as it deems
necessary or desirable in the public interest, before or after
the statutory waiting period, and even after completion of the
merger. State attorneys general in the various states in which
NetApp and Data Domain operate may also open an investigation of
the merger. In addition, in some jurisdictions, a competitor,
customer or other third party could initiate a private action
under the antitrust laws challenging or seeking to enjoin the
merger, before or after completion of the merger. NetApp and
Data Domain cannot be sure that a challenge to the merger will
not be made or that, if a challenge is made, NetApp and Data
Domain will prevail.
On July 2, 2009, the Federal Trade Commission granted early
termination of the HSR waiting period.
54
THE
MERGER AGREEMENT
The following description describes the material terms of the
merger agreement. This description of the merger agreement is
qualified in its entirety by reference to the full text of the
merger agreement which is attached as Appendix A to this
proxy statement/prospectus and is incorporated herein by
reference. The merger agreement has been included to provide you
with information regarding its terms. NetApp and Data Domain
encourage you to read the entire merger agreement. The merger
agreement is not intended to provide any other factual
information about NetApp or Data Domain. Such information can be
found elsewhere in this proxy statement/prospectus and in the
other public filings each of NetApp and Data Domain makes with
the Securities and Exchange Commission, which are available
without charge at www.sec.gov.
The
Merger
Each of the Data Domain board of directors and NetApp board of
directors has approved the merger agreement, as amended, which
provides for the merger of Kentucky Merger Sub One Corporation
with and into Data Domain, with Data Domain, as a wholly owned
subsidiary of NetApp, remaining as the interim
surviving entity, immediately followed (subject to the
satisfaction of certain conditions described below) by the
merger of the interim surviving entity with and into
Derby Merger Sub Two LLC, with Derby Merger Sub Two LLC
remaining as the surviving entity. The second step will occur
only if Wilson Sonsini Goodrich & Rosati, Professional
Corporation and Fenwick & West LLP deliver tax
opinions at the closing, as further described below. The
first-step merger and the second-step merger are referred to
collectively as the merger unless otherwise indicated herein.
Per Share
Merger Consideration
Each share of Data Domain common stock issued and outstanding
immediately prior to the effective time of the first-step merger
will be converted into the right to receive (a) $16.45 per
share in cash, without interest and less any required
withholding under United States federal, state, local or foreign
law, referred to as the cash consideration, plus (b) a
number of validly issued, fully paid and non-assessable shares
of NetApp common stock equal to the following exchange ratio,
which shares are referred to as the stock consideration:
(i) 0.7783 shares of NetApp common stock if the
closing average (as defined below) is less than $17.41;
(ii) 0.6370 shares of NetApp common stock if the
closing average is greater than $21.27; and
(iii) that fraction of a share of NetApp common stock
(rounded to the nearest ten thousandth) equal to the quotient
obtained by dividing $13.55 by the closing average, if the
closing average is (A) less than or equal to $21.27 and
(B) greater than or equal to $17.41.
The closing average is the average of the closing prices for
NetApp common stock, rounded to the nearest one-hundredth of a
cent, on the NASDAQ Global Select Market for the 10 most recent
consecutive trading days ending on the third trading day
immediately prior to the effective time of the first-step
merger. Data Domain stockholders may contact Innisfree M&A
Incorporated, Data Domains information agent, toll free at
(888) 750-5834,
and banks or brokers may call collect at
(212) 750-5833,
for information regarding the merger consideration payable in
connection with the merger based on information available as of
the date of inquiry.
In the event that the exchange ratio is greater than or equal to
0.7006 and less than 0.7783, NetApp, in its sole discretion, may
(a) reduce the stock consideration by such amount as NetApp
may determine and (b) increase the cash consideration by an
amount equal to the product of (i) the amount of such
reduction in the stock consideration multiplied by (ii) the
closing average. However, NetApp may not reduce the amount of
the stock consideration and increase the cash consideration to
the extent that it would reasonably be expected to cause the
merger to fail to qualify as a tax-free reorganization under the
Internal Revenue Code, except as may be required as described
below.
If the aggregate amount of the stock consideration issuable in
the merger (including the stock consideration issuable to
holders of Data Domain options and restricted stock units) would
exceed 19.5% of the outstanding shares of NetApp common stock
immediately prior to the effective time of the first-step
merger, the stock consideration will be decreased to the minimum
extent necessary so that no more than 19.5% of the outstanding
shares of NetApp common stock will be issued in the merger (with
such percentage measured immediately prior to
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the effective time of the first-step merger). In such event, the
cash consideration will be increased by an amount equal to the
product of (a) the amount of the reduction in the stock
consideration multiplied by (b) the closing average. In the
event that the stock consideration is decreased in accordance
with this paragraph, the merger may fail to qualify as a
tax-free reorganization under the Internal Revenue Code. In
addition, on the third trading day preceding the date of the
special meeting of the Data Domain stockholders, NetApp and Data
Domain will issue a joint press release announcing the aggregate
merger consideration that would be payable to the Data Domain
stockholders, assuming that the merger closed on the date of the
special meeting. However, there can be no assurance that the
merger will close on the date of the special meeting of the
stockholders. As such, the assumptions in the joint press
release may differ from the actual merger consideration payable
in the merger at the closing. Further, the determination of
whether the merger will qualify as a tax-free reorganization
will depend upon the value of NetApp common stock on the last
business day preceding the closing. If the first-step merger
closes after the date of the special meeting, stockholders will
not know on the date of the special meeting whether the merger
will qualify as a tax-free reorganization or will be a fully
taxable transaction. The parties anticipate that the first-step
merger will close on the date of the special meeting. In
connection with the closing of the first-step merger, NetApp
will issue another press release confirming the aggregate merger
consideration payable to the Data Domain stockholders and
announcing whether the merger qualifies as a tax-free
reorganization or is a fully taxable transaction.
The stock consideration will be adjusted appropriately to
reflect the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of
securities convertible into shares of NetApps common
stock), reorganization, recapitalization, reclassification or
other similar change with respect to NetApps common stock
having a record date on or after May 20, 2009, the date the
original merger agreement was signed, but before the completion
of the first-step merger. No fractional shares of NetApp common
stock will be issued in the first-step merger. Instead, each
Data Domain stockholder otherwise entitled to a fraction of a
share of NetApp common stock (after aggregating all fractional
shares of NetApp common stock issuable to such stockholder) will
be entitled to receive in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying
such fraction by the closing price of a share of NetApp common
stock as reported on the NASDAQ Global Select Market on the
trading day immediately prior to the date the first-step merger
is completed.
As a result of the first-step merger, each share of common stock
of Kentucky Merger Sub One issued and outstanding immediately
prior to the effective time of the first-step merger will be
converted into common stock of the interim surviving
entity. If the second-step merger occurs, each share of common
stock of the interim surviving entity issued and
outstanding immediately prior to the effective time of the
second-step merger will be converted into membership interests
of Merger Sub Two.
Treatment
of Data Domain Stock Options and Other Equity-Based
Awards
Data
Domain Stock Options
Each outstanding option to acquire Data Domain common stock
granted under Data Domains stock incentive plans will be
assumed and converted automatically at the effective time of the
first-step merger into an option to purchase NetApp common stock
and will continue to be governed by the terms of the applicable
Data Domain stock plan and related grant agreement under which
it was granted, except that:
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The number of shares of NetApp common stock subject to each
converted Data Domain stock option will equal the product,
rounded down to the nearest whole share of NetApp common stock,
of (A) the number of shares of Data Domain common stock
previously subject to the Data Domain stock option and
(B) the option exchange ratio, which is the sum of
(X) the exchange ratio for the stock consideration payable
to Data Domain stockholders in the merger (which will be a
number greater than or equal to 0.6370 shares and less than
or equal to 0.7783 shares of NetApp common stock) and
(Y) a fraction (represented as a decimal) whose numerator
is the cash consideration and whose denominator is the closing
average as defined herein; and
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The exercise price of NetApp common stock subject to each
converted Data Domain stock option will equal the exercise price
for each share of Data Domain common stock previously subject to
the Data Domain option, divided by the option exchange ratio,
rounded up to the nearest cent.
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Data
Domain Restricted Stock Units and Restricted
Shares
Each of Data Domains restricted stock units outstanding at
the effective time of the first-step merger will be assumed and
converted into a restricted stock unit representing the right to
receive the merger consideration payable for shares underlying
each assumed and converted restricted stock unit. The assumed
and converted restricted stock units will otherwise be payable
or distributable in accordance with the same terms and
conditions of the agreements and the applicable Data Domain
stock plans, including vesting restrictions, that applied to
such Data Domain restricted stock units immediately prior to the
effective time of the first-step merger.
Each of Data Domains unvested shares of restricted stock
outstanding at the effective time of the first-step merger will
be assumed and converted into the right to receive the merger
consideration payable for such shares. The merger consideration
payable for such unvested shares of restricted stock will
otherwise be payable or distributable in accordance with the
terms and conditions, including vesting restrictions that
applied to such shares of Data Domain restricted stock
immediately prior to the effective time of the first-step merger.
NetApp has agreed to file a
Form S-8
registration statement within two business days of the effective
time of the first-step merger with the SEC to the extent
eligible to register the NetApp common stock subject to the
assumed and converted stock options and restricted stock units.
Completion
of the Merger
The merger agreement requires the parties to complete the merger
after all of the conditions to the completion of the merger
contained in the merger agreement are satisfied or waived,
including the adoption of the merger agreement by the
stockholders of Data Domain. The first-step merger will become
effective upon the filing of a certificate of merger with the
Secretary of State of the State of Delaware, or at such later
time as is agreed to by NetApp, Kentucky Merger Sub One and Data
Domain and specified in the certificate of merger. The
second-step merger will become effective, if at all, at the time
of filing of a certificate of merger with the Secretary of State
of the State of Delaware. Because the completion of the merger
is subject to the receipt of governmental and regulatory
approvals and the satisfaction of other conditions, the exact
timing of the completion of the merger cannot be predicted.
Conversion
of Shares; Exchange of Certificates
The merger agreement provides that NetApp will select a
reputable bank or trust company, reasonably acceptable to Data
Domain, to act as the exchange agent. The merger agreement
provides that on or prior to the date of completion of the
first-step merger, NetApp will deposit with the exchange agent a
sufficient amount of cash to make the payment of the cash
consideration, a sufficient number of shares of NetApp common
stock to provide for the issuance of the stock consideration,
and a sufficient amount of cash to make payments in lieu of
fractional shares and any dividends or distributions to which
holders of Data Domain common stock are entitled pursuant to the
terms of the merger agreement. The exchange agent will be
entitled to deduct and withhold from the cash amounts payable to
any Data Domain stockholder the amounts it is required to deduct
and withhold under any federal, state, local or foreign tax law.
If the exchange agent withholds any amounts, these amounts will
be treated for all purposes of the merger as having been paid to
the stockholders from whom they were withheld.
The merger agreement contemplates that, promptly following the
completion of the first-step merger, the exchange agent will
mail to each record holder of Data Domain common stock
immediately prior to the completion of the first-step merger a
letter of transmittal and instructions for surrendering and
exchanging the record holders Data Domain stock
certificates. The merger agreement provides that, upon surrender
of a Data Domain common stock certificate for exchange to the
exchange agent (or upon receipt of an appropriate agents
message in the case of book-entry shares), together with a duly
signed and completed letter of transmittal, and such other
documents as the exchange agent or NetApp may reasonably
require, the holder of the Data Domain stock certificate will be
entitled to receive the following:
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the number of shares of NetApp common stock calculated based on
the exchange ratio (which, at NetApps election, may be in
book-entry form unless a physical stock certificate is requested
or is otherwise required by applicable law);
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the per share cash amount payable for each share of Data Domain
common stock;
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cash in lieu of any fractional share of NetApp common
stock; and
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cash in respect of any dividends or other distributions declared
or made by NetApp after the date of the merger agreement.
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After the completion of the first-step merger, all holders of
certificates representing shares of Data Domain common stock
that were outstanding immediately prior to the completion of the
first-step merger will cease to have any rights as stockholders
of Data Domain, other than the right to receive the merger
consideration (or, in the alternative, the appraisal rights
described under the heading Data Domain
Proposal 1 The Merger Appraisal
Rights, if so elected) and any rights to dividends or
other distributions. In addition, no transfer of Data Domain
common stock after the completion of the first-step merger will
be registered on the stock transfer books of Data Domain.
If any Data Domain stock certificate has been lost, stolen or
destroyed, the exchange agent will issue in exchange for such
lost, stolen or destroyed stock certificate the merger
consideration upon the delivery of an affidavit by the owner of
such stock certificate claiming that such stock certificate has
been lost, stolen or destroyed. However, NetApp
and/or the
exchange agent may, in its discretion and as a condition to the
payment of cash or the issuance of any shares of NetApp common
stock in exchange therefor, also require the owner of such lost,
stolen or destroyed stock certificate to deliver a bond as
indemnity against any claim that may be made with respect to
that stock certificate against NetApp, the interim
surviving entity, the surviving entity or the exchange agent.
Stock certificates should not be surrendered for exchange by
Data Domain stockholders before the completion of the first-step
merger and should be sent only pursuant to instructions set
forth in the letters of transmittal, which the merger agreement
provides will be mailed to Data Domain stockholders promptly
following the completion of the first-step merger. In all cases,
the cash payments, shares of NetApp common stock and cash in
lieu of fractional shares will be delivered only in accordance
with the procedures set forth in the letter of transmittal.
Representations
and Warranties
In the merger agreement, Data Domain, NetApp, Kentucky Merger
Sub One Corporation and Derby Merger Sub Two LLC each made
representations and warranties relating to, among other things:
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organization and standing;
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corporate power and authority to enter into and perform its
obligations under, and enforceability of, the merger agreement;
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the absence of conflicts with organizational documents, other
contracts and applicable laws;
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required regulatory filings and consents and approvals of
governmental entities;
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capitalization;
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documents filed with the SEC and other governmental authorities;
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financial statements and controls;
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the absence of undisclosed liabilities;
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the absence of certain changes since a recent balance sheet date
(in the case of NetApp and Data Domain only);
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the absence of litigation and orders; and
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brokers fees.
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In the merger agreement, NetApp, Kentucky Merger Sub One
Corporation and Derby Merger Sub Two LLC also each made
representations and warranties relating to:
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their not owning any shares of Data Domain common stock; and
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available funding.
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In the merger agreement, Data Domain also made representations
and warranties relating to:
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subsidiaries;
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compliance with laws and orders;
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permits;
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material contracts;
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tax matters;
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employee benefits;
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labor matters;
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real property;
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environmental matters;
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assets and personal property;
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intellectual property;
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insurance;
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the absence of transactions with related parties;
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state anti-takeover statutes; and
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receipt by the Data Domain board of directors of an opinion from
Qatalyst Partners LP.
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Material
Adverse Effect
Several of the representations, warranties, covenants, closing
conditions and termination provisions in the merger agreement
use the phrase material adverse effect. The merger
agreement provides that material adverse effect
means, with respect to either NetApp or Data Domain, as the case
may be, any fact, circumstance, change or effect that,
individually or when taken together with all other such facts,
circumstances, changes or effects that exist at the date of
determination of the occurrence of the material adverse effect
that:
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is or would reasonably be expected to have a material adverse
effect on the business, operations, financial condition or
results of operations of NetApp or Data Domain, as applicable,
taken as a whole; or
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is or would reasonably be expected to have a material adverse
effect on NetApps or Data Domains ability, as
applicable, to complete the merger in accordance with the terms
of the merger agreement and applicable law.
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The merger agreement provides, however, that none of the
following (by themselves or when taken with any other fact,
circumstance, change or effect) will be deemed to constitute, or
be taken into account in determining whether there has occurred
or could reasonably be expected to occur, a material adverse
effect on NetApp or Data Domain, as applicable:
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changes in the general economic conditions in the United States
or any other country or region in the world, or changes in
conditions in the global economy generally, to the extent that
they do not have a disproportionate impact on NetApp or Data
Domain relative to other companies and operating in the same
industries in which NetApp or Data Domain operates;
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changes in general conditions in the industries in which NetApp
or Data Domain operates, to the extent that they do not have a
disproportionate impact on NetApp or Data Domain relative to
other companies operating in the same industries in which NetApp
or Data Domain operates;
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changes in generally accepted accounting principles or other
accounting standards, or the interpretation of such principles
or standards by a third party, applicable federal, state, local,
municipal, foreign or other law or regulatory conditions, or the
interpretation of such law or regulations by a third party;
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any failure to take any action or the taking of any specific
action by NetApp or Data Domain taken with the prior written
consent or written direction of the other party;
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the taking of any specific action expressly required by the
merger agreement;
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acts of war, armed hostilities or terrorism, to the extent that
they do not have a disproportionate impact on NetApp or Data
Domain relative to other companies operating in the same
industries in which NetApp or Data Domain operates;
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changes in the trading price or trading volume of NetApps
or Data Domains common stock, in and of itself, provided
that the exception described in this bullet shall not in any way
prevent or otherwise affect a determination that any fact,
circumstance, change or effect that has resulted in, or
contributed to, a material adverse effect;
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the public announcement of the merger agreement or pendency of
the merger, including any loss of employees, provided that the
exception described in this bullet shall not apply to any fact,
circumstance, change or effect related to or caused by any legal
proceedings resulting from the announcement and pendency of the
merger and the transactions contemplated by the merger agreement;
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any failure of NetApp or Data Domain to meet any public or
internal estimates or expectations of revenue, earnings or other
financial performance or results of operations for any period,
or failure to meet any internal budgets, plans, or forecasts of
revenues, earnings or other financial performance or results of
operations (it being understood that any underlying cause of any
such failure may be deemed to constitute, in and of itself, a
material adverse effect and may be taken into consideration when
determining whether a material adverse effect has
occurred); or
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stockholder class action, derivative litigation or other legal
proceedings made or brought by any of the current or former
stockholders of NetApp or Data Domain against NetApp or Data
Domain arising out of the merger or any other transactions
contemplated by the merger agreement.
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Covenants;
Conduct of Business Prior to the Merger
Interim
Conduct of Data Domains Business
Data Domain has undertaken customary covenants that place
restrictions on it and its subsidiaries until the effective time
of the first-step merger. In general, Data Domain agreed to
(1) carry on its business in the ordinary course in all
material respects in substantially the same manner as previously
conducted and in material compliance with all applicable laws
and (2) use commercially reasonable efforts consistent with
its past practices to (A) preserve intact its present
business organization, (B) keep available the services of
its present officers and employees and (C) preserve its
relationships with customers, suppliers, distributors,
licensors, licensees and others with which it has significant
business dealings.
Data Domain further agreed that, except (a) as expressly
contemplated or permitted by the merger agreement, (b) as
specifically set forth in Data Domains disclosure schedule
that was delivered to NetApp on May 20, 2009, (c) as
required by applicable law or the terms of any Data Domain
employee benefit plan, or (d) with NetApps prior
written consent, Data Domain will not, and will not permit any
of its subsidiaries to, among other things, undertake the
following actions:
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amend its certificate of incorporation or bylaws;
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authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver securities of Data Domain or any of
its subsidiaries, except for the issuance and sale of capital
stock pursuant to outstanding stock awards, the issuance of
shares pursuant to the Data Domain 2007 Employee Stock Purchase
Plan and the issuance of up to 250,000 restricted stock units
granted in the ordinary course of business after the date of the
merger agreement;
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acquire, redeem, or amend any securities of Data Domain or any
of its subsidiaries, except to the extent that such acquisition
or redemption is pursuant to the terms of any employee benefit
plan or any agreement subject to any such employee benefit plan;
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other than dividends or distributions made by any direct or
indirect wholly owned subsidiary of Data Domain to Data Domain
or one of its subsidiaries, set any record or payment dates for
the payment of any dividends or distributions on capital stock,
split, combine or reclassify any shares of capital stock,
declare, set aside or pay any dividend or other distribution in
respect of any shares of capital stock, or make any other
actual, constructive or deemed distribution in respect of the
shares of capital stock;
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propose or adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Data Domain or any
of its subsidiaries;
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(i) except to or from subsidiaries of Data Domain, incur or
assume any indebtedness or issue any debt securities, assume or
guarantee the obligations of any other person or acquire or make
any capital contributions to or investments in any other person,
(ii) except for advances made in the ordinary course of
business consistent with past practice, make any loans or
advances to employees of Data Domain or any of its subsidiaries,
or (iii) mortgage or pledge any of its or its subsidiaries
assets, tangible or intangible, or create or suffer to exist any
lien, subject to certain exceptions;
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(i) except as may be required by applicable law or the
terms of any employee benefit plan in effect at the time of the
merger agreement, enter into, adopt, amend, modify or terminate
any employee benefit plan in any material respect,
(ii) except for certain limited increases made in the
ordinary course of business, increase or decrease the
compensation or fringe benefits of any employee or director of
Data Domain or any of its subsidiaries, pay any bonus or special
remuneration to any employee, consultant, independent contractor
or director, or pay any benefit not required by any employee
benefit plan, or (iii) amend the targets or the goals of
the 2009 Executive Bonus Plan;
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forgive any loans to any employees, officers or directors of
Data Domain or any of its subsidiaries, or any of their
respective affiliates;
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make any deposits or contributions to or fund the compensation
or benefits under the employee benefit plans or contracts
subject to the employee benefit plans, other than as required
pursuant to the terms of the employee benefit plans or any
contracts subject to the employee benefit plans in effect as of
the date of the merger agreement;
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enter into, amend, or extend any collective bargaining agreement
or similar contract;
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(i) acquire, lease or license any property or assets with a
fair market value in excess of $5,000,000 in the aggregate per
fiscal quarter, except transactions required pursuant to
existing contracts, or (ii) sell, lease, license or dispose
of any property or assets with a net book value in excess of
$100,000 in any individual transaction, except
(A) transactions required pursuant to existing contracts or
(B) transactions in the ordinary course of business
consistent with past practice;
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except as may be required as a result of a change in applicable
laws or in the generally accepted accounting principles (as
applied in the United States), make any change in any of the
accounting principles or practices used by Data Domain;
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make or change any tax election, settle or compromise any
material United States federal, state, local or foreign tax
liability, change any material tax accounting method, or consent
to any extension or waiver of any limitation period with respect
to any claim or assessment for material taxes;
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enter into or amend any licenses of Data Domain intellectual
property, except, in the ordinary course of business, to
customers, or for non-exclusive in-bound licenses for
commercially available technology, in each case in the ordinary
course of business consistent with past practice;
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grant any exclusive rights with respect to any Data Domain
intellectual property, divest any Data Domain intellectual
property, or materially modify Data Domains warranty
terms, except if such divestiture, amendment or modification
individually or in the aggregate, is not material to Data Domain
or any of its subsidiaries;
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authorize, incur or commit to incur any capital expenditures
that do not exceed $5,000,000 in the aggregate per fiscal
quarter, other than pursuant to existing contracts as in effect
as of the date of the merger agreement;
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settle or compromise any pending or threatened legal proceeding
or pay, discharge or satisfy or agree to pay, discharge or
satisfy any claim, liability or obligation, unless such
settlement has been reserved for in, or incurred since the date
of, the Data Domain balance sheet, is covered by existing
insurance policies or such payment does not exceed $200,000 in
the aggregate;
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except as required by applicable laws or the generally accepted
accounting principles (as applied in the United States), revalue
in any material respect any of its properties or assets
including writing-off accounts receivable;
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other than in the ordinary course of business consistent with
past practice, enter into, renew, extend or terminate any
material contract or make any material amendment or change in
any such material contract;
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enter into any lease or sublease of material real property
(whether as a lessor, sublessor, lessee or sublessee) with a
term that exceeds six (6) months; (ii) modify, amend
or exercise any right to renew any lease or sublease of real
property; or (iii) make application for the opening,
relocation or closing of any, or open, relocate or close any,
branch office or other real property;
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make any representations or issue any communications to current
or former employee, independent contractor or director that are
inconsistent with the merger agreement or the transactions
contemplated thereby, including any representations regarding
offers of employment from NetApp, any subsidiary of NetApp, or
the surviving entity;
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enter into a contract to do any of the foregoing or make any
arrangement or understanding with respect to any of the
foregoing; or
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take any action which would materially impair Data Domains
ability to complete the transactions contemplated by the merger
agreement or materially delay the completion of the merger and
the other transactions contemplated by the merger agreement.
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Interim
Conduct of NetApps Business
NetApp has agreed that, unless approved by Data Domain in
writing in advance, neither NetApp nor any of its subsidiaries
will acquire or agree to acquire any other entity to the extent
that such acquisition would reasonably be expected to
(i) impair the ability of NetApp, Merger Sub One, Merger
Sub Two and Data Domain to complete the merger or
(ii) delay the completion of the merger in any material
respect.
Other
Covenants
The merger agreement also contains covenants relating to the
preparation of this proxy statement/prospectus and the holding
of the annual and special meeting of Data Domain stockholders,
the granting of access to information of the other company and
the coordination of public announcements with respect to the
transactions contemplated by the merger agreement, cooperation
regarding regulatory filings, employee matters, efforts to
develop and use commercially reasonable efforts to implement any
reasonable remediation plan requested by NetApp with respect to
any open source materials used by Data Domain in its products
and other matters as described further below.
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Limitation
on the Solicitation, Negotiation and Discussion of Other
Acquisition Proposals by Data Domain
Data Domain also has agreed that neither it nor its subsidiaries
will, and that they will not authorize or permit their
respective directors, officers, or other employees, controlled
affiliates, advisors or other agents to, directly or indirectly:
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solicit, initiate or knowingly encourage or facilitate or
knowingly induce any inquiry with respect to, or the making,
submission or announcement of, an acquisition
proposal or an acquisition transaction (each
as defined below);
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furnish to any person any non-public information relating to
Data Domain or any of its subsidiaries, or afford access to the
business properties, assets, books or records of Data Domain or
any of its subsidiaries to any person or entity, or take any
other action in a manner that is intended or would reasonably be
expected to assist or facilitate any inquiries or the making of
any proposal that constitutes or could lead to an acquisition
proposal or an acquisition transaction;
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participate or engage in discussions or negotiations with any
person with respect to an acquisition proposal or an acquisition
transaction;
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approve, endorse or recommend an acquisition proposal or an
acquisition transaction;
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enter into any letter of intent, memorandum of understanding or
other agreement contemplating or otherwise relating to an
acquisition proposal or acquisition transaction;
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terminate, amend or waive any material rights under (or fail to
enforce by seeking an injunction or by seeking to specifically
enforce the material terms of) any confidentiality or
standstill or other similar agreement between Data
Domain or any of its subsidiaries and any other person;
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take any action to exempt any person from applicable
anti-takeover laws; or
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agree with a third party to do any of the foregoing, or propose
to third parties, including Data Domain stockholders, to do any
of the foregoing.
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As used in the merger agreement, an acquisition
proposal is any indication of interest, offer or proposal
relating to an acquisition transaction (as defined below) from
any person other than NetApp or any of its affiliates.
As used in the merger agreement, an acquisition
transaction is any transaction or series of related
transactions (other than a transaction with NetApp or any of its
affiliates) involving:
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any direct or indirect purchase or other acquisition by any
person or group from Data Domain of 15% or more of Data
Domains total outstanding equity interests or voting
securities, or any tender offer or exchange offer that, if
completed, would result in any person or group beneficially
owning 15% or more of Data Domains outstanding equity
interests or voting securities;
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any direct or indirect purchase or other acquisition of 50% or
more of any class of equity or other voting securities of one or
more of Data Domains subsidiaries that, individually or in
the aggregate, generate or constitute 15% or more of Data
Domains consolidated net revenues or net income (for the
12-month
period ending on the last day of Data Domains most
recently completed fiscal year) or assets (measured by the
lesser of book value or fair market value thereof as of the date
of such transaction), which are referred to as significant
subsidiaries;
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any merger, consolidation, business combination, liquidation,
dissolution, recapitalization, reorganization or other similar
transaction involving Data Domain or one or more of its
significant subsidiaries, pursuant to which Data Domains
stockholders (as a group) or the stockholders of such
significant subsidiary would hold less than 85% of the equity
interests in or voting securities of the surviving or resulting
entity of such transaction;
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any direct or indirect sale, transfer or disposition of assets
(other than in the ordinary course of business) of Data Domain
or one or more of its significant subsidiaries; or
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any combination of the foregoing that results in one of the
effects in the first two bullets above.
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Data Domain and its subsidiaries have also agreed:
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to cease any and all existing activities, discussions or
negotiations with respect to any acquisition proposal or
acquisition transaction;
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to notify NetApp promptly (but no later than 48 hours)
after it receives any acquisition proposal, any request for
information that would reasonably be expected to lead to an
acquisition proposal, or any inquiry with respect to, or which
would reasonably be expected to lead to, an acquisition
proposal, and to provide NetApp with the material terms and
conditions of the acquisition proposal, request or inquiry, as
well as all related agreements, commitment letters and other
documents relating thereto, and the identity of the person or
group making any such acquisition proposal, request or inquiry;
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to keep NetApp reasonably informed of the status and any changes
in the material terms and conditions of any such acquisition
proposal or request; and
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to provide NetApp with at least 24 hours prior written
notice (or any shorter period of advance notice provided to
members of Data Domains board of directors) of a meeting
of its board of directors (or any committee thereof) at which
the board of directors (or any committee thereof) is reasonably
expected to consider an acquisition proposal or acquisition
transaction.
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Exception
to the Limitation on the Negotiation and Discussion by Data
Domain of Other Acquisition Proposals
However, prior to obtaining approval of the merger proposal from
its stockholders, Data Domain may engage and participate in
discussions and negotiations with respect to an unsolicited,
written acquisition proposal, and furnish non-public information
regarding Data Domain to the party making such acquisition
proposal if:
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the Data Domain board of directors determines in good faith,
after consultation with its financial advisor and outside legal
counsel, that the acquisition proposal either constitutes or is
reasonably likely to lead to a superior proposal (as
defined below) and the failure to take such action is reasonably
likely to result in a breach of the Data Domain board of
directors fiduciary duties to the Data Domain stockholders
under Delaware law;
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none of Data Domain, any of its subsidiaries or any of their
respective directors, officers or other employees, controlled
affiliates, advisors or agents, collectively referred to as
representatives, have breached or violated in any material
respect, with respect to such acquisition proposal or any other
acquisition proposal, the restrictions on solicitation of other
offers;
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Data Domain has first entered into a confidentiality and
standstill agreement with the party making the
acquisition proposal on terms no less favorable to Data Domain
than those contained in the Data Domains confidentiality
agreement with NetApp, and with standstill
provisions that do not include a sunset,
fall-away or other similar exception that would
result in the standstill provisions applicable to
such other party becoming inapplicable at any time prior to the
valid termination of the merger agreement;
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Data Domain provides NetApps Chief Executive Officer with
at least 24 hours prior written notice of its intent to
participate in discussions or furnish non-public information
regarding Data Domain with respect to such acquisition proposal
(including disclosing the identity of the party making the
acquisition proposal and the material terms and conditions of
such acquisition proposal); and
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Data Domain contemporaneously provides NetApp with any
non-public information provided to the party making such
acquisition proposal, to the extent that such information has
not been previously furnished or made available by Data Domain
to NetApp.
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Reasonable
Best Efforts of Data Domain to Obtain the Required Stockholder
Vote
Data Domain has agreed to hold a meeting of its stockholders as
promptly as practicable following the date of the merger
agreement (which shall be within 45 days following the date
that this proxy statement/prospectus is first disseminated to
Data Domain stockholders) for the purpose of obtaining
stockholder approval of the merger
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proposal. Data Domain will use its reasonable best efforts to
solicit proxies from its stockholders to obtain such approval.
Unless the merger agreement is terminated, Data Domain has
agreed to submit the merger agreement to a stockholder vote even
if its board of directors no longer recommends approval of the
merger proposal.
Data
Domain Board Recommendation of the Merger
Pursuant to the merger agreement, Data Domains board of
directors is required to recommend that Data Domains
stockholders adopt the merger agreement at the special meeting
in accordance with the applicable provisions of Delaware law.
Moreover, except as described in the merger agreement and as set
forth below under the headings Board Recommendation Change
for Superior Proposal and Board Recommendation
Change in the Absence of a Superior Proposal, neither Data
Domains board of directors nor any committee thereof is
permitted to (i) withhold, withdraw, amend or modify the
board of directors recommendation or (ii) approve,
endorse or recommend any indication of interest, offer or
proposal relating to an acquisition proposal from any person
other than NetApp or its affiliates or any agreement pursuant to
which any such acquisition proposal would be completed. Any of
the actions listed above is referred to as a board
recommendation change. However, notwithstanding the foregoing,
stop, look and listen communications by Data
Domains board of directors to Data Domain stockholders
pursuant to
Rule 14d-9(f)
of the Exchange Act will not be deemed to be a board
recommendation change if such communications are accompanied by
a statement of Data Domains board of directors expressly
and publicly reaffirming the board recommendation in connection
with such statement or disclosure.
Board
Recommendation Change for Superior Proposal
Notwithstanding the foregoing, prior to obtaining approval of
the merger proposal from the Data Domain stockholders, Data
Domains board of directors may effect a board
recommendation change if all of the following conditions have
been met:
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Data Domains board of directors has received an
unsolicited acquisition proposal in writing after May 20,
2009;
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neither Data Domain nor any of its subsidiaries nor any of their
respective representatives has materially breached any of the
non-solicitation provisions of the merger agreement in
connection with the acquisition proposal (or in connection with
any other acquisition proposal made by any other person) (as
described in The Merger Agreement Limitation
on the Solicitation, Negotiation and Discussion of Other
Acquisition Proposals by Data Domain);
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Data Domains board of directors has determined in good
faith (after consultation with its financial advisor and its
outside legal counsel) that such acquisition proposal
constitutes a superior proposal (as defined below) and, in light
of such superior proposal, the failure to effect the board
recommendation change is reasonably likely to be breach of the
board of directors fiduciary duties to Data Domains
stockholders under Delaware law;
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Data Domains board of directors has given NetApp at least
five business days prior written notice of the superior
proposal, which notice must include the identity of the persons
making the superior proposal, all of the material terms and
conditions of the superior proposal, copies of the superior
proposal as well as related agreements and material documents
(if available in written form), a statement that Data
Domains board of directors intends to effect a board
recommendation change in response to such superior proposal, and
an opportunity for NetApp to meet with Data Domains board
of directors, financial advisors and outside legal counsel at
such times as NetApp may reasonably request for the purpose of
enabling NetApp and Data Domain to discuss in good faith any
modifications to the terms and conditions of the merger
agreement that NetApp may propose in response to the superior
proposal; and
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after such five business day period and any extensions thereof
and, if requested by NetApp, meetings with NetApp and its
financial advisors and legal counsel during such period,
(i) NetApp has not made a proposal at least as favorable or
more favorable to Data Domains stockholders as such
acquisition proposal and (ii) Data Domains board of
directors has determined in good faith (after consultation with
its financial advisor its outside legal counsel) that such
acquisition proposal continues to constitute a superior proposal
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and, in light of such superior proposal and after good faith
consideration of all proposals by NetApp, the failure to effect
such board recommendation change is reasonably likely to
constitute a breach of the board of directors fiduciary
duties to Data Domains stockholders under Delaware law.
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As used in the merger agreement, the term superior
proposal means any unsolicited written offer or proposal
(that has not been withdrawn) for a transaction or a series of
related transactions providing for the acquisition of all of
Data Domains outstanding voting securities, where Data
Domains board of directors has determined in good faith
(after consultation with its financial advisor and its outside
legal counsel) that such proposal is more favorable to Data
Domains stockholders than the merger described in this
proxy statement/prospectus. Any such determination by Data
Domains board of directors must take into consideration of
all factors it deems to be relevant, including, but not limited
to, (i) all relevant financial considerations, including
conditions in the financial and credit markets, (ii) the
identity of the person or persons making such offer or proposal
and their sources of financing, (iii) the anticipated
timing, conditions and prospects for completion of the
transaction contemplated by such offer or proposal,
(iv) the other terms and conditions of such offer or
proposal and the implications thereof to Data Domain, including
relevant legal, regulatory and other aspects of such offer or
proposal deemed relevant by Data Domains board of
directors, and (v) any proposal made by NetApp in
connection therewith or response thereto.
Board
Recommendation Change in the Absence of a Superior
Proposal
Prior to obtaining approval of the merger proposal from Data
Domains stockholders, Data Domains board of
directors may effect a board recommendation change for a reason
unrelated to an acquisition proposal if the conditions set forth
below have been satisfied:
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Data Domains board of directors has determined in good
faith (after consultation with its outside legal counsel) that
the failure to make a board recommendation change is reasonably
likely to be a breach of the board of directors fiduciary
duties to Data Domains stockholders under Delaware law;
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Data Domains board of directors has given NetApp at least
five business days prior written notice that Data Domains
board of directors intends to effect such board recommendation
change and the opportunity to meet with Data Domains board
of directors and the Companys financial advisors and
outside legal counsel at such times as NetApp may reasonably
request for the purpose of enabling NetApp and Data Domain to
discuss in good faith (i) the basis and rationale for
proposing to effect such board recommendation change,
and/or
(ii) possible modifications of the terms and conditions of
the merger agreement in such a manner that would obviate the
need for Data Domains board of directors to effect such
board recommendation change; and
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after such five business day period and, if requested by NetApp,
meetings with NetApp and its financial advisors and legal
counsel during such period, Data Domains board of
directors has determined in good faith (after consultation with
its outside legal counsel) that the failure to effect such board
recommendation change is reasonably likely to result in a breach
of its fiduciary duties to Data Domains stockholders under
Delaware law.
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Employee
Matters
NetApp has agreed to provide Data Domain employees who are
offered and accept employment with NetApp or any subsidiary
after the merger with substantially similar types and levels of
benefits as those provided to similarly situated NetApp
employees. Until such employees are enrolled in comparable
NetApp employee benefit plans, NetApp has agreed to continue to
maintain the Data Domain plans providing health, dental, vision,
accidental death or disability and life insurance coverage.
NetApp has agreed, to the extent any Data Domain employee
becomes eligible to participate in employee benefit plans of
NetApp or any affiliate following the merger:
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generally to recognize each employees service with Data
Domain prior to the completion of the merger for purposes of
eligibility and vesting credits, except under defined benefit
pension plans or to the extent it would result in a duplication
of these benefits;
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to cause any exclusion for pre-existing conditions or
eligibility waiting periods under any NetApp health plans to be
waived, to the extent the employee (and their eligible
dependents) was not subject to such pre-existing conditions and
eligibility waiting periods under comparable Data Domain plans
as of the time immediately before the completion of the
merger; and
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to provide each employee with credit for any deductibles paid
under any Data Domain plan that provides medical, dental or
vision benefits in the plan year in effect as of the closing of
the merger for purposes of satisfying any applicable deductible
or
out-of-pocket
requirements under any NetApp medical, dental or vision plans to
the same extent that such expenses were recognized under the
comparable Data Domain plan.
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The merger agreement provides that prior to the effective time
of the merger the Data Domain 401(k) plan shall be terminated
unless NetApp provides prior notice that such plan will instead
be continued and assumed by NetApp. Prior to the effective time
of the merger, the Data Domain employee stock purchase plan will
be terminated.
Indemnification
and Insurance
The merger agreement provides that NetApp will honor and fulfill
in all respects the obligations of Data Domain and its
subsidiaries with respect to the indemnification of Data Domain
and its subsidiaries directors and officers under their
certificates of incorporation, bylaws and indemnification
agreements effective as of the date of the merger agreement. The
merger agreement also provides that, upon completion of the
merger, NetApp will cause the surviving entity to indemnify and
hold harmless, and provide advancement of expenses to, all past
and present officers and directors of NetApp and its
subsidiaries against all losses or liabilities incurred in their
capacities as such to the fullest extent permitted by applicable
laws.
The merger agreement provides that NetApp shall maintain in
effect Data Domains current directors and
officers liability insurance for a period of six
(6) years, NetApp may substitute the policies of NetApp or
the surviving entity, so long as the policies are no less
favorable in the aggregate to the directors and officers of Data
Domain than Data Domains current policy. Additionally,
NetApp is not required to incur annual premium expenses in
excess of two hundred percent (200%) of the amount paid by Data
Domain for coverage for its last fiscal year. Prior to the
effective time, Data Domain may also obtain a prepaid
tail directors and officers liability
insurance policy with a claims period of six years following the
effective time of the merger.
Conditions
to Complete the Merger
Conditions
to the Obligations of NetApp and Data Domain
The respective obligations of Data Domain and NetApp to complete
the first-step merger are subject to the satisfaction or waiver
of certain conditions, including:
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the effectiveness of the registration statement of which this
proxy statement/prospectus is a part with respect to the NetApp
common stock to be issued in the merger under the Securities Act
and the absence of any stop order or proceedings initiated or
threatened by the SEC for that purpose;
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the approval of the merger proposal by Data Domain stockholders;
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the expiration or termination of all applicable waiting periods
under the HSR Act;
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the approval of the listing of the NetApp common stock to be
issued in the merger on the NASDAQ Global Select Market, subject
to official notice of issuance; and
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the absence of any order, decree or injunction, or the threat of
any order decree or injunction, by any court or other
governmental entity or other law that prohibits or makes illegal
completion of the transactions contemplated by the merger
agreement.
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Conditions
to the Obligations of NetApp
The merger agreement provides that the obligations of NetApp,
Merger Sub One and Merger Sub Two to complete the first-step
merger are subject to the satisfaction or waiver of each of the
following conditions:
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the accuracy in all respects as of May 20, 2009 and the
closing date of certain representations and warranties made by
Data Domain in the merger agreement, relating to corporate
organization, authorization to enter into the merger agreement,
required consents, and inapplicability of state anti-takeover
statutes;
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the accuracy in all respects as of May 20, 2009 and the
closing date of certain representations and warranties made by
Data Domain in the merger agreement, relating to Data
Domains capitalization, other than inaccuracies in such
representations and warranties (i) that would not result in
the issuance or payment of an aggregate value of merger
consideration and consideration allocated to Data Domain stock
options, restricted stock and restricted stock units equal to or
in excess of 101% of the aggregate value of the merger
consideration otherwise issuable and payable and consideration
allocated to Data Domain stock options, restricted stock and
restricted stock units in the absence of such inaccuracies or
(ii) that would not result in the issuance of shares of
NetApp common stock equal to or in excess of 19.5% of the shares
of NetApp common stock outstanding as of immediately prior to
the effective time of the merger;
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the accuracy in all respects as of May 20, 2009 and the
closing date of the remaining representations and warranties not
qualified by material adverse effect made by Data
Domain in the merger agreement, provided that inaccuracies in
such representations and warranties will be disregarded to the
extent that such inaccuracies, individually or in the aggregate,
do not constitute, and would not reasonably be expected to have
or result in, a material adverse effect on Data Domain;
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the accuracy in all respects as of May 20, 2009 and the
closing date of the remaining representations and warranties
qualified by material adverse effect made by Data
Domain in the merger agreement;
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Data Domains performance, in all material respects, of all
of its obligations and compliance, in all material respects,
with all of its covenants or other agreements set forth in the
merger agreement that are required to be performed or complied
with by Data Domain at or prior to the effective time of the
first-step merger;
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no material adverse effect with respect to Data Domain having
occurred since May 20, 2009 that is continuing;
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Data Domains chief executive officer and chief financial
officer having delivered to NetApp a certificate confirming that
certain conditions have been satisfied; and
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there are no pending legal proceedings brought by a governmental
body seeking to restrain or prohibit the completion of any of
the transactions contemplated by the merger agreement or the
voting agreements, or the performance of any of the transactions
contemplated by the merger agreement or the voting agreements,
or seeking to prohibit or impose any limitations on the
ownership or operation by NetApp or any of its subsidiaries of
all or any portion of Data Domains businesses or assets,
or compelling NetApp or Data Domain or any of their subsidiaries
to dispose of or hold separate any portion of Data Domains
businesses or assets.
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Conditions
to the Obligations of Data Domain
The merger agreement provides that the obligations of Data
Domain to complete the first-step merger are subject to the
satisfaction or waiver of each of the following conditions:
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the accuracy in all respects as of the May 20, 2009 and the
effective time of the merger of certain representations and
warranties made by NetApp in the merger agreement, including
those relating to corporate organization, authorization to enter
into the merger agreement, and required consents;
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the accuracy in all respects as of May 20, 2009 and the
effective time of the merger of the remaining representations
and warranties not qualified by material adverse
effect made by NetApp in the merger agreement, provided
that inaccuracies in such representations and warranties will be
disregarded to the
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extent that such inaccuracies, individually or in the aggregate,
do not constitute, and would not reasonably be expected to have
or result in, a material adverse effect on NetApp;
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the accuracy in all respects as of May 20, 2009 and the
effective time of the merger of the remaining representations
and warranties qualified by material adverse effect
made by NetApp in the merger agreement;
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NetApps performance of or compliance with, in all material
respects, all of its agreements and covenants set forth in the
merger agreement that are required to be performed or complied
with by NetApp at or prior to the effective time of the
first-step merger;
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no material adverse effect with respect to NetApp having
occurred since May 20, 2009 that is continuing; and
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NetApps chief executive officer and chief financial
officer having delivered to Data Domain a certificate confirming
that certain conditions have been satisfied.
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Termination
of the Merger Agreement
The merger agreement provides that, at any time prior to the
completion of the first-step merger, NetApp and Data Domain may
terminate the merger agreement by mutual written consent.
The merger agreement also provides that, at any time prior to
the completion of the first-step merger, either NetApp or Data
Domain may terminate the merger agreement if:
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the merger has not been completed by December 31, 2009,
provided that if the failure to complete the merger by
December 31, 2009 is due solely to the failure to satisfy
certain closing conditions relating to the expiration or
termination of applicable waiting periods under the HSR Act,
orders, decrees or injunctions by any court or other
governmental entity relating to the merger, or legal proceedings
brought by a governmental body seeking to restrain or prohibit
the completion of any of the transactions contemplated by the
merger agreement, then the right to terminate the merger
agreement under this provision will not be available until
March 30, 2010;
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a court or governmental body has enacted or issued a law or a
final and non-appealable order prohibiting the completion of the
merger or any other transaction contemplated by the merger
agreement or otherwise rendering the merger illegal; or
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the Data Domain special stockholder meeting (including any
adjournments and postponements thereof) has been held, a final
vote on the approval of the merger proposal has been taken and
Data Domains stockholders do not approve the merger
proposal;
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provided that in each instance, the right to terminate the
merger agreement shall not be available to a company whose
action or failure to act has been the cause of any of the
conditions to the merger not being satisfied.
NetApps
Termination Rights
The merger agreement further provides that NetApp may terminate
the merger agreement at any time prior to the completion of the
first-step merger, either before or after the requisite approval
of Data Domains stockholders has been obtained, if:
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any of the following events have occurred (which are each
referred to as a Data Domain triggering event):
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Data Domain (and, in the case of (A), any of its representatives
or subsidiaries) breaches or violates in any material respect
the provisions of the merger agreement relating to
(A) prohibitions on the solicitation of other acquisition
proposals (other than an inadvertent breach that does not result
in an acquisition proposal), (B) Data Domains
obligation to hold a meeting of its stockholders for the purpose
of obtaining stockholder approval of the merger proposal, or
(C) Data Domains obligations in connection with its
board of directors recommendation that the Data Domain
stockholders adopt the merger agreement, which collectively are
referred to as the first Data Domain triggering event;
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the Data Domain board of directors or a committee of the board
of directors makes a board recommendation change;
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Data Domain fails to include in this proxy statement/prospectus
its board of directors recommendation in favor of the
adoption of the merger agreement;
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a tender or exchange offer relating to Data Domain common stock
is commenced and (A) Data Domain does not issue a public
statement (and make applicable SEC filings), within 10 business
days, reaffirming the Data Domain board of directors
recommendation of the merger and recommending rejection of the
tender or exchange offer or (B) at any time after such 10
business day period, Data Domain issues a press release or files
a
Schedule 14D-9
with the SEC relating to the tender or exchange offer that fails
to reaffirm its board of directors recommendation of the
merger and recommendation to reject the tender or exchange
offer; or
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the Data Domain board of directors fails to reaffirm its
recommendation in favor of the adoption of the merger agreement
within 10 business days after NetApp requests such a
reaffirmation;
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subject to certain limitations, there are inaccuracies of any
representation or warranty made by Data Domain in the merger
agreement, provided that if any inaccuracy is curable, NetApp
may not terminate the merger agreement under this provision
unless the inaccuracy remains uncured for a period of
30 days following notice thereof; or
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subject to certain limitations, Data Domain has breached any of
its covenants and obligations under the merger agreement,
provided that if any breach is curable, NetApp may not terminate
the merger agreement under this provision unless the breach
remains uncured for a period of 30 days following notice
thereof.
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Data
Domains Termination Rights
The merger agreement provides that Data Domain may terminate the
merger agreement at any time prior to the completion of the
first-step merger, either before or after the requisite approval
of Data Domains stockholders has been obtained, if:
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subject to certain limitations, there are inaccuracies of any
representation or warranty made by NetApp in the merger
agreement, provided that if any inaccuracy is curable, Data
Domain may not terminate the merger agreement under this
provision unless the inaccuracy remains uncured for a period of
30 days following notice thereof; or
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subject to certain limitations, NetApp has breached any of its
covenants and obligations under the merger agreement, provided
that if any breach is curable, Data Domain may not terminate the
merger agreement under this provision unless the breach remains
uncured for a period of 30 days following notice thereof.
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Finally, the merger agreement provides that Data Domain may
terminate the merger agreement at any time prior to Data
Domains special stockholder meeting, if all of the
following conditions are satisfied, referred to as the superior
proposal termination event:
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Data Domain has received an unsolicited, written acquisition
proposal and Data Domains board of directors determines in
good faith, after consultation with its financial advisor and
outside legal counsel, that such acquisition proposal
constitutes a superior proposal (as described in Data Domain
Proposal 1 The Merger Data
Domains Reasons for the Merger; Recommendation of the Data
Domain Board of Directors);
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neither Data Domain nor any of its subsidiaries nor any of their
respective representatives has materially breached or violated
any of the non-solicitation provisions of the merger agreement
with such superior proposal or in connection with any other
acquisition proposal made by any other person;
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Data Domains board of directors has determined in good
faith (after consultation with its financial advisor and its
outside legal counsel) that, in light of the superior proposal,
the failure to terminate the merger agreement is reasonably
likely to be a breach of the board of directors fiduciary
duties to Data Domains stockholders under Delaware law;
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70
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Data Domains board of directors has given NetApp at least
five business days prior written notice of the superior
proposal, which notice must include the identity of the persons
making the superior proposal, all of the material terms and
conditions of the superior proposal, copies of the superior
proposal as well as related agreements and material documents
(if available in written form), a statement that Data
Domains board of directors intends to terminate the merger
agreement in response to such superior proposal, and an
opportunity for NetApp to meet with Data Domains board of
directors, financial advisors and outside legal counsel at such
times as NetApp may reasonably request for the purpose of
enabling NetApp and Data Domain to discuss in good faith any
modifications to the terms and conditions of the merger
agreement that NetApp may propose in response to the superior
proposal;
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after such five business day period and any extensions thereof
and, if requested by NetApp, meetings with NetApp and its
financial advisors and legal counsel during such period,
(i) NetApp has not made a proposal at least as favorable or
more favorable to Data Domains stockholders as such
acquisition proposal and (ii) Data Domains board of
directors has determined in good faith (after consultation with
its financial advisor its outside legal counsel) that, in light
of such superior proposal and after good faith consideration of
all proposals by NetApp, the failure to terminate the merger
agreement is reasonably likely to constitute a breach of the
board of directors fiduciary duties to Data Domains
stockholders under Delaware law; and
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concurrently with the termination of the merger agreement, Data
Domain enters into a definitive agreement for the superior
proposal and pays NetApp a fee of $57.0 million.
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Expenses
and Termination Fees
The merger agreement provides that except as provided below, all
fees and expenses incurred in connection with the merger
agreement and the merger will be paid by the party incurring
such expenses.
The merger agreement provides that Data Domain will pay NetApp a
termination fee of $57.0 million if any one of the
following events occur:
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(A) an acquisition proposal is publicly announced or
otherwise becomes generally publicly known after the date of the
merger agreement and prior to the date of the Data Domain
special stockholder meeting, (B) the merger agreement is
terminated by Data Domain or NetApp under the provision of the
merger agreement permitting such termination in the event that
the stockholders of Data Domain have voted not to adopt the
merger agreement (or the merger agreement is terminated by Data
Domain after such vote for any other reason), and
(C) within twelve months following the termination of the
merger agreement, Data Domain either closes a specified
acquisition transaction (as defined below) or enters into a
letter of intent, memorandum of understanding or other agreement
with any third party providing for a specified acquisition
transaction and such specified acquisition transaction or any
other specified acquisition transaction is subsequently
completed (whether or not such transaction is completed within
twelve months following the termination of the merger agreement);
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(A) an acquisition proposal is publicly announced or
otherwise becomes publicly known after May 20, 2009 and
prior to the date of the Data Domain special stockholder
meeting, (B) the merger agreement is terminated by Data
Domain or NetApp under the provision of the merger agreement
permitting such termination in the event that the merger is not
completed by December 31, 2009 (or by NetApp at such later
date as described in The Merger Agreement
Termination of the Merger Agreement), and (C) within
twelve months following the termination of the merger agreement,
Data Domain either closes a specified acquisition transaction or
enters into a letter of intent, memorandum of understanding or
other agreement with any third party providing for a specified
acquisition transaction and such specified acquisition
transaction or any other specified acquisition transaction is
subsequently completed (whether or not such transaction is
completed within twelve months following the termination of the
merger agreement);
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(A) the merger agreement is terminated by NetApp as a
result of a Data Domain triggering event, or (B) the merger
agreement is terminated due to a failure of Data Domain to
obtain stockholder approval of the merger proposal and such
termination is preceded by a Data Domain triggering event (other
than the first Data
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71
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Domain triggering event) (as defined in The Merger
Agreement Termination of the Merger
Agreement NetApps Termination Rights); or
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the merger agreement is terminated pursuant to a superior
proposal termination event (as described in The Merger
Agreement Termination of the Merger
Agreement Data Domains Termination
Rights).
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A specified acquisition transaction has the same
meaning as an acquisition transaction except all
references to 15% or 85% are replaced by
50%.
In addition, the merger agreement provides that if the merger
agreement is terminated by either NetApp or Data Domain after
the Data Domain special stockholder meeting (including any
adjournments and postponements thereof) has been held, a final
vote on the approval of the merger proposal has been taken and
Data Domains stockholders do not approve the merger
proposal, Data Domain will pay NetApp all of NetApps
out-of-pocket
fees and expenses incurred by NetApp and its affiliates on or
prior to the valid termination of the merger agreement in
connection with the transactions contemplated by the merger
agreement, but in no event more than $3 million.
If NetApp receives the $57.0 million termination fee, such
fee will be considered liquidated damages for any and all losses
or damages suffered or incurred by NetApp or its affiliates in
connection with the merger agreement or the merger (including
the abandonment of the merger), and neither NetApp nor any of
its affiliates will be entitled to bring any other claim, action
or proceeding against Data Domain or any of its affiliates
arising from the merger agreement or the merger (including the
abandonment of the merger).
Amendment
and Waiver
The merger agreement provides that the parties may amend the
merger agreement by written instrument signed by each of the
parties to the agreement. However, following approval of the
merger proposal by Data Domains stockholders, any
amendment that would require the approval of Data Domains
stockholders may not be made without such approval.
The merger agreement also provides that, at any time before
completion of the first-step merger, any party to the merger
agreement may:
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extend the time for the performance of any of the obligations or
other acts of the other parties to the merger agreement;
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waive any inaccuracies in the representations and warranties
made to such party contained in the merger agreement or in any
document delivered pursuant to the merger agreement; and
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waive compliance with any of the agreements or conditions for
the benefit of such party contained in the merger agreement.
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The parties will disclose any material amendments or waivers to
the merger agreement on a current report on
Form 8-K.
In addition, NetApp and Data Domain will issue a joint press
release concurrently with the filing of the
Form 8-K
to notify stockholders promptly upon the occurrence of a
material amendment or waiver to the merger agreement.
VOTING
AGREEMENTS
Voting
Agreements
As a condition and inducement to NetApps willingness to
enter into the merger agreement, NetApp has entered into voting
agreements with each of the beneficial owners of Data
Domains common stock listed on the table below. According
to the terms of such voting agreements, each party has agreed to
vote (or to cause the holder of record of such shares to so
vote) and has granted NetApp an irrevocable proxy to vote such
partys beneficially owned shares (i) in favor of the
merger proposal, (ii) against any proposal made in
opposition to or in competition with the merger or that would
result in a breach of the merger agreement, and
(iii) against certain other proposed business transactions
that would interfere with the merger, including transactions
that would result in any other
72
merger, the sale, lease or transfer of any significant part of
the assets of Data Domain or its subsidiaries or any material
change in Data Domains capitalization.
Subject to certain exceptions described in the voting
agreements, the parties to the voting agreements have agreed not
to sell, pledge, encumber, assign, grant options with respect
to, transfer, tender or dispose of the shares of Data Domain
common stock beneficially owned by such parties or to enter into
any agreement related to any of the foregoing transactions.
Subject to certain exceptions described in the voting
agreements, each of the parties to the voting agreements has
made representations and warranties to NetApp regarding, among
other things, such partys power and authority to enter
into the voting agreement and deliver the proxy, such
partys unencumbered beneficial ownership of the shares of
Data Domain common stock subject to the voting agreement, and
such partys sole voting power and sole power of
disposition with respect to such shares of common stock.
The voting agreements will terminate at the earliest to occur of
(i) the valid termination of the merger agreement,
(ii) the date on which Data Domain has received the
affirmative vote of the holders of a majority of the outstanding
shares of Data Domains common stock, voting together as a
single class, in favor of the merger proposal, or (iii) the
date on which the parties to the voting agreements have agreed
in writing to terminate such agreements.
As of May 22, 2009, the stockholders listed below together
owned 12,544,004 shares of Data Domain common stock, or
approximately 20.0% of the voting power of Data Domain common
stock. In addition, such stockholders hold Data Domain stock
awards to purchase an additional 4,628,797 shares of Data
Domain common stock.
73
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Number of
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Number of
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Shares of
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Shares of
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Common Stock
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Common Stock
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Issuable Upon
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Issuable Upon
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Number of
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Exercise of
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Settlement of
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Shares of
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Outstanding
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Restricted
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Parties to the Voting Agreement
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Common Stock
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Options
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Stock Units
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NEA Partners 10, L.P.
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31,977
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Scott D. Sandell
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115,000
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Nick Bacica
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160,000
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20,000
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New Enterprise Associates 10, L.P.
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8,637,152
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SHV Profit Sharing Plan FBO Ronald D. Bernal, Wells Fargo Bank,
Trustee
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25,650
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Ronald E. F. Codd
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100,000
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115,000
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Aneel Bhusri
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382,749
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115,000
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Bernal Family Trust U/D/T/11/3/95, Ronald Daniel
Bernal and Pamela Mayer Bernal, Trustees
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125,966
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Charles Ross Partners Investment Fund Number 29
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761
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The Codd Revocable Trust Dated 3/06/98, Ronald E. and Susan T.
Codd, Trustees
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10,000
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Frank Slootman
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1,602
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2,284,990
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50,000
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J. Miller 2007 Grantor Retained Annuity Trust
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112,100
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(1)
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Jeffrey A. Miller
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15,000
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K. Miller 2007 Grantor Retained Annuity Trust
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112,100
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(1)
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Kai Li
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659,956
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(2)
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215,000
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Michael P. Scarpelli
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137,554
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449,596
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25,000
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Miller Living Trust
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6,496
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Reed E. Hundt
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30,000
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195,000
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Ronald D. Bernal
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115,000
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Daniel R. McGee
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2,006
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394,984
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20,000
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David L. Schneider
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49,366
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315,893
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23,334
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Greylock XI Principals LLC
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195,948
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Greylock XI Limited Partnership
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1,712,529
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Greylock XI-A Limited Partnership
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47,819
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Schneider 2001 Living Trust, David & Barbara Schneider
Trustees, August 31, 2001
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162,273
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(1) |
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Includes 37,500 shares of restricted stock. |
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(2) |
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Includes 94,997 shares of restricted stock. |
74
ACCOUNTING
TREATMENT
The merger will be accounted for using the purchase method of
accounting as a purchase of a business, as that
phrase is used under U.S. generally accepted accounting
principles, for accounting and financial reporting purposes.
Under the purchase method of accounting, the assets acquired
(including identifiable intangible assets) and liabilities
assumed (including executory contracts and other commitments)
from Data Domain as of the acquisition date (i.e., the
completion of the merger) will be recorded at their respective
fair values and added to those of NetApp. Any excess of purchase
price over the fair value of assets acquired and liabilities
assumed will be recorded as goodwill. The consolidated financial
statements of NetApp issued after the merger will reflect these
fair values and will not be restated retroactively to reflect
the historical financial position or results of operations of
Data Domain.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary represents the opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel
to NetApp, and Fenwick & West LLP, counsel to Data
Domain, with respect to the material U.S. federal income
tax consequences of the merger to U.S. holders of Data
Domain common stock who hold their stock as capital assets
(generally, for investment).
The summary is based on the Internal Revenue Code of 1986, as
amended, or the Code, the Treasury regulations issued under the
Code, and administrative rulings and court decisions in effect
as of the date of this proxy statement/prospectus, all of which
are subject to change at any time, possibly with retroactive
effect. For purposes of this discussion, the term
U.S. holder means:
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a citizen or resident of the United States;
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a corporation (including any entity treated as a corporation for
U.S. federal income tax purposes) created or organized
under the laws of the United States or any of its political
subdivisions;
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a trust that (i) is subject to the supervision of a court
within the United States and the control of one or more
U.S. persons or (ii) has a valid election in effect
under applicable U.S. Treasury regulations to be treated as
a U.S. person; or
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an estate that is subject to U.S. federal income tax on its
income regardless of its source.
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A
non-U.S. holder
means a beneficial owner of Data Domain common stock (other than
a partnership) that is not a U.S. holder. If a partnership
(including any entity or arrangement, domestic or foreign,
treated as a partnership for U.S. federal income tax
purposes) holds Data Domain common stock, the tax treatment of a
partner will generally depend on the status of the partners and
the activities of the partnership. If a holder is a partner in a
partnership holding Data Domain common stock, the holder should
consult its tax advisors.
This summary is not a complete description of all the tax
consequences of the merger and, in particular, may not address
U.S. federal income tax considerations applicable to
holders of Data Domain common stock who are subject to special
treatment under U.S. federal income tax law (including, for
example,
non-U.S. holders,
certain former citizens or residents of the United States,
financial institutions, dealers in securities, insurance
companies or tax-exempt entities, holders who acquired Data
Domain common stock pursuant to the exercise of an employee
stock option or right or otherwise as compensation, holders who
hold Data Domain restricted stock, holders exercising
dissenters rights or appraisal rights, and holders who
hold Data Domain common stock as part of a hedge, straddle,
constructive sale or conversion transaction). This summary does
not address the tax consequences of any transaction other than
the merger, whether or not such transaction is in connection
with the merger. This summary does not address the tax
consequences to any person who actually or constructively owns
5% or more of Data Domain common stock. Also, this summary does
not address U.S. federal income tax considerations
applicable to holders of options to purchase Data Domain common
stock, or holders of debt instruments convertible into Data
Domain common stock. In addition, no information is provided
with respect to the tax consequences of the merger under
applicable state, local or
non-U.S. laws
or under estate, gift, excise or other non-income tax laws.
75
The U.S. tax consequences of the merger depend on whether
the second-step merger occurs. The second-step merger will occur
only if Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to NetApp, and Fenwick & West
LLP, counsel to Data Domain, deliver tax opinions to the effect
that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code. The tax
opinions are conditioned upon receipt of customary written
representations from NetApp and Data Domain, including
representations that continuity of interest test will be
satisfied, requiring that the Stock Consideration constitute at
least 40% of the total consideration paid or payable to Data
Domain stockholders in the first-step merger. The tax opinions
will be delivered, if at all, on the closing date of the
first-step merger.
Whether the continuity of interest test will be satisfied
depends primarily upon the market value of the NetApp common
stock immediately before the
first-step
merger. Other relevant factors may include (i) whether the
stock consideration is required to be decreased, and the cash
consideration correspondingly increased, so that the aggregate
amount of stock consideration issuable in the merger (including
the stock consideration issuable to the holders of Data Domain
options and restricted stock units) will not exceed 19.5% of the
outstanding shares of NetApp common stock immediately prior to
the first-step merger, as more fully described above,
(ii) the potential payment of cash to Data Domain
stockholders properly exercising appraisal rights under Delaware
law, and (iii) the amount of cash paid in the merger in
lieu of the issuance of fractional shares of NetApp common
stock. No assurances can be given that the continuity of
interest test will be met. As a result, in deciding whether to
approve the merger, you should consider the possibility that it
may be taxable to you because the continuity of interest test is
not satisfied and the second-step merger does not occur. You
will not be entitled to change your vote in the event that the
merger is taxable. In connection with the closing of the
first-step merger, NetApp will issue a press release announcing
whether the merger qualifies as a tax-free reorganization or is
a fully taxable transaction.
Neither the tax opinions nor the discussion that follows is
binding on the Internal Revenue Service, referred to as the IRS,
or the courts. The parties do not intend to request a ruling
from the IRS with respect to the merger. Accordingly, there can
be no assurance that the IRS will not challenge the discussion
below or the conclusions expressed in the tax opinions if they
are delivered, or that a court will not sustain such a challenge.
U.S.
Federal Income Tax Consequences to U.S. Holders If the Merger is
a Reorganization
If the second-step merger occurs and the merger qualifies as a
reorganization within the meaning of Section 368(a) of the
Code, a U.S. holder of Data Domain common stock receiving
NetApp common stock and cash in exchange for such Data Domain
common stock in the merger generally will recognize gain equal
to the lesser of (i) the amount of cash received by the
U.S. holder (excluding any cash received in lieu of
fractional shares) and (ii) the excess of the amount
realized by the U.S. holder over the
U.S. holders tax basis in the Data Domain common
stock (generally the purchase price paid by the U.S. holder
to acquire such stock). The amount realized by the
U.S. holder will equal the sum of the fair market value of
the NetApp common stock and the amount of cash (including any
cash received in lieu of fractional shares) received by the
U.S. holder. Losses will not be permitted to be recognized
by U.S. holders of Data Domain common stock in the merger,
except in connection with the receipt of cash in lieu of
fractional shares, as discussed below. Any gain recognized by a
U.S. holder of Data Domain common stock generally will be
long-term capital gain if the U.S. holders holding
period of the Data Domain common stock is more than one year,
and short-term capital gain if the U.S. holders
holding period is one year or less, at the time of the
first-step merger. Long-term capital gains of individuals are
eligible for reduced rates of taxation.
The aggregate tax basis of the NetApp common stock received
(including fractional shares deemed received and redeemed as
described below) will be equal to the aggregate tax basis of the
Data Domain common stock surrendered, reduced by the amount of
cash the U.S. holder of Data Domain common stock received
(excluding any cash received in lieu of fractional shares), and
increased by the amount of gain that the U.S. holder of
Data Domain common stock recognizes, but excluding any gain or
loss from the deemed receipt and redemption of fractional shares
described below. The holding period of NetApp common stock
received by a U.S. holder of Data Domain common stock in
the merger will include the holding period of the
U.S. holders Data Domain common stock.
For a U.S. holder who acquired different blocks of Data
Domain common stock at different times and at different prices,
realized gain or loss generally must be calculated separately
for each identifiable block of shares exchanged in the merger,
and a loss realized on the exchange of one block of shares
cannot be used to offset a gain
76
recognized on the exchange of another block of shares. If a
U.S. holder has differing bases or holding periods in
respect of shares of Data Domain common stock, the
U.S. holder should consult its tax advisor prior to the
exchange with regard to identifying the bases or holding periods
of the particular shares of NetApp common stock received in the
merger.
Cash received by a U.S. holder of Data Domain common stock
in lieu of fractional shares generally will be treated as if the
U.S. holder received the fractional shares in the merger
and then received the cash in redemption of the fractional
shares. The U.S. holder generally should recognize capital
gain or loss equal to the difference between the amount of the
cash received in lieu of fractional shares and the portion of
the U.S. holders tax basis allocable to the
fractional shares.
U.S. holders of shares of Data Domain common stock
receiving NetApp common stock and cash in the merger will be
required to retain records pertaining to the merger.
U.S. holders who owned at least 5% (by vote or value) of
the total outstanding Data Domain common stock before the
first-step merger or whose tax basis in the Data Domain common
stock surrendered pursuant to the first-step merger equals or
exceeds $1 million are subject to certain reporting
requirements with respect to the merger. U.S. holders are
urged to consult with their tax advisors with respect to these
and other reporting requirements applicable to the merger.
U.S.
Federal Income Tax Consequences to U.S. Holders If the
Second-Step Merger Does Not Occur
If the second-step merger does not occur, the exchange of Data
Domain common stock for NetApp common stock and cash in the
first-step merger will be a fully taxable transaction in which a
U.S. holder generally will recognize gain or loss equal to
the difference between the amount realized (as
defined above) and the U.S. holders tax basis in the
Data Domain common stock. Gain or loss must be calculated
separately for each identifiable block of shares (i.e., shares
acquired at different times and prices) exchanged in the
first-step merger. Any gain or loss recognized by a
U.S. holder of Data Domain common stock generally will be
long-term capital gain or loss if the U.S. holders
holding period of the Data Domain common stock is more than one
year, and short-term capital gain or loss if the
U.S. holders holding period is one year or less, at
the time of the first-step merger. Long-term capital gains of
individuals are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations. The
aggregate tax basis of a Data Domain stockholder in the NetApp
common stock received in the first-step merger will equal its
fair market value at the time of the closing, and the holding
period for the NetApp common stock will begin the day after the
closing.
Backup
Withholding
Backup withholding may apply with respect to the consideration
received by a holder of Data Domain common stock in the
first-step merger unless the holder is a corporation or comes
within certain other exempt categories and, when required,
demonstrates this fact, or provides a correct taxpayer
identification number (typically by completing and signing an
IRS
Form W-9),
certifies as to no loss of exemption from backup withholding and
that such holder is a U.S. person (including a
U.S. resident alien) and otherwise complies with applicable
requirements of the backup withholding rules. Further, a holder
of Data Domain common stock who does not provide NetApp (or the
exchange agent) with its correct taxpayer identification number
may be subject to penalties imposed by the IRS. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against the holders federal income tax
liability, provided that the holder timely furnishes certain
required information to the IRS.
The foregoing discussion of U.S. federal income tax
consequences is not intended to constitute a complete
description of all tax consequences relating to the merger. The
tax consequences of the merger to a holder of Data Domain common
stock will depend upon the facts of a holders particular
situation. Because individual circumstances may differ, holders
of Data Domain common stock are urged to consult with their own
tax advisor regarding the applicability of the rules discussed
above and the particular tax effects of the merger, including
the application of state, local and foreign tax laws, and, in
the case of
non-U.S. holders,
possible eligibility for benefits under applicable income tax
treaties. NetApp will issue a press release announcing whether
the merger qualifies as a tax-free reorganization in connection
with the closing of the first-step merger.
77
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction
to Unaudited Pro Forma Condensed Combined Financial
Statements
On May 20, 2009, NetApp entered into an Agreement and Plan
of Merger, referred to as the merger agreement, by and among
NetApp, Kentucky Merger Sub One Corporation, a wholly owned
subsidiary of NetApp, referred to as Merger Sub One, Derby
Merger Sub Two LLC, a wholly owned subsidiary of NetApp,
referred to as Merger Sub Two, and Data Domain. On June 3,
2009, NetApp and Data Domain amended the original merger
agreement to reflect the terms described in this proxy
statement/prospectus. The merger agreement provides for the
acquisition of Data Domain by NetApp by means of a merger of
Merger Sub One with and into Data Domain, referred to as the
first-step merger, with Data Domain as the interim surviving
entity, immediately followed by a merger of Data Domain, as the
interim surviving entity, with and into Merger Sub Two, referred
to as the second-step merger, with Merger Sub Two as the final
surviving entity.
The following unaudited pro forma condensed combined financial
statements are based on the historical consolidated financial
statements of NetApp and Data Domain after giving effect to the
acquisition of Data Domain by NetApp using the purchase method
of accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141(R), Business
Combinations, and applying the assumptions and adjustments
described in the accompanying notes. The unaudited pro forma
condensed combined balance sheet is presented as if the merger
had occurred on April 24, 2009. The unaudited pro forma
condensed combined statement of operations for the twelve months
ended April 24, 2009 is presented as if the merger had
occurred on April 26, 2008. The preliminary estimate of
purchase consideration is calculated as if the acquisition had
taken place on June 11, 2009. You should read this
information in conjunction with the:
|
|
|
|
|
accompanying notes to the unaudited pro forma condensed combined
financial statements;
|
|
|
|
separate audited historical consolidated financial statements of
NetApp as of and for the fiscal year ended April 24, 2009,
included in NetApps annual report on Form
10-K for the
fiscal year ended April 24, 2009, incorporated by reference
into this proxy statement/prospectus;
|
|
|
|
separate unaudited historical condensed consolidated financial
statements of Data Domain as of and for the three months ended
March 31, 2009 included in Data Domains quarterly
report on
Form 10-Q
incorporated by reference into this proxy
statement/prospectus; and
|
|
|
|
separate audited historical consolidated financial statements of
Data Domain as of and for the year ended December 31, 2008,
included in Data Domains annual report on
Form 10-K
for the year ended December 31, 2008, incorporated by
reference into this proxy statement/prospectus.
|
As NetApp has a fiscal year ending on the last Friday in April
and Data Domain has a fiscal year ending on December 31,
the unaudited pro forma condensed combined balance sheet
combines the historical balances of NetApp as of April 24,
2009 with the historical balances of Data Domain as of
March 31, 2009, plus pro forma adjustments. In addition,
the unaudited pro forma condensed combined statement of
operations combines the historical results of NetApp for the
fiscal year ended April 24, 2009 with the historical
results of Data Domain for the twelve months ended
March 31, 2009 plus pro forma adjustments. Data
Domains historical results have been calculated by
combining its reported interim data for each quarter within the
respective period.
For ease of reference, the unaudited pro forma condensed
combined financial statements use NetApps period-end date
and no adjustments were made to Data Domains reported
information for the different quarter-end date. The pro forma
condensed combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of
the financial position or results of operations that would have
been realized if the merger had been completed on the dates
indicated, nor is it indicative of future operating results or
financial position. The pro forma adjustments are based upon
available information and certain assumptions that NetApp
believes are reasonable.
The unaudited pro forma condensed combined financial statements
do not reflect any cost savings, operating synergies or revenue
enhancements that the combined company may achieve as a result
of the merger or the costs to
78
integrate the operations of NetApp and Data Domain or the costs
necessary to achieve these cost savings, operating synergies and
revenue enhancements.
Pursuant to the purchase method of accounting, the estimated
preliminary purchase price, calculated as described in
Notes 4 and 5 to the unaudited pro forma condensed combined
financial statements, has been preliminarily allocated to assets
acquired and liabilities assumed based on their respective fair
values. NetApps management has determined the preliminary
fair value of the intangible assets and tangible assets acquired
and liabilities assumed at the pro forma combined balance sheet
date. Any differences between the fair value of the
consideration issued and the fair value of the assets acquired
and liabilities assumed is recorded as goodwill. Since these
unaudited pro forma condensed combined financial statements have
been prepared based on preliminary estimates of purchase
consideration and fair values, the actual amounts recorded may
differ materially from the information presented. The estimation
and allocations of purchase consideration are subject to change
pending changes in the market value of NetApp common stock and
further review of the fair value of the assets acquired and
liabilities assumed. Additionally, the fair value of assets
acquired and liabilities assumed may be materially impacted by
the results of Data Domains operations up to the date of
completion of the merger. A final determination of these
estimated fair values will be based on the actual net tangible
and intangible assets of Data Domain that will exist on the date
of completion of the merger.
There were no significant intercompany transactions between
NetApp and Data Domain as of the dates and for the periods of
these pro forma condensed combined financial statements.
These unaudited pro forma condensed combined financial
statements should be read in conjunction with the historical
consolidated financial statements and notes thereto of NetApp
and Data Domain and other financial information pertaining to
NetApp and Data Domain including each companys
managements discussion and analysis of financial condition
and results of operations and risk factors incorporated by
reference or included herein. For a complete list of documents
incorporated by reference in this proxy statement/prospectus,
see Where You Can Find More Information beginning on
page 96.
79
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
NetApp
|
|
|
Data Domain
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
April 24, 2009
|
|
|
March 31, 2009
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,494,153
|
|
|
$
|
119,167
|
|
|
$
|
(1,051,034
|
)(a)
|
|
$
|
562,286
|
|
Short-term investments
|
|
|
1,110,053
|
|
|
|
127,685
|
|
|
|
|
|
|
|
1,237,738
|
|
Accounts receivable, net of allowances
|
|
|
446,537
|
|
|
|
60,563
|
|
|
|
|
|
|
|
507,100
|
|
Inventories
|
|
|
61,104
|
|
|
|
4,051
|
|
|
|
1,500
|
(b)
|
|
|
66,655
|
|
Prepaid expenses and other assets
|
|
|
119,887
|
|
|
|
4,737
|
|
|
|
|
|
|
|
124,624
|
|
Short-term deferred income taxes
|
|
|
207,050
|
|
|
|
8,517
|
|
|
|
|
|
|
|
215,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,438,784
|
|
|
|
324,720
|
|
|
|
(1,049,534
|
)
|
|
|
2,713,970
|
|
Property and equipment, net
|
|
|
807,923
|
|
|
|
39,333
|
|
|
|
|
|
|
|
847,256
|
|
Goodwill
|
|
|
680,986
|
|
|
|
|
|
|
|
1,463,671
|
(c)
|
|
|
2,144,657
|
|
Intangible assets, net
|
|
|
45,744
|
|
|
|
100
|
|
|
|
418,900
|
(d)
|
|
|
464,744
|
|
Long-term investments and restricted cash
|
|
|
127,317
|
|
|
|
30,931
|
|
|
|
(3,228
|
)(e)
|
|
|
155,020
|
|
Long-term deferred income taxes and other assets
|
|
|
372,065
|
|
|
|
5,629
|
|
|
|
|
|
|
|
377,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,472,819
|
|
|
$
|
400,713
|
|
|
$
|
829,809
|
|
|
$
|
6,703,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
137,826
|
|
|
$
|
10,804
|
|
|
$
|
|
|
|
$
|
148,630
|
|
Accrued compensation and related benefits
|
|
|
204,168
|
|
|
|
11,692
|
|
|
|
1,072
|
(f)
|
|
|
216,932
|
|
Other accrued liabilities
|
|
|
190,315
|
|
|
|
8,267
|
|
|
|
|
|
|
|
198,582
|
|
Accrual for GSA settlement
|
|
|
128,715
|
|
|
|
|
|
|
|
|
|
|
|
128,715
|
|
Income taxes payable
|
|
|
4,732
|
|
|
|
2,150
|
|
|
|
|
|
|
|
6,882
|
|
Deferred revenue
|
|
|
1,013,569
|
|
|
|
43,749
|
|
|
|
(10,937
|
)(g)
|
|
|
1,046,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,679,325
|
|
|
|
76,662
|
|
|
|
(9,865
|
)
|
|
|
1,746,122
|
|
1.75% convertible senior notes due 2013
|
|
|
1,265,000
|
|
|
|
|
|
|
|
|
|
|
|
1,265,000
|
|
Other long-term obligations
|
|
|
164,499
|
|
|
|
2,318
|
|
|
|
143,431
|
(h)
|
|
|
310,248
|
|
Long-term deferred revenue
|
|
|
701,649
|
|
|
|
31,985
|
|
|
|
(7,996
|
)(g)
|
|
|
725,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,810,473
|
|
|
|
110,965
|
|
|
|
125,570
|
|
|
|
4,047,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
437
|
|
|
|
|
|
|
|
44
|
(i)
|
|
|
481
|
|
Additional paid-in capital
|
|
|
2,971,995
|
|
|
|
308,619
|
|
|
|
701,324
|
(j)
|
|
|
3,981,938
|
|
Treasury stock at cost
|
|
|
(2,927,376
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,927,376
|
)
|
Retained earnings (deficit)
|
|
|
1,622,448
|
|
|
|
(17,420
|
)
|
|
|
1,420
|
(k)
|
|
|
1,606,448
|
|
Accumulated other comprehensive income (loss)
|
|
|
(5,158
|
)
|
|
|
(1,451
|
)
|
|
|
1,451
|
(l)
|
|
|
(5,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,662,346
|
|
|
|
289,748
|
|
|
|
704,239
|
|
|
|
2,656,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,472,819
|
|
|
$
|
400,713
|
|
|
$
|
829,809
|
|
|
$
|
6,703,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma condensed
combined financial statements, which are an integral part of
these statements. The pro forma adjustments are explained in
Note 6, Pro Forma Adjustments.
80
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
NetApp
|
|
|
Data Domain
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Twelve Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
April 24, 2009
|
|
|
March 31, 2009
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
2,152,657
|
|
|
$
|
251,413
|
|
|
$
|
60
|
(m)
|
|
$
|
2,404,130
|
|
Software entitlements and maintenance
|
|
|
618,352
|
|
|
|
|
|
|
|
44,785
|
(m)
|
|
|
663,137
|
|
Service
|
|
|
764,099
|
|
|
|
|
|
|
|
4,248
|
(m)
|
|
|
768,347
|
|
Support and service
|
|
|
|
|
|
|
49,033
|
|
|
|
(49,033
|
)(m)
|
|
|
|
|
Ratable product and related support and services
|
|
|
|
|
|
|
60
|
|
|
|
(60
|
)(m)
|
|
|
|
|
GSA Settlement
|
|
|
(128,715
|
)
|
|
|
|
|
|
|
|
|
|
|
(128,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
3,406,393
|
|
|
|
300,506
|
|
|
|
|
|
|
|
3,706,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product
|
|
|
1,007,642
|
|
|
|
67,112
|
|
|
|
45,154
|
(m),(n)
|
|
|
1,119,908
|
|
Cost of software entitlements and maintenance
|
|
|
9,179
|
|
|
|
|
|
|
|
15,724
|
(m)
|
|
|
24,903
|
|
Cost of service
|
|
|
399,657
|
|
|
|
|
|
|
|
2,365
|
(m)
|
|
|
402,022
|
|
Cost of support and services
|
|
|
|
|
|
|
18,089
|
|
|
|
(18,089
|
)(m)
|
|
|
|
|
Cost of ratable product and related support and services
|
|
|
|
|
|
|
4
|
|
|
|
(4
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
1,416,478
|
|
|
|
85,205
|
|
|
|
45,150
|
|
|
|
1,546,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,989,915
|
|
|
|
215,301
|
|
|
|
(45,150
|
)
|
|
|
2,160,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,186,141
|
|
|
|
125,311
|
|
|
|
36,600
|
(o)
|
|
|
1,348,052
|
|
Research and development
|
|
|
498,495
|
|
|
|
46,514
|
|
|
|
|
|
|
|
545,009
|
|
General and administrative
|
|
|
203,698
|
|
|
|
25,779
|
|
|
|
|
|
|
|
229,477
|
|
Restructuring charges
|
|
|
54,406
|
|
|
|
|
|
|
|
|
|
|
|
54,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,942,740
|
|
|
|
197,604
|
|
|
|
36,600
|
|
|
|
2,176,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
47,175
|
|
|
|
17,697
|
|
|
|
(81,750
|
)
|
|
|
(16,878
|
)
|
Other Income (Expenses), Net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
57,610
|
|
|
|
5,134
|
|
|
|
(5,582
|
)(p)
|
|
|
57,162
|
|
Interest expense
|
|
|
(26,865
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,865
|
)
|
Loss on investments, net
|
|
|
(29,571
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,571
|
)
|
Other expense, net
|
|
|
(3,520
|
)
|
|
|
(2,634
|
)
|
|
|
|
|
|
|
(6,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(2,346
|
)
|
|
|
2,500
|
|
|
|
(5,582
|
)
|
|
|
(5,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
44,829
|
|
|
|
20,197
|
|
|
|
(87,332
|
)
|
|
|
(22,306
|
)
|
Provision (benefit) for income taxes
|
|
|
(41,716
|
)
|
|
|
95
|
|
|
|
(32,313
|
)(q)
|
|
|
(73,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
86,545
|
|
|
$
|
20,102
|
|
|
$
|
(55,019
|
)
|
|
$
|
51,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
0.34
|
|
|
|
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.30
|
|
|
|
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Used in Net Income per Share Calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
330,279
|
|
|
|
59,129
|
|
|
|
(14,923
|
)(r)
|
|
|
374,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
334,575
|
|
|
|
66,270
|
|
|
|
(19,651
|
)(s)
|
|
|
381,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the unaudited pro forma condensed
combined financial statements, which are an integral part of
these statements. The pro forma adjustments are explained in
Note 6, Pro Forma Adjustments.
81
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
|
|
1.
|
Description
of Transaction
|
On May 20, 2009, NetApp entered into an Agreement and Plan
of Merger, referred to as the merger agreement, by and among
NetApp, Kentucky Merger Sub One Corporation, a wholly owned
subsidiary of NetApp, referred to as Merger Sub One, Derby
Merger Sub Two LLC, a wholly owned subsidiary of NetApp,
referred to as Merger Sub Two, and Data Domain. On June 3,
2009, NetApp and Data Domain amended the original merger
agreement to reflect the terms described in this proxy
statement/prospectus. The merger agreement provides for the
acquisition of Data Domain by NetApp by means of a merger of
Merger Sub One with and into Data Domain, referred to as the
first-step merger, with Data Domain as the interim surviving
entity, immediately followed by a merger of Data Domain, as the
interim surviving entity, with and into Merger Sub Two, referred
to as the second-step merger, with Merger Sub Two as the final
surviving entity.
Upon the completion of the first-step merger, Data Domain will
become a wholly owned subsidiary of NetApp, and each share of
Data Domain common stock issued and outstanding immediately
prior to the completion of the first-step merger, will be
cancelled and converted into the right to receive, subject to
adjustment as described below, a combination of $16.45 in cash,
or the cash consideration, without interest and less any
required withholding, and a certain number of shares of NetApp
common stock, or the stock consideration, and together with the
cash consideration, the merger consideration. The number of
shares of NetApp Common Stock issuable in exchange for Data
Domain common stock will be determined by dividing $13.55 by the
closing average, defined as the average closing price of NetApp
common stock on the NASDAQ Global Select Market for the 10
consecutive trading days ending on the third trading day
immediately prior to the closing date of the first-step merger;
provided, that if the closing average is less than $17.41, each
share of Data Domain common stock will be exchangeable for
0.7783 shares of NetApp common stock and if the closing
average is greater than $21.27, each share of Data Domain common
stock will be exchangeable for 0.637 shares of NetApp
common stock. In the event that the exchange ratio is greater
than or equal to 0.7006 and less than 0.7783, NetApp, in its
sole discretion, may (a) reduce the stock consideration by
such amount as NetApp may determine and (b) increase the
cash consideration by an amount equal to the product of
(i) the amount of such reduction in the stock consideration
multiplied by (ii) the closing average. However, NetApp may
not reduce the amount of the stock consideration and increase
the cash consideration as described in the immediately preceding
sentence to the extent that it would reasonably be expected to
cause the merger to fail to qualify as a tax-free reorganization
under the Internal Revenue Code. In addition, if the aggregate
amount of the stock consideration issuable in the merger
(including the stock consideration issuable to holders of Data
Domain options and restricted stock units) would exceed 19.5% of
the outstanding shares of NetApp common stock immediately prior
to the effective time of the first-step merger, the stock
consideration will be decreased to the minimum extent necessary
so that no more than 19.5% of the outstanding shares of NetApp
common stock will be issued in the merger (with such percentage
measured immediately prior to the effective time of the
first-step merger). In such event, the cash consideration will
be increased by an amount equal to the product of (a) the
amount of the reduction in the stock consideration multiplied by
(b) the closing average. In the event that the stock
consideration is decreased in accordance with the immediately
preceding sentence, the merger may fail to qualify as a tax-free
reorganization under the Internal Revenue Code.
Upon the completion of the first-step merger, each outstanding
Data Domain stock option, whether or not then vested and
exercisable, will be assumed and converted by NetApp. In
accordance with its terms and the requirements of applicable
law, each option shall (i) be converted into an option to
acquire that number of shares of NetApp common stock equal to
the product obtained by multiplying (x) the number of
shares of Data Domain common stock subject to such option, by
(y) the option exchange ratio, rounded down to the nearest
whole share, and (ii) have an exercise price per share
equal to the quotient obtained by dividing (x) the per
share exercise price of Data Domain common stock subject to such
option, by (y) the option exchange ratio, rounded up to the
nearest cent. The option exchange ratio is calculated as the sum
of (x) the stock consideration to be received pursuant to
the merger agreement for a share of Data Domain common stock
plus (y) the quotient obtained by dividing (1) the
cash consideration to be received pursuant to the merger
agreement for a share of Data Domain common stock, by
(2) the average closing sales prices of NetApps
common stock, rounded to the nearest one-hundredth of a cent,
for the ten most recent consecutive trading days ending on the
third trading day immediately prior to the effective time of the
82
merger. Each assumed and converted option shall otherwise be
subject to the same terms and conditions (including as to
vesting and exercisability) as were applicable to the option
immediately prior to the completion of the first-step merger.
Each of Data Domains unvested restricted stock units and
shares of restricted stock outstanding at the effective time of
the first-step merger shall be assumed and converted into
restricted stock units or shares of restricted stock, as
applicable, representing the right to receive merger
consideration payable for shares of Data Domain underlying each
assumed and converted restricted stock unit or restricted share,
as applicable. Each assumed and converted restricted stock unit
and share of restricted stock shall otherwise be subject to the
same terms and conditions, including vesting restrictions, as
were applicable to such award immediately prior to the
completion of the first-step merger.
The merger is subject to Data Domain stockholder approval and
regulatory approvals and other usual and customary closing
conditions. The merger is expected to be completed within 60 to
120 days following May 20, 2009, the date when the
original merger agreement was signed.
The unaudited pro forma condensed combined financial statements
were prepared in accordance with Securities and Exchange
Commission
Regulation S-X
Article 11, using the purchase method of accounting based
on Statement of Financial Accounting Standard (SFAS)
No. 141R, Business Combinations, which NetApp adopted on
April 25, 2009, and are based on the historical financial
statements of NetApp and Data Domain after giving effect to the
cash to be paid and the stock to be issued by NetApp to
consummate the acquisition, as well as certain reclassifications
and pro forma adjustments. As NetApp has a fiscal year ending on
the last Friday in April and Data Domain has a fiscal year
ending on December 31, the unaudited pro forma condensed
combined balance sheet combines the historical balances of
NetApp as of April 24, 2009 with the historical balances of
Data Domain as of March 31, 2009, plus pro forma
adjustments. In addition, the unaudited pro forma condensed
combined statement of operations combines the historical results
of NetApp for the year ended April 24, 2009 with the
historical results of Data Domain for the twelve months ended
March 31, 2009, plus pro forma adjustments. Data
Domains historical results have been calculated by
combining its reported interim data for each quarter within the
respective period. For ease of reference, these pro forma
statements use NetApps respective period end dates. In
addition, no adjustments were made to Data Domains
reported information for its respective historical three-month
periods included in the unaudited pro forma condensed combined
financial statements. Certain reclassifications have been made
to the historical financial statements of Data Domain to conform
with NetApps presentation, primarily related to the
presentation of revenues and the associated cost of revenues.
The unaudited pro forma condensed combined balance sheet is
presented as if the merger had occurred on April 24, 2009.
The unaudited pro forma condensed combined statement of
operations for the twelve months ended April 24, 2009 is
presented as if the merger had occurred on April 26, 2008.
The preliminary estimate of purchase consideration is calculated
as if the acquisition had taken place on June 11, 2009.
SFAS No. 141R requires, among other things, that most
assets acquired and liabilities assumed be recognized at their
fair values, as determined in accordance with
SFAS No. 157, Fair Value Measurements, as of the
acquisition date and that the fair value of acquired in-process
research and development be recorded on the balance sheet
regardless of the likelihood of success as of the acquisition
date. In addition, SFAS No. 141R establishes that the
consideration transferred be measured at the closing date of the
merger at the then-current market price, which may be different
than the amount of consideration assumed in these unaudited pro
forma condensed combined financial statements.
SFAS No. 157, as amended, defines the term fair
value and sets forth the valuation requirements for any
asset or liability measured at fair value, expands related
disclosure requirements and specifies a hierarchy of valuation
techniques based on the nature of the inputs used to develop the
fair value measures. Fair value is defined in
SFAS No. 157, as amended, as the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. This is an exit price concept for
the valuation of the asset or liability. In addition, market
participants are assumed to be buyers and sellers in the
principal (or the most advantageous) market for the asset or
liability. Fair value measurements for an asset assume the
highest and best use by these market participants. As a result
of these standards, NetApp may be required to
83
record assets which are not intended to be used or sold
and/or to
value assets at fair value measures that do not reflect
NetApps intended use of those assets. Many of these fair
value measurements can be highly subjective and it is also
possible that other professionals, applying reasonable judgment
to the same facts and circumstances, could develop and support a
range of alternative estimated amounts.
Under the purchase method of accounting, the assets acquired and
liabilities assumed will be recorded as of the completion of the
merger, primarily at their respective fair values and added to
those of NetApp. Financial statements and reported results of
operations of NetApp issued after completion of the merger will
reflect these values, but will not be retroactively restated to
reflect the historical financial position or results of
operations of Data Domain.
Under SFAS No. 141R, acquisition-related transaction
costs (i.e., advisory, legal, valuation, other professional
fees) and certain acquisition-related restructuring charges
impacting the target company are expensed in the period in which
the costs are incurred. Total advisory, legal, regulatory and
valuation costs expected to be incurred by NetApp are estimated
to be approximately $14 million to $18 million. An
estimated $16 million of these transaction costs have been
reflected in the unaudited pro forma condensed combined balance
sheet; however, these costs have been excluded from the
unaudited pro forma condensed combined statement of operations.
The transaction costs for Data Domain are estimated to be
$18 million. Data Domains expenses and cash outflows
have not been reflected in the unaudited pro forma condensed
combined balance sheet and statement of operations.
Upon completion of the merger, NetApp will further review Data
Domains accounting policies. As a result of that review,
it may become necessary to harmonize the combined entitys
financial statements to conform to those accounting policies
that are determined to be more appropriate for the combined
entity.
|
|
4.
|
Preliminary
Estimate of Consideration Expected to be Transferred
|
The following is a preliminary estimate of consideration
expected to be transferred to effect the acquisition of Data
Domain.
|
|
|
|
|
Purchase Price:
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
1,035,034
|
|
Common stock
|
|
|
880,593
|
|
Assumed and converted stock options
|
|
|
241,501
|
|
Assumed and converted restricted stock units
|
|
|
41,089
|
|
|
|
|
|
|
Total purchase price
|
|
|
2,198,217
|
|
|
|
|
|
|
Portion of assumed stock options and restricted stock units that
are unearned or otherwise subject to future service requirements
and therefore will be expensed in the financial statements
prospectively rather than included in the purchase accounting
|
|
|
(153,196
|
)
|
|
|
|
|
|
Net purchase price
|
|
$
|
2,045,021
|
|
|
|
|
|
|
The preliminary estimate of merger consideration is calculated
as if the acquisition had taken place on June 11, 2009,
based upon NetApps closing common stock price of $19.92.
As described in Note 1. Description of Transaction, the
total purchase price can change based on the average closing
price for NetApp common stock prior to closing.
The cash consideration is calculated by multiplying the
estimated outstanding common shares of Data Domain as of
June 11, 2009 of approximately 63 million by the
agreed cash consideration amount of $16.45 per share.
The stock consideration has been calculated using an exchange
ratio of .7026 NetApp shares per Data Domain share. The exchange
ratio has been calculated as $13.55 divided by the average
closing price for NetApp common stock for the 10 business days
from May 26, 2009 to June 8, 2009 of $19.286. The
stock consideration has been
84
determined by multiplying the resulting approximately
44 million NetApp shares to be issued to Data Domain
stockholders with the closing price on June 11, 2009 of
$19.92.
Based on the option exchange ratio in the agreement Data
Domains outstanding options have been assumed and
converted into approximately 19 million NetApp options
using an exchange ratio of 1.5555 NetApp options per Data
Domain option. The fair value of the assumed and converted
options have been estimated using a Black-Scholes valuation
model with the following weighted-average assumptions:
volatility of 47.58%; risk-free interest rate of 0.50% to 3.05%,
average expected remaining life of 2.1 years and dividend
yield of zero.
Based on the same exchange ratio as described above for Common
Stock, Data Domains outstanding restricted stock units and
restricted stock awards have been assumed and converted into
approximately 1 million NetApp restricted stock units. Upon
vesting, the holders will receive $16.45 in cash per unit and
NetApp shares based on a conversion ratio of .7026. The fair
value of the assumed and converted restricted stock units has
been estimated using the closing price of NetApps common
stock as of June 11, 2009.
The expense associated with the portion of the assumed and
converted stock options and restricted stock units that are
subject to future service requirements and therefore not
included in the purchase accounting have not been included in
the pro forma statement of operations.
|
|
5.
|
Estimate
of Assets to be Acquired and Liabilities to be Assumed
|
The following is a preliminary estimate of the assets to be
acquired and the liabilities to be assumed by NetApp in the
merger, reconciled to the estimate of the consideration expected
to be transferred:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Net tangible assets acquired
|
|
$
|
289,648
|
|
Other asset/liability adjustments related to:
|
|
|
|
|
Inventory(a)
|
|
|
1,500
|
|
Deferred revenue(b)
|
|
|
18,933
|
|
Other(c)
|
|
|
(4,300
|
)
|
Acquired intangibles(d)
|
|
|
419,000
|
|
Deferred tax liability(e)
|
|
|
(143,431
|
)
|
Goodwill(f)
|
|
|
1,463,671
|
|
Contingencies(g)
|
|
|
|
|
|
|
|
|
|
Total preliminary estimated purchase price
|
|
$
|
2,045,021
|
|
|
|
|
|
|
|
|
|
a) |
|
As of the effective date of the merger, inventories are required
to be measured at fair value. NetApp does not have detailed
information at this time as to the specific finished goods on
hand, evaluation units, or the specific types and nature of raw
materials and supplies. The preliminary fair values adjustment
to inventory is $1.5 million primarily to the finished
goods inventory and evaluation units of Data Domain. |
|
b) |
|
Data Domains deferred revenue relates primarily to support
and service obligations, which are deferred and recognized
ratably over the term of each agreement. The preliminary fair
values have been estimated based on preliminary assumptions and
will be updated upon the closing of the acquisition. |
|
c) |
|
Other relates to certain assets that will not be assumed by
NetApp and an additional liability for cash settlement of earned
restricted stock units. |
|
d) |
|
As of the effective date of the merger, identifiable intangible
assets are required to be measured at fair value and these
acquired assets could include assets that are not intended to be
used or sold or that are intended to be used in a manner other
than their highest and best use. For purposes of these unaudited
pro forma condensed combined financial statements, it is assumed
that all assets will be used and that all assets will be used in
a manner that represents the highest and best use of those
assets. |
|
|
|
Under the HSR Act and other relevant laws and regulations, there
are significant limitations regarding what NetApp can learn
about the specifics of the Data Domain intangible assets.
Obtaining the necessary information to complete the valuation of
such intangible assets could take several months. As a result,
the final |
85
|
|
|
|
|
determination of the values of such intangible assets will
differ from these preliminary valuations and the differences
could be material. As of the completion of the acquisition,
NetApp will update the preliminary valuation of the acquired
intangible assets. |
|
|
|
The identifiable intangible assets acquired are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Estimated
|
|
Acquired Intangible Assets:
|
|
Fair Value
|
|
|
Useful Life
|
|
|
|
(in thousands)
|
|
|
Existing technology
|
|
$
|
217,000
|
|
|
|
5 years
|
|
In-process research and development
|
|
|
17,500
|
|
|
|
5 years
|
|
Existing customer relationships
|
|
|
147,500
|
|
|
|
5 years
|
|
Trade name
|
|
|
35,500
|
|
|
|
5 years
|
|
Backlog
|
|
|
1,500
|
|
|
|
1 year
|
|
|
|
|
|
|
|
|
|
|
Total acquired intangible assets
|
|
$
|
419,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing technology acquired primarily consists of
Data Domains data invulnerability architecture,
stream-informed segment layout architecture, replication
technology and global compression. For the purposes of these pro
forma financial statements it is assumed that these assets will
be amortized using the straight line method over an estimated
useful life of 5 years.
|
|
|
|
In-process research and development relates to
R&D projects that as of the acquisition date have not been
completed. Acquired in-process research and development assets
are initially recognized at fair value and are classified as
indefinite-lived assets until the successful completion or
abandonment of the associated research and development efforts.
Accordingly, during the development period after the acquisition
date, these assets will not be amortized into earnings; instead
these assets will be subject to periodic impairment testing.
Upon successful completion of the development process for an
acquired in-process research and development project,
determination as to the useful life of the asset will be made;
at that point in time, the asset would then be considered a
finite-lived intangible asset and NetApp would begin to amortize
the asset into earnings. For the purposes of these pro forma
financial statements it is assumed that it will take
approximately 6 months to complete the on-going projects
and that the acquired asset then will be amortized using the
straight line method over an estimated useful life of
5 years.
|
|
|
|
Existing customer relationships consists of Data
Domains contractual relationships and customer loyalty
especially related to their resellers, value added resellers,
distributors and direct end customers. For the purposes of these
pro forma financial statements it is assumed that these assets
will be amortized using the straight line method over an
estimated useful life of 5 years.
|
|
|
|
Trade name primarily relates to the Data Domain
brand and their various registered product names. For the
purposes of these pro forma financial statements it is assumed
that these assets will be amortized using the straight line
method over an estimated useful life of 5 years.
|
|
|
|
Backlog relates to Data Domains backlog as of
the date of the acquisition. It is expected that this asset will
be amortized within the first year after the acquisition.
|
|
e) |
|
To record the net deferred tax liability associated with the
estimated fair value adjustment of assets to be acquired and
liabilities to be assumed, offset by the deferred tax asset
associated with assumed stock options and restricted stock
units, recorded at an estimated 37% weighted average statutory
tax rate in the jurisdictions where the fair value adjustments
may occur, primarily the United States of America. |
|
f) |
|
Goodwill is calculated as the difference between the preliminary
acquisition date fair value of the consideration expected to be
transferred and the values assigned to the assets acquired and
liabilities assumed. Goodwill is not amortized. |
|
g) |
|
As of the effective date of the merger, except as specifically
excluded, contingencies are required to be measured at fair
value, if the acquisition-date fair value of the asset or
liability arising from a contingency can be determined. NetApp
has currently not identified any pre-acquisition contingencies
where a liability is probable and the amount of the liability
can be reasonably estimated. If information becomes available
prior to the end of the purchase price measurement period, which
would indicate that a liability which existed at the |
86
|
|
|
|
|
acquisition date, is probable and the amount can be reasonably
estimated, such items will be included in the purchase price
allocation and result in additional goodwill. |
|
|
|
In addition, Data Domain has recorded provisions for uncertain
tax positions. Income taxes are exceptions to both the
recognition and fair value measurement principles of SFAS
No. 141R, as amended, and continue to be accounted for
under the guidance of SFAS No. 109, Accounting for
Income Taxes (SFAS 109), as amended, and related
interpretative guidance. As such, the combined company would
continue to account for the Data Domain uncertain tax positions
using Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48). NetApp has currently not
identified any basis for modifying Data Domains current
application of these standards. Therefore, for the purpose of
these unaudited pro forma condensed combined financial
statements, NetApp has not adjusted the Data Domain recorded
book values for uncertain tax positions. This assessment is
preliminary and subject to change. |
This note should be read in conjunction with Note 1.
Description of Transaction; Note 2. Basis of
Presentation; Note 4. Estimate of Consideration
Expected to be Transferred; and Note 5. Estimate of
Assets to be Acquired and Liabilities to be Assumed.
Adjustments included in the column under the heading Pro
Forma Adjustments represent the following:
a) To record the cash portion of the merger consideration
estimated to be $1,035.0 million, as well as the estimated
transaction costs of NetApp of approximately $16.0 million.
b) To adjust acquired inventory to an estimate of fair
value. NetApps cost of sales will reflect the increased
valuation of Data Domains inventory as the acquired
inventory is sold, which for purposes of these unaudited pro
forma condensed combined financial statements is assumed will
occur within the first year post-acquisition. There is no
continuing impact of the acquired inventory adjustment on the
combined operating results and as such is not included in the
unaudited pro forma condensed combined statement of operations.
c) To record goodwill as a result of the merger.
d) To record intangible assets acquired as a result of the
merger and eliminate historical Data Domain intangible assets,
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Eliminate Data Domains historical intangible assets
|
|
$
|
(100
|
)
|
Estimated fair value of intangible assets acquired
|
|
|
419,000
|
|
|
|
|
|
|
Total
|
|
$
|
418,900
|
|
|
|
|
|
|
e) To adjust the fair value of Data Domains long-term
investments and restricted cash.
f) To record the earned portion of assumed restricted stock
units that will be settled in cash.
g) To adjust the carrying value of deferred revenue to the
estimated fair value and write-off deferred revenue where no
legal performance obligation exists subsequent to the closing of
the merger.
h) To record the net deferred tax liability associated with
the estimated fair value adjustment of assets to be acquired and
liabilities to be assumed, offset by the deferred tax asset
associated with assumed stock options and restricted stock
units, recorded at an estimated 37% weighted average statutory
tax rate in the jurisdictions where the fair value adjustments
may occur, primarily the United States of America.
i) To adjust for the par value of the additional NetApp
common shares issued as part of the merger.
87
j) To record the common shares issued as a portion of the
merger consideration, at fair value less par, and to eliminate
Data Domains additional paid-in capital, as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Eliminate Data Domain additional paid in capital
|
|
$
|
(308,619
|
)
|
Issuance of NetApp common stock, par value
|
|
|
(44
|
)
|
Issuance of NetApp common stock
|
|
|
880,593
|
|
Additional Data Domain stock options assumed by NetApp
|
|
|
241,501
|
|
Additional Data Domain restricted stock units assumed and
converted by NetApp
|
|
|
41,089
|
|
Portion of assumed stock options and restricted stock units that
are unearned or otherwise subject to future service requirements
and therefore will be expensed in the financial statements
prospectively rather than included in the purchase accounting
|
|
|
(153,196
|
)
|
|
|
|
|
|
Total
|
|
$
|
701,324
|
|
|
|
|
|
|
k) To eliminate Data Domains accumulated deficit of
$17.4 million, and to reflect NetApps estimated
transaction costs of approximately $16.0 million.
l) To eliminate Data Domains accumulated other
comprehensive loss.
m) To reclassify certain Data Domain historical revenue and
cost of revenue amounts to conform