IMPERVA INC

In Q3 2018, the Company reviewed the estimated useful lives of its certain property and equipment. This review indicated that the actual lives of certain equipment were longer than the estimated useful lives used for depreciation purposes in the Company’s financial statements. As a result, effective in August 2018, the Company changed its estimates of the useful lives of the relevant equipment to better reflect the estimated periods during which these assets will remain in service. The estimated useful lives of the relevant equipment were increased from 3 years to 5 years. The effect of this change in accounting estimate was to reduce depreciation expense by $0.7 million, increase net income by $0.7 million, and increase basic and diluted earnings per share by $0.02 for the three months ended September 30, 2018. The Company also evaluated the impact of the change in future depreciation and estimated that this change in accounting estimate will result in decreases of depreciation expenses of $1.7 million and $2.6 million for the years ended December 31, 2018 and 2019, respectively.

The following unaudited pro forma results of operations present the combined results of operations of the Company and Prevoty as if the acquisition had been completed at the beginning of fiscal 2017. The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination and factually supportable.

The pro forma information includes adjustments to the amortization expense from acquired intangible assets and the stock-based compensation expense for unvested stock options assumed and restricted stock units granted. In addition, the pro forma consolidated results of operations for the three and nine months ended on September 30, 2018 have been adjusted to include impact of Prevoty’s adoption of the new revenue standard as Prevoty, as a private company, had not adopted the new revenue standard prior to the acquisition. The pro forma results for the comparative period include a non-recurring adjustment for transaction costs incurred in connection with the acquisition.

In 2018, the Company awarded PRSUs to certain employees subject to the Company’s achievement of annual revenue growth compared to fiscal year ended December 31, 2017 and annual operating margin targets. Vesting of the PRSUs is expected to occur evenly over an eight quarter period from the vesting commencement date through November 2020. Vesting of the PRSU for one employee is expected to occur evenly over a six quarter period from vesting commencement date through May 2020 and for another employee is expected to occur evenly over a seven quarter period from the vesting commencement date. In August 2018, the Compensation Committee of the Board of Directors approved an amendment to the performance metrics governing the PRSUs. The original performance metrics of revenue growth compared to fiscal year ended December 31, 2017 and annual operating margin targets were amended to total billings for the year ended December 31, 2018 compared to fiscal year ended December 31, 2017 and total operating expense targets. The incremental compensation expense recognized for the three months ended September 30, 2018 was not material. Total expenses recognized for 2018 PRSUs were $0.8 million and $3.1 million, respectively for the three and nine months ended September 30, 2018.       

The Merger Agreement provides for a 45-day “go-shop” period, during which the Company’s Board and advisors may actively solicit alternative acquisition proposals and enter into negotiations with other parties. During this period, the Company will have the right to terminate the Merger Agreement to enter into a superior proposal subject to the terms and conditions of the Merger Agreement. There can be no assurance this 45-day “go-shop” period will result in a superior proposal. The Company does not intend to disclose developments about the “go-shop” process unless and until its Board has made a decision with respect to any potential superior proposal.

On October 10, 2018, we entered into the Merger Agreement with Imperial Purchaser, LLC and Imperial Merger Sub, Inc., both of which are entities formed by affiliates of Thoma Bravo, LLC, a private equity investment firm. Completion of the Transaction is subject to the satisfaction of various conditions, including approval of the Transaction by our stockholders, regulatory approvals from various governmental entities, the absence of certain legal impediments and the absence of a material adverse effect on our business. There is no assurance that all of the various conditions will be satisfied, or that the Transaction will be completed on the proposed terms, within the expected timeframe, or at all. Furthermore, there are additional inherent risks in the Transaction, including the risks detailed below.