SecProbe.io

CORRESP
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corresp

    John D. Hancock

    Boston Office

    617.832.1201

    January 12, 2007

    jhancock@foleyhoag.com

Via EDGAR

Mr. Michael Pressman

Special Counsel

Office of Mergers & Acquisitions

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549-3628

         Re:

    Progress Software Corporation

    Schedule TO-I filed December 22, 2006, as amended

    SEC File No. 005-42022

Dear Mr. Pressman:

     On behalf of Progress Software Corporation, a Massachusetts corporation (the “Company”), I am
writing to respond to your comment letter dated January 8, 2007 relating to the above-referenced
filing (the “Schedule TO”). For your convenience, I have restated your comments in italics below.
Capitalized terms that are not defined in this letter have the meanings given to them in the
Schedule TO.

SEC Comment:

1.    We note your statement that a “eligible participant” is any person to whom you have granted
eligible options and is subject to taxation in the United States. Please explain whether “eligible
participant” includes former employees. If so, please explain why you believe the inclusion of
former employees is consistent with the March 21, 2001 Global Exemptive Order for issuer exchange
offers that are conducted for compensatory purposes.

The Company’s Response:

     For purposes of the Schedule TO, the term “eligible participant” does include a limited number
of former employees whose employment with the Company was recently terminated. For the reasons
explained below, the Company believes that the inclusion of these former employees as persons
eligible to participate in the tender offer

Mr. Michael Pressman

January 12, 2007

Page 2

is consistent with the SEC’s March 21, 2001 Global Exemptive Order for issuer exchange offers
that are conducted for compensatory reasons (the “Exemptive Order”).

     The Company plans under which eligible options were issued generally provide that employees
whose employment is terminated by the Company (other than for cause) have a period of 90 days after
termination of employment in which to exercise stock options held by them, to the extent those
options were vested on the date of termination. As of the date of this letter, the Company
estimates that, of approximately 425 “eligible participants” in the tender offer, 21 participants,
or approximately 5%, are former employees whose employment was terminated by the Company within 90
days before the anticipated expiration of the tender offer on January 24, 2007. This group of
former employees includes one individual whose employment was terminated after the commencement of
the tender offer. (In contrast, options held by employees who voluntarily leave the Company
terminate on the last day of employment. No employees who have voluntarily left the Company or who
voluntarily leave the Company before the expiration of the tender offer are or will be eligible to
participate in the tender offer, since none of their options will be outstanding at the expiration
of the tender offer.)

     The Exemptive Order provides specific relief from Rule 13e-4(f)(8)(i), the “all-holders rule,”
and Rule 13e-4(f)(8)(ii), the “best price rule,” for issuer exchange offers conducted for
compensatory purposes. In the absence of the Exemptive Order, issuers conducting an exchange offer
for compensatory purposes would be required to comply with each of these rules. The all-holders
rule provides that “[n]o issuer or affiliate shall make a tender offer unless: (i) [t]he tender
offer is open to all security holders of the class of securities subject to the tender offer.” On
its face, the all-holders rule applies to persons in their capacity as “security holders” and does
not differentiate among security holders based on their employment status. The all-holders rule
was adopted pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934, as amended, which
was added to Section 13 as part of the Williams Act amendments. See Regulation of Issuer Tender
Offers, Exchange Act Release No. 14234, 42 Fed. Reg. 63066, 63066 (December 14, 1977). Rule 13e-4
was originally adopted “to prevent fraudulent, deceptive or manipulative acts or practices,”
id., and as so adopted included an earlier version of the all-holders rule. Id. at
63069 (Original Rule 13e-4(b)(4) provided that “[t]he tender offer shall be made to all
securityholders of the class of securities subject thereto”). The Company believes that the
all-holders rule was adopted in part to prevent unjustified differential treatment of persons in
substantially similar situations. Accordingly, when deciding which option holders to include in
the tender offer, the Company endeavored to comply with the spirit of the all-holders rule by
including all similarly situated option holders, regardless of employment status. The Company
believes that former employees who are expected to hold vested and unexpired options at the
conclusion of the tender offer are similarly situated to current employees who are expected to hold
vested and unexpired options at the conclusion of the tender offer.

     The Company believes that the inclusion of former employees in the tender offer is entirely
consistent with the Exemptive Order. The Exemptive Order uses the word

Mr. Michael Pressman

January 12, 2007

Page 3

“employee” primarily to refer to “employee stock options” or “employee benefit plans.” In
fact, the only other use of the word “employee” occurs in the second sentence of the Exemptive
Order, which states: “These exchange offers are conducted to reprice the employees’ options for
compensatory purposes.” The Company does not believe that this single use of the word “employee”
in a general statement introducing the subject of the Exemptive Order should be read to imply that
“employee” was intended to mean only current employees and not both current and former employees,
at least in the context of a tender offer such as the Company’s. In fact, the operative language
of the Exemptive Order (the last sentence of the second paragraph) makes reference only to
“employee stock options” and does not mention the employment status of any eligible participant:
“the Commission hereby grants an exemption from Rules 13e-4(f)(8)(i) and (ii) for exchange offers
for employee stock options that meet the following conditions...” All of the eligible options that
are the subject of the Company’s tender offer were issued as “employee stock options” to
individuals serving as employees at the time of grant under the terms of “employee benefit plans”
as defined in Rule 405 under the Securities Act of 1933, as amended. We note that, in the context
of the issuance of securities to employees under “employee benefit plans” as defined in Rule 405,
the SEC defined the term “employee” specifically to include “former employees” for purposes of
allowing former employees to exercise “employee benefit plan stock options.” See Instruction
A.1(a)(3) to Form S-8.

     In fact, the Company believes that it is more consistent with the all-holders rule to
include in the tender offer, rather than to exclude from it, option holders who are
former employees but who are otherwise similarly situated to option holders who are current
employees. The Company believes that the Exemptive Order should be read to permit the inclusion of
former employees in the Company’s tender offer and thereby promote, rather than hinder, the
purposes of the all-holders rule.1 As noted by the SEC in the Exemptive Order, more
traditional employee stock option exchange offers “do not present the same concerns caused by
discriminatory treatment among security holders that Rules 13e-4(f)(8)(i) and (ii) were intended to
address.” The Company does not believe that including former employees in its tender offer
presents any new concerns about discriminatory treatment. Instead, the Company believes that
including former employees specifically eliminates a potential concern about the discriminatory
treatment of option holders that might otherwise be present.

     The Company also believes that including both current and former employees as eligible
participants in the tender offer serves the same compensatory purposes. All of the eligible
options were granted to individuals during the course of their employment

    1

    We note that, although including former
employees in the tender offer is more consistent with the all-holders rule than
excluding them, we believe that the Exemptive Order merely permits, but does
not require, their inclusion. We believe that the Exemptive Order, by
providing specific exemptive relief from the all-holders rule, permits both the
inclusion and the exclusion of former employees from any issuer tender offer
covered by the Exemptive Order, depending on the compensation policies and
practices of the issuer.

Mr. Michael Pressman

January 12, 2007

Page 4

with the Company, and all of the eligible options were intended to afford employees the
opportunity to profit from appreciation in the price of the Company’s common stock. The scope of
this opportunity to earn compensation is governed by the terms of the option plans and the options,
which specifically contemplate that employees whose employment is terminated by the Company (other
than for cause) would have a 90-day post-employment period in which to exercise vested options. In
essence, one of the Company’s compensatory purposes was to grant options having post-employment
exercise terms that its employees would regard as competitive or favorable. By including in the
tender offer former employees whose post-employment exercise period will not have expired until
after the conclusion of the tender offer, the Company intended to enable them to obtain the benefit
of those options — and thereby achieve the Company’s original compensatory purposes — while at
the same time avoiding potential adverse tax consequences under Section 409A of the Internal
Revenue Code, as amended.2,3

     Finally, the Company notes that excluding former employees from participating in the tender
offer would likely result in confusion and perceived unfairness. An eligible participant could
validly elect to participate in the offer while serving as a current employee and then have his or
her employment terminated by the Company before the conclusion of the tender offer. If former
employees were not eligible to participate in the tender offer, such a former employee would be
excluded from the benefits of the tender offer, notwithstanding that the individual submitted a
valid election at a time when he or she was eligible to do so. As above, the Company believes that
permitting such an individual to continue to participate in the tender offer is more consistent
with the all-holders rule than the alternative and arguably eliminates the most discriminatory
treatment imaginable: the exclusion from the tender offer of the very individual who was
previously eligible to participate in the tender offer with respect to the very same securities.

    2

    As noted above, in the context of the
issuance of securities to employees under employee benefit plans under Form
S-8, the SEC defined “employee” specifically to include
“former employees” for certain purposes. We believe that former
employees were included as eligible recipients of securities issued under a
registration statement on Form S-8 because the SEC appreciated that options
issued under an employee benefit plan and held by former employees have the
same compensatory purposes as options held by current employees. Cf.
Registration and Reporting Requirements for Employee Benefit Plans,
Securities Act Release No. 6836, Exchange Act Release No. 26917, [1989 Transfer
Binder] Fed. Sec. L. Rptr. ¶84,420, at 80167 (June 12, 1989) (adopting
instruction codifying the staff’s interpretive position regarding the
availability of Form S-8 for certain transactions involving former employees
who had been granted stock options); cf. also American Bar
Ass’n., SEC No-Action Letter (February 14, 1989), as clarified in
American Bar Ass’n., SEC No-Action Letter (May 1, 1989)
(“It is the Division’s view that Form S-8 is available for sales of
an issuer’s securities to terminated employees upon the exercise of
non-transferable stock options granted pursuant to an employee benefit plan so
long as such exercises are permitted under the plan and, to the extent required
by the plan, have been approved by the Board of Directors or Committee having
authority to grant options under the plan.”).

    3

    See note 6 below.

Mr. Michael Pressman

January 12, 2007

Page 5

     Because the inclusion of former employees in the Company’s tender offer serves the purposes of
the all-holders rule and does not involve acts or practices that are fraudulent, deceptive or
manipulative, such inclusion is consistent with the Exemptive Order.

SEC Comment:

2.    As you are aware, Rule 13e-4(f)(5) requires you to pay for or return tendered options “promptly”
after the termination of the offer. The cash payment to be made in exchange for certain tendered
options will not be paid until January 20, 2008 at the earliest. Please provide your legal
analysis as to how this delay in payment is consistent with Rule 13e-4(f)(5). Your discussion
should address in greater detail that in the Offer to Amend the reasons for the need to delay
payment until the year after amending the existing options. In addition, your discussion should
address the reasons for the need to delay payments further for unvested options.

The Company’s Response:

     Rule 13e-4(f)(5) provides that “[t]he issuer or affiliate making the tender offer shall either
pay the consideration offered, or return the tendered securities, promptly after the termination or
withdrawal of the tender offer.” The Company believes that its tender offer complies with this
rule for the reasons explained below.

     It should first be noted that the consideration being offered by the Company in the tender
offer does not consist of cash. Rather, as stated on the cover page of the Offer to Amend, the
consideration being offered to eligible participants consists of eligibility to receive one or more
cash payments at various future dates, the earliest of which is scheduled to occur as soon as
practicable after January 20, 2008. In essence, the consideration being offered is the Company’s
contractual commitment to pay the cash bonuses described in the Offer to Amend on the terms and
conditions set forth therein. See the Company’s Offer to Amend, Section 4 at page 21 (“Our
acceptance of your submitted acceptance of the Offer will constitute a binding agreement
between us and you upon the terms and subject to the conditions of the Offer.” (Emphasis added.)).

     The consideration being offered consists of two components. First, holders of eligible
options who elect to participate in the tender offer will become eligible to receive a cash bonus
relating to the portion of their amended eligible options that is vested at the conclusion of the
tender offer. This cash bonus is payable as soon as practicable after January 20, 2008 (one of the
Company’s earliest payroll dates in that calendar year). Second, such holders will become eligible
to receive another cash bonus relating to the portion of their amended eligible options that is not
vested at the conclusion of the tender offer. This second cash bonus is payable in up to four
installments over two years, depending on the last vesting date of the holder’s amended options,
and the payment of each installment is contingent on the option holder’s continued employment with
the Company on the relevant payment date. This cash

Mr. Michael Pressman

January 12, 2007

Page 6

bonus is payable in one or more installments in April 2008, October 2008, April 2009 and
October 2009.

     The timing of the payment of the two cash bonuses was driven by diffe