Citrix 2006 Annual Report Download - page 30

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Xensource, Inc., Acquistion
On August 14, 2007, we signed a definitive agreement
to acquire XenSource, Inc., or XenSource, a privately
held leader in enterprise-grade virtual infrastructure
solutions. The acquisition will move us into adjacent
server and desktop virtualization markets that will allow
us to extend our leadership in the broader Application
Delivery Infrastructure market by adding key enabling
technologies that make the end-to-end computing
environment more flexible, dynamic and responsive to
business change. The closing of the acquisition is targeted
for the fourth quarter of 2007 and is subject to XenSource
stockholder and regulatory approvals. The acquisition has
received clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. We plan to fund the acquisition
through the use of our available cash and stock. In
accordance with the terms of the agreement, we will issue
approximately 4.2 million shares of our common stock
to the stockholders of XenSource and they will receive
approximately $175.5 million in cash consideration. The
number of shares, however, could increase to 6.5 million
and the cash consideration could decrease to $92.5 million
if certain conditions in the agreement are satisfied prior
to the closing of the acquisition. In addition, in connection
with the acquisition we will issue approximately 1.4 million
unvested shares of our common stock and we will assume
approximately 3.4 million stock options each of which will
be exercisable for the right to receive one share of our
common stock upon vesting. Transaction costs associated
with the acquisition are currently estimated at $3.7 million.
In addition, we estimate that we will expense approximately
$8.0 to $10.0 million in IPR&D upon the closing of
the transaction.
The Sevin Rosen funds, a venture capital firm, is a
stockholder in XenSource. Stephen Dow, a member of our
Board of Directors, is a general partner of the Sevin Rosen
funds and does not directly hold any interest in XenSource.
Although the Sevin Rosen funds are represented on the
Board of Directors of XenSource, Mr. Dow is not a director
of XenSource. Our acquisition of XenSource, if closed
will provide a return to all the partners of the Sevin Rosen
funds, including Mr. Dow. Subject to certain assumptions,
we currently estimate that the potential allocation to
Mr. Dow through the general partner entities of the Sevin
Rosen funds related to the acquisition of XenSource is
approximately $1.9 million. Mr. Dow has been on our Board
of Directors since 1989 and currently owns 262,349 shares
of our common stock. Mr. Dow did not attend the meeting
at which our Board approved the transaction and recused
himself from the vote to approve the transaction. Consistent
with our policies and the charter of the Nominating
and Corporate Governance Committee of our Board of
Directors, the acquisition of XenSource was reviewed and
approved by the Nominating and Corporate Governance
Committee. There are no material relationships among
us and XenSource or any of their respective affiliates or
any of the parties to the agreement to acquire XenSource
and related agreements, other than in respect of such
agreements themselves and as disclosed herein.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and
results of operations are based upon our consolidated
financial statements, which have been prepared in
accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires us to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure
of contingent liabilities. We base these estimates on our
historical experience and on various other assumptions
that we believe to be reasonable under the circumstances,
and these estimates form the basis for our judgments
concerning the carrying values of assets and liabilities
that are not readily apparent from other sources. We
periodically evaluate these estimates and judgments based
on available information and experience. Actual results
could differ from our estimates under different assumptions
and conditions. If actual results significantly differ from our
estimates, our financial condition and results of operations
could be materially impacted.
We believe that the accounting policies described below
are critical to understanding our business, results of
operations and financial condition because they involve
more significant judgments and estimates used in the
preparation of our consolidated financial statements. An
accounting policy is deemed to be critical if it requires an
accounting estimate to be made based on assumptions