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Lyris, Inc. – ‘PREM14A’ for 5/15/15

On:  Friday, 5/15/15, at 4:31pm ET   ·   For:  5/15/15   ·   Accession #:  1144204-15-31661   ·   File #:  333-82154

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/15/15  Lyris, Inc.                       PREM14A     5/15/15    1:1.8M                                   Vintage/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Solicitation Material -- Merger   HTML   1.05M 
                          or Acquisition                                         

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant ¨

Check the appropriate box:

LYRIS, INC.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

(1)   Title of each class of securities to which transaction applies:

Common stock, $0.01 par value per share (“Common Stock”) and Series A preferred stock, $0.01 par value per share (“Preferred Stock”) of Lyris, Inc.

(2)   Aggregate number of securities to which transaction applies:

9,568,613 shares of Common Stock and 2,000,000 shares of Preferred Stock outstanding as of March 31, 2015.

(3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

The filing fee was determined based upon the sum of (A) 9,568,613 shares of Common Stock, multiplied by $0.89 per share; and (B) 2,000,000 shares of Preferred Stock, multiplied by $2.50 per share. In accordance with Exchange Act Rule 0-11(c), the filing fee was determined by multiplying 0.0001162 by the sum of the preceding sentence.

(4)   Proposed maximum aggregate value of transaction:

$13,516,065.57

(5)   Total fee paid:

$1,570.57

LYRIS, INC.

6401 Hollis Street, Suite 125

Emeryville, CA 94608

(800) 768-2929

 Dear Stockholder:

 We cordially invite you to attend a special meeting of stockholders of Lyris, Inc., which we refer to as Lyris, to be held at Lyris’ offices located at 6401 Hollis Street, Suite 125, Emeryville, CA 94608, at 10:00 a.m., local time, on           , 2015, which we refer to as the Special Meeting. Holders of record of Series A preferred stock of Lyris, $0.01 par value per share, which we refer to as Preferred Stock, and common stock of Lyris, $0.01 par value per share, which we refer to as Common Stock, at the close of business on        , 2015, will be entitled to vote at the Special Meeting or any adjournment of the Special Meeting.

 At the Special Meeting, we will ask you to adopt the Agreement and Plan of Merger, dated as of May 4, 2015, which we refer to as the Merger Agreement, by and between Lyris and LY Acquisition Corp., which we refer to as Buyer, pursuant to which Buyer will merge with and into Lyris, with Lyris continuing as the surviving corporation. We refer to such transaction as the Merger. Upon the consummation of the Merger, Lyris will become a subsidiary of Aurea Software, Inc.

 We are also asking you to approve, on an advisory basis, the Merger-related compensation for Lyris’ named executive officers and expressly grant us the authority to vote your shares to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Special Meeting to approve the adoption of the Merger Agreement.

 If the Merger is completed, each issued and outstanding share of Common Stock and Preferred Stock not owned by Buyer or Lyris as of the effective time of the Merger (other than shares held by Lyris stockholders who have validly exercised their appraisal rights under Delaware law) will be converted into the right to receive $0.89 and $2.50, respectively, in cash, without interest and subject to any required tax withholding, and will no longer have an ownership interest in the continuing business of Lyris. We cannot complete the Merger unless all of the conditions to closing are satisfied, including the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock and Preferred Stock voting together as a single class on an as-converted basis as of May 18, 2015, which we refer to as the record date, and the holders of a majority of the outstanding shares of Preferred Stock as of the record date.

 A Special Committee of our Board of Directors comprised of independent directors, which we refer to as the Special Committee, reviewed and considered the terms and conditions of the Merger and unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders (including its Non-Principal Common Stockholders, as described below), unanimously approved and adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that our Board of Directors vote to approve and adopt the Merger Agreement. Our Board of Directors reviewed and considered the terms and conditions of the Merger and the recommendation of the Special Committee and unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders, unanimously approved and adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that our stockholders vote to adopt the Merger Agreement at the Special Meeting.

 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE ADOPTION OF THE MERGER AGREEMENT (AND, IF NECESSARY, TO
ADJOURN THE SPECIAL MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES
TO VOTE IN FAVOR OF ADOPTING THE MERGER AGREEMENT).
YOUR VOTE IS IMPORTANT.

As a condition and material inducement to Buyer’s willingness to enter into and perform its obligations under the Merger Agreement, William T. Comfort III, LDN Stuyvie Partnership, Lyr, Ltd., 65 BR Trust and Meudon Investments, who we refer to collectively as the Principal Lyris Stockholders, entered into a voting agreement with Buyer, dated as of May 4, 2015, which we refer to as the Voting Agreement, pursuant to which the Principal Lyris Stockholders agreed, among other things, to vote all shares of the Common Stock and Preferred Stock owned by them in favor of the Merger and the adoption of the Merger Agreement. As of May 4, 2015, approximately 70.6% of the outstanding shares of Common Stock and Preferred Stock (on an as-converted to Common Stock basis) are subject to the Voting Agreement. The stockholders of the Company other than the Principal Lyris Stockholders are referred to as the Non-Principal Common Stockholders.

 In the materials accompanying this letter, you will find a Notice of Special Meeting of Stockholders, a proxy statement relating to the actions to be taken by our stockholders at the Special Meeting and a proxy card. The proxy statement includes other important information about the Merger Agreement and the Merger. We encourage you to read the entire proxy statement and its annexes, including the Merger Agreement, carefully.

Your vote is very important. Whether or not you plan to attend the Special Meeting, please complete, sign, date and return your proxy card in the enclosed envelope as promptly as possible. It is important that your shares be represented and voted at the Special Meeting. If you attend the Special Meeting, you may vote in person as you wish, even though you have previously returned your proxy card.

If your shares of Common Stock or Preferred Stock are held in street name by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares without instructions from you. You should instruct your bank, brokerage firm or other nominee as to how to vote your shares, following the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of Common Stock or Preferred Stock “FOR” the approval of the proposal to adopt the Merger Agreement will have the same effect as voting against the proposal to adopt the Merger Agreement.

 If you have any questions or need assistance voting your shares, please call our Investor Relations department at (610) 688-3305 or Broadridge Corporate Issuer Solutions, toll-free at (877) 830-4936.

 On behalf of our Board of Directors, I thank you for your support and urge you to vote “FOR” the adoption of the Merger Agreement.

         , 2015

THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER AGREEMENT OR THE TRANSACTION CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

LYRIS, INC.

6401 Hollis Street, Suite 125

Emeryville, CA 94608

(800) 768-2929

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON            , 2015

 Dear Stockholder:

 You are cordially invited to attend the Special Meeting of Stockholders of Lyris, Inc., a Delaware corporation, which we refer to as Lyris, that will be held at our offices located at 6401 Hollis Street, Suite 125, Emeryville, CA 94608, at 10:00 a.m., local time, on              , 2015, which we refer to as the Special Meeting, for the following purposes:

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 4, 2015, which we refer to as the Merger Agreement, by and between Lyris and LY Acquisition Corp., which we refer to as Buyer, pursuant to which Buyer will merge with and into Lyris, with Lyris continuing as the surviving corporation, which we refer to as the Merger. Upon the consummation of the Merger, Lyris will become a subsidiary of Aurea Software, Inc.;

2. To approve, on an advisory basis, the Merger-related compensation for Lyris’ named executive officers; and

3. To consider and vote upon a proposal to adjourn the Special Meeting, if necessary, for the purpose of soliciting additional proxies to vote in favor of the adoption of the Merger Agreement.

A Special Committee of our Board of Directors comprised of independent directors, which we refer to as the Special Committee, reviewed and considered the terms and conditions of the Merger and unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders (including its Non-Principal Common Stockholders, as described below), unanimously approved and adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that our Board of Directors vote to approve and adopt the Merger Agreement. Our Board of Directors reviewed and considered the terms and conditions of the Merger and unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders, unanimously approved and adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that our stockholders vote to adopt the Merger Agreement at the Special Meeting. This item of business to be submitted to a vote of the stockholders at the Special Meeting is more fully described in the attached proxy statement, which we urge you to read carefully. Our Board of Directors also recommends that you expressly grant us the authority to vote your shares to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 Stockholders of record at the close of business on May 18, 2015, which we refer to as the Record Date, are entitled to notice of and to vote at the Special Meeting and any adjournment of the Special Meeting. The proxy statement is dated           , 2015, and is first being mailed to Lyris stockholders on or about             , 2015. Adoption of the Merger Agreement will require the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock as of                , 2015, and the holders of a majority of the outstanding shares of Common Stock and Preferred Stock voting together as a single class on an as-converted basis as of the Record Date.

As a condition and material inducement to Buyer’s willingness to enter into and perform its obligations under the Merger Agreement, William T. Comfort III, LDN Stuyvie Partnership, Lyr, Ltd., 65 BR Trust and Meudon Investments, who we refer to collectively as the Principal Lyris Stockholders, entered into a voting agreement with Buyer, dated as of May 4, 2015, which we refer to as the Voting Agreement, pursuant to which the Principal Lyris Stockholders agreed, among other things, to vote all shares of the Common Stock and Preferred Stock owned by them in favor of the Merger and the adoption of the Merger Agreement. As of May 4, 2015, approximately 70.6% of the outstanding shares of Common Stock and Preferred Stock (on an as-converted to Common Stock basis) are subject to the Voting Agreement. The stockholders of the Company other than the Principal Lyris Stockholders are referred to as the Non-Principal Common Stockholders. Even though the Principal Lyris Stockholders have entered into a Voting Agreement, your vote remains important.

 Stockholders will have the right to demand appraisal of their shares of Common Stock or Preferred Stock, as applicable, and obtain payment in cash for the fair value of such shares, but only if they perfect their appraisal rights and comply with the applicable provisions of Delaware law. A copy of the Delaware statutory provisions relating to appraisal rights is attached as Annex F to the attached proxy statement, and a summary of these provisions can be found under “The Merger — Appraisal Rights” in the attached proxy statement.

You should not send any certificates representing shares of Common Stock or Preferred Stock with your proxy card. Upon the closing of the Merger, you will be sent instructions regarding the procedure to exchange your stock certificates for the applicable cash consideration.

 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE ADOPTION OF THE MERGER AGREEMENT AND “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE MERGER-RELATED COMPENSATION FOR LYRIS’ NAMED EXECUTIVE OFFICERS (AND, IF NECESSARY, TO ADJOURN THE SPECIAL MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES TO VOTE IN FAVOR OF ADOPTING THE MERGER AGREEMENT).
YOUR VOTE IS IMPORTANT.

Your vote is very important, regardless of the number of shares you own. Even if you plan to attend the Special Meeting in person, we request that you complete, sign, date and return your proxy card in the enclosed envelope, to ensure that your shares will be represented at the Special Meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of the adoption of the Merger Agreement, the proposal to approve, on an advisory basis, the Merger-related compensation of Lyris’ named executive officers, and, if necessary, the adjournment of the Special Meeting for the purposes of soliciting additional proxies to vote in favor of adopting the Merger Agreement. If you fail to return your proxy card, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against the adoption of the Merger Agreement, the proposal to approve, on an advisory basis, the Merger-related compensation of Lyris’ named executive officers and the adjournment of the Special Meeting for the purposes of obtaining additional proxies to vote in favor of the adoption of the Merger Agreement. If you do attend the Special Meeting and wish to vote in person, you may withdraw your proxy and vote in person. If your shares are held in the name of your broker, bank or other nominee, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote in person at the Special Meeting.

 No person has been authorized to give any information or to make any representations other than those set forth in the proxy statement in connection with the solicitation of proxies made hereby, and, if given or made, such information must not be relied upon as having been authorized by Lyris or any other person.

        , 2015

Emeryville, CA

In addition to delivering the proxy materials for the Special Meeting to be held on              , 2015 to stockholders by mail, the proxy statement for such meeting is also is available at www.lyris.com.

TABLE OF CONTENTS

SUMMARY TERM SHEET

 This Summary Term Sheet, together with the “Questions and Answers about the Special Meeting and the Merger,” highlights selected information in the proxy statement and may not contain all the information that may be important to you. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers to for a more complete understanding of the matters being considered at the Special Meeting. In addition, you may obtain additional business and financial information about Lyris, Inc., which we refer to as Lyris, without charge by following the instructions in “Other Matters — Where You Can Find More Information” beginning on page 74. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary. The Agreement and Plan of Merger, dated as of May 4, 2015, which we refer to as the Merger Agreement, by and between LY Acquisition Corp., which we refer to as Buyer, and Lyris is attached as Annex A to this proxy statement. We encourage you to read the Merger Agreement, as it is the legal document that governs the merger of Buyer with Lyris, which we refer to as the Merger. In this proxy statement, unless the context otherwise requires, “we,” “us,” “our” and “Lyris” refer to Lyris, Inc. and its subsidiaries.

 The Merger and the Merger Agreement

 The Parties to the Merger (see page 14). Lyris, a Delaware corporation, is a provider of digital marketing software solutions delivered on a flexible integration framework that help organizations engage with their customers across multiple interactive channels. Its solutions empower marketers to design, automate and optimize data-driven messaging campaigns that maximize revenue, accelerate time-to-market and reduce total cost of ownership.

Buyer was formed solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities except in furtherance of the purpose of effecting the Merger. Aurea Software, Inc., which we refer to as Aurea, owns 50% of the outstanding common stock of Buyer and the Non-Aurea LY Stockholders collectively own the remaining 50% of the outstanding common stock of Buyer. We refer to LY Holdco I, LLC (an entity held by William T. Comfort III), LY Holdco II, LLC (an entity held by Stuyvesant P. Comfort) and LY Holdco III, LLC (an entity held by James A. Urry) collectively as the Non-Aurea LY Stockholders. William T. Comfort III, Stuyvesant P. Comfort, James A. Urry and the entities affiliated with them beneficially own 70.6% of our Common Stock (on an as-converted basis). Buyer required the Non-Aurea LY Stockholders to enter into the foregoing arrangement as a condition to the entering into the Merger Agreement in order for Buyer to be able to preserve certain tax attributes of Lyris.

The Merger (see page 15). You are being asked to vote to adopt the Merger Agreement. Pursuant to the Merger Agreement, Buyer will merge with and into Lyris, with Lyris continuing as the surviving corporation. As a result of the Merger, Lyris will become a subsidiary of Aurea and cease to be an independent, publicly-traded company. You will no longer have any interest in Lyris’ future earnings or growth. Following consummation of the Merger, the registration of and our reporting obligations with respect to shares of our Common Stock under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, will be terminated upon application to the Securities and Exchange Commission, which we refer to as the SEC. In addition, upon completion of the Merger, our Common Stock will no longer be listed on any stock exchange, including the OTC Bulletin Board, which we refer to as the OTCBB.

 Merger Consideration (see page 51). If the Merger is completed, holders of common stock of Lyris, $0.01 par value per share, which we refer to as Common Stock, will be entitled to receive $0.89 in cash, without interest and less any applicable withholding taxes, for each such share of Common Stock (other than shares as to which appraisal rights have been properly exercised), which we refer to as the Merger Consideration.

Preferred Consideration (see page 51). If the Merger is completed, holders of Series A preferred stock of Lyris, $0.01 par value per share, which we refer to as Preferred Stock, will be entitled to receive $2.50 in cash, without interest and less any applicable withholding taxes, for each such share of Preferred Stock (other than shares as to which appraisal rights have been properly exercised), which we refer to as the Preferred Consideration. The holders of our Preferred Stock are entitled to such amount as described in the Certificate of Designation for the Preferred Stock. In the event of a Merger, the holders of our Preferred Stock are entitled to receive such amount out of the funds and assets available for distribution to stockholders, before any payment or distribution of assets to the holders of our Common Stock.

1

Commitment Letter; Source of Funds (see page 35). Completion of the Merger is not conditioned upon obtaining financing. Buyer plans to finance the transaction with debt financing committed from ESW Capital, LLC, which we refer to as the Fund, an affiliate of Buyer, pursuant to the terms of a commitment letter, dated as of May 4, 2015, executed in favor of Buyer, which we refer to as the Commitment Letter. The Commitment Letter provides that on the terms and subject to the conditions set forth therein, the Fund irrevocably commits to purchase, at or prior to the consummation of the Merger, debt securities of Buyer in an aggregate amount not less than $16.5 million, which we refer to as the Commitment Amount. The Commitment Amount will be used, as needed, solely to fund the amounts payable by Buyer pursuant to the Merger Agreement to cause Buyer to consummate the transactions contemplated thereby, including the Merger. The Fund’s obligation to fund the Commitment Amount is subject to the satisfaction or waiver of all the conditions in the Merger Agreement and the Merger Agreement not having been terminated. Lyris is an express third party beneficiary of the Commitment Letter. The Commitment Letter is attached as Annex B to this proxy statement.

Treatment of Stock Options (see page 39). All Lyris stock options have a per share exercise price greater than the per share Merger Consideration. As a result, all Lyris stock options will be cancelled upon consummation of the Merger and the holders of such stock options will not have any right to receive any consideration in respect thereof. Prior to the effective time of the Merger, we will also terminate our 2005 Equity-Based Compensation Plan, as amended.

Conditions to the Merger (see page 56). As more fully described in this proxy statement and the Merger Agreement, the obligations of the parties to effect the Merger depend on the satisfaction of a number of conditions. If these conditions are not satisfied, the Merger will not be completed. Completion of the Merger is not conditioned upon obtaining financing.

  No Solicitation of Other Offers (see page 58). From the date of the Merger Agreement through the effective date of the Merger or the termination of the Merger Agreement, Lyris shall not and shall cause each of its subsidiaries not to and shall not permit its representatives to (i) continue any solicitation, knowing encouragement, discussions or negotiations with any persons that may be ongoing with respect to an acquisition proposal, (ii) directly or indirectly, (A) solicit, initiate or knowingly facilitate or encourage (including by way of furnishing information) any inquiries regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, an acquisition proposal, (B) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any information in connection with or for the purpose of encouraging or facilitating, an acquisition proposal or (C) enter into any letter of intent, acquisition agreement, agreement in principle or similar agreement with respect to an acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal, and (iii) fail to enforce or grant any waiver or release under any standstill or similar agreement to which Lyris is a party (or on whose behalf such agreement has been entered into) unless Lyris’ Board of Directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would be a breach of the fiduciary duties of Lyris’ Board of Directors to Lyris’ stockholders under applicable legal requirements.

Lyris shall promptly deliver a written notice to each person that entered into a confidentiality agreement in anticipation of potentially making an acquisition proposal, to the effect that Lyris is ending all discussions and negotiations with such person with respect to any acquisition proposal, effective on the date of the Merger Agreement, and the notice shall also request such person to promptly return or destroy all confidential information concerning Lyris and its subsidiaries.

If at any time prior to obtaining the requisite stockholder approval, (i) Lyris or any of its representatives receives a bona fide written acquisition proposal from any person, which acquisition proposal was made or renewed on or after the date of the Merger Agreement and did not result from any breach of the no solicitation provision contained in the Merger Agreement, and (ii) if Lyris’ Board of Directors determines in good faith, after consultation with independent financial advisors and outside legal counsel, that such acquisition proposal constitutes or would reasonably be expected to lead to a superior offer and that failure to take such action would be a breach of the fiduciary duties of Lyris’ Board of Directors to Lyris’ stockholders under applicable legal requirements, then Lyris and its representatives may (x) furnish, pursuant to (but only pursuant to) a confidentiality agreement which contains provisions that are no less favorable in the aggregate to Lyris than those contained in the confidentiality agreement between Lyris and Buyer, information (including non-public information) with respect to Lyris or any of its subsidiaries to the person making such acquisition proposal; provided that Lyris shall concurrently provide to Buyer any information concerning Lyris or any of its subsidiaries that is provided to any person given such access which was not previously provided to Buyer or its representatives and (y) engage in or otherwise participate in discussions or negotiations with the person making such acquisition proposal.

The term “acquisition proposal” means any proposal or offer from any person (other than Buyer and its affiliates) or “group”, within the meaning of Section 13(d) of the Exchange Act, relating to, in a single transaction or series of related transactions, any (i) acquisition of assets of Lyris and its subsidiaries equal to 20% or more of Lyris’ consolidated assets or to which 20% or more of Lyris’ revenues or earnings on a consolidated basis are attributable, (ii) issuance or acquisition of 20% or more of the outstanding Common Stock, (iii) recapitalization, tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the outstanding Common Stock or (iv) merger, consolidation, amalgamation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Lyris that if consummated would result in any person beneficially owning 20% or more of the outstanding Common Stock, in each case other than the transactions contemplated by the Merger Agreement.

The term “superior offer” means a bona fide written acquisition proposal that our Board of Directors determines, in its good faith judgment, after consultation with its outside legal counsel and its financial advisor of nationally recognized reputation, (i) is reasonably likely to be consummated in accordance with its terms, taking into account all legal, regulatory and financing aspects (including certainty of closing) of the proposal and the person making the proposal and other aspects of the acquisition proposal that our Board of Directors deems relevant, (ii) is not subject to a financing condition, and (iii) if consummated, would result in a transaction more favorable to Lyris’ stockholders (solely in their capacity as such) from a financial point of view than the transaction contemplated by the Merger Agreement; provided that for purposes of the definition of “superior offer”, the references to “20%” in the definition of acquisition proposal shall be deemed to be references to “100%.”

 Termination of the Merger Agreement (see page 61). The Merger Agreement may be terminated prior to the effective time of the Merger (whether before or after the adoption of the Merger Agreement by the requisite stockholder approval, except as otherwise expressly noted):

Termination Fee (see page 62). If the Merger Agreement is terminated by Lyris in connection with a superior offer or by Buyer in connection with a withdrawal by the Board of Directors of Lyris of its recommendation in favor of the Merger or in certain other specified circumstances, the Merger Agreement provides that Lyris must pay Buyer a termination fee of $400,000. See “The Merger Agreement — Termination Fee” beginning on page 62.

Guarantee

In order to induce Lyris to enter into the Merger Agreement, on May 4, 2015, the Fund executed a guarantee in favor of Lyris, which we refer to as the Guarantee, in which the Fund agreed to guarantee the due and punctual performance and discharge by Buyer of its payment obligations to Lyris under the provisions of the Merger Agreement governing damages for fraud if, as and when those obligations become payable under and in accordance with the terms of the Merger Agreement, provided that in no event shall the Fund’s liability for any amount that becomes payable exceed $1.35 million.

The Guarantee is attached as Annex C to this proxy statement. For a more complete description of the Guarantee, see “The Merger — Guarantee” beginning on page 35 for additional information.

The Voting Agreement

 As a condition and material inducement to Buyer’s willingness to enter into and perform its obligations under the Merger Agreement, William T. Comfort III, LDN Stuyvie Partnership, Lyr, Ltd., 65 BR Trust and Meudon Investments, which we refer to collectively as the Principal Lyris Stockholders, entered into a voting agreement with Buyer, pursuant to which the Principal Lyris Stockholders will, among other things, vote all shares of the Common Stock owned by them in favor of the Merger and the adoption of the Merger Agreement. As of May 4, 2015, approximately 70.6% of the outstanding shares of the Lyris’ Common Stock and Preferred Stock (on an as-converted to Common Stock basis) are subject to the Voting Agreement.

 Under the terms of the Voting Agreement, each of the Principal Lyris Stockholders irrevocably appointed Buyer and any senior executive officer thereof, as its proxy to vote in the manner described above all shares of Lyris’ outstanding Common Stock and Preferred Stock held by each such stockholder. In addition, the Principal Lyris Stockholders agreed, subject to certain exceptions, not to transfer any of the shares owned by them, enter into any agreement, arrangement or understanding (other than with Buyer), or knowingly take any other action that violates or conflicts with the Lyris principal stockholder’s representations, warranties, covenants and obligations under the Voting Agreement, or take any action that could restrict or otherwise affect the Principal Lyris Stockholders’ legal power, authority and right to comply with and perform the covenants and obligations under the Voting Agreement.

The obligations of the Principal Lyris Stockholders under the Voting Agreement continue until the earliest to occur of (a) the termination of the Merger Agreement in accordance with its terms, (b) the closing of the Merger, (c) the delivery of written notice of termination by any of the Principal Lyris Stockholders to Buyer following the date of any modification, waiver, change or amendment of the Merger Agreement executed after the date of the Voting Agreement, in each case, that results in (i) a decrease in the consideration payable to such stockholder with respect to the Merger or (ii) a change in the form of consideration payable to such stockholder with respect to the Merger effected without the prior written consent of such stockholder, and (d) the delivery of written notice by Buyer to such stockholder of termination of the Voting Agreement.

The Voting Agreement is attached as Annex D to this proxy statement. For a more complete description of the Voting Agreement, see “The Voting Agreement” beginning on page 66.

Interests of Our Directors and Executive Officers in the Merger.

Some of our executive officers and the members of our Board of Directors have interests in the Merger that are different from, or in addition to, the interests of Lyris and our stockholders generally.

These interests include:

For a more detailed discussion of these interests, see “Interests of Our Directors and Executive Officers in the Merger” beginning on page 35.

The Special Meeting of Lyris Stockholders

 See “Questions and Answers about the Special Meeting and the Merger” beginning on page 8 and “The Special Meeting” beginning on page 48.

 Other Important Considerations

 Board Recommendation. Our Board of Directors recommends that Lyris stockholders vote “FOR” the adoption of the Merger Agreement, and “FOR” the adjournment of the Special Meeting, if necessary, to solicit additional proxies. See “The Merger — Reasons for the Special Committee’s Recommendation” beginning on page 25.

 Reasons for the Merger. For a discussion of the material factors considered by the Special Committee of our Board of Directors comprised of independent members, which we refer to as the Special Committee, and our Board of Directors in reaching their conclusions and the reasons why our Board of Directors determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders, see “The Merger — Reasons for the Special Committee’s Recommendation” beginning on page 25.

 Share Ownership of Directors and Executive Officers. See “Security Ownership of Certain Beneficial Owners and Management” beginning on page 71.

Opinion of Duff & Phelps, LLC.

Pursuant to an engagement letter dated December 22, 2014, as amended pursuant to addenda dated January 4, 2015, February 17, 2015 and May 1, 2015, the Special Committee retained Duff & Phelps, LLC, which we refer to as Duff & Phelps, to serve as its independent financial advisor to provide an opinion in connection with the Merger. The Special Committee retained Duff & Phelps based on Duff & Phelps’ qualifications, reputation and experience in the valuation of businesses and their securities, and its experience in valuing companies in the internet software and services industry. Duff & Phelps is a premier global valuation and corporate finance advisor that is regularly engaged to provide financial advisory services, including fairness opinions and valuation advice in connection with mergers and acquisitions, leveraged buyouts, going-private and recapitalization transactions.

On May 1, 2015, Duff & Phelps delivered a written presentation and its oral opinion, which was subsequently confirmed in writing to the Special Committee on May 4, 2015, that, as of such date, and based upon and subject to the assumptions, limitations and qualifications contained in its opinion, the $0.89 per share to be received by Lyris stockholders pursuant to the Merger Agreement was fair from a financial point of view to all holders of Lyris’ Common Stock other than the Principal Lyris Stockholders, which we, and the Duff & Phelps’ opinion, refer to as the Non-Principal Common Stockholders (without giving effect to any impact of the Merger on any particular stockholder other than in its capacity as a stockholder). Duff & Phelps has provided its written consent to the reproduction of its opinion in this proxy statement.

The full text of Duff & Phelps’ written opinion, dated May 4, 2015, which sets forth, among other things, certain assumptions made, certain matters considered, and certain limitations on the review undertaken in connection with the opinion, is attached as Annex E and is incorporated herein by reference. The opinion expressed by Duff & Phelps was provided for the information and assistance of the Special Committee in connection with its consideration of the Merger, and such opinion does not constitute a recommendation as to any action that any Lyris stockholder should take in connection with the Merger and is not a recommendation as to how any stockholder should vote or otherwise act in connection with the Merger. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving at that opinion.

See “Opinion of Duff & Phelps, LLC” beginning on page 28.

 Tax Consequences (see page 43). This proxy statement does not address the tax consequences to the Principal Lyris Stockholders. The Merger generally will be a taxable transaction to U.S. holders of our Common Stock. As a result, assuming you are a U.S. holder, any gain you recognize as a result of the Merger generally will be subject to U.S. federal income tax and also may be taxed under applicable state, local or other tax laws. For U.S. federal income tax purposes, our stockholders who are U.S. persons generally will recognize taxable gain or loss as a result of the Merger measured, on a block by block basis, by the difference, if any, between the amount of cash received in the Merger for such block of shares, and the aggregate adjusted tax basis in that block of shares. See “The Merger – Certain Material U.S. Federal Income Tax Considerations for U.S. Holders of our Common Stock” for a more detailed explanation of the tax consequences of the Merger. You should consult your tax advisor on how specific tax consequences of the Merger apply to you.

 Appraisal Rights (see page 40). Shares of Common Stock and Preferred Stock that are outstanding immediately prior to the Merger and held by any dissenting stockholder who properly perfects his, her or its appraisal rights will not be converted into the right to receive the Merger Consideration or the Preferred Consideration, as applicable. Instead, the dissenting stockholder will be entitled to an appraisal and payment for his, her or its dissenting shares in accordance with and subject to Section 262 of the Delaware General Corporation Law, which we refer to as the DGCL. In addition, a copy of Section 262 of the DGCL is attached as Annex F to this proxy statement.

Stockholder Litigation (see page 47). As of the date of this proxy statement, we not aware of any lawsuits that have been filed relating to the Merger or the Merger Agreement.

Subscription for Shares in Buyer (see page 40). In connection with the Merger, Aurea subscribed for an aggregate of 500 shares of common stock, par value $0.0001 per share, of Buyer at $10.00 per share, which is intended to reflect the fair market value of the shares at the effective time of the Merger.  Such shares represent 50% of Buyer’s outstanding common stock. In addition, the Non-Aurea LY Stockholders collectively subscribed for an aggregate of 500 shares of common stock, par value $0.0001 per share, of Buyer at $10.00 per share, which is intended to reflect the fair market value of the shares at the effective time of the Merger.  Such shares represent 50% of Buyer’s outstanding common stock. Upon the consummation of the Merger, Lyris will become a subsidiary of Aurea. Buyer required the Non-Aurea LY Stockholders to enter into the foregoing arrangement as a condition to the entering into the Merger Agreement in order for Buyer to be able to preserve certain tax attributes of Lyris.

The Subscription Agreements are attached as Annex G to this proxy statement. For a more complete description of the Subscription Agreements, see “Certain Relationships between Buyer and Lyris — Subscription for Shares in Buyer” beginning on page 46 for additional information. The Non-Aurea Stockholders entered into the foregoing agreements because they were a pre-condition of Aurea in order for Buyer to enter into an agreement with Lyris. See “The Merger — The Background of the Merger” beginning on page 15. See also “Opinion of Duff & Phelps, LLC — Valuation of Equity Interests Purchased by Non-Aurea LY Stockholders” beginning on page 28 for the analysis of Duff & Phelps that the fair market value of shares of Buyer purchased by the Non-Aurea LY Stockholders was nominal.

Indemnification Rights Agreement (see page 40). Concurrently with the execution of the Merger Agreement, Lyris entered into a waiver of indemnification rights agreement with William T. Comfort III, who we refer to as Comfort, pursuant to which Comfort, on his own behalf, on behalf of any affiliate and on behalf of any person or entity having a claim directly or indirectly through Comfort against Lyris, among other things, waived his right to indemnification, contribution or reimbursement of expenses from Lyris, its affiliates or any of their respective former, current or future directors, officers, managers, equityholders, agents and other representatives in connection with that certain lawsuit filed on February 14, 2012 in the United States District Court for the District of Maryland by David R. Burt and Janet H. Burt against certain current and former directors, officers and Lyris stockholders, which we refer to as the Burt Litigation, and provided an indemnity and a financial backstop to Lyris in the event that Lyris is obligated to indemnify any director or officer defendants in connection with the Burt Litigation under any indemnification agreements with Lyris.

The Indemnification Rights Agreement is attached as Annex H to this proxy statement. For a more complete description of the Indemnification Rights Agreement, see “The Merger — Potential Payments upon Termination or Change in Control — Indemnification Rights Agreement” and “Certain Relationships between Buyer and Lyris — Indemnification Rights Agreement” beginning on page 40 and page 46, respectively, for additional information.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that may be important to you as a Lyris stockholder. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, all of which you should read carefully. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 74.

In connection with the Merger Agreement, the Principal Lyris Stockholders entered into the Voting Agreement with Buyer pursuant to which the Principal Lyris Stockholders agreed, among other things, to vote all shares of the Common Stock and Preferred Stock owned by them in favor of the Merger and the adoption of the Merger Agreement. As of May 4, 2015, approximately 70.6% of the outstanding shares of Common Stock and Preferred Stock (on an as-converted to Common Stock basis) are subject to the Voting Agreement. Therefore, unless the Voting Agreement is terminated, the Merger Agreement will be adopted at the Special Meeting.

Written notices of revocation and other communications with respect to revocation of any proxies should be addressed to: Corporate Secretary, Lyris, Inc., 6401 Hollis Street, Suite 125, Emeryville, CA 94608.

If you have instructed a bank, broker or other nominee to vote your shares, you must follow directions received from your bank, broker or other nominee to change those instructions. You cannot vote shares held in “street name” by returning a proxy card directly to us or by voting in person at the Special Meeting, unless you obtain a legal proxy card from your bank, broker or other nominee.

If your shares are held through a bank, brokerage firm or other nominee, you are considered the beneficial owner of our shares held in street name. In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee which may be, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee as to how to vote your shares by following their instructions for voting.

If you are a current or former employee of Lyris or any of its subsidiaries, please note that the number of shares set forth on your proxy card represents all of the shares that you hold of record and all of the shares that are allocated to your account pursuant to Lyris’ 2005 Equity-Based Compensation Plan, as amended. When you return the proxy card, you are voting all of such shares as a group.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 This proxy statement, and the documents to which we refer you in this proxy statement, include forward-looking statements. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “The Merger,” “The Special Meeting,” “Certain Financial Projections,” “Opinion of Duff & Phelps, LLC”. Statements that are not historical facts, including statements about beliefs or expectations, are forward-looking statements. These statements are based on plans, estimates and projections at the time Lyris makes the statements, and readers should not place undue reliance on them. In some cases, readers can identify forward-looking statements by the use of forward-looking terms such as “anticipates,” “believes,” “contemplates,” “continues,” “could,” “estimates,” “expects,” “forecasts,” “likely,” “may,” “predict,” “potential,” “projects,” “should,” “will,” “intends,” “plan” or “would” or the negative of these terms or other similar words or phrases. Forward-looking statements involve inherent risks and uncertainties, including, among others:

 In addition, we are subject to risks and uncertainties and other factors detailed in our filings with the SEC, including our Annual Report on Form 10-K for the year ended June 30, 2014 and in subsequent filings with the SEC, which should be read in conjunction with this proxy statement. See “Other Matters — Where You Can Find More Information” on page 74. Readers are cautioned not to place undue reliance on the forward-looking statements included in this proxy statement, which speak only as of the date hereof. Except as may be required by applicable law, we do not undertake to update any of these statements in light of new information or future events.

THE PARTIES TO THE MERGER

 Lyris, Inc.

 Lyris is a Delaware corporation with headquarters in Emeryville, CA. We are a provider of digital marketing software solutions delivered on a flexible integration framework that help organizations engage with their customers across multiple interactive channels. Our solutions empower marketers to design, automate and optimize data-driven messaging campaigns that maximize revenue, accelerate time-to-market and reduce total cost of ownership. Our principal executive offices are located at 6401 Hollis Street, Suite 125, Emeryville, CA 94608, and our telephone number is (800) 768-2929. For more information about us, please visit our website at www.lyris.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated herein by reference. Our common stock is publicly traded on the OTCBB.

LY Acquisition Corp.

LY Acquisition Corp. is a Delaware corporation that was formed solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities except in furtherance of the purpose of effecting the Merger.

In connection with the Merger, Aurea purchased 50% of the outstanding common stock of Buyer and, in order to preserve certain tax attributes of Lyris, the Lyris stockholders who held a controlling interest in Lyris, which we refer to as the Non-Aurea LY Stockholders, were required to purchase the remaining 50% of the outstanding common stock of Buyer. In addition, concurrently with the execution of the Merger Agreement, the Non-Aurea LY Stockholders were required to enter into the Voting Agreement and Irrevocable Proxy with Buyer as a condition to Aurea entering into the proposed transactions. Under the terms of the Voting Agreement and Irrevocable Proxy, each Principal LY Stockholder irrevocably granted and appointed an individual designated by Aurea as its proxy and attorney-in-fact to vote all shares of such Principal LY Stockholder’s common stock owned by it at any meeting of the Lyris stockholders, at any adjournment thereof or in any other circumstances upon which a vote, agreement, consent (including unanimous written consents) or other approval is sought. The Non-Aurea Stockholders entered into the foregoing agreements because they were a pre-condition of Aurea in order for Buyer to enter into an agreement with Lyris. See “The Merger — The Background of the Merger” beginning on page 15.

THE MERGER

 The discussion of the Merger and the Merger Agreement contained in this section summarizes certain material terms of the Merger and the Merger Agreement. Although we believe that the description covers the material terms of the Merger and the Merger Agreement, this summary may not contain all of the information that is important to you. We urge you to read this proxy statement, the Merger Agreement, a copy of which is attached to this proxy statement as Annex A, and the other documents referred to herein (including the annexes) carefully for a more complete understanding of the Merger and the Merger Agreement.

 Background of the Merger

 Lyris is a provider of digital marketing software solutions delivered on a flexible integration framework that help organizations engage with their customers across multiple interactive channels. Its solutions empower marketers to design, automate and optimize data-driven messaging campaigns that maximize revenue, accelerate time-to-market and reduce total cost of ownership.

On May 6, 2013, Lyris entered into a revolving line of credit of up to $5.0 million with Silicon Valley Bank. The Silicon Valley Bank revolving line was initially set to mature on May 6, 2015.

Lyris reached peak total revenues of $43.4 million in 2009. Lyris revenues have declined steadily every year since then to $29.4 million for the twelve months ended December 31, 2014. Lyris implemented reductions in force in 2010 and 2011. Despite significant headcount reductions, the continued decline in revenue resulted in cash operating losses (after adjusting for capitalized software costs) and Lyris experienced significant customer turnover. Without the ability to make significant investments in product development, increase its sales force or make more meaningful cost reductions, Lyris expects revenue to continue declining and losses to grow larger. Continued financial losses have constrained Lyris’ ability to make the investments necessary to turn the business around without a substantial capital infusion and limited Lyris’ borrowing capacity. At March 31, 2015, Lyris had $1.3 million in cash. On May 15, 2015, Lyris announced that its fiscal third quarter revenues were $6.8 million, as compared to $7.2 million in the prior quarter and $7.6 million in the same period last year, fiscal third quarter loss from operations was $831,000, compared to loss from operations of $45,000 in the same period last year and fiscal third quarter adjusted EBITDA was $273,000, compared to adjusted EBITDA of $882,000 in the same period a year ago.

On September 19, 2014, Lyris’ Board of Directors, which we refer to as the Board of Directors had a telephonic meeting to discuss alternative strategic options regarding the future of Lyris in light of, among other things, its financial condition. During the meeting, a representative of Cooley LLP, which we refer to as Cooley, reviewed the Board of Directors’ fiduciary duties in the context of considering the sale of Lyris. At the meeting, the Board of Directors resolved to appoint a Special Committee of the Board of Directors, which we refer to as the Special Committee, comprised of independent directors Mr. David Wang and Mr. Paul Hoffman, to review alternative strategic options, including a sale of Lyris, and to address any actual or potential conflicts of interest that might arise from the existence of the Principal Lyris Stockholders and their controlling equity interest in Lyris. The Board of Directors delegated to the Special Committee, among other things, the authority to review, evaluate and negotiate the terms and conditions of potential strategic transactions, determine on behalf of the Board of Directors whether the potential strategic transaction is advisable and in the best interests of Lyris and its stockholders and reject or approve the proposed strategic transaction. Further, the Board of Directors would not be permitted to authorize the proposed strategic transaction without a prior favorable recommendation by the Special Committee.

On October 6, 2014, Lyris engaged Armory Securities, or Armory, to assist Lyris in exploring alternative strategic options, including the potential sale of Lyris. Armory, together with Lyris’ management, identified a target list of potential financial and strategic buyers.

Beginning in September 2014, Armory and/or Lyris’ management contacted 37 potential financial and strategic buyers. Of the 37, six executed non-disclosure agreements and four, including, Versata Enterprises, Inc., who we refer to as Versata, a private investment fund and an affiliate of Aurea, Company A and Company B expressed a desire to conduct due diligence. After conducting limited diligence, the fourth potential buyer decided not to pursue the opportunity further.

On September 27, 2014, representatives of Lyris had an electronic communication with representatives of Company B to set up a due diligence meeting. Company B expressed an interest in only a stock-for-stock acquisition.

On September 29, 2014, a financial sponsor backing Company A entered into a confidentiality agreement with Lyris. On October 21, 2014, Company A signed a joinder to the confidentiality agreement.

On September 30, 2014, representatives of Lyris had a due diligence meeting with representatives of Company B.

On October 16, 2014, representatives of Lyris participated in a technical due diligence session with representatives of Company B.

On October 20, 2014, the Board of Directors of Lyris held a telephonic meeting. At the meeting, representatives of management provided an update of the process. During the meeting, a representative of Cooley again reviewed the Board of Directors’ fiduciary duties in the context of considering the potential sale of Lyris, advised the Board of Directors to disclose any relation to potential acquirers and reviewed the independence of the Special Committee. The Special Committee members confirmed that they did not have any relationship with the Lyris Principal Stockholders and confirmed their independence.

Between October 20, 2014 and October 30, 2014, representatives of Lyris and representatives of Versata had discussions regarding exploring a potential transaction and negotiated a confidentiality agreement.

On October 30, 2014, Versata entered into a confidentiality agreement with Lyris.

On October 30, 2014, the Board of Directors held a telephonic meeting with representatives of management present. At the meeting representatives of management and the Special Committee provided an update of the process. Representatives of management also discussed Lyris’ financial condition and forecasts that indicated liquidity constraints beginning in February and March 2015.

On November 5, 2014, Lyris provided Versata access to information regarding certain of Lyris’ tax attributes.

On November 6, 2014, Lyris provided Versata access to an electronic data room.

On November 11, 2014, representatives of Armory had a telephonic meeting with representatives of Versata in which Versata indicated continued interest in a strategic transaction with Lyris at an enterprise value ranging from $20 to $25 million.

On November 21, 2014, the Special Committee held a telephonic meeting with representatives of management and Armory present. A representative of Armory provided an update of the process. The Special Committee discussed the engagement of Duff & Phelps, LLC, which we refer to as Duff & Phelps, to provide a fairness opinion on the acquisition consideration and the engagement of Special Committee counsel.

On November 24, 2014, the Special Committee engaged Duane Morris LLP, which we refer to as Duane Morris, as counsel to the Special Committee.

Between November 6, 2014 and November 26, 2014, representatives of Lyris’ management and representatives of Versata engaged in diligence calls and made additional diligence requests, including with respect to Lyris’ customer turnover.

On November 26, 2014, representatives of Armory had a telephonic meeting with a representative of Versata in which the representative of Versata indicated that Versata’s diligence of Lyris, including with respect to the customer turnover, did not support the earlier valuation, and that Versata was willing to proceed with discussions at an enterprise value of $16.5 million.

On December 1, 2014, representatives of Armory had a telephonic meeting with a representative of Versata to discuss Versata proceeding to a letter of intent in connection with its interest in a strategic transaction.

On December 5, 2014, the Special Committee held a telephonic meeting with representatives of Armory present. A representative of Armory provided an update of the process. Representatives of Lyris management also confirmed that, as projected in October 2014, Lyris’ financial condition and forecasts indicated liquidity constraints beginning in February and March 2015. The Special Committee directed Armory to request interested bidders to provide bids expeditiously in light of Lyris’ financial condition and liquidity constraints.

Following the meeting, a representative of Armory contacted Versata, Company A and Company B regarding the submission of bids.

On December 6, 2014, Lyris received a draft letter of intent from Versata which contemplated a cash acquisition of Lyris by a newly formed company, for an enterprise value of $16.5 million on a cash-free and debt-free basis. In order to preserve certain tax attributes of Lyris, the proposed transaction required that the stockholders of Lyris who held a controlling interest in Lyris purchase a significant percentage of the equity interests in the acquiring entity. The letter of intent also required that the Lyris controlling stockholders commit, other than in connection with a superior bid, to vote for the proposed transaction. The draft also indicated that Versata was seeking exclusivity in connection with the proposed transaction.

On December 11, 2014, a representative of Armory had a telephonic meeting with a representative of Versata to discuss transaction valuation and the letter of intent. The representative of Armory communicated that Lyris was running a process and that it would not agree to an exclusivity provision. The representative of Armory also indicated that the principal stockholders did not desire any preferential treatment in connection with the transaction and that the structure, as contemplated, gave the appearance of preferential treatment. The representative of Versata indicated that Versata was unwilling to improve the deal price and that the transaction structure was a prerequisite for continuing discussions regarding a transaction.

On December 15, 2014, Lyris received a revised letter of intent from Versata. The letter of intent included the same enterprise value set forth in the draft letter of intent circulated on December 6, 2014. The letter of intent proposed that the definitive agreement would include a break-up fee of $500,000 that would be payable to Versata under certain circumstances. The letter of intent continued to require that, in order to preserve certain tax attributes of Lyris, the stockholders of Lyris who held a controlling interest in Lyris purchase a significant percentage of the equity interests in the acquiring entity and that, as a condition to executing the definitive agreement, stockholders representing 65% of the outstanding capital stock of Lyris irrevocably commit to a voting agreement in favor of the proposed transaction. Versata’s revised letter of intent did not contain an exclusivity provision.

On December 16, 2014, the Special Committee held a telephonic meeting with representatives of management, Duane Morris, Cooley and Armory participating. Armory updated the Special Committee on the process, the draft letter of intent received from Versata and discussions with Versata relating to the letter of intent. The Special Committee and Duane Morris also discussed the implications of the Lyris Principal Stockholders being required to receive potentially disparate treatment in the transaction. The Special Committee, Duane Morris and Cooley also discussed the feasibility of a establishing the voting requirement for a strategic transaction as a vote of the “majority of the minority.” Representatives of Lyris’ management indicated that based upon the Lyris stockholder base and the volume of trading, obtaining a majority of the minority vote was not realistically achievable. After a deliberation on Lyris’ financial condition and fact that Lyris had only received one letter of intent, despite having reached out to numerous potential bidders, in light of the financial condition of Lyris, the Special Committee authorized management to continue negotiations with Versata.

On December 16, 2014, a representative of Armory had a telephonic meeting with a representative of Company B. The representative of Company B indicated that Company B was interested in a potential strategic transaction that would be structured as a stock-for-stock deal. The representative of Armory responded that in light of the ongoing process, it was imperative that Company B move quickly if it was interested in making an offer for Lyris.

On December 16, 2014, representatives of Cooley and representatives of Goodwin Procter LLP, which we refer to as Goodwin, outside counsel to Versata and Buyer, had a telephonic meeting to discuss the transaction structure that was required by Versata in order to proceed with the process.

On December 16, 2014, Lyris provided Versata with a revised draft of the letter of intent. The revised draft proposed that the definitive agreement would include a break-up fee of $400,000 that would be payable to Versata under certain circumstances and that the voting agreement in favor of Versata only be applicable if the Board of Directors recommend the transaction.

On December 18, 2014, a representative of Armory had a telephonic meeting with a representative of Versata to further discuss the proposed structure and express concerns relating to the value of the equity that the Lyris Principal Stockholders would receive in the acquiring entity. The representative of Armory communicated that a formal valuation of this interest would be necessary to determine if this interest represented significant value because the Special Committee and Lyris’ controlling stockholder had concerns regarding a structure that treated Lyris’ controlling stockholder disparately. Because Versata was requiring the proposed structure, it was requested that Versata provide reimbursement with respect to the fees and expenses associated with such valuation.

On December 18, 2014, Lyris received a letter of intent from Company A. The letter of intent contemplated a cash acquisition for an enterprise value of $20 million, on a cash free and debt free basis, to be funded by a financial sponsor. The letter of intent indicated that a transaction could be executed within 30 to 45 days. The letter of intent requested exclusivity through January 30, 2015 and indicated that the offer would remain open until December 22, 2018.

On December 19, 2014, the Special Committee held a telephonic meeting with representatives of management, Cooley and Armory present. The Special Committee received an update on discussions with Versata on the letter of intent and considered the fiduciary duty issues to be considered in connection with the proposal. The Special Committee also received an update on the letter of intent received from Company A, including the fact that the proposed transaction required involvement by a financial sponsor, which might delay the transaction because of the need to satisfy the diligence obligations of both Company A and the financial sponsor. The Special Committee also considered the fact that Company A and the financial sponsor were in early stages of diligence and had only provided preliminary interest in Lyris. The Special Committee received an update on the status of discussions with Company B and another potential acquirer. In light of the financial condition of Lyris, the Special Committee directed management to continue negotiations with Versata to get to a negotiated definitive agreement as soon as possible while continuing discussions with Company A and the financial sponsor and any other interested party.

On December 22, 2014, the Special Committee engaged Duff & Phelps to render a fairness opinion in connection with a proposed strategic transaction.

On December 22, 2014, Lyris received a final letter of intent from Versata. The letter of intent included an enterprise value of $16.5 million, a break-up fee of $400,000 that would be payable to Versata under certain circumstances and continued to require that in order to preserve certain tax attributes of Lyris, the stockholders of Lyris who held a controlling interest in Lyris purchase a significant percentage of the equity interests in the acquiring entity and that, as a condition to executing the definitive agreement, subject to certain exceptions, stockholders representing 65% of the outstanding capital stock of Lyris irrevocably commit to a voting agreement in favor of the proposed transaction. The letter of intent did not require exclusivity. Lyris agreed to proceed to work towards a definitive agreement based upon the terms of the letter of intent and, on December 27, 2014, Versata delivered to Lyris an executed copy of the letter of intent.

On December 23, 2014, a representative of Armory had a telephonic meeting with a representative of Company B. The representative of Company B indicated that Company B was interested in pursuing a strategic transaction with Lyris but needed additional time to make an offer.

On December 23, 2014, a representative of Armory contacted a representative of Company A and communicated that Lyris was interested in pursuing discussions but was unable to grant the exclusivity requested because Lyris was running a process.

On December 28, 2014, a representative of Armory introduced a representative of Duff & Phelps to a representative of Versata so that Duff & Phelps could commence its valuation of the acquiring entity.

Commencing on December 30, 2014, representatives of Versata conducted extensive diligence on Lyris.

On December 30, 2014, a representative of Armory had discussions with a representative of Company A to discuss alternatives to exclusivity and the representative of Company A indicated that Company A would consider exploring a transaction if Lyris reimbursed it for certain fees and expenses if Company A did not enter into a definitive agreement with Company A.

On December 31, 2014, Cooley circulated an initial draft of a merger agreement to counsel to Versata and Buyer. The draft contemplated a one-step merger and permitted Lyris’ Board of Directors, under certain circumstances, to change its recommendation in connection with a superior offer and a change in circumstances as a result of certain intervening events and did not require Lyris to submit the agreement to the stockholders for adoption in the event of a change in the Board of Directors’ recommendation.

On January 6, 2015 and January 7, 2015, Goodwin circulated revised drafts of the merger agreement to Cooley. The draft limited the circumstances under which Lyris’ Board of Directors could change its recommendation in connection with the termination of the definitive agreement to accept a superior offer. In addition, Lyris was obligated to submit the agreement to the stockholders for adoption unless the agreement was terminated. The agreement did not contemplate an equity commitment and provided that the guarantee of the financial sponsor would be limited to ten percent of the purchase price.

On January 6, 2015, Goodwin also circulated to a representative of Armory, for further distribution to the Lyris Principal Stockholders, a draft subscription agreement and voting and proxy agreement, documents that Versata required in connection with the principal stockholder’s purchase of equity in the acquiring entity. The draft documents also included a grant of proxy by the principal stockholders with respect to all voting matters related to the acquiring company to a representative of the financial sponsor.

On January 7, 2015, Goodwin circulated to Cooley a draft of the voting agreement that Versata was requiring from the principal stockholders and the guarantee from the financial sponsor. The draft voting agreement was further distributed to the Lyris Principal Stockholders.

Between January 6, 2015 and January 27, 2015, representatives of Lyris, Cooley and Armory, on the one hand, and representatives of Versata and Goodwin, on the other hand, exchanged drafts of the merger agreement, the guarantee and a commitment letter from the financial sponsor and negotiated these agreements. During this time, Versata also conducted extensive diligence on Lyris. During the course of its diligence, Versata stipulated to Lyris that entering a definitive agreement would be contingent upon certain principal stockholders mitigating risks related to an ongoing litigation involving them and certain other current and former officers and directors of Lyris that might trigger company indemnity obligations, by waiving indemnity rights and providing a financial backstop in connection with such matter.

On January 6, 2015, the Special Committee held a telephonic meeting with representatives of Armory and Cooley present. A representative of Armory provided an update on the status of discussions with Versata, Company A and Company B. The Special Committee directed management to continue diligence efforts with all three parties. The Special Committee also discussed potential alternatives to the transaction structure presented by Versata in response to concerns that the principal stockholders might be potentially viewed as getting disparate treatment and the fact that William T. Comfort III had significant concerns about the contractual obligations and indemnity waivers being required. The Special Committee was informed by representatives of management, Armory and Cooley that Versata did not indicate flexibility with respect to its proposed structure. The Special Committee also discussed Company A’s request to be reimbursed for legal fees under certain circumstances if Lyris did not enter into a definitive agreement with Company A. The Special Committee directed management to continue negotiations with Versata on the definitive agreement. The Special Committee also directed management to continue negotiations with Company A on the letter of intent even if it included a reimbursement obligation because the bid from Company A was a higher value all cash bid than the one presented by Versata, offered the same consideration to all common stockholders and could be effected through a cash tender offer which would result in a shorter time to consummate of the transaction.

Between January 1, 2015 and January 8, 2015, Lyris and representatives of Armory, on the one hand, and Company A, on the other hand, had discussions regarding reimbursement for certain fees and expenses of Company A if Lyris did not enter into a definitive agreement with Company A. On January 8, 2014, Company A delivered a letter of intent which reflected an agreed upon reimbursement of up to $200,000 for fees and expenses if, under certain circumstances, Lyris did not enter into a definitive agreement with Company A.

On January 10, 2015, Company A commenced diligence on Lyris.

On January 16, 2015, in a telephonic meeting, a representative of Company B communicated to a representative of Armory that Company B would submit a letter of intent.

On January 16, 2015, the Special Committee held a telephonic meeting with representatives of Armory, Duane Morris and Cooley present. A representative of Armory provided an update that Versata was proceeding with negotiations, Company A was actively continuing diligence and the Company B was still interested but was not moving quickly. The representative of Armory also indicated interest from a fourth party but indicated this party would not be able to progress quickly.

On January 18, 2015, Cooley circulated an initial draft of a merger agreement to Company A. The draft contemplated a two-step merger and permitted Lyris’ Board of Directors, under certain circumstances, to change its recommendation in connection with a superior offer and a change in circumstances as a result of intervening events.

On January 22, 2015, Lyris received a letter of intent from Company B. The letter of intent contemplated an acquisition for a fixed number of shares, with an adjustment for cash and indebtedness, of Company B but did not provide for a fixed enterprise value. The structure contemplated a registration of Company B’s securities on a Form S-4 registration statement and required that the Lyris controlling stockholder enter into a voting agreement committing to vote in favor of the transaction. The letter of intent also required that Lyris agree to a 45-day exclusivity period. On January 22, 2015, based upon Company B’s stock price on that day, the offer represented an enterprise value of $18.1 million.

On January 26, 2015, Company A delivered a revised letter of intent to Lyris which contemplated an acquisition for an enterprise value of $17.2 million and reimbursement of up to $200,000 for fees and expenses if, under certain circumstances, Company A did not enter into a definitive agreement with Company A. A representative of Company A communicated to a representative of Armory that the reduction in valuation was a result of diligence, including diligence on the customer tunrover and ongoing litigation involving certain Principal Lyris Stockholders and certain other current and former officers and directors of Lyris that might trigger company indemnity obligations. Company A further indicated that it might be in a position to sign a definitive agreement within a couple of weeks.

On January 27, 2015, the Special Committee held a telephonic meeting with representatives of management, Armory, Cooley and Duane Morris present. A representative of Armory provided an update on the process. The Special Committee was informed that while discussions with Versata were proceeding, the disparate treatment of the Lyris Principal Stockholders and other contractual requirements being made of the principal stockholders was problematic to the principal stockholders. The Special Committee was notified that Company B was moving forward with its offer but that a decline in the value of Company B’s stock resulted in a transaction enterprise value of $16.2 million. The Special Committee determined that the lack of liquidity in Company B’s stock was a real concern and that the all stock offer from Company B would have to be an appropriate premium to the other cash offers to be considered. The Special Committee was also notified that Company A had reduced its initial offer of a $20 million enterprise value to a $17.2 enterprise value as a result of diligence findings. Despite the price reduction, the all cash structure, higher enterprise value and lack of disparate treatment of the Lyris Principal Stockholders, resulted in the Special Committee determining that the proposal from Company A was the superior alternative.

On January 28, 2015, Cooley received a markup of the merger agreement from counsel to Company A.

Between January 28 and February 1, 2015, Lyris and its representatives, including Cooley and Armory, on the one hand, and Company A and its representatives, on the other hand, had discussions regarding the merger agreement markup and the transaction structure. Among other things, Company A proposed a new structure which contemplated a merger agreement which would be approved by the Lyris controlling stockholders via an action by written consent to be executed within 24 hours of signing the merger agreement.

On January 29, 2015, at the direction of the Special Committee, a representative of Armory had a telephonic meeting with a representative of Company B and communicated that the offer was inadequate and that Company B needed to increase the stock consideration in connection with the transaction.

On January 30, 2015, representatives of Lyris held a business due diligence session with representatives of Company B.

On February 2, 2015, the Special Committee held a telephonic meeting with representatives of management, Armory, Cooley and Duane Morris present. A representative of Cooley provided an update on the new structure proposed by Company A which contemplated a merger agreement which would be approved by certain Principal Lyris Stockholders via an action by written consent to be executed within 24 hours of signing the merger agreement. Duane Morris discussed the fiduciary duty issues related to this structure that would prevent Lyris from accepting a superior bid after the Lyris controlling stockholders approve the transaction. Duane Morris also reviewed the process to date and the Board of Directors’ and Special Committee’s actions towards running a process. The Special Committee directed management and Armory to continue to negotiate the price. The Special Committee directed Cooley and management to communicate to Company A and its counsel that the Special Committee was willing to consider the proposed structure but that Lyris would need at least three business days following execution of the definitive agreement and receipt of the stockholder consent to allow a superior bid to be made.

On February 3, 2015, Lyris received a revised letter of intent from Company B. The letter of intent provided for an increase in the fixed number of shares to be issued in connection with the proposed transaction, but was otherwise substantially similar to the January 22, 2015 offer. On February 3, 2015, based upon Company B’s stock price on that day, the offer represented an enterprise value of $18.6 million.

On February 4, 2015, at the direction of the Special Committee, a representative of Armory provided a markup of the letter of intent to Company B. Among other things, the markup rejected the exclusivity period.

Between February 2, 2015 and February 5, 2015, a representative of Armory and a representative of Lyris had discussions regarding the transaction structure and the deal valuation. On February 5, 2015, Company A delivered a revised letter of intent to Lyris. The letter of intent contemplated an enterprise value of $17.75 million and required exclusivity through February 20, 2015 as a condition to continuing discussions with Lyris and reimbursement of up to $200,000 for fees and expenses if, under certain circumstances, Lyris did not enter into a definitive agreement with Company A.

On February 5, 2015, the Special Committee held a telephonic meeting with representatives of management, Armory, Duane Morris and Cooley present.  The representative of Armory provided an update on the discussions with Company A and the terms of the revised letter of intent, including the increase in valuation to an enterprise value of $17.75 million, the request for a two-week exclusivity period and the request for reimbursement of up to $200,000, under certain circumstances, in the event a definitive agreement was not executed.  The Special Committee determined that in light of the proposed enterprise value and the financial condition of Lyris, Lyris should agree to the proposed exclusivity period and the expense reimbursement requirement.  The Special Committee also discussed the letter of intent from Company B.  Since the consideration from Company B was stock-based and Company B did not have sufficient trading volume, the Special Committee did not view this offer as favorably as the offer from Company A.

On February 6, 2015, Lyris and Armory ceased discussions with Versata and Company B.

On February 6, 2015, Lyris entered into an exclusivity agreement through February 20, 2015 with Company A.

From February 6 to February 20, 2015, Company A and its financial sponsor and their representatives conducted diligence on Lyris, including with respect to the ongoing litigation involving certain principal stockholder and certain current and former officers and directors of Lyris that might trigger Company indemnity obligations. During this period, Company A and its financial sponsor and their representatives, on the one hand, and Lyris and its representatives, on the other hand, negotiated the merger agreement and ancillary documents.

On February 12, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. Representatives of Cooley and management provided an update on Company A’s and its financial sponsor’s diligence efforts. A representative of Cooley then provided a summary of Company A’s response draft merger agreement. The Special Committee directed Cooley to continue to negotiate to finalize the merger agreement.

On February 17, 2015, the Special Committee held a telephone meeting with representatives of management, a representative of Armory, Duane Morris and Cooley present. A representative of Armory provided an update on the process with Company A and management provided an update on certain diligence matters. The Special Committee was informed of timing issues in executing a definitive agreement in light of the expiration of the exclusivity agreement with Company A.

On February 20, 2015, the exclusivity agreement with Company A expired without a definitive agreement being executed.

On February 20, 2015, Company A and its financial sponsor indicated that, in order to proceed with the transaction, they would require certain principal stockholders to provide an indemnity in connection with the ongoing litigation involving certain principal stockholders and certain current and former officers and directors of Lyris.

On February 20, 2015, a representative of Armory had a telephonic discussion with Mr. Comfort in which Mr. Comfort agreed, subject to reaching satisfactory agreement, to waive certain indemnity rights and provide certain indemnities in connection with an ongoing litigation involving certain principal stockholders and certain current and former officers and directors of Lyris. Subsequently, counsel to Mr. Comfort commenced the process of negotiating a waiver of indemnity rights.

On February 20, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. A representative of Armory provided an update on the discussions with Company A and proposed resolution of diligence open points. The Special Committee directed management and Cooley to proceed with solutions to resolve diligence concerns.

On February 21, 2015, Company A delivered an extension to the exclusivity agreement, extending the exclusivity period through February 27, 2015. Lyris did not execute the requested extension but expressed urgency in reaching a definitive agreement as soon as possible and continued to engage in discussions with Company A and its financial sponsor to address open issues.

On February 24, 2015, Company A delivered an extension to the exclusivity agreement, extending the exclusivity period through February 27, 2015. Lyris did not execute the requested extension but continue to express urgency in reaching a definitive agreement as soon as possible and continued to engage in discussions with Company A and its financial sponsor to address open issues.

On February 27, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. A representative of Armory provided an update on the discussions with Company A and the proposed resolution of open issues. The Special Committee directed management and Cooley to proceed with solutions to resolve diligence concerns.

Between February 27, 2015 and March 5, 2015, Lyris and its representatives, on the one hand, and Company A and its financial sponsor, on the other hand, worked on the resolution of open issues.

On March 5, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. A representative of Armory provided an update on the discussions with Company A and the proposed resolution of open issues. The Special Committee expressed concern with the delayed timing of the execution of a definitive agreement in light of the financial condition of Lyris and discussed potentially reengaging with other bidders. The representatives of Lyris indicated to the Special Committee that Company A and its financial sponsor appeared to be in the final stages of the process.

On March 9, 2015, Company A delivered a revised letter of intent which contemplated an enterprise value of $18.05 million. The letter of intent targeted a signing date of March 17, 2015 and requested exclusivity through such date. Lyris did not execute the requested extension but required that Company A provide a timeline to get to the target close date.

From March 9, 2015 through March 13, 2015, Lyris and its representatives worked towards finalizing a transaction with Company A, including responding to open diligence issues, negotiating a commitment letter from the financial sponsor and negotiating the merger agreement open issues.

On March 10, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. A representative of Armory provided an update on the latest letter of intent delivered by Company A and the target execution date of March 17, 2015 and indicated that the delay in timing was due to certain funding delays on the part of the financing sponsor. It was communicated that although the enterprise value had improved slightly it would not improve the price per share because of changes in Lyris’ debt position. The Special Committee directed the representatives to reject the request for exclusivity. Representatives of Lyris’ management indicated that they believed that Company A and its financial sponsor remained committed to the transaction.

On March 13, 2015, a representative of Company A’s financial sponsor contacted a representative of Armory and communicated that the financial sponsor was no longer backing the transaction and that the financial sponsor was no longer going to participate in the sale process.

From March 13, 2015 through April 3, 2015, representatives of the management of Lyris and representatives of Armory had discussions with representatives of Company A to assess whether Company A could engage in a transaction without a financial sponsor. Company A indicated that it was interested in exploring alternatives.

On March 13, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. A representative of Armory provided the update that Company A’s financial sponsor had backed out of the process and that Company A remained interested in exploring alternatives. The Special Committee directed the representatives of Lyris to re-open discussions with Versata and other potentially interested parties and to notify the Lyris controlling stockholder of the developments to enable the Lyris controlling stockholder to re-engage in a transaction with Versata.

Between March 13, 2015 and March 17, 2015, representatives of Armory and Company A had discussions regarding potential alternative structure in connection with a potential transaction and representatives of Armory contacted Versata and a strategic third-party to determine their interest in the process.

On March 17, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. A representative of Armory updated the Special Committee on the status of discussions with Company A including alternative financing proposals but noted that the proposals would not deliver immediate value to the stockholders of Lyris. A representative of Lyris’ management provided an update on discussions with Company B and indicated that based upon the pressure on its stock price Company B was unable to pursue a transaction. The representative of Armory indicated that Versata remained interested in a transaction but continued to require the transaction structure previously proposed. The representative of Armory indicated that the transaction structure remained a concern for the principal stockholders who did not want to be afforded any disparate treatment in the transaction. The Armory representative further indicated that Versata was firm that the engagement of the Lyris controlling stockholder and negotiation of the required documents was a pre-condition to executing a deal with Versata. A representative of Lyris then provided an update on the liquidity constraints of Lyris and the need to urgently commence discussions with Silicon Valley Bank to provide an extension to the credit facility to enable sufficient time to pursue and potentially complete a strategic transaction. The representative also noted the impact that cash conservation would continue to have on retention effects. Counsel to the Special Committee discussed the assessment of the proposed Versata structure in the context of the serious liquidity issues Lyris would face if a strategic transaction was not consummated. Representatives of Lyris also discussed that a new strategic third party was potentially interested but noted that this party did not have financing for a deal and would not be able to move quickly enough given Lyris’ liquidity constraints. In light of the lack of alternatives and the fact that Company A was unable to deliver immediate value to the stockholders, the Special Committee directed the representatives of Lyris and Armory to continue to pursue all alternatives, including discussions with Versata.

On April 3, 2015, Company A communicated to Mr. Philpin, Chief Executive Officer of Lyris, that the stockholders of Company A were not supportive of a transaction with Lyris and that the Company A was no longer going to participate in the process.

On April 3, 2015, a representative of Armory contacted a representative of Versata to assess if Versata was still interested in a transaction with Lyris. The representative of Versata indicated that it was interested if a transaction was consummated based upon the previously proposed terms.

On April 6, 2015, a representative of Versata circulated to Lyris and its representatives, drafts of the merger agreement and related transaction documents as they stood at the time discussions and negotiations regarding the proposed transaction ceased in February. These included documents that the Lyris controlling stockholder was required to enter into in connection with the transaction, including Versata’s requirement that certain principal stockholders purchase equity in the acquiring entity as a condition to Versata entering into the acquisition agreement, Versata’s requirement that such principal stockholders provide an affiliate of the acquiring entity proxy to vote all their equity in the acquiring entity on a go-forward basis and Versata’s requirement that the Lyris controlling stockholder waive certain indemnity rights in connection with an ongoing litigation and provide a financial backstop to Lyris in the event Lyris is obligated to indemnify any other officer or director defendant in connection with such litigation. These documents also included the voting agreement that certain principal stockholders were being required to execute in support of the adoption of the merger agreement. A representative of Lyris distributed the applicable documents to Mr. Comfort.

On April 9, 2015, at the request of a representative of Armory, a representative of Versata provided a representative of Armory additional details regarding the structure of the acquiring entity with regard to equity ownership between the principal stockholders and Aurea and the proxy granted by the principal stockholders to an affiliate of Aurea.

On April 10, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. Prior to the Special Committee meeting, the Special Committee had instructed counsel to the Special Committee to review the details regarding the requirements being imposed on the Lyris controlling stockholder, in light of the concerns that the Lyris controlling stockholder had with regards to the transaction. Counsel to the Special Committee reviewed the Special Committee’s fiduciary duties in the context of the financial condition of Lyris. The Special Committee discussed the fact that the principal stockholders had not sought out the disparate treatment required by the transaction and the fact that transaction with an affiliate of Versata was the only remaining viable option following a long process to explore alternative strategic options, including a sale. The Special Committee directed the counsel to the Special Committee to contact the principal stockholders and communicate that the transaction with an affiliate of Versata was the only available alternative to Lyris in the sale process and that the financial condition of Lyris necessitated quick action.

On April 10, 2015, a representative of Duane Morris, counsel to the Special Committee, contacted Mr. Comfort and communicated the concerns of the Special Committee. Mr. Comfort noted his concerns with respect to the disparate treatment accorded by the structure but agreed to engage with respect to the proposed transaction.

On April 17, 2015, Cooley and Goodwin had a telephonic meeting to negotiate open issues in the merger agreement, including the definition of material adverse effect, and exceptions thereto, and conditions to closing.

On April 17, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. Representatives of management and Cooley provided an update on the transactions and indicated that the principal stockholders were continuing to evaluate the transaction. The Special Committee directed the counsel to the Special Committee to follow up with Mr. Comfort.

Between April 17, 2015 and April 23, 2015, representatives of Versata and representatives of Lyris had discussions regarding open issues. During this time, representatives of the principal stockholders and representatives of Versata held discussions regarding the transaction structure and agreements impacting the Lyris controlling stockholder.

On April 23, 2015, a representative of Versata had a telephonic meeting with a representative of Armory and indicated that if Versata and the principal stockholders were not able to reach agreement, Versata would not be able to proceed with the transaction, because the participation of the Lyris Principal Stockholders in the acquiring entity structure was a prerequisite of Versata moving forward.

Between April 23, 2015 and April 30, 2015, representatives of Versata and representatives of Lyris finalized the merger agreement and resolved open issues. During this time, representatives of the Lyris Principal Stockholders and representatives of Versata resolved the transaction structure and finalized the agreements involving the Lyris Principal Stockholders.

On April 30, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris and Cooley present. Representatives of management and Cooley provided an update on the transactions and the path to finalizing the transaction.

On April 30, 2015, the Board of Directors of Lyris held a telephonic meeting with representatives of management, Armory and Cooley present. Representatives of management, Armory and Cooley provided an update on the transactions and the path to finalizing the transaction.

On May 1, 2015, the Special Committee held a telephonic meeting with representatives of management, Duane Morris, Cooley and Duff & Phelps present to consider the proposed transaction. At the meeting, representatives of Cooley reviewed the obligations of the Special Committee and the fact that the Board of Directors of Lyris was not authorized to approve a strategic transaction without a prior favorable recommendation of the transaction by the Special Committee or determine the advisability of the transactions without a prior favorable recommendation by the Special Committee. A representative of Armory provided an overview of the process conducted by Lyris and the Special Committee. Counsel to the Special Committee then reviewed the fiduciary obligations of the Special Committee in the context of considering the sale of Lyris. A representative of Lyris reviewed the financial condition of Lyris and the need for Lyris to take drastic steps if a transaction was not approved. Representatives of Cooley then reviewed the key provisions of the Merger Agreement, including the structure of the acquiring entity and the requirements of the Principal Lyris Stockholders with respect to the acquiring entity, the non-solicitation clause and fiduciary exceptions that would permit Lyris to negotiate and accept a superior unsolicited offer, subject to compliance with the Merger Agreement and Buyer’s matching rights, the change in board recommendation section and termination provisions. Cooley reviewed with the Special Committee the fact that the transaction structure was a result of a requirement imposed by Buyer to move forward with the transaction. Cooley also reviewed the indemnification obligations of certain principal stockholders and the terms of the Voting Agreement and circumstances under which the Voting Agreement would terminate. Duff & Phelps delivered to the Special Committee its oral opinion, to the effect that, as of the date of such opinion and subject to various qualifications and assumptions set forth therein, the Merger Consideration to be received by the holders of Lyris Common Stock, other than the Principal Lyris Stockholders, in the Merger, is fair to such stockholders from a financial point of view (without giving effect to any impact of the Merger on any particular stockholder other than in its capacity as a stockholder). Duff & Phelps also presented its analysis that the fair market value of shares of Buyer purchased by the Non-Aurea LY Stockholders was nominal. Following this discussion, the Special Committee unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders (including the Non-Principal Common Stockholders), unanimously approved the Merger Agreement and declared its advisability and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that full Board of Directors of Lyris approve and adopt the Merger Agreement.

On May 1, 2015, following the Special Committee meeting, the Board of Directors of Lyris held a telephonic meeting with representatives of management, Cooley and Duff & Phelps present to consider the proposed transaction. At the meeting, a representative of Armory provided an overview of the process conducted by Lyris and the Special Committee. Cooley then reviewed the fiduciary obligations of the Board of Directors in the context of considering the sale of Lyris. Cooley then reviewed the key provisions of the Merger Agreement, including the structure of the acquiring entity and the requirements of the Lyris controlling stockholder with respect to the acquiring entity, the non-solicitation clause and fiduciary exceptions that would permit Lyris to negotiate and accept a superior unsolicited offer, subject to compliance with the Merger Agreement and the acquirer’s matching rights, the change in board recommendation section, termination provisions. Cooley also reviewed the Lyris controlling stockholder’s indemnification obligations and the terms of the Voting Agreement and circumstances under which the Voting Agreement would terminate. Mr. Comfort then indicated that he was still soliciting final approval from the related parties that were executing agreement in connection with the proposed structure and was unable to proceed to execution at the time. The Board of Directors determined to adjourn the board meeting until that approval was approved, which will expected to occur within a few days. After Duff & Phelps provided an overview of its valuation analysis that formed the basis of the fairness opinion rendered to the Special Committee, the Board of Directors adjourned the meeting. Following the meeting of the Board of Directors of Lyris, the Special Committee met telephonically and qualified its earlier recommendation and determined to adjourn the Special Committee meeting until the approval of the Principal Lyris Stockholders was obtained.

On May 4, 2015, following notification from Mr. Comfort that the Principal Lyris Stockholders had obtained requisite approvals, the Special Committee re-convened and unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders (including the Non-Principal Common Stockholders), unanimously approved the Merger Agreement and declared its advisability and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that full Board of Directors of Lyris approve and adopt the Merger Agreement.

On May 4, 2015, following the Special Committee meeting, the Board of Directors of Lyris re-convened and unanimously determined that the Merger is advisable and fair to and in the best interests of Lyris and its stockholders (including the Non-Principal Common Stockholders), unanimously approved the Merger Agreement and declared its advisability and approved the transactions contemplated thereby, including the Merger, and unanimously recommended that the Lyris stockholders (including the Non-Principal Common Stockholders) approve and adopt the Merger Agreement.

Later in the day on May 4, 2015, the Merger Agreement, the Voting Agreement and the agreements relating to the acquiring entity were signed. Lyris issued a press release announcing the execution of the Merger Agreement following the close of markets on May 4, 2015. A copy of the press release has been filed as Annex I and is incorporated herein by reference.

Reasons for the Special Committee’s Recommendation

In reaching its approval of the Merger, the Merger Agreement and the transactions contemplated thereby and making the recommendation that our Board of Directors and our stockholders authorize, approve and adopt the Merger, the Merger Agreement and the transactions contemplated thereby, the Special Committee considered numerous factors, including the following material factors and benefits of the Merger, each of which the Special Committee believed supported its unanimous determination and recommendation:

Merger Consideration. The Special Committee considered:

The Company’s Operating and Financial Condition; Prospects of the Company. The Special Committee considered the current and historical financial condition, results of operations, business and prospects of the Company as well as the Company’s financial plan and prospects and risks if the Company were to remain an independent company. The Special Committee considered (i) that the Company reached peak total revenues of $43.4 million in 2009 and that revenues have declined steadily every year since then to $29.4 million for the twelve months ended December 31, 2014; (ii) the fact that the continued decline in revenue has resulted in cash operating losses (after adjusting for capitalized software costs); (iii) the fact that the Company has experienced significant customer turnover and (iv) the fact that the Company had only $1.3 million in cash as of March 31, 2015 and would need to raise capital in the near term in order to continue to fund its ongoing operations. The Special Committee considered that Lyris’ Silicon Valley Bank revolving line was initially set to mature on May 6, 2015 and had been extended until August 31, 2015 to enable a transaction to be consummated and that the Company would have to assume the risk associated with paying off the line or negotiating a new credit arrangement. The Special Committee considered that without the ability to make significant investments in product development, increase its sales force or make more meaningful cost reductions, Lyris expects revenue to continue declining and losses to grow larger. The Special Committee also considered that the continued financial losses had constrained Lyris’ ability to make the investments necessary to turn the business around without a substantial capital infusion and limited Lyris’ borrowing capacity.

Strategic Alternatives. The Special Committee considered its belief that (i) the Company, with the assistance of the Company’s management and financial advisor, had conducted a thorough and competitive process to identify viable acquisition partners to obtain the best available value to the stockholders and created an opportunity for any other potential interested party to approach the Company if such parties are interested in a strategic transaction; (ii) the value offered to holders of shares of Common Stock in the Merger was more favorable to holders of shares of Common Stock than the potential value of remaining an independent public company and (iii) after a thorough review of strategic alternatives and discussions with Lyris’ management and financial advisor, that the value offered to stockholders pursuant to the transactions was more favorable to the stockholders of the Company than the potential value that might have resulted from other strategic opportunities potentially available to Lyris, including remaining as a stand-alone company. The Special Committee believed that this view was supported in part by the absence of viable competing offer in the acquisition of the Company from other potential buyers solicited the lengthy process leading to the execution of the Merger Agreement (as more fully described above in “—Background of the Merger”).

Negotiations with Versata/Aurea. The Special Committee considered the course of negotiations between the Company and Versata (on behalf of Aurea). The Special Committee believed based on these negotiations, that the Merger Consideration was the highest price per share of Common Stock that Buyer was willing to pay and that the Merger Agreement contained the most favorable terms to the Company to which Buyer was willing to agree.

Cash Consideration; Certainty of Value. The Special Committee considered the form of consideration to be paid to the stockholders in the Merger and the immediate liquidity and certainty of the value of such cash consideration compared to stock or other forms of consideration.

No Financing Condition. The Special Committee considered the Commitment Letter from ESW Capital, LLC, which we refer to as the Fund, and the fact that Buyer would have access to sufficient cash resources to pay the amounts required to be paid under the Merger Agreement and that the Merger is not subject to a financing condition. The Special Committee considered the guarantee executed by the Fund in favor of Lyris, which we refer to as the Guarantee, in which the Fund agreed to guarantee the due and punctual performance and discharge by Buyer of its payment obligations to Lyris under the provisions of the Merger Agreement governing damages for fraud if, as and when those obligations become payable under and in accordance with the terms of the Merger Agreement, provided that in no event shall the Fund’s liability for any amount that becomes payable exceed $1.35 million.

Opinion of the Special Committee’s Financial Advisor. The Special Committee considered Duff & Phelp’s financial analyses and Duff & Phelps’s oral opinion to the Special Committee, which opinion was confirmed in writing, that, as of May 4, 2015, the date such opinion was issued, the per share consideration to be received by the Non-Principal Common Stockholders is fair to such stockholders from a financial point of view (without giving effect to any impact of the Merger on any particular stockholder other than in its capacity as a stockholder). The full text of Duff & Phelps’ written opinion, dated May 4, 2015, which sets forth, among other things, certain assumptions made, certain matters considered, and certain limitations on the review undertaken in connection with the opinion, is attached as Annex E and is incorporated herein by reference. The opinion expressed by Duff & Phelps was provided for the information and assistance of the Special Committee in connection with its consideration of the Merger, and such opinion does not constitute a recommendation as to any action that any Lyris stockholder should take in connection with the Merger and is not a recommendation as to how any stockholder should vote or otherwise act in connection with the Merger. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving at that opinion.

The Merger Agreement. The Special Committee considered the provisions of the Merger Agreement, including the ability of the Company’s to terminate the Merger Agreement in order to accept a superior offer and enter into a definitive agreement with respect to a superior offer, in subject to payment of a termination fee.

Conditions to the Consummation of the Merger. The Special Committee considered the fact that consummation of the Merger was conditioned on the affirmative vote of the holders of a majority of the outstanding shares of Common Stock and Preferred Stock voting together as a single class on an as-converted basis, and the holders of a majority of the outstanding shares of Preferred Stock, and that the Principal Lyris Stockholders, who controlled approximately 70.6% of the aggregate voting power of shares of Common Stock and Preferred Stock (on an as-converted to Common Stock basis), had committed to vote to adopt the Merger Agreement unless the Merger Agreement was terminated.

Appraisal Rights. The availability of appraisal rights to the stockholders of the Company who are entitled to such rights and who comply with all of the requirements set forth in Section 262 of the DGCL for exercising such rights, which allow such holders to seek appraisal of the “fair value” of their shares of Common Stock as determined by the Court of Chancery of the State of Delaware in lieu of receiving the Merger Consideration.

Procedural Safeguards. The Special Committee considered the following factors relating to the procedural safeguards that the Special Committee believes were and are present to ensure the fairness of the merger and to permit the Special Committee to represent the interests of the Company’s stockholders other than principal stockholders:

In the course of its deliberations, the Special Committee also considered a variety of material risks and other countervailing factors related to entering into the Merger Agreement that had previously been identified and discussed by management of the Company and the Special Committee, which included:

The foregoing discussion of the information and factors considered by the Special Committee is intended to be illustrative and not exhaustive, but includes the material reasons and factors considered. In view of the wide variety of reasons and factors considered, the Special Committee did not find it practical to, and did not, quantify or otherwise assign relative weights to the specified factors considered in reaching its determinations or the reasons for such determinations. Individual directors may have given differing weights to different factors or may have had different reasons for their ultimate determination. In addition, the Special Committee did not reach any specific conclusion with respect to any of the factors or reasons considered. Instead, the Special Committee 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 the Merger.

Reasons for the Board’s Recommendation

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, our Board of Directors considered both the short-term and long-term interests of the Company, as well as the fairness to and best interests of Lyris’ stockholders other than the principal stockholders. In the course of reaching its determination that the Merger Agreement, the Merger and the transactions contemplated by the Merger Agreement, including the Merger, are advisable to, and in the best interest of, Lyris and its stockholders, approval of the execution, delivery and performance by Lyris of the Merger Agreement and the consummation of the transactions contemplated by the Merger Agreement, including the Merger and resolution to recommend the approval of the Merger Agreement and the Merger by the Lyris stockholders, our Board of Directors considered numerous factors, including the following material factors and benefits of the Merger, each of which our Board of Directors believed supported its unanimous determination and recommendation:

The foregoing discussion of the information and factors considered by the Board of Directors is intended to be illustrative and not exhaustive, but includes the material reasons and factors considered. In view of the wide variety of reasons and factors considered, the Board of Directors did not find it practical to, and did not, quantify or otherwise assign relative weights to the specified factors considered in reaching its determinations or the reasons for such determinations. Individual directors may have given differing weights to different factors or may have had different reasons for their ultimate determination. In addition, the Board of Directors did not reach any specific conclusion with respect to any of the factors or reasons considered. Instead, the 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 the Merger.

Our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement.

 Opinion of Duff & Phelps, LLC

  Pursuant to an engagement letter dated December 22, 2014, as amended pursuant to addenda dated January 4, 2015, February 17, 2015 and May 1, 2015, the Special Committee retained Duff & Phelps to serve as its independent financial advisor to provide an opinion in connection with the Merger. The Special Committee retained Duff & Phelps based on Duff & Phelps’ qualifications, reputation and experience in the valuation of businesses and their securities, and its experience in valuing companies in the internet software and services industry. Duff & Phelps is a premier global valuation and corporate finance advisor that is regularly engaged to provide financial advisory services, including fairness opinions and valuation advice in connection with mergers and acquisitions, leveraged buyouts, going-private and recapitalization transactions.

On May 1, 2015, Duff & Phelps delivered a written presentation and its oral opinion, which was subsequently confirmed in writing, to the Special Committee that, as of that date, and based upon and subject to the assumptions, limitations and qualifications contained in its opinion, the $0.89 per share to be received by Lyris stockholders pursuant to the Merger Agreement was fair from a financial point of view to the Non-Principal Common Stockholders (as such term is defined in Duff & Phelps’ opinion) (without giving effect to any impact of the Merger on any particular stockholder other than in its capacity as a stockholder). Duff & Phelps has provided its written consent to the reproduction of its opinion in this proxy statement.

The full text of Duff & Phelps’ written opinion, dated May 4, 2015, which sets forth, among other things, certain assumptions made, certain matters considered, and certain limitations on the review undertaken in connection with the opinion, is attached as Annex E and is incorporated herein by reference. The opinion expressed by Duff & Phelps was provided for the information and assistance of the Special Committee in connection with its consideration of the Merger, and such opinion does not constitute a recommendation as to any action that any Lyris stockholder should take in connection with the Merger and is not a recommendation as to how any stockholder should vote or otherwise act in connection with the Merger. We urge you to read that opinion carefully and in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken in arriving at that opinion.

Duff & Phelps’ opinion (i) does not address the merits of the underlying business decision to enter into the Merger versus any alternative strategy or transaction; (ii) does not address the process through which Lyris has chosen to consider the Merger versus any alternative transaction; (iii) does not address any transaction related to the Merger; (iv) is not a recommendation as to how the Special Committee, the Board of Directors or any stockholder should vote or act with respect to any matters relating to the Merger, or whether to proceed with the Merger or any related transaction, and (v) does not indicate that the Per Share Consideration to be received by the Non-Principal Common Stockholders is the best possibly attainable under any circumstances; instead, it merely states whether such consideration is within a range suggested by certain financial analyses. The decision as to whether to proceed with the Merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which Duff & Phelps’ opinion is based.

Duff & Phelps’ opinion was only one of many factors taken into consideration by the Special Committee in making its determination with respect to the Merger. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party. Duff & Phelps has not undertaken, and is under no obligation, to update, revise, reaffirm or withdraw the opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion.

While this summary describes the analysis and factors that Duff & Phelps deemed material in its presentation to the Special Committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a financial opinion involves various subjective determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to particular circumstances. In arriving at its opinion, Duff & Phelps considered a number of analytical methodologies. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the strengths, weaknesses and applicability of any particular technique. While the conclusions reached in connection with each analysis were considered carefully by Duff & Phelps in arriving at its opinion, Duff & Phelps did not consider it practicable to, nor did it attempt to, assign relative weights to the individual analyses and specific factors considered in reaching its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken, as a whole, and also on application of Duff & Phelps’ own experience and judgment. This conclusion may involve significant elements of subjective judgment and qualitative analysis. No one method of analysis should be regarded as critical to the overall conclusion. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole, and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying its opinion.

In connection with its opinion, Duff & Phelps has made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analyses with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

No limits were placed on Duff & Phelps by Lyris in terms of the information to which it had access or the matters it could consider.

In performing its analyses and rendering its opinion with respect to the Merger, Duff & Phelps, with the consent of the Special Committee:

In Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps also made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Merger. To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based prove to be untrue in any material respect, its opinion cannot and should not be relied upon.

Duff & Phelps prepared its opinion effective as of May 4, 2015. Duff & Phelps’ opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of that date, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date of its opinion. In the event of any such change prior to the completion of the Merger, Duff & Phelps reserves the right to change, modify or withdraw its opinion.

In rendering its opinion, Duff & Phelps is not expressing any opinion with respect to the amount or nature of any compensation to any of Lyris’ officers, directors or employees, or any class of such persons, relative to the per share consideration to be received by the public Non-Principal Common Stockholders of Lyris in the Merger, or with respect to the fairness of any such compensation.

Although these paragraphs include some information in tabular format, those tables are not intended to stand alone and must be read together with the full text of each summary and the limitations and qualifications in the Duff & Phelps’ opinion.

Valuation Analysis

Duff & Phelps considered the use of commonly accepted valuation methodologies in its analysis, including a discounted cash flow analysis, liquidation analysis, reference to valuation multiples exhibited by selected public companies and selected M&A transactions.

Discounted Cash Flow Analysis. With respect to the use of a discounted cash flow analysis, Duff & Phelps considered Lyris’ historical and projected financial performance. In particular, Duff & Phelps noted that in the absence of a significant capital investment, management’s best estimates as to future performance pointed to further deterioration of Lyris’ financial performance, a failure to achieve sustained positive cash flow and continued financial distress. Without positive cash flow in the foreseeable future, and without a set of financial projections demonstrating the ability to reach positive cash flow in the longer term, Duff & Phelps determined that a discounted cash flow analysis would not yield any meaningful indication of value and consequently did not apply such methodology.

Liquidation Analysis. With respect to a liquidation analysis, Duff & Phelps noted that Lyris’ tangible book value of equity was ($3.1) million as of March 31, 2015, before accounting for the costs that would be incurred to wind down the Company, including substantial severance and lease liabilities. Therefore, Duff & Phelps determined that a liquidation analysis would not yield any meaningful indication of value and consequently did not apply such methodology. In light of the foregoing, although Duff & Phelps considered all commonly accepted valuation methodologies, they ultimately relied on the application of relevant valuation multiples to derive the enterprise value, total equity value and per share value of Lyris.

Market Approach. Duff & Phelps used a market approach, which consisted of applying a range of selected valuation multiples to the Company’s latest twelve months, which we refer to as LTM, revenue (twelve months ended March 31, 2015) and projected next twelve months revenue (twelve months ended March 31, 2015).

EV = enterprise value

LTM = latest twelve months

NTM = next twelve months

EBITDA = earnings before interest, taxes, depreciation and amortization

(1) EBITDA margins for Lyris reflect adjustments to: (i) deduct capitalized software costs, and (2) add back amortization of capitalized software costs and estimated public company costs.

Source: Bloomberg, Capital IQ, SEC filings

Based on the risk analysis described above and all other factors that it deemed relevant, Duff & Phelps selected multiples slightly below those exhibited by the selected public companies. Duff & Phelps applied revenue multiples in a range of 0.50x to 0.60x to Lyris’ trailing twelve month and next twelve months revenue of $28.4 million and $27.2 million, respectively. As shown in the table below, based on this analysis, Duff & Phelps concluded upon an enterprise value range from $13.9 million to $16.7 million. In its analysis, Duff & Phelps also noted that when it excluded revenue from Lyris’ end-of-life products, its concluded range of enterprise values resulted in an implied range of revenue multiples between 0.6x and 0.7x which is in line with the low end of multiples exhibited by selected public companies.

Selected Transactions Analysis. Duff & Phelps also identified certain precedent M&A transactions involving target companies that had businesses somewhat similar to that of Lyris. Due to limited available information on certain of these target companies and the limited comparability of the target companies, Duff & Phelps did not select valuation multiples for Lyris based on the selected transactions.

Historical Stock Trading and Premium Analysis

Duff & Phelps reviewed the historical trading prices and volume of Lyris’ Common Stock for the one-year period preceding the date of its opinion. During that period, the stock has trended from a high of $2.30 per share to a low of $0.40 per share. Duff & Phelps also observed that Lyris’ Common Stock has limited liquidity, with sporadic trading activity. Based on the limited public float and liquidity of Lyris’ Common Stock, the absence of analyst coverage, and the lack of institutional investor support, Duff & Phelps observed that Lyris’ market price may not necessarily reflect the underlying intrinsic value of Lyris. Notwithstanding such conclusion, Duff & Phelps observed that the Per Share Consideration reflects a premium of 78.0%, 48.3% and 78% over Lyris’ closing price one day, one week and one month preceding the date of its opinion.

Net Operating Loss Carryforwards

Lyris has significant net operating losses, which we refer to as NOLs, that could be used to offset future taxable income. Duff & Phelps analyzed what the existing NOLs would be worth in a change of control transaction. Under such a transaction, substantial limitations would be placed on the annual income that could be shielded through application of the NOLs. Utilizing a discounted cash flow analysis on the estimated tax savings from the use of the NOLs following a change in control transaction resulted in an estimated total value ranging from approximately $0 to $750,000.

Valuation Analysis Conclusions

Duff & Phelps’ valuation analysis, as summarized in the table below, resulted in indications of Lyris’ total enterprise value ranging from approximately $13.9 million to $17.5 million. After adjusting for the March 31, 2015 balances of debt and capital leases, cash and equivalents, expected transaction fees and expenses payable, and Series A Preferred Stock liquidation preference, Duff & Phelps analysis resulted in a range of common equity value for Lyris of approximately $5.6 million to $9.2 million. Based on approximately 9.57 million shares of common stock outstanding, Duff & Phelps’ analysis implied a range of values from $0.59 per share to $0.96 per share. Duff & Phelps observed that its analysis supported a determination of fairness from a financial point of view.

Valuation Conclusion

(in thousands, except per share values)

(1) Share price as of April 29, 2015.

(2) High-end represents the present value of the tax benefits assuming the NOLs are subject to a change of control limitation.

(3) Balance as of March 31, 2015.

(4) Balance as of March 31, 2015 includes Capital Lease Obligations as of February 28, 2015.

Valuation of Equity Interests Purchased by Non-Aurea LY Stockholders

At the request of the Special Committee, Duff & Phelps prepared a valuation analysis with respect to the common stock of Buyer that will be purchased by the Non-Aurea LY Stockholders. Duff & Phelps concluded that the Non-Aurea LY Stockholders’ 50% equity interest in the Buyer had nominal value. The valuation analysis regarding such equity interest was not considered or relied upon by Duff & Phelps in connection with issuing its fairness opinion.

Neither Lyris nor Aurea provided Duff & Phelps with a business plan or financial projections on a post-Merger basis. Duff & Phelps relied on its observations with respect to Buyer’s capital structure immediately following the consummation of the Merger as well as certain hypothetical assumptions with respect to future performance and sensitivity analyses surrounding those assumptions. Duff & Phelps also considered the facts that the shares to be purchased by the Non-Aurea LY Stockholders were tied to a voting agreement and irrevocable proxy that: (1) ceded all voting power to Aurea, and (2) placed severe limitations on the ability to sell or otherwise transfer such shares.

In its analysis, Duff & Phelps compared the total enterprise value of Buyer with the total net debt that would be outstanding immediately following the consummation of the Merger and noted that net debt would exceed total enterprise value by $825,000 (based on the mid-point of Duff & Phelps’ valuation conclusion prepared as part of its fairness analysis), leaving no value to accrue to equity holders. Duff & Phelps further noted that: (1) Buyer will be required to make debt service payments (interest and principal) of $3.3 million per year under the terms of the loan from the Fund in spite of the fact that Lyris has been unable to generate such levels of free cash flow historically, and (2) Buyer could incur up to $4.0 million in additional debt under the note payable to the Fund, which could further impair the economic position of the Non-Aurea LY Stockholders.

Duff & Phelps also analyzed the potential for value to accrue to equity holders of Buyer over a five-year holding period based on various hypothetical scenarios with respect to: (1) stabilized revenue levels, (2) achievement of normalized profit margins and (3) valuation exit multiples. Duff & Phelps further assumed that Buyer would draw that additional $4.0 million in available funding and that in the absence of sufficient cash flow, the Fund would allow interest to accrue on Buyer’s debt rather than declare a default. In almost every scenario tested, at the end of the five-year holding period, total debt of Buyer would exceed its total enterprise value, leaving no value to accrue to equity holders. In addition, the scenarios in which any equity value would accrue were considered by both Lyris and Versata management to be highly optimistic and unlikely to be achieved without substantial additional investment in Lyris’ business.

Other

Disclosure of Prior Relationships. Duff & Phelps has acted as financial advisor to the Special Committee and will receive a fee for its services. No portion of Duff & Phelps’ fee is contingent upon either the conclusion expressed in its opinion or whether or not the Merger is successfully consummated. Pursuant to the terms of the engagement letter with Duff & Phelps, a portion of Duff & Phelps’ fee is payable upon Duff & Phelps’ stating to the Special Committee that it is prepared to deliver its opinion. In addition to providing its fairness opinion, Duff & Phelps provided the Special Committee with additional advisory services as described above with respect to the equity interests purchased by the Non-Aurea LY Stockholders. Other than the engagement and as set forth above, during the two years preceding the date of Duff & Phelps’ opinion, Duff & Phelps has not had any material relationship with any party to the Merger for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

Fees and Expenses. Pursuant to its engagement letter with Lyris (as amended), Duff & Phelps is entitled to receive total professional fees in the amount of $300,000, due and payable as follows: a $70,000 retainer due upon execution of the initial engagement letter, $25,000 payable upon execution of the engagement letter addendum related to the additional valuation services described above, $50,000 payable upon delivery of such valuation analysis, and $155,000 payable upon Duff & Phelps informing Lyris that it is prepared to deliver its opinion. Lyris has also agreed to reimburse Duff & Phelps for its reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Duff & Phelps, its affiliates, and each of their respective directors, officers, attorneys and other agents, stockholders, employees and controlling persons against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of Duff & Phelps’ engagement.

Delisting and Deregistration of Common Stock

 If the Merger is completed, our Common Stock will be delisted from the OTCBB and deregistered under the Exchange Act. Therefore, the provisions of the Exchange Act will no longer apply to Lyris, including the requirement that we furnish a proxy or information statement to our stockholders in connection with meetings of our stockholders. We will also no longer be required to file periodic reports with the SEC.

 Effects on Lyris if the Merger is Not Completed

 If Lyris’ stockholders do not adopt the Merger Agreement, or if the Merger is not completed for any other reason, stockholders will not receive any payment for their shares in connection with the Merger. Instead, Lyris will remain an independent public company and our Common Stock will continue to be listed and traded on the OTCBB. In addition, if the Merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that Lyris’ stockholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic, regulatory and market conditions. Accordingly, if the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your Lyris shares. From time to time, our Board of Directors will evaluate and review, among other things, our business operations, properties, dividend policy and capitalization and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholder value. If Lyris’ stockholders do not adopt the Merger Agreement, or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Lyris will be offered, or that the business, prospects or results of operations of Lyris will not be adversely impacted. We may also be required to pay a termination fee to Buyer as described in “The Merger Agreement — Termination Fee.”

Commitment Letter; Source of Funds

Completion of the Merger is not conditioned upon obtaining financing. Buyer plans to finance the transaction with debt financing committed from ESW Capital, LLC, which we refer to as the Fund, an affiliate of Buyer, pursuant to the terms of a commitment letter, dated as of May 4, 2015, executed in favor of Buyer, which we refer to as the Commitment Letter. The Commitment Letter provides that on the terms and subject to the conditions set forth therein, the Fund irrevocably commits to purchase, at or prior to the consummation of the Merger, debt securities of Buyer in an aggregate amount not less than $16.5 million, which we refer to as the Commitment Amount, the proceeds of which will be used, as needed, solely to fund the amounts payable by Buyer pursuant to the Merger Agreement to cause Buyer to consummate the transactions contemplated thereby, including the Merger. The Fund’s obligation to fund the Commitment Amount is subject to the satisfaction or waiver of all the conditions in the Merger Agreement and the Merger Agreement not having been terminated. Lyris is an express third party beneficiary of the Commitment Letter.

Guarantee

In order to induce Lyris to enter into the Merger Agreement, on May 4, 2015, the Fund executed a guarantee in favor of Lyris, which we refer to as the Guarantee, in which the Fund agreed to guarantee the due and punctual performance and discharge by Buyer of its payment obligations to Lyris under the provisions of the Merger Agreement governing damages for fraud if, as and when those obligations become payable under and in accordance with the terms of the Merger Agreement, provided that in no event shall the Fund’s liability for any amount that becomes payable exceed $1.35 million, which we refer to as the Total Cap.

The Guarantee will terminate and the Fund will have no further obligations under or in connection with the Guarantee as of the earliest of: (a) the consummation of the closing of the Merger (b) upon payment in full of the guaranteed obligations (subject to the Total Cap), (c) any time when Lyris or any of its affiliates acting on its behalf asserts a claim in any litigation or other proceeding (1) that the provisions of the Guarantee limiting the Fund’s liability to the Total Cap or provisions of the Guarantee relating to termination and recourse are illegal, invalid or unenforceable in whole or in part, (2) that the Fund is liable in excess of or to a greater extent than the Total Cap or (3) on any theory of liability whatsoever (whether at law or in equity, whether sounding in contract, tort, statute or otherwise) against the Fund or any non-party affiliates of the Fund under or in connection with the Merger Agreement or the Merger, subject to certain exceptions, and (d) the termination of the Merger Agreement in accordance with its terms, in which case, the Guarantee will terminate and the Fund shall have no further obligations under or in connection with the Guarantee, unless Lyris has presented a claim for payment of the guaranteed obligations prior to the sixtieth (60th) day following a termination of the Merger Agreement by Lyris in connection with a superior offer, in which case the Guarantee will terminate and the Fund will have no further obligations under or in connection with the Guarantee as of the date such claim is finally satisfied or otherwise resolved.

Interests of Our Directors and Executive Officers in the Merger

You should be aware that some of our directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. Our Board of Directors and the Principal Lyris Stockholders were aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger.

The following tables and the related footnotes present information about the compensation payable to the named executive officers of Lyris in connection with the Merger. The compensation shown in the tables below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about compensation for each named executive officer that is based on or otherwise relates to the Merger. One table discloses all golden parachute compensation, and includes the arrangements and amounts previously disclosed and subject to a stockholder advisory vote under section 14A(a)(1) of the Exchange Act and the new arrangements that were entered into following the last stockholder advisory vote. The second table discloses only the new arrangements that were entered into following the last stockholder advisory vote.

The cash severance and perquisites/benefits disclosure provided by the table entitled “Golden Parachute Compensation (New and Previously Disclosed Arrangements)” is quantified assuming that the Merger closed, and that each executive officer’s service was terminated without cause or such executive officer resigned with good reason, on March 31, 2015, the latest practicable date prior to the filing of this proxy statement. The severance amounts and benefits listed in the table would be payable in connection with the Merger only if such a termination of employment actually occurs. The cash transaction bonus disclosure provided by the table entitled “Golden Parachute Compensation (New and Previously Disclosed Arrangements)” and the table entitled “Golden Parachute Compensation (New Arrangements)” is quantified assuming that the Merger closed and the Merger Consideration for each share of Lyris Common Stock is $0.89 per share. The transaction bonus amounts listed in both tables would be payable in connection with the Merger only if the Merger is consummated. The equity disclosure provided in the table entitled “Golden Parachute Compensation (New and Previously Disclosed Arrangements)” is quantified assuming that the Merger closed on March 31, 2015 and that the exercise price of each named executive officer’s options is equal to or exceeds $0.89 per share. None of our executive officers are entitled to any pension or non-qualified deferred compensation benefits enhancements, or any other form of compensation that is based on or otherwise related to the Merger.

Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur (including assumptions described in this proxy statement) or may occur at times different than the time assumed. Some of these assumptions are based on information currently available and, as a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. Regardless of the manner in which a named executive officer’s employment terminates, the officer is entitled to receive amounts already earned and vested during his or her term of employment.

Golden Parachute Compensation (New and Previously Disclosed Arrangements)

Golden Parachute Compensation (New Arrangements)

Potential Payments upon Termination or Change in Control

John Philpin’s Employment Agreement

We entered into an employment agreement with John Philpin, effective as of July 1, 2013 to serve as our Senior Vice President, Engineering. His employment agreement was amended as of October 7, 2013 when he was appointed our President and Chief Executive Officer, pursuant to which Mr. Philpin receives an annual salary of $350,000. Pursuant to his employment agreement, as amended, in the event Mr. Philpin’s employment is terminated without cause, we will pay severance to Mr. Philpin according to the following schedule in months after his promotion date:

If Mr. Philpin is terminated without cause within two years following the consummation of the Merger he will be entitled to severance payments in accordance with the above schedule and any unvested options will immediately vest.

Deborah Eudaley’s Employment Agreement

We entered into an employment agreement with Deborah Eudaley, effective as of November 4, 2011, and as amended as of April 19, 2012, to serve as our Chief Financial Officer, pursuant to which Ms. Eudaley receives an annual salary of $260,000 and is eligible for an annual target bonus of $100,000. Pursuant to her employment agreement, as amended, in the event Ms. Eudaley’s employment is terminated without cause or she resigns for good reason (as defined in the agreement), we will pay to Ms. Eudaley an amount equal to six months of her current annual base salary at the time of termination, 50% of her target bonus, payment of her COBRA health insurance premiums for a period of twelve months following termination plus any other amounts accrued but not yet paid. This provision would entitle Ms. Eudaley to $180,000. If Ms. Eudaley is terminated without cause within three months prior to or two years following the consummation of the Merger she will be entitled to severance payments of twelve months of her then base salary, 100% of her target bonus and payment of her COBRA health insurance premiums for a period of twelve months following termination. Ms. Eudaley’s agreement also provides that if we are acquired or undergo a change of control and her employment is terminated without cause, any unvested options will immediately vest.

Alex Lustberg’s Employment Agreement

We entered into an employment agreement with Alex Lustberg, effective as of February 28, 2012 to serve as our Vice President, Marketing. Pursuant to his agreement, Mr. Lustberg receives an annual salary of $250,000. Pursuant to his employment agreement, in the event Mr. Lustberg’s employment is terminated without cause within two years following the consummation of the Merger, we will pay to Mr. Lustberg an amount equal to six months of his current annual base salary at the time of termination, payment of his COBRA health insurance premiums for a period of six months following termination plus any other amounts accrued but not yet paid. Additionally, any unvested options will immediately vest.

“Cause’’ is defined in Mr. Philpin’s, Ms. Eudaley’s and Mr. Lustberg’s employment agreements to mean (a) the failure of the employee to perform his obligations and duties to the satisfaction of us, which failure is not remedied within fifteen days after receipt of written notice from us, (b) commission by the employee of an act of fraud upon, or willful misconduct towards, us or any of our affiliates, (c) a material breach by the employee of our which is not remedied within 15 days written notice from us (d) the failure of the employee to carry out, or comply with, in any material respect, any directive of our Board, which in the case of each situation above is not remedied within 15 days after receipt of written notice from us or our Board, or (e) the conviction of the employee of (or a plea of nolo contendere to) any felony or any crime involving moral turpitude.

“Good reason” is defined in Ms. Eudaley’s employment agreement to mean any of the following: (i) a material reduction in her job responsibilities (provided that a mere change in title alone or reassignment following a change of control to a position that is substantially similar to the position held prior to the change of control will not constitute a material reduction in job responsibilities), (ii) a reduction in Ms. Eudaley’s level of base compensation or total compensation including target bonus, or (iii) a relocation of her principal place of employment by more than 25 miles. In addition, in order to terminate employment for good reason Ms. Eudaley must notify us in writing of the circumstances constituting good reason and we will have thirty days in which to cure. In the event Lyris fails to cure within such 30 day period Ms. Eudaley’s termination for good reason will become effective on the 31st day following Ms. Eudaley’s notice to Lyris of the events constituting good reason. This Merger would constitute a change in control under the terms of Ms. Eudaley’s employment agreement.

Transaction Bonus Agreements

We entered into a Transaction Bonus Agreement with each of Mr. Philpin and Ms. Eudaley effective as of December 8, 2014. Under the terms of each executive officer’s Transaction Bonus Agreement, to the extent that the consideration payable for each share of common stock at the closing of the Merger is less than $0.97, such executive officer is entitled to a cash bonus equal 50% of his or her target bonus amount. To the extent that the consideration payable for each share of common stock at the closing of the Merger is at least $0.97 but less than $1.05, the total amount of the executive officer’s bonus will equal 75% of his or her target bonus amount. To the extent that the consideration payable for each share of common stock at the closing of the Merger is $1.05 or more, the total amount of the executive officer’s bonus will equal 100% of his or her target bonus amount. In no event will the amount of the executive officer’s bonus exceed 100% of his or her target bonus amount. Mr. Philpin’s target bonus amount is $150,000 and Ms. Eudaley’s target bonus amount is $100,000. Each executive officer is expected to receive 50% of his or her target bonus, with such amount being paid in the form of a lump sum cash payment on the 30^th day following the closing of the Merger.

Post-Closing Employment of Executive Officers

Lyris has been advised by Buyer that, except for certain agreements described in this proxy statement (or in the documents incorporated by reference herein) between Lyris and its executive officers and directors, no employment, equity contribution or other agreement, arrangement or understanding between any executive officer or director of Lyris, on the one hand, and Buyer or any of its affiliates or Lyris, on the other hand, existed as of the date of this proxy statement, and the Merger is not conditioned upon any executive officer or director of Lyris entering into any such agreement, arrangement or understanding. Although such arrangements have not, to Lyris’ knowledge, been discussed as of the date of this proxy statement, it is possible that additional members of Lyris’ current management team will enter into new employment or consulting arrangements with Lyris relating to periods following the closing of the Merger. Such arrangements may include the right to purchase or participate in the equity of Lyris or its affiliates. Any such arrangements with the existing management team are currently expected to be entered into after the completion of the Merger and will not become effective until after the Merger is completed, if at all. There can be no assurance that the applicable parties will reach an agreement on any terms, or at all.

Treatment of Stock Options

As with our other employees generally, prior to the effective time of the Merger, we will accelerate the vesting and exercisability of each unexpired and unexercised stock option then outstanding as of immediately prior to the effective time of the Merger so that each such stock option will be fully vested and exercisable prior to the effective time of the Merger. Each stock option that is outstanding and unexercised at the effective time of the Merger, whether or not vested, will be cancelled and converted into the right to receive, with respect to each share of common stock subject to such stock option, a cash payment equal to the excess, if any, of $0.89 over the exercise price per share of such stock option, without interest and less any applicable withholding taxes. If the exercise price of the option is equal to or exceeds $0.89, the holder of such option will not be entitled to any Merger Consideration.

Executive Officers

As of March 31, 2015, there were 0 shares of our common stock subject to outstanding stock options with exercise prices below $0.89 per share granted under our equity incentive plans to our current executive officers. Our executive officers will receive, in the aggregate, $0 pursuant to the Merger Agreement in connection with the cancellation of their options.

Non-Employee Directors

As of March 31, 2015, there were 0 shares of our common stock subject to outstanding stock options with exercise prices below $0 per share granted under our equity incentive plans to our non-employee directors. Our non-employee directors will receive, in the aggregate, $0 pursuant to the Merger Agreement in connection with the cancellation of their options.

Lyris Director Compensation Arrangements and Other Interests

The non-employee members of our Board of Directors are independent of and have no economic interest or expectancy of an economic interest in Buyer or its affiliates, and will not retain an economic interest in the surviving corporation or Buyer following the Merger.

Indemnification of Directors and Officers; Insurance

The Merger Agreement provides that all existing rights to indemnification that the present directors and officers of Lyris and our subsidiaries are entitled to that are contained in the certificate of incorporation and bylaws of Lyris as in effect as of the date of the Merger Agreement, or as provided in any indemnification agreements between Lyris and any such person as in effect as of the date of the Merger Agreement, will survive the Merger and will be observed by the surviving corporation to the fullest extent permitted by Delaware law for a period of six years from the effective time of the Merger.

The Merger Agreement also provides that for a period of six years following the effective time of the Merger, the surviving corporation will, to the fullest extent permitted under applicable legal requirements, indemnify and hold harmless each of our directors and officers in his or her capacity as a director or officer against all losses, claims, damages, liabilities, fees, expenses, judgments or fines incurred by such person in connection with any pending or threatened legal proceeding based on or arising out of the fact that person is or was a director or officer of Lyris or one of its subsidiaries at or prior to the effective time and pertaining to any and all matters pending, existing or occurring at or prior to the effective time, whether asserted or claimed prior to, at or after the effective time of the Merger, including any such matter arising under any claim with respect to the transactions contemplated by the Merger Agreement, and that Buyer and the surviving corporation will also, to the fullest extent provided in the applicable indemnification agreements, advance reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by such indemnified persons in connection with matters for which such persons are eligible to be indemnified under the Merger Agreement.

In addition, the Merger Agreement provides that, from the effective time of the Merger until the sixth anniversary of the effective time of the Merger, the surviving corporation will maintain in effect Lyris’ current insurance coverage with respect to Lyris’ directors and officers. Alternatively, Lyris may, prior to the effective time of the Merger, purchase a tail policy to Lyris’ current policy of directors’ and officers’ liability insurance for a period of six years from the effective time of the Merger. If the tail policy is not purchased, the cost of such insurance coverage to be maintained by the surviving corporation will not exceed 250% of the annual premium currently paid by Lyris for such insurance and, if the premium for such insurance coverage would exceed such amount, Buyer will be obligated to cause the surviving corporation to obtain a policy or policies with the greatest coverage available for a cost equal to such amount.

The foregoing indemnification rights are qualified by the Amendments to Indemnification Agreements and the Indemnification Rights Agreement with Mr. Comfort. See “—Amendments to Indemnification Agreements” and “—Indemnification Rights Agreement” below.

Amendments to Indemnification Agreements

Concurrently with the execution of the Merger Agreement, Lyris entered into indemnification agreement amendments with certain of its directors and officers. Under such amendments, the parties agreed to delete, in its entirety, a certain provision contained in the original indemnification agreements relating to Lyris’ obligation to set aside indemnification funds in a trust in the event of a potential change in control or a change in control. The Form of Amendment to the Indemnification Agreement is attached as Annex J to this proxy statement.

Indemnification Rights Agreement

Concurrently with the execution of the Merger Agreement, Lyris entered into an indemnification rights agreement with William T. Comfort III, who we refer to as Comfort, pursuant to which Comfort, on his own behalf, on behalf of any affiliate and on behalf of any person or entity having a claim directly or indirectly through Comfort against Lyris, among other things, waived his right to indemnification, contribution or reimbursement of expenses from Lyris, its affiliates or any of their respective former, current or future directors, officers, managers, equityholders, agents and other representatives in connection with that certain lawsuit filed on February 14, 2012 in the United States District Court for the District of Maryland by David R. Burt and Janet H. Burt against certain current and former directors, officers and Lyris stockholders, which we refer to as the Burt Litigation, and provided an indemnity and a financial backstop to Lyris in the event that Lyris is obligated to indemnify any director or officer defendants in connection with the Burt Litigation under any indemnification agreements with Lyris, Lyris’ governing documents or applicable law, or to the extent Lyris, Buyer or any of its affiliates incurs any cost, expense or liability in connection with the Burt Litigation.  The maximum amount of the financial backstop, which we refer to as Backstop Cap, that Comfort will be required to pay is approximately $8.3 million in the aggregate, and the Backstop Cap will be in addition to, and will not to be reduced by, any insurance benefits provided to cover or protect Lyris or any person or entity in connection with the Burt Litigation under specified insurance policies.  The indemnification rights agreement will become effective upon the occurrence of the effective time of the Merger and will be null and void and have no force or effect if the Merger is not consummated or if the Merger Agreement is terminated pursuant to its terms.

Subscription for Shares in Buyer

In connection with the Merger, Aurea subscribed for an aggregate of 500 shares of common stock, par value $0.0001 per share, of Buyer at $10.00 per share which is intended to reflect the fair market value of the shares at the effective time of the Merger.  Such shares represent 50% of Buyer’s outstanding common stock. In addition, in order to preserve certain tax attributes of Lyris, the Non-Aurea LY Stockholders collectively subscribed for an aggregate of 500 shares of common stock, par value $0.0001 per share, of Buyer at $10.00 per share, which is intended to reflect the fair market value of the shares at the effective time of the Merger.  Such shares represent 50% of Buyer’s outstanding common stock. Upon the consummation of the Merger, Lyris will become a subsidiary of Aurea. The Subscription Agreements are attached as Annex G to this proxy statement. See also “Opinion of Duff & Phelps, LLC — Valuation of Equity Interests Purchased by Non-Aurea LY Stockholders” for the analysis of Duff & Phelps that the fair market value of shares of Buyer purchased by the Non-Aurea LY Stockholders was nominal.

Appraisal Rights

 Under Delaware law, you have the right to dissent from the Merger and to receive payment in cash for the fair value of your shares of Common Stock or Preferred Stock, as applicable, as determined by the Delaware Court of Chancery, together with interest, if any, as determined by the court, in lieu of the consideration you would otherwise be entitled to receive pursuant to the Merger Agreement. These rights are known as appraisal rights. Stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights. We will require strict compliance with the statutory procedures.

 The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to dissent from the Merger and perfect appraisal rights. The following summary does not constitute any legal or other advice, nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.

 This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex F to this proxy statement. Failure to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in a termination or waiver of your appraisal rights. All references in this summary to a “stockholder” are to the record holder of shares of Common Stock or Preferred Stock unless otherwise indicated.

 Section 262 requires that stockholders for whom appraisal rights are available be notified not less than 20 days before the stockholders’ meeting to vote on the Merger that appraisal rights will be available. A copy of Section 262 must be included with such notice. This proxy statement constitutes our notice to our stockholders of the availability of appraisal rights in connection with the Merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex F to this proxy statement since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under Delaware law.

If you elect to demand appraisal of your shares, you must satisfy each of the following conditions: 

 If you fail to comply with any of these conditions and the Merger is completed, you will be entitled to receive the Preferred Consideration or Merger Consideration, as applicable, but you will have no appraisal rights with respect to your shares. All demands for appraisal should be addressed to Lyris, Inc., 6401 Hollis Street, Suite 125, Emeryville, CA 94608, Attn: Corporate Secretary, Telephone: (800) 768-2929, and must be delivered before the vote on the Merger Agreement is taken at the Special Meeting and should be executed by, or on behalf of, the record holder of the shares of Common Stock or Preferred Stock. The demand must reasonably inform us of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares.

 To be effective, a demand for appraisal by a holder of shares of Common Stock or Preferred Stock must be made by, or in the name of, such registered stockholder, fully and correctly, as the stockholder’s name appears on his, her or its stock certificate(s).

 Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to us. The beneficial holder must, in such cases, have the registered owner, such as a broker, bank or other nominee, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a nominee for others, may exercise his or her right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

 If you hold your shares of common stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your brokerage firm, bank, trust or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 Within 10 days after the effective date of the Merger, the surviving corporation must give written notice that the Merger has become effective to each stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the Merger Agreement and the Merger. At any time within 60 days after the effective time of the Merger, any stockholder who has demanded an appraisal, and who has not commenced an appraisal proceeding or joined that proceeding as a named party, has the right to withdraw the demand and to accept the cash payment specified by the Merger Agreement for his, her or its shares of Common Stock or Preferred Stock; after this period, the stockholder may withdraw such demand for appraisal only with the written consent of the surviving corporation. Within 120 days after the effective date of the Merger, any stockholder who has complied with Section 262 of the DGCL will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and the Merger and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares of Common Stock or Preferred Stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from the surviving corporation the statement described in the previous sentence. Such written statement will be mailed to the requesting stockholder within 10 days after such written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and who is otherwise entitled to appraisal rights may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. A person who is the beneficial owner of shares of Common Stock or Preferred Stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file the petition described in the previous sentence. Upon the filing of the petition by a stockholder, service of a copy of such petition will be made upon Lyris, as the surviving corporation. The surviving corporation has no obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal. We have currently have no intention to file an appraisal petition, and stockholders seeking to exercise appraisal rights should not assume that we will file such a petition or that we will initiate any negotiations with respect to the fair value of such shares. Accordingly, 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.

 If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Register in Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 of the DGCL and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 After determination of the stockholders entitled to appraisal of their shares of Common Stock or Preferred Stock, the Delaware Court of Chancery will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective date of the Merger through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the Merger and the date of payment of the judgment. When the value is determined, the Delaware Court of Chancery will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by such holders of the certificates representing those shares.

 Upon application by Lyris, as the surviving corporation of the Merger or any stockholder entitled to participate in the appraisal proceeding, the Delaware Court of Chancery may, in its discretion, proceed to trial upon the appraisal before the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the verified list filed by Lyris (as explained above), as the surviving or resulting corporation of the Merger, and who has submitted such stockholder’s certificates of stock to the Register in Chancery, (if required), may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under Section 262.

 In determining fair value, and, if applicable, interest, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.”

 Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 Although we believe the Preferred Consideration and the Merger Consideration are fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and you should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the Merger Agreement. You should also be aware that an investment banking opinion as to fairness from a financial point of view is not necessarily an opinion as to fair value under Section 262. Moreover, the surviving corporation does not anticipate offering more than the value that you are entitled to receive under the terms of the Merger Agreement to any stockholder exercising appraisal rights and reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of our common stock is less than the Merger Consideration.

 Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the 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, without limitation, 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 had demanded appraisal rights will not, after the effective time of the Merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a Record Date prior to the effective time; however, if no petition for appraisal is filed within 120 days after the effective time of the Merger, or if the stockholder delivers a written withdrawal of his, her or its demand for appraisal and an acceptance of the terms of the Merger within 60 days after the effective time of the Merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its shares of our common stock pursuant to the Merger Agreement. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the prior approval of the Court, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will maintain the right to withdraw its demand for appraisal and to accept the cash that such holder would have received pursuant to the Merger Agreement within 60 days after the effective date of the Merger.

 Failure to comply with all of the procedures set forth in Section 262 of the DGCL will result in the loss of a stockholder’s statutory appraisal rights. In view of the complexity of Section 262, stockholders who may wish to dissent from the Merger and pursue appraisal rights should consult their legal advisors.

Certain Material U.S. Federal Income Tax Considerations for U.S. Holders of our Common Stock 

This discussion does not address tax consequences for the Principal Lyris Stockholders, holders of Preferred Stock or stock options, nor does it address the tax consequences of transactions effectuated prior to or after the Merger (whether or not such transactions occur in connection with the Merger), including, without limitation, any exercise of a stock option or the acquisition or disposition of Shares other than pursuant to the Merger.

The following summary is a general discussion of certain material U.S. federal income tax consequences of the Merger to holders of our Common Stock who are U.S. persons (as defined below). This summary is based on the current provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, applicable Treasury Regulations, judicial authority and administrative rulings, all of which are subject to change, possibly with retroactive effect or different interpretations. Any such change could alter the tax consequences to our stockholders as described herein. As a result, we cannot assure you that the tax consequences described herein will not be challenged by the Internal Revenue Service, which we refer to as the IRS, or will be sustained by a court if challenged by the IRS. No ruling from the IRS has been or will be sought with respect to any aspect of the transactions described herein.

This summary provides general information only and does not purport to be a complete analysis of all potential tax effects of the Merger. For example, it does not consider the effect of any applicable state, local, or non-U.S. tax laws, or any non-income tax laws (such as estate and gift tax laws). In addition, it does not address all aspects of U.S. federal income taxation that may affect particular stockholders in light of their particular circumstances, including, without limitation, stockholders:

This summary also does not consider any alternative minimum or Medicare contribution tax considerations that may be applicable to stockholders.

For purposes of this discussion, a U.S. person is a beneficial owner of our Common Stock that is:  

For purposes of this discussion, a “non-U.S. person” is a beneficial owner of our Common Stock that is not a U.S. person.

Stockholders who are not covered by this summary, including partners of partnerships or owners of other pass-through entities holding our capital stock, are encouraged to consult their own tax advisors.

Treatment of Holders of Common Stock who are U.S. Persons

The conversion of our Common Stock into the right to receive cash in the Merger will generally be a taxable transaction to U.S. persons. This generally means that a holder of our Common Stock that is a U.S. person will recognize gain or loss equal to the difference between (1) the amount of cash the stockholder receives in the Merger in exchange for its Common Stock and (2) the stockholder’s adjusted tax basis in the Common Stock surrendered therefor. Gain or loss recognized will generally be capital gain or loss, and will be a long-term capital gain or loss if the holder has held the Shares for more than one year as of the date of the Merger. Long-term capital gains of non-corporate taxpayers are currently taxed at preferential U.S. federal income tax rates. The deductibility of capital losses is generally subject to limitation. Gain or loss must be calculated separately for each block of our stock (i.e., shares of our stock acquired at the same time in a single transaction).

Appraisal Rights

Under specified circumstances, a Lyris stockholder may be entitled to appraisal rights in connection with the Merger. If a Lyris stockholder that is a U.S. person receives cash pursuant to the exercise of appraisal rights, such stockholder generally will recognize gain or loss, measured by the difference between the cash received and such stockholder’s tax basis in the Common Stock surrendered therefor. Interest, if any, awarded in an appraisal proceeding by a court would be included in such stockholder’s income as ordinary income for U.S. federal income tax purposes. Stockholders who may exercise appraisal rights are urged to consult their own tax advisors.

Backup Withholding and Information Reporting

A Lyris stockholder may be subject to “backup withholding” with respect to certain “reportable payments” including taxable proceeds received in exchange for the stockholder’s Common Stock in the Merger. The current backup withholding rate is 28% but this rate could change at any time. Backup withholding will generally not apply, however, to a Lyris stockholder who is a U.S. person and who furnishes the paying agent with a correct taxpayer identification number on IRS Form W-9 (and who does not subsequently become subject to backup withholding) or who is otherwise exempt from backup withholding, such as a corporation. Lyris stockholders who fail to provide their correct taxpayer identification numbers may be subject to penalties imposed by the IRS. In addition, certain non-U.S. persons such as certain nonresident aliens may establish an exemption from backup withholding by delivering the proper version of IRS Form W-8 certifying their non-U.S. status. Each Lyris stockholder and, if applicable, each other payee, should complete and sign the IRS Form W-9 included with the letter of transmittal (or other applicable form such as an IRS Form W-8 in the case of non-U.S. persons) in order to provide the information and certification necessary to avoid the imposition of backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent. In the event any amount is withheld as a result of the backup withholding requirements, the affected stockholder should consult with such stockholder’s own tax advisor regarding whether and how any refund, credit or other tax benefit might be recognized with respect to the amounts so withheld. In addition, the amount so withheld will be deemed received by the stockholder for the purposes of computing any gain or loss recognized by the stockholder.

LYRIS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES, AND AS TO ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR OWN RESPECTIVE TAX SITUATIONS.

CERTAIN RELATIONSHIPS BETWEEN BUYER AND LYRIS

 There are no material relationships between Buyer or any of its respective affiliates, on the one hand, and Lyris or any of its affiliates, on the other hand, other than in respect of the Merger Agreement, the arrangements described below and those arrangements described above under “The Merger — Interests of our Directors and Executive Officers in the Merger.”

Subscription for Shares in Buyer

In connection with the Merger, Aurea subscribed for an aggregate of 500 shares of common stock, par value $0.0001 per share, of Buyer at $10.00 per share which is intended to reflect the fair market value of the shares at the effective time of the Merger.  Such shares represent 50% of Buyer’s outstanding common stock. In addition, in order to preserve certain tax attributes of Lyris, the Lyris stockholders who held a controlling interest in Lyris, which we refer to as the Non-Aurea LY Stockholder, the Non-Aurea LY Stockholders collectively subscribed for an aggregate of 500 shares of common stock, par value $0.0001 per share, of Buyer at $10.00 per share, which is intended to reflect the fair market value of the shares at the effective time of the Merger.  Such shares represent 50% of Buyer’s outstanding common stock. Upon the consummation of the Merger, Lyris will become a subsidiary of Aurea. The Subscription Agreements are attached as Annex G to this proxy statement. See also “Opinion of Duff & Phelps, LLC — Valuation of Equity Interests Purchased by Non-Aurea LY Stockholders” for the analysis of Duff & Phelps that the fair market value of shares of Buyer purchased by the Non-Aurea LY Stockholders was nominal.

Indemnification Rights Agreement

Concurrently with the execution of the Merger Agreement, Lyris entered into an indemnification rights agreement with William T. Comfort III, who we refer to as Comfort, pursuant to which Comfort, on his own behalf, on behalf of any affiliate and on behalf of any person or entity having a claim directly or indirectly through Comfort against Lyris, among other things, waived his right to indemnification, contribution or reimbursement of expenses from Lyris, its affiliates or any of their respective former, current or future directors, officers, managers, equityholders, agents and other representatives in connection with that certain lawsuit filed on February 14, 2012 in the United States District Court for the District of Maryland by David R. Burt and Janet H. Burt against certain current and former directors, officers and Lyris stockholders, which we refer to as the Burt Litigation, and provided an indemnity and a financial backstop to Lyris in the event that Lyris is obligated to indemnify any director or officer defendants in connection with the Burt Litigation under any indemnification agreements with Lyris, Lyris’ governing documents or applicable law, or to the extent Lyris, Buyer or any of its affiliates incurs any cost, expense or liability in connection with the Burt Litigation.  The maximum amount of the financial backstop, which we refer to as Backstop Cap, that Comfort will be required to pay is approximately $8.3 million in the aggregate, and the Backstop Cap will be in addition to, and will not to be reduced by, any insurance benefits provided to cover or protect Lyris or any person or entity in connection with the Burt Litigation under specified insurance policies.  The indemnification rights agreement will become effective upon the occurrence of the effective time of the Merger and will be null and void and have no force or effect if the Merger is not consummated or if the Merger Agreement is terminated pursuant to its terms. The Indemnification Rights Agreement is attached as Annex H to this proxy statement.

Voting Agreement and Irrevocable Proxy

Concurrently with the execution of the Merger Agreement, Buyer entered into a voting agreement and irrevocable proxy, which we refer to as the Voting Agreement and Irrevocable Proxy, with Aurea; the Non-Aurea LY Stockholder; and William T. Comfort III, Stuyvesant P. Comfort and James A. Urry, who we refer to collectively as the Principal LY Stockholder Owners as a condition to Aurea entering into the proposed transactions. Under the terms of the Voting Agreement and Irrevocable Proxy, the Non-Aurea LY Stockholders agreed to vote all shares of Buyer’s common stock owned by them in such manner as may be directed by Aurea, including, without limitation, to elect individuals to Buyer’s Board of Directors and the Principal LY Stockholder Owners agreed to cause the respective Non-Aurea LY Stockholders to comply with such covenant.

In addition, each Principal LY Stockholder agreed to irrevocably grant and appoint Andrew Price, or such other person as Aurea may designate from time to time, as such Principal LY Stockholder’s proxy and attorney-in-fact to vote all shares of Buyer’s common stock owned by such Non-Aurea LY Stockholder at any meeting of the Lyris stockholders, or at any adjournment thereof or in any other circumstances upon which a vote, agreement, consent (including unanimous written consents) or other approval is sought. Such irrevocable proxy was given in connection with, and in consideration of, the issuance of the shares of Buyer’s common stock by Buyer to each Principal LY Stockholder and was given to secure the performance of the duties of the Non-Aurea LY Stockholder under the Voting Agreement and Irrevocable Proxy. The Non-Aurea LY Stockholder agreed that the grant of the irrevocable proxy is coupled with an interest and may under no circumstances be revoked. The Voting Agreement and Irrevocable Proxy is attached as Annex K to this proxy statement.

  LITIGATION RELATED TO THE MERGER

 As of the date of this proxy statement, we not aware of any lawsuits that have been filed relating to the Merger or the Merger Agreement.

THE SPECIAL MEETING

 We are furnishing this proxy statement to you as part of the solicitation of proxies by our Board of Directors for use at the Special Meeting.

Date, Time and Place

 The Special Meeting will be held at our offices located at 6401 Hollis Street, Suite 125, Emeryville, CA 94608 at 10:00 a.m., local time, on            , 2015.

Purpose of the Special Meeting

 You will be asked at the Special Meeting to adopt the Merger Agreement. The Board of Directors has determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, Lyris and our stockholders and recommends that our stockholders vote to adopt the Merger Agreement. If necessary, you will also be asked to vote on a proposal to adjourn the Special Meeting for the purpose of soliciting proxies to vote in favor of the adoption of the Merger Agreement.

Record Date; Stock Entitled to Vote; Quorum

 Only holders of record of Common Stock and Preferred Stock at the close of business on May 18, 2015, which we refer to as the Record Date, are entitled to notice of and to vote at the Special Meeting. Each stockholder of record is entitled to one vote for each share of stock on each proposal presented at the Special Meeting. On the Record Date, 9,568,613 shares of Common Stock were issued and outstanding and held by 460 holders of record, and 2,000,000 shares of Preferred Stock were issued and outstanding and held by one holder of record. A quorum will be present at the Special Meeting if a majority of the outstanding shares of Lyris capital stock entitled to vote on the Record Date are represented in person or by proxy. In the event that a quorum is not present at the Special Meeting, or there are not sufficient votes at the time of the Special Meeting to adopt the Merger Agreement, it is expected that the meeting will be adjourned to solicit additional proxies if the chairman of the meeting or holders of a majority of the stockholders present, in person or by proxy, and entitled to vote at the Special Meeting approve an adjournment. Holders of record of Lyris capital stock on the Record Date are entitled to one vote per share at the Special Meeting on each proposal presented.

Vote Required

 The adoption of the Merger Agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock as of the Record Date, and the holders of a majority of the outstanding shares of Common Stock and Preferred Stock voting together as a single class on an as-converted basis as of the Record Date. If you abstain from voting or do not vote, either in person or by proxy, it will have the same effect as a vote “against” the adoption of the Merger Agreement. The approval, on an advisory basis, of the Merger-related compensation for Lyris’ named executive officers requires the affirmative vote of a majority of the stockholders present, in person or by proxy, entitled to vote at the Special Meeting. If you abstain from voting or do not vote, either in person or by proxy, it will have the same effect as a vote “against” the approval, on an advisory basis, of the Merger-related compensation for Lyris’ named executive officers. The approval of the adjournment of the Special Meeting requires the affirmative vote of a majority of the stockholders present, in person or by proxy, entitled to vote at the Special Meeting. If you abstain from voting or do not vote, either in person or by proxy, it will have the same effect as a vote “against” the approval of an adjournment of the Special Meeting.

Voting of Proxies

 All shares represented by properly executed proxies received in time for the Special Meeting will be voted at the Special Meeting in the manner specified by the holders. Properly executed proxies that do not contain voting instructions will be voted “FOR” the adoption of the Merger Agreement, “FOR” the proposal to approve, on an advisory basis, the Merger-related compensation for Lyris’ named executive officers and “FOR” approval of the proposal to adjourn the Special Meeting, if necessary.

 To vote, please complete, sign, date and return the enclosed proxy card. If you attend the Special Meeting and wish to vote in person, you may withdraw your proxy and vote in person. If your shares are held in the name of your broker, bank or other nominee, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Special Meeting.

Shares of Common Stock and Preferred Stock represented at the Special Meeting but not voted, including shares of Common Stock and Preferred Stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the Special Meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

 Only shares affirmatively voted for the adoption of the Merger Agreement, including properly executed proxies that do not contain specific voting instructions, will be counted “FOR” that proposal. Only shares affirmatively voted for on an advisory basis, of the Merger-related compensation for Lyris’ named executive officers, including properly executed proxies that do not contain specific voting instructions, will be counted “FOR” that proposal. If you abstain from voting, it will have the same effect as a vote “against” the adoption of the Merger Agreement, “against” the proposal to approve, on an advisory basis the Merger-related compensation for Lyris’ named executive officers, and “against” the proposal to adjourn the Special Meeting. If you do not execute a proxy card, it will have the same effect as a vote “against” the adoption of the Merger Agreement, “against” the proposal to approve, on an advisory basis the Merger-related compensation for Lyris’ named executive officers, and “against” the proposal to grant authority to adjourn the Special Meeting. Brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approval of non-routine matters, such as the adoption of the Merger Agreement and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” Broker non-votes will be treated as shares that are present at the Special Meeting for purposes of determining whether a quorum exists and will have the same effect as votes “against” the adoption of the Merger Agreement, on an advisory basis, of the Merger-related compensation for Lyris’ named executive officers and on the proposal to adjourn the Special Meeting, if necessary.

 No business may be transacted at the Special Meeting other than the proposal to adopt the Merger Agreement and, if necessary, the proposal to adjourn the Special Meeting.

For Shares Registered in the Name of a Broker or Bank

 Most beneficial owners whose stock is held in street name receive instructions for authorizing votes by their banks, brokers or other agents, rather than from our proxy card.

 A number of brokers and banks are participating in a program that offers the means to authorize votes over the Internet and by telephone. If your shares are held in an account with a broker or bank participating in such a program, you may authorize a proxy to vote those shares over the Internet at the Internet URL specified on the instruction form received from your broker of bank, or by telephone by calling the telephone number shown on the instruction form received from your broker or bank.

Revocability of Proxies

 The grant of a proxy on the enclosed proxy card does not preclude a stockholder from voting in person at the Special Meeting. You may revoke your proxy at any time before the shares reflected on your proxy card are voted at the Special Meeting by:

 Your attendance at the Special Meeting will not in and of itself constitute the revocation of a proxy. If you have instructed your broker to vote your shares, you must follow the directions received from your broker to change these instructions.

Solicitation of Proxies

 This proxy solicitation is being made and paid for by Lyris. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone or facsimile. These persons will not be paid additional remuneration for their efforts. We will also request brokers and other custodians, nominees and fiduciaries to forward proxy solicitation material to the beneficial owners of shares of Common Stock that the brokers and other custodians, nominees and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses.

 You should not send your stock certificates with your proxy. A letter of transmittal with instructions for the surrender of common stock certificates will be mailed to our stockholders as soon as practicable after completion of the Merger.

Delivery of this Proxy Statement to Multiple Stockholders with the Same Address

 The SEC has adopted rules that permit companies and intermediaries (for example, brokers) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address if we believe the stockholders are members of the same family by delivering a single proxy statement addressed to those stockholders. Each stockholder will continue to receive a separate proxy card or voting instruction card. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies by reducing the volume of duplicate information.

 A number of brokers with account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker or us that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If your household received a single proxy statement, but you would prefer to receive your own copy, please notify your broker and direct your written request to Lyris, Inc., Attention: Investor Relations, 6401 Hollis Street, Suite 125, Emeryville, CA 94608, or contact our Investor Relations Department at (610) 688-3305. If you would like to receive your own set of our proxy materials in the future, or are one of multiple stockholders sharing an address and would like to request “householding” in the future, please contact your broker and Lyris, Inc., Investor Relations and inform them of your request. Be sure to include your name, the name of your brokerage firm and your account number.

THE MERGER AGREEMENT

 The following description sets forth the material provisions of the Merger Agreement but does not purport to describe all of the terms of the Merger Agreement. The full text of the Merger Agreement is attached to this proxy statement as Annex A. You are urged to read the Merger Agreement in its entirety because it is the legal document that governs the Merger. The Merger Agreement should be read in conjunction with the disclosures in our filings with the SEC available at the SEC’s website, www.sec.gov. The provisions contained in the Merger Agreement are intended to govern the contractual rights and relationships, and to allocate risks, between us and Buyer with respect to the Merger.

The Merger

Subject to the terms and conditions of the Merger Agreement, Buyer will merge with and into Lyris, with Lyris continuing as the surviving corporation. As a result of the Merger, Lyris will cease to be an independent, publicly-traded company. The Merger shall become effective upon the date and time of the filing of such certificate of merger with the Secretary of State of the State of Delaware or such later date and time as is agreed upon in writing by the parties and specified in the certificate of merger.

Merger Consideration

 At the effective time of the Merger, each share of our Common Stock then outstanding (other than shares (i) where the holder has property exercised appraisal rights under Section 262 of the DGCL (and has not withdrawn such exercise or lost such rights) or (ii) owned by Lyris, any of our wholly-owned subsidiaries or Buyer) will be automatically converted into the right to receive $0.89 in cash, without interest and subject to any required withholding taxes.

Preferred Consideration

At the effective time of the Merger, each share of our Preferred Stock then outstanding (other than shares (i) where the holder has property exercised appraisal rights under Section 262 of the DGCL (and has not withdrawn such exercise or lost such rights) or (ii) owned by Lyris, any of our wholly-owned subsidiaries or Buyer) will be automatically converted into the right to receive $2.50 in cash, without interest and subject to any required withholding taxes.

Certificate of Incorporation and Bylaws; Directors and Officers

The certificate of incorporation of the surviving corporation will be amended and restated as of the effective time of the Merger to be in the form of the certificate of incorporation attached as an exhibit to the Merger Agreement, until changed or amended in accordance with its terms and as provided by applicable law. The bylaws of the surviving corporation shall be amended and restated as of the effective time of the Merger to conform to the bylaws of Buyer as in effect immediately prior to the effective time of the Merger.

The board of directors of the surviving corporation will, immediately after the effective time of the Merger, consist of the directors of Buyer. The officers of the surviving corporation will, immediately after the effective time of the Merger, consist of the officers of Buyer.

Treatment of Stock Options

All Lyris stock options have a per share exercise price greater than the per share Merger Consideration. As a result, all Lyris stock options will be cancelled upon consummation of the Merger and the holders of such stock options will not have any right to receive any consideration in respect thereof.

Prior to the effective time of the Merger, we will also terminate our 2005 Equity-Based Compensation Plan, as amended.

Stockholders Seeking Appraisal

 The Merger Agreement provides that those stockholders who are entitled to demand and properly demand appraisal will not have the right to receive the Merger Consideration or Preferred Consideration, as applicable, but will receive payment in cash for the fair value of their shares of our Common Stock and Preferred Stock as determined in accordance with Delaware law. If a holder fails to perfect, withdraws or loses such holder’s right to appraisal of our Common Stock and Preferred Stock, such holder’s shares will be treated as if they had been converted into the right to receive the Merger Consideration or Preferred Consideration as of the effective time of the Merger without interest and the stockholder’s right to appraisal will be extinguished. The Principal Lyris Stockholders are the holders of all outstanding Preferred Stock. Therefore, no holders of Preferred Stock will be entitled to appraisal rights.

The fair value of shares of our Common Stock and Preferred Stock as determined in accordance with Delaware law may be more or less than (or same as) the Merger Consideration and Preferred Consideration to be paid to stockholders who choose not to exercise their appraisal rights. Stockholders who wish to exercise appraisal rights must precisely follow specific procedures. Additional details on appraisal rights are described above in “The Merger—Appraisal Rights.”

We will give Buyer prompt notice of any written demands received by us for appraisal of any shares of our Common Stock or Preferred Stock and any withdrawals of such demands, and Buyer shall have the right to participate in all negotiations and proceedings with respect to such demands. We shall not, without the prior written consent of Buyer or as required by applicable legal requirements, make any payment with respect to, or settle or offer to settle, any such demands.

Payment for the Shares

Buyer will designate a paying agent reasonably acceptable to us to make payment of the Merger Consideration and Preferred Consideration as contemplated by the Merger Agreement. At or prior to the effective time of the Merger, Buyer will deposit with the paying agent sufficient funds to pay the Merger Consideration and Preferred Consideration to our stockholders.

Promptly after the effective time of the Merger, the paying agent will send you a letter of transmittal and instructions advising you on how to surrender your shares of Common Stock and Preferred Stock in exchange for the Merger Consideration or Preferred Consideration, as applicable. The paying agent will pay you your Merger Consideration and/or Preferred Consideration after you have (1) surrendered your shares of Common Stock and Preferred Stock and (2) provided to the paying agent a properly completed letter of transmittal and any other documents reasonable required by the paying agent. Interest will not be paid or accrue in respect of cash payments. The amount of any cash payments paid to you will be reduced by any applicable withholding taxes. YOU SHOULD NOT SURRENDER YOUR SHARES OF COMMON STOCK OR PREFERRED STOCK WITHOUT A LETTER OF TRANSMITTAL.

If any stock certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such stock certificate to be lost, stolen or destroyed and, if required by the surviving corporation, the posting by such person of a bond, in such reasonable amount as Buyer may direct, as indemnity against any claim that may be made against it with respect to such stock certificate, the paying agent will pay the applicable Merger Consideration or Preferred Consideration to be paid in respect of the shares of Common Stock or Preferred Stock formerly represented by such stock certificate.

Representations and Warranties

The Merger Agreement contains representations and warranties made by Lyris to Buyer, including representations and warranties relating to:

The Merger Agreement also contains representations and warranties made by Buyer to Lyris, including representations and warranties relating to:

The representations and warranties of each of the parties to the Merger Agreement will expire upon completion of the Merger.

Conduct of Business Pending the Merger

During the period from the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement, except with the written consent of Buyer, Lyris has agreed (and has agreed to cause its subsidiaries) to conduct in all material respects its respective businesses in the ordinary course consistent with past practice and shall use commercially reasonable efforts to (A) preserve intact the business organization and material assets of Lyris and its subsidiaries, and (B) maintain in effect all of the governmental authorizations of Lyris and its subsidiaries and Lyris will notify Buyer in writing of (i) any notice from any person alleging that the such person’s consent is or may be required in connection with any of the transactions contemplated by the Merger Agreement, (ii) any legal proceeding commenced, or, to our knowledge threatened, relating to or involving us that relates to the consummation of the transactions contemplated by the Merger Agreement, (iii) any knowledge of any inaccuracy or breach of any representation or warranty or breach of covenant or agreement contained in the Merger Agreement that could reasonably be expected to cause, in the case of Buyer, any of the conditions set forth under “The Merger Agreement—Conditions to the Merger—Conditions to Buyer’s Obligations” or “The Merger Agreement—Conditions to the Merger—Conditions to Each Party’s Obligations” not to be satisfied, and, in the case of Lyris, any of the conditions set forth under “The Merger Agreement—Conditions to the Merger—Conditions to Lyris’ Obligations” or “The Merger Agreement—Conditions to the Merger—Conditions to Each Party’s Obligations” not to be satisfied, and (D) any notification (written or verbal) from any material customer that there would be an adverse change in the relations between Lyris and such material customer, including that any such material customer would cease to order products or services from Lyris or its subsidiaries, would reduce the quantity of products or services it orders, or would seek a reduction in the prices of the products sold or services rendered.

In addition, during the same period, Lyris has also agreed that, subject to certain exceptions, without the prior written consent of Buyer, it will not, and will not permit its subsidiaries to:

Efforts to Complete the Merger

Subject to the terms and conditions set forth in the Merger Agreement, Lyris and Buyer have agreed to use commercially reasonable efforts to take, or cause to be taken, all actions that are necessary to consummate the Merger and make effective the other transactions contemplated by the Merger Agreement. Lyris and Buyer have further agreed to (i) make all filings (if any) and give all notices (if any) required to be made and given in connection with the Merger and the other transactions contemplated by the Merger Agreement which, with respect to contracts, shall be limited to the material contracts set forth on the disclosure schedule that Lyris delivered to Buyer in connection with the execution of the Merger Agreement, (ii) use commercially reasonable efforts to obtain each consent (if any) required to be obtained pursuant to applicable legal requirements or material contracts in connection with the transactions contemplated by the Merger Agreement which, with respect to material contracts, shall be limited to the material contracts set forth on the disclosure schedule that Lyris delivered to Buyer in connection with the execution of the Merger Agreement and (iii) use commercially reasonable efforts to lift any restraint, injunction or other legal bar to the Merger brought by any third party, provided, that, in the case of clauses (ii) and (iii) above, (x) neither Lyris or any of its subsidiaries may pay or cause to be paid to any third person any amounts in excess of $10,000 in the aggregate in exchange for obtaining any such consent or lifting any such restraint, injunction or other legal bar, and (y) Buyer shall not be required to pay or cause to be paid to any person any amounts in exchange for obtaining any such Consent or lifting any such restraint, injunction or other legal bar. Lyris shall promptly deliver to Buyer a copy of each such filing made, each such notice given and each such consent obtained by the Company during the period from the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement.

Conditions to the Merger

The consummation of the Merger is subject to certain customary closing conditions, as described further below.

Condition to Each Party’s Obligations. Each party’s obligations to effect the Merger are subject to the satisfaction, at or prior to the closing of the Merger, of the condition that the Merger Agreement shall have been duly adopted by the affirmative vote of the holders of (i) a majority of the shares of Preferred Stock and (ii) a majority of Common Stock and Preferred Stock voting together as a single class on an as-converted basis, in each case outstanding on the Record Date for the Special Meeting.

Conditions to Obligations of Buyer. The obligation of Buyer to effect the Merger are further subject to the satisfaction, at or prior to the closing of the Merger, of each of the following conditions:

For purposes of the Merger Agreement, an event, occurrence, change, effect, violation, inaccuracy, circumstance or other matter will be deemed to have a “material adverse effect” on Lyris and each of its subsidiaries if such event, occurrence, change, effect, violation, inaccuracy, circumstance or other matter (whether or not any such matter, considered together with all other matters, would constitute a breach to the representations, warranties, covenants or agreements of Lyris set forth in the Merger Agreement) had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on (a) the business, assets, liabilities, condition (financial or otherwise) or results of operations of Lyris and each of its subsidiaries taken as a whole or (b) the ability of Lyris to consummate the transactions contemplated by the Merger Agreement; provided, however, that none of the following shall be deemed in and of themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there is, or would reasonably likely to be, a material adverse effect on Lyris and each of its subsidiaries: (i) any change in the market price or trading volume of Lyris’ stock; (ii) any event, violation, inaccuracy, circumstance or other matter resulting from the announcement of the transactions contemplated by the Merger Agreement (other than for purposes of any representation or warranty contained in the non-contravention and consents section contained in the Merger Agreement but subject to certain disclosures in the disclosure schedule that Lyris delivered to Buyer in connection with the execution of the Merger Agreement), (x) including to the extent so resulting in, any disruption in (or loss of) supplier, distributor, partner, reseller or similar relationships, or any loss of employees or any litigation arising from the allegations of breach of fiduciary duty or violation of Legal Requirements relating to the Merger Agreement or the transactions contemplated by the Merger Agreement, but (y) excluding to the extent so resulting from any loss of one or more customers or any reduction in billings or revenue resulting therefrom; (iii) any event, circumstance, change or effect in the industries in which Lyris and each of its subsidiaries operate or in the economy generally or other general business, financial or market conditions, except to the extent that Lyris and each of its subsidiaries are adversely affected disproportionately relative to the other participants in the industries in which Lyris and each of its subsidiaries operate; (iv) any event, circumstance, change or effect arising directly or indirectly from or otherwise relating to fluctuations in the value of any currency; (v) any event, circumstance, change or effect arising directly or indirectly from or otherwise relating to any act of terrorism, war, national or international calamity, except to the extent that such event, circumstance, change or effect disproportionately affects Lyris and each of its subsidiaries relative to other participants in the industries in which Lyris and each of its subsidiaries operate; (vi) the failure of Lyris and each of its subsidiaries to meet internal or analysts’ expectations or projections; (vii) any adverse effect arising directly from or otherwise directly relating to any action taken by Lyris and each of its subsidiaries at the written direction of Buyer or any action specifically required to be taken by Lyris and each of its subsidiaries under the Merger Agreement; (viii) any change resulting or arising from the identity of Buyer or any of its affiliates; (ix) any event, circumstance, change or effect relating to any change occurring after the date of the Merger Agreement in, any legal requirement or GAAP (or interpretations of any legal requirement or GAAP) after the date hereof or; (x) any change or prospective change in Lyris’ credit ratings occurring after the date of the merger Agreement; it being understood that the exceptions in clauses “(i)”, “(vi)” and “(x)” shall not prevent or otherwise affect a determination that the underlying cause of any such decline or failure referred to therein (if not otherwise falling within any of the exceptions provided by clauses “(ii)” through “(v)” or “(vii)” through “(ix)” hereof) is a material adverse effect.

Conditions to Obligations of Lyris. Lyris’ obligation to effect the Merger is further subject to the satisfaction or waiver by Lyris of the following conditions:

No Solicitation of Other Offers

From the date of the Merger Agreement through the effective date of the Merger or the termination of the Merger Agreement, Lyris shall not and shall cause each of its subsidiaries not to and shall not permit its representatives to (i) continue any solicitation, knowing encouragement, discussions or negotiations with any persons that may be ongoing with respect to an acquisition proposal, (ii) directly or indirectly, (A) solicit, initiate or knowingly facilitate or encourage (including by way of furnishing information) any inquiries regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, an acquisition proposal, (B) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any information in connection with or for the purpose of encouraging or facilitating, an acquisition proposal or (C) enter into any letter of intent, acquisition agreement, agreement in principle or similar agreement with respect to an acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal, and (iii) fail to enforce or grant any waiver or release under any standstill or similar agreement to which Lyris is a party (or on whose behalf such agreement has been entered into) unless Lyris’ Board of Directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would be a breach of the fiduciary duties of Lyris’ Board of Directors to Lyris’ stockholders under applicable legal requirements.

Lyris shall promptly deliver a written notice to each person that entered into a confidentiality agreement in anticipation of potentially making an acquisition proposal, to the effect that Lyris is ending all discussions and negotiations with such person with respect to any acquisition proposal, effective on the date of the Merger Agreement, and the notice shall also request such person to promptly return or destroy all confidential information concerning Lyris and its subsidiaries.

If at any time prior to obtaining the requisite stockholder approval, (i) Lyris or any of its representatives receives a bona fide written acquisition proposal from any person, which acquisition proposal was made or renewed on or after the date of the Merger Agreement and did not result from any breach of the no solicitation provision contained in the Merger Agreement, and (ii) if Lyris’ Board of Directors determines in good faith, after consultation with independent financial advisors and outside legal counsel, that such acquisition proposal constitutes or would reasonably be expected to lead to a superior offer and that failure to take such action would be a breach of the fiduciary duties of Lyris’ Board of Directors to Lyris’ stockholders under applicable legal requirements, then Lyris and its representatives may (x) furnish, pursuant to (but only pursuant to) a confidentiality agreement which contains provisions that are no less favorable in the aggregate to Lyris than those contained in the confidentiality agreement between Lyris and Buyer, information (including non-public information) with respect to Lyris or any of its subsidiaries to the person making such acquisition proposal; provided that Lyris shall concurrently provide to Buyer any information concerning Lyris or any of its subsidiaries that is provided to any person given such access which was not previously provided to Buyer or its representatives and (y) engage in or otherwise participate in discussions or negotiations with the person making such Acquisition Proposal.

The term “acquisition proposal” means any proposal or offer from any person (other than Buyer and its affiliates) or “group”, within the meaning of Section 13(d) of the Exchange Act, relating to, in a single transaction or series of related transactions, any (i) acquisition of assets of Lyris and its subsidiaries equal to 20% or more of the Lyris’ consolidated assets or to which 20% or more of Lyris’ revenues or earnings on a consolidated basis are attributable, (ii) issuance or acquisition of 20% or more of the outstanding Common Stock, (iii) recapitalization, tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the outstanding Common Stock or (iv) merger, consolidation, amalgamation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving Lyris that if consummated would result in any person beneficially owning 20% or more of the outstanding Common Stock, in each case other than the transactions contemplated by the Merger Agreement.

The term “superior offer” means a bona fide written acquisition proposal that our Board of Directors determines, in its good faith judgment, after consultation with its outside legal counsel and its financial advisor of nationally recognized reputation, (i) is reasonably likely to be consummated in accordance with its terms, taking into account all legal, regulatory and financing aspects (including certainty of closing) of the proposal and the person making the proposal and other aspects of the acquisition proposal that our Board of Directors deems relevant, (ii) is not subject to a financing condition, and (iii) if consummated, would result in a transaction more favorable to Lyris’ stockholders (solely in their capacity as such) from a financial point of view than the transaction contemplated by the Merger Agreement; provided that for purposes of the definition of “superior offer”, the references to “20%” in the definition of acquisition proposal shall be deemed to be references to “100%.”

Change of Board Recommendation

The determination that the Merger Agreement, the Merger and the transactions contemplated by the Merger Agreement, including the Merger, are advisable to, and in the best interest of, Lyris and its stockholders, approval of the execution, delivery and performance by Lyris of the Merger Agreement and the consummation of the transactions contemplated by the Merger Agreement, including the Merger and resolution to recommend the approval of the Merger Agreement and the Merger by the Lyris stockholders are collectively referred to as the “Board Recommendation.”

The Merger Agreement provides that during the period from the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement, neither Lyris’ Board of Directors nor any committee thereof shall (x)(A) withdraw (or modify in a manner adverse to Buyer), or publicly propose to withdraw (or modify in a manner adverse to Buyer), the Board Recommendation or (B) approve, recommend or declare advisable, or propose publicly to approve, recommend or declare advisable, any acquisition proposal or (y) adopt, approve, recommend, submit to stockholders or declare advisable, or resolve or determine to adopt, approve, recommend, submit to stockholders or declare advisable, or allow Lyris or its subsidiaries to execute or enter into any company contract constituting any acquisition proposal, or requiring, or reasonably likely to cause, Lyris to abandon, terminate, delay or fail to consummate the transactions contemplated by the Merger Agreement (other than a confidentiality agreement which contains provisions that are no less favorable in the aggregate to Lyris than those contained in the confidentiality agreement between Lyris and Buyer) (any action described in this clause “(y)” being referred to as a “Company Adverse Change Recommendation”).

However, at any time prior to the receipt of the requisite stockholder approval, Lyris’ Board of Directors may make a Company Adverse Change Recommendation and terminate the Merger Agreement to enter into a binding written definitive acquisition agreement with respect to a superior offer if and only if:

Stockholder Approval; Proxy Statement

Pursuant to the Merger Agreement, Lyris has agreed to, as soon as practicable following the date the SEC confirms that it has no further comments with respect to this proxy statement, take all action necessary under all applicable legal requirements, Lyris’ certificate of incorporation and bylaws to establish a record date for, call, give notice of and hold a meeting of the holders of the shares of Common Stock to vote on the adoption of the Merger Agreement and approval of the Merger, which including any adjournment or postponement thereof, we refer to as the Special Meeting. Lyris shall ensure that all proxies solicited by Lyris in connection with the Special Meeting are solicited in compliance with all applicable legal requirements. Lyris shall use its reasonable best efforts to obtain the requisite stockholder approval.

Lyris may adjourn or postpone the Special Meeting (i) to the extent necessary to ensure that any necessary supplement or amendment to this proxy statement is provided to its stockholders in advance of a vote on the approval and adoption of the Merger Agreement, (ii) if, as of the time for which such meeting is originally scheduled (as set forth in this proxy statement), there are insufficient shares represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, and (iii) to the extent required by applicable legal requirements; provided, however, that in no event shall Lyris be permitted to postpone or adjourn the Special Meeting for more than twenty (20) days (with respect to each such postponement or adjournment) without Buyer’s prior written consent.

Subject to certain limitations set forth under “The Merger Agreement—Change of Board Recommendation,” the Board of Directors of Lyris shall include the Board Recommendation in this proxy statement. If the Board of Directors of Lyris makes a Company Adverse Change Recommendation, it will not alter the obligation of Lyris to submit the Merger Agreement to its stockholders at the Special Meeting to consider and vote upon the approval of the Merger Agreement, unless the Merger Agreement shall have been terminated in accordance with its terms prior to the Special Meeting.

Lyris agreed to, as soon as practicable following the date of the Merger Agreement, prepare this proxy statement and file it with the SEC and Lyris and Buyer agreed to timely cooperate with and assist Lyris in connection with the preparation of this proxy statement. Lyris agreed to use commercially reasonable efforts to respond as promptly as reasonably practicable to any comments of the SEC or its staff concerning this proxy statement and cause this proxy statement to be mailed to the Lyris’ stockholders as promptly as practicable after the resolution of any such comments. Lyris and Buyer agreed to promptly correct any information provided by it for use in this proxy statement if and to the extent that it shall have become false or misleading in any material respect or as otherwise required by applicable legal requirements, and Lyris further agreed to cause this proxy statement, as so corrected, to be filed with the SEC and, if any such correction is made following the mailing of this proxy statement, mailed to holders of Common Stock, in each case as and to the extent required by the Exchange Act or the SEC (or its staff).

Termination of the Merger Agreement

The Merger Agreement may be terminated prior to the effective time of the Merger (whether before or after the adoption of the Merger Agreement by the requisite stockholder approval, except as otherwise expressly noted):

Termination Fee

We must pay to Buyer a termination fee of $400,000 if:

(B) after the date of the Merger Agreement and at or prior to the time of the termination of the Merger Agreement a bona-fide acquisition proposal shall have made, commenced, submitted or announced, whether publicly or to Lyris or Lyris’ Board of Directors, and (C) Lyris consummates any acquisition proposal within 12 months after such termination or Lyris enters into a definitive agreement within 12 months after such termination to effect any acquisition proposal (provided that, for purposes of this section under the Merger Agreement, all percentages in the definition of acquisition proposal shall be replaced with 50%).

Employee Matters

The Merger Agreement provides that, for a period of one year following the effective date of the Merger, the employees of Lyris that remain employed by the surviving corporation will receive base salary and base wages, short-term cash incentive compensation opportunities and benefits (but excluding equity-based compensation) that are substantially comparable in the aggregate to such base salary and base wages, short-term cash incentive compensation opportunities and benefits (excluding equity based compensation) provided to such employees immediately prior to the execution of the Merger Agreement.

Buyer will cause the surviving corporation to assume any accrued but unused personal, sick or vacation time to which any continuing employee of Lyris is entitled pursuant to policies applicable to such continuing employee immediately prior to the effective time of the Merger and allow such continuing employee to use such accrued personal, sick or vacation time in accordance with such policies.

Buyer has agreed that the surviving corporation will be solely responsible for all termination and severance benefits (which benefits, for the avoidance of doubt, will either be provided under the plans of Buyer or its subsidiaries, or Lyris’ plans), costs, charges and liabilities of any nature incurred with respect to the termination of any continuing employees of Lyris after the closing date of the Merger, including any claims arising out of or relating to any mass layoff or similar event under applicable law occurring on or after the closing date of the Merger.

Buyer has agreed that continuing employees will be eligible to continue to participate in the surviving corporation’s health and welfare benefit plans to the same extent such continuing employees were eligible to participate under Lyris’ health and welfare benefit plans immediately prior to the effective time of the Merger. If Buyer or the surviving corporation terminates any such health or welfare benefit plan, each continuing employee will be eligible to participate in the surviving corporation’s health and welfare benefit plans to the extent that coverage under such plans is replacing comparable coverage under corresponding Lyris plans in which such continuing employee participated immediately prior to the effective time of the Merger. In addition, to the extent that service is relevant for eligibility, vesting or allowances (including paid time off) under any health or welfare benefit plan of Buyer and/or the surviving corporation, then Buyer will use its commercially reasonable efforts to ensure that such health or welfare benefit plan will, for purposes of eligibility, vesting and allowances (including paid time off) credit continuing employees for service prior to the effective time of the Merger with Lyris to the same extent that such service was recognized prior to the effective time of the Merger under the corresponding health or welfare benefit plan of Lyris. Additionally, Buyer will in no event apply a pre-existing condition or actively at work or similar limitation, eligibility waiting period, evidence of insurability requirement or other condition under any group health or welfare plan with respect to the continuing Employees and the eligible dependents of the continuing employees of Lyris, other than limitations or waiting periods that are already in effect with respect to such individuals to the extent not satisfied as of the closing date of the Merger under the corresponding Lyris plan. To the extent that any continuing employee of Lyris or any eligible dependent of a continuing employee is transferred during a plan year from coverage under one or more of Lyris’ plans to coverage under a successor group health and welfare plan, Buyer will, or will cause Lyris to, provide the affected continuing employee, or eligible dependent with credit for any co-payments, deductibles and offsets (or similar payments) made during the plan year in which the transfer occurs for the purposes of satisfying any applicable deductible, out-of-pocket or similar requirements under any such successor benefit plan, program or arrangement.

The employee benefits provisions contained in the Merger Agreement are solely for the benefit of the parties to the Merger Agreement. Employees of Lyris are not third party beneficiaries of this provision.

In addition to the foregoing, the Merger Agreement provides that Lyris will adopt adopt written resolutions to terminate its 401(k) plan, to be effective no later than one business day preceding the closing date of the Merger. Lyris will also use its reasonable best efforts to take such other actions in furtherance of terminating its 401(k) plan as Buyer may reasonably request.

Guarantee

As a condition and inducement to Lyris’ willingness to enter into the Merger Agreement, the Fund agreed to guarantee the due and punctual performance and discharge by Buyer of its payment obligations to Lyris under the provisions of the Merger Agreement governing damages for fraud. The Guarantee survives the termination of the Merger Agreement and remains in full force and effect in accordance with its terms. For a more complete description of the Guarantee, see “The Merger — Guarantee” beginning on page 35 for additional information.

Commitment Letter

As a condition and inducement to Lyris’ willingness to enter into the Merger Agreement, the Fund agreed to irrevocably commit to purchase, at or prior to the consummation of the Merger, debt securities of Buyer in an aggregate amount not less than $16.5 million, which will be used, as needed, solely to fund the amounts payable by Buyer pursuant to the Merger Agreement to cause Buyer to consummate the transactions contemplated thereby, including the Merge. Completion of the Merger is not conditioned upon obtaining financing.

Amendment and Waiver

Prior to the effective time of the Merger, the Merger Agreement may be amended with the approval of the respective boards of directors of Lyris and Buyer at any time. After the adoption of the Merger Agreement by Lyris’ stockholders, no amendment to the Merger Agreement shall be made which by applicable legal requirements requires further approval of the Lyris stockholders without the further approval of such stockholders.

THE VOTING AGREEMENT

 The following description sets forth the material provisions of the Voting Agreement, but does not purport to describe all of the terms of the Voting Agreement. The full text of the Voting Agreement is attached to this proxy statement as Annex D. You are urged to read the Voting Agreement in its entirety.

As a condition and material inducement to Buyer’s willingness to enter into and perform its obligations under the Merger Agreement, William T. Comfort III, LDN Stuyvie Partnership, Lyr, Ltd., 65 BR Trust and Meudon Investments, which we refer to collectively as the Principal Lyris Stockholders, entered into the Voting Agreement with Buyer, dated as of May 4, 2014, pursuant to which the Principal Lyris Stockholders agreed, among other things, to vote all shares of the Common Stock and Preferred Stock owned by them in favor of the Merger and the adoption of the Merger Agreement.

 Each of the Principal Lyris Stockholders agreed that during the term of the Voting Agreement, at any meeting of the Lyris stockholders, however called, including any adjournment or postponement thereof, and in connection with any action proposed to be taken by written consent of the Lyris stockholders, in each case, with respect to the shares owned beneficially or of record by such stockholder, together with any shares issued or otherwise acquired or owned and controlled by any such stockholder after the date of the Voting Agreement, which we refer to as the Covered Shares, to vote:

Under the terms of the Voting Agreement, each of the Principal Lyris Stockholders irrevocably appointed Buyer and any senior executive officer thereof, as its proxy to vote in the manner described above all shares of outstanding Common Stock and Preferred Stock held by each such stockholder.

 In addition, during the term of the Voting Agreement, each of the Principal Lyris Stockholders also agreed not to:

 Each of the Principal Lyris Stockholders also agreed that, during the term of the Voting Agreement, it will not, and will not authorize any of its representatives to, directly or indirectly: