Item 1.01.
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Entry into a Material Definitive Agreement.
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Merger Agreement
On March 11, 2018, Lumentum Holdings Inc., a Delaware corporation (
Lumentum
), Oclaro, Inc., a Delaware corporation
(
Oclaro
), Prota Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Lumentum (
Merger Sub
), and Prota Merger, LLC, a Delaware limited liability company and a wholly owned subsidiary of
Lumentum (
Merger Sub LLC
), entered into an Agreement and Plan of Merger (the
Merger Agreement
).
Pursuant to the terms of the Merger Agreement, the acquisition of Oclaro will be accomplished through a merger of Merger Sub with and
into Oclaro (the
First Step Merger
) with Oclaro surviving the First Step Merger. As soon as reasonably practicable following the First Step Merger, Oclaro will merge with and into Merger Sub LLC with Merger Sub LLC continuing as
the surviving entity (the
Second Step Merger
, and taken together with the First Step Merger, the
Merger
).
Pursuant to the terms of the Merger Agreement, and subject to the terms and conditions set forth therein, at the effective time of the First
Step Merger (the
Effective Time
), each share of the common stock of Oclaro (the
Oclaro Common Stock
) issued and outstanding immediately prior to the Effective Time (other than (x) shares of Oclaro Common
Stock owned by Lumentum, Oclaro, or any direct or indirect wholly owned subsidiary of Lumentum or Oclaro or (y) shares of Oclaro Common Stock owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law,
in each case immediately prior to the Effective Time, will be cancelled and extinguished and automatically converted into the right to receive the following consideration (collectively, the
Merger Consideration
):
(A) $5.60 in cash, without interest (the
Cash Consideration
), plus
(B) 0.0636 of a validly issued, fully paid and nonassessable share of the common stock of Lumentum, par value $0.001 per share
(
Lumentum Common Stock
) (such ratio, the
Exchange Ratio
).
With regard to
the Merger Consideration, if the aggregate number of Lumentum Common Stock to be issued in connection with the Merger (including all Lumentum Common Stock which may be issued in the future pursuant to the conversion of Oclaro Options, Oclaro RSUs,
or Oclaro Restricted Stock (as defined below)) would exceed 19.9% of the Lumentum Common Stock issued and outstanding immediately prior to the closing (the
Stock Threshold
), (a) the Exchange Ratio will be reduced to the minimum
extent necessary (rounded down to the nearest one thousandth) such that the aggregate number of shares of Lumentum Common Stock to be issued in connection with the Merger (including all shares of Lumentum Common Stock which may be issued after the
Effective Time pursuant to company compensatory awards) does not exceed the Stock Threshold and (B) the Cash Consideration for all purposes will be increased on a per share basis by an amount equal to $68.975, multiplied by the difference
between the initial Exchange Ratio and the Exchange Ratio.
The Boards of Directors of Lumentum and Oclaro have unanimously approved the
Merger and the Merger Agreement. The transaction is subject to customary closing conditions, including the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, the effectiveness of a registration statement on Form
S-4
registering the shares of Lumentum common stock to be issued in connection with the Merger, and approval by the
holders of a majority of the outstanding shares of Oclaro Common Stock. The transaction is not subject to any financing condition.
The Merger Agreement contains customary representations, warranties and covenants of Lumentum,
Oclaro, Merger Sub and Merger Sub LLC, including, (i) covenants by Oclaro concerning the conduct of its business in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and
the consummation of the Merger, (ii) covenants by Lumentum concerning the conduct of its business in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and the consummation
of the Merger, (iii) a covenant by Oclaro that, subject to certain exceptions, the Board of Directors of Oclaro will recommend to its shareholders adoption of the Merger Agreement, and (iv) a covenant that Oclaro will not solicit,
initiate, or knowingly encourage, facilitate or induce the making of inquiry, offer or proposal that would reasonably be expected to lead to any Acquisition Proposal (as defined in the Merger Agreement). The Merger Agreement contains certain
termination rights for both Lumentum and Oclaro and further provides that upon termination of the Merger Agreement under specified circumstances (including termination by Oclaro to accept a superior proposal), Oclaro may be required to pay Lumentum
a termination fee of $63 million. The Merger Agreement further provides that upon termination of the Merger Agreement under specified circumstances relating to failure to obtain regulatory approvals, Lumentum may be required to pay Oclaro a
termination fee of $80 million.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not
purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached hereto as Exhibit 2.1. We encourage you to read the Merger Agreement for a more complete understanding of the transaction. The Merger
Agreement has been attached as an exhibit to this report to provide investors and security holders with information regarding its terms. The Merger Agreement is not intended to provide any factual information about Oclaro, Lumentum, Merger Sub or
Merger Sub LLC.
Treatment of Oclaro Equity Awards
Each Oclaro restricted stock unit award (an
Oclaro RSU
) that does not become vested at the closing will be converted into a
Lumentum restricted stock unit award (a
Lumentum RSU
) with the same terms and conditions, including vesting, that were applicable to such Oclaro RSU, except that the number of Lumentum shares subject to the Lumentum RSU will equal
the product of (i) the number of Oclaro shares subject to such Oclaro RSU (with any performance milestones deemed achieved based on the maximum level of achievement) multiplied by (ii) the sum of (A) the Exchange Ratio plus
(B) the quotient obtained by dividing the Cash Consideration by Lumentums average closing price of the 10 trading days ending on the third trading day prior to the closing (such sum, the
Equity Award Exchange Ratio
),
rounded down to the nearest whole share.
Each Oclaro stock option (an
Oclaro Option
), whether vested or unvested, will
be converted into a Lumentum stock option (a
Lumentum Option
) with the same terms and conditions, including vesting, that were applicable to such Oclaro Option, except that (i) the number of shares subject to the Lumentum
Option will equal the product of (A) the number of Oclaro shares subject to such Oclaro Option multiplied by (B) the Equity Award Exchange Ratio, rounded down to the nearest whole share and (ii) the exercise price of the Lumentum
Option will equal (A) the exercise price per share of the Oclaro Option divided by (B) the Equity Award Exchange Ratio, rounded up to the nearest whole cent. Notwithstanding the foregoing, any Oclaro Option that is held by an individual
who is not an Oclaro employee as of immediately prior to the closing will be cancelled and converted into the Merger Consideration for each net option share covered by such Oclaro Option, subject to applicable withholding taxes.
In addition, each Oclaro restricted stock award (
Oclaro Restricted Stock Award
) and Oclaro RSU that becomes vested as of
immediately prior to the closing (including each Oclaro Restricted Stock Award held by a
non-employee
director) will be converted into the right to receive the Merger Consideration in respect of each Oclaro
share underlying such award, subject to applicable withholding taxes. Each Oclaro stock appreciation right (
Oclaro SAR
) will be cancelled and converted into the right to receive a cash amount equal to the product of (i) the
number of Oclaro shares subject to the Oclaro SAR multiplied by (ii) the positive difference of (A) the cash equivalent value of the Merger Consideration less (B) the strike price of the Oclaro SAR, subject to applicable withholding
taxes.
If Lumentum determines that the treatment of Oclaro equity awards described above would violate,
in respect of the holder thereof, the applicable laws of a
non-U.S.
jurisdiction, Lumentum may treat such Oclaro equity award in a different manner so long as such treatment is no less favorable to the holder
of such Oclaro equity award.
Financing of the Merger
Lumentum plans to finance the Merger with approximately $416 million of cash from the combined company balance sheets, approximately
$859 million in Lumentum common stock, and approximately $550 million in new debt. In connection with entering into the Merger Agreement, Lumentum entered into a commitment letter (the
Commitment Letter
), dated as of
March 11, 2018, with Deutsche Bank Securities Inc. and Deutsche Bank AG New York, New York Branch (the
Commitment Party
), pursuant to which, subject to the terms and conditions set forth therein, the Commitment Party has
committed to provide a senior secured term loan facility in an aggregate principal amount of up to $550 million (the
Term Loan Facility
). The funding of the Term Loan Facility provided for in the Commitment Letter is
contingent on the satisfaction of customary conditions, including (i) the execution and delivery of definitive documentation with respect to the Credit Facilities in accordance with the terms sets forth in the Commitment Letter, and
(ii) the consummation of the Merger in accordance with the Merger Agreement.
The foregoing description of the Commitment Letter and
the transactions contemplated thereby is not complete and is subject to, and qualified in its entirety by reference to, the Commitment Letter, a copy of which is filed with this Current Report on Form
8-K
as
Exhibit 10.1 and the terms of which are incorporated herein by reference.