DEFM14A
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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  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

ACACIA COMMUNICATIONS, INC.

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

 

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (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):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

    

  (2)  

Form, Schedule or Registration Statement No.:

 

    

  (3)  

Filing Party:

 

    

  (4)  

Date Filed:

 

    

 

 

 


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LOGO

February 8, 2021

Dear Acacia stockholder:

We are pleased to invite you to attend a special meeting of the stockholders of Acacia Communications, Inc., a Delaware corporation, which we refer to as “we,” “us,” “Acacia” or the “Company,” to be held virtually on Monday, March 1, 2021 at 8:00 a.m. Eastern time. Due to public health and travel concerns related to coronavirus (COVID-19), the special meeting will be a virtual stockholder meeting, conducted via webcast. You may attend the special meeting online, vote your shares electronically and submit questions during the special meeting by visiting www.proxydocs.com/ACIA. You will need to have your control number, included on your proxy card or voting instruction form, to join and participate in the special meeting, and you will need to register for the special meeting in advance in order to virtually attend the special meeting by visiting www.proxydocs.com/ACIA. Instructions on how to attend and participate online will be provided to you via email after you register. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021. Approximately one hour prior to the start of the special meeting, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. We encourage you to access the meeting 15 minutes prior to the start time to allow ample time to check your connection and visual and audio settings. If you encounter any difficulties accessing the virtual meeting prior to or during the meeting time, please call the technical support number provided to you in such emailed instructions for the special meeting.

On July 9, 2019, the Company announced that it had entered into an Agreement and Plan of Merger, dated as of July 8, 2019, which we refer to as the original merger agreement, with Cisco Systems, Inc., a California corporation (subsequently reincorporated as a Delaware corporation), which we refer to as Parent, and Amarone Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent, which we refer to as Merger Sub. On January 14, 2021, the Company announced that it had entered into an Amended and Restated Agreement and Plan of Merger, dated as of January 14, 2021, which we refer to as the amended and restated merger agreement, with Parent and Merger Sub, which amended and restated the original merger agreement in its entirety and provides for the merger of Merger Sub with and into the Company, which we refer to as the merger, with the Company surviving the merger as a wholly owned subsidiary of Parent.

At the special meeting, you will be asked to consider and vote on the following matters:

 

   

a proposal to adopt the amended and restated merger agreement;

 

   

a proposal to approve, on a nonbinding advisory basis, the compensation that may be payable to our named executive officers in connection with the merger as reported on the table on page 99 of the accompanying proxy statement, including the associated narrative discussion; and

 

   

a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies to approve the proposal to adopt the amended and restated merger agreement.

Stockholders will also act on any other business that may properly come before the special meeting.


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If the merger is consummated, each share of Company common stock issued and outstanding immediately prior to the effective time of the merger will, other than as provided below, be converted into the right to receive $115.00 in cash, without interest and subject to deduction for any required withholding tax. We refer to this consideration per share of Company common stock to be paid in the merger as the merger consideration. The following shares of Company common stock will not be converted into the right to receive the merger consideration in connection with the merger: (a) shares held by any of our stockholders who do not vote in favor of the proposal to adopt the amended and restated merger agreement and who otherwise properly exercise, and do not withdraw or lose, appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware, which we refer to as the DGCL, (b) shares held in the treasury of the Company and (c) shares owned by Parent or any direct or indirect wholly owned subsidiary of the Company or subsidiary of Parent.

The board of directors of the Company, which we refer to as the board of directors, has unanimously determined that the terms and conditions of the merger and the amended and restated merger agreement are advisable, fair to and in the best interests of the Company and its stockholders and recommends that all Company stockholders vote in favor of the proposal to adopt the amended and restated merger agreement. The board of directors made its determination after consultation with its legal and financial advisors and consideration of a number of factors. The board of directors recommends that you vote “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

Approval of the proposal to adopt the amended and restated merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date.

In accordance with the DGCL, the amendment and restatement of the original merger agreement necessitates that the amended and restated merger agreement be adopted by the affirmative vote of holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date. As a result, you are now being asked to vote on the proposal to adopt the amended and restated merger agreement, which amended and restated the original merger agreement in its entirety, despite the fact that you may have voted on the proposal to adopt the original merger agreement in connection with the September 6, 2019 special meeting of the Company’s stockholders.

Your vote is very important. Whether or not you plan to attend the special meeting online, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet. If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. You may revoke your proxy at any time before it is exercised at the special meeting by delivering a properly executed proxy card bearing a later date, giving a written notice of revocation of your proxy to the Company’s Secretary before the start of the special meeting, submitting a later-dated proxy electronically via the Internet or telephonically, or by voting online while virtually attending the special meeting. Virtually attending the special meeting will not, in itself, revoke a previously submitted proxy. To revoke a proxy at the special meeting, you must vote online while virtually attending the special meeting. The failure to vote your shares of Company common stock will have the same effect as a vote “AGAINST” approval of the proposal to adopt the amended and restated merger agreement.

If your shares of Company common 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 of Company common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote


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your shares of Company common stock in accordance with 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 Company common stock “FOR” approval of the proposal to adopt the amended and restated merger agreement will have the same effect as voting “AGAINST” the proposal to adopt the amended and restated merger agreement.

Under the DGCL, if the merger is completed, holders of Company common stock who do not vote in favor of adoption of the amended and restated merger agreement and satisfy other conditions set forth in Section 262 of the DGCL will have the right to seek an appraisal by the Delaware Court of Chancery of the fair value of their shares. In order to exercise your appraisal rights, you must submit a written demand for an appraisal of your shares prior to the stockholder vote to adopt the amended and restated merger agreement, you must not vote in favor of adoption of the amended and restated merger agreement and you must comply with the procedures set forth in Section 262 of the DGCL and explained in the accompanying proxy statement. See “Appraisal Rights” beginning on page 139 of the accompanying proxy statement and Annex D to the accompanying proxy statement.

The accompanying proxy statement provides you with detailed information about the special meeting, the amended and restated merger agreement and the merger. A copy of the amended and restated merger agreement is attached as Annex A to the accompanying proxy statement. We encourage you to carefully read the entire proxy statement and its annexes, including the amended and restated merger agreement. You also may obtain additional information about the Company from documents we have filed with the Securities and Exchange Commission by following the instructions listed in the section of the accompanying proxy statement entitled “Where You Can Find More Information.”

If you have any questions or need assistance in submitting your proxy or voting your shares of Company common stock, please call The Proxy Advisory Group, LLC, the Company’s proxy solicitor, at (212) 616-2181.

Thank you in advance for your cooperation and continued support.

Sincerely,

 

LOGO

Murugesan Shanmugaraj

President and Chief Executive Officer


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The accompanying proxy statement is dated February 8, 2021 and is first being mailed to our stockholders on or about February 8, 2021.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE AMENDED AND RESTATED MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

YOUR VOTE IS IMPORTANT. PLEASE SUBMIT YOUR PROXY ELECTRONICALLY VIA THE
INTERNET OR TELEPHONICALLY OR BY COMPLETING, SIGNING, DATING AND
PROMPTLY RETURNING THE ENCLOSED PROXY CARD, WHETHER OR NOT YOU PLAN TO
VIRTUALLY ATTEND THE SPECIAL MEETING. PLEASE DO NOT SEND IN ANY
CERTIFICATES FOR YOUR SHARES OF COMPANY COMMON STOCK AT THIS TIME. IF THE
AMENDED AND RESTATED MERGER AGREEMENT IS ADOPTED AND THE MERGER IS
COMPLETED, YOU WILL RECEIVE A LETTER OF TRANSMITTAL AND RELATED
INSTRUCTIONS TO SURRENDER YOUR STOCK CERTIFICATES.


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LOGO

ACACIA COMMUNICATIONS, INC.

Three Mill and Main Place, Suite 400

Maynard, Massachusetts 01754

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

 

 

Time and Date

8:00 a.m., Eastern time, on Monday, March 1, 2021.

 

Place

Due to public health and travel concerns related to coronavirus (COVID-19), the special meeting will be held virtually, conducted via webcast. You may attend the special meeting online, vote your shares electronically and submit questions during the special meeting by visiting www.proxydocs.com/ACIA. You will need to register in advance by visiting www.proxydocs.com/ACIA in order to virtually attend the special meeting by submitting your control number, included on your proxy card or voting instruction form. Instructions on how to attend and participate online will be provided to you via email after you register. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021. Approximately one hour prior to the start of the special meeting, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. We encourage you to access the meeting 15 minutes prior to the start time to allow ample time to check your connection and visual and audio settings. If you encounter any difficulties accessing the virtual meeting prior to or during the meeting time, please call the technical support number provided to you in such emailed instructions for the special meeting.

 

Items of Business

To consider and vote on:

 

   

a proposal to adopt the Amended and Restated Agreement and Plan of Merger, dated as of January 14, 2021, as it may be amended from time to time, which we refer to as the amended and restated merger agreement, by and among Acacia Communications, Inc., which we refer to as the Company, Cisco Systems, Inc., a California corporation (subsequently reincorporated as a Delaware corporation), which we refer to as Parent, and Amarone Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent, which we refer to as Merger Sub, which amended and restated in its entirety the


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Agreement and Plan of Merger, dated as of July 8, 2019, which we refer to as the original merger agreement, by and among the Company, Parent and Merger Sub. A copy of the amended and restated merger agreement is attached as Annex A to the accompanying proxy statement;

 

   

a proposal to approve, on a nonbinding advisory basis, the compensation that may be payable to our named executive officers in connection with the merger as reported on the table on page 99 of the accompanying proxy statement, including the associated narrative discussion; and

 

   

a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the amended and restated merger agreement.

 

Record Date

You may vote if you were a stockholder of record at the close of business on February 5, 2021.

 

Proxy Voting

Your vote is very important, regardless of the number of shares of Company common stock you own. The merger and other transactions contemplated by the amended and restated merger agreement cannot be consummated unless the amended and restated merger agreement is adopted by the affirmative vote of the holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date. Even if you plan to virtually attend the special meeting, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares of Company common stock will be represented at the special meeting if you are unable to virtually attend. If you do not virtually attend the special meeting and fail to return your proxy card or fail to submit your proxy by phone or the Internet, your shares of Company common stock 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 proposal to adopt the amended and restated merger agreement.

 

  If you are a stockholder of record, voting while virtually attending the special meeting will revoke any proxy previously submitted. If you hold your shares of Company common stock through a bank, brokerage firm or other nominee, you should follow the procedures provided by your bank, brokerage firm or other nominee in order to vote. As a beneficial owner of shares of Company common stock held in “street name,” you have the right to direct your bank, brokerage firm or other nominee on how to vote the shares in your account. If you hold your shares of Company common stock through a bank, brokerage firm or other nominee, you are invited to virtually attend the special meeting; however, because you are not the stockholder of record, you may not vote your shares while virtually attending the special meeting unless you request and obtain a legal proxy from your bank, brokerage firm or other nominee prior to the special meeting.


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Recommendation

The board of directors of the Company, which we refer to as the board of directors, has unanimously determined that the terms and conditions of the merger and the amended and restated merger agreement are advisable, fair to and in the best interests of the Company and its stockholders and recommends that all Company stockholders vote in favor of the proposal to adopt the amended and restated merger agreement. The board of directors made its determination after consultation with its legal and financial advisors and consideration of a number of factors. The board of directors recommends that you vote “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Attendance

Only stockholders of record or their duly authorized proxies have the right to virtually attend the special meeting. Beneficial owners of shares are invited to virtually attend the special meeting. You will need to register in advance in order to virtually attend the special meeting. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021.

 

Appraisal Rights

Under the General Corporation Law of the State of Delaware, which we refer to as the DGCL, if the merger is completed, holders of Company common stock who do not vote in favor of adoption of the amended and restated merger agreement and who satisfy other conditions set forth in Section 262 of the DGCL will have the right to seek an appraisal by the Delaware Court of Chancery of the fair value of their shares of Company common stock. In order to exercise your appraisal rights, you must submit a written demand for an appraisal of your shares prior to the stockholder vote to adopt the amended and restated merger agreement, you must not vote in favor of adoption of the amended and restated merger agreement and you must comply with the procedures set forth in Section 262 of the DGCL and explained in the accompanying proxy statement. See “Appraisal Rights” beginning on page 139 and Annex D of the accompanying proxy statement.

WHETHER OR NOT YOU PLAN TO VIRTUALLY ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. IF YOU VOTE ONLINE WHILE VIRTUALLY ATTENDING THE SPECIAL MEETING, THAT VOTE WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.

By Order of our Board of Directors,

 

LOGO

Janene I. Asgeirsson

Chief Legal Officer and Secretary

February 8, 2021

Maynard, Massachusetts


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PROXY STATEMENT

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SUMMARY

    1  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

    18  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

    29  

THE SPECIAL MEETING

    31  

Time, Place and Purpose of the Special Meeting

    31  

Record Date and Quorum

    31  

Attendance

    32  

Vote Required

    32  

Our Board’s Recommendation

    34  

Shares Owned by Our Directors and Executive Officers

    34  

Proxies and Revocation

    34  

Adjournments and Recesses

    35  

Stockholder List

    35  

Anticipated Date of Completion of the Merger

    35  

Appraisal Rights

    35  

Solicitation of Proxies; Payment of Solicitation Expenses

    36  

Householding of Special Meeting Materials

    36  

Questions and Additional Information

    36  

PARTIES TO THE MERGER

    37  

THE MERGER

    38  

Changes to the Original Merger Agreement Pursuant to the Amended and Restated Merger Agreement

    38  

Overview of the Merger

    38  

Directors and Officers of the Surviving Corporation

    39  

Background of the Merger

    39  

Reasons for the Merger; Recommendation of the Board of Directors

    63  

Opinion of the Company’s Financial Advisor

    68  

Financial Forecasts

    74  

Closing and Effective Time of the Merger

    82  

Payment of Merger Consideration and Surrender of Stock Certificates

    82  

Interests of Certain Persons in the Merger

    82  

Compensation Payable to our Named Executive Officers

    98  

Accounting Treatment

    101  

U.S. Federal Income Tax Consequences of the Merger

    101  

Regulatory Approvals

    104  

Litigation Relating to the Merger

    104  

THE AMENDED AND RESTATED MERGER AGREEMENT (PROPOSAL ONE)

    106  

Explanatory Note Regarding the Amended and Restated Merger Agreement

    106  

The Merger

    106  

Effective Time of the Merger

    107  

Merger Consideration

    107  

Payment Procedures

    107  

Appraisal Rights

    108  

Treatment of Company Equity Awards and Employee Stock Purchase Plan

    109  

Representations and Warranties

    110  

Definitions of Knowledge and Material Adverse Effect

    111  

Definition of Parent Material Adverse Effect

    113  

Covenants Relating to the Conduct of the Company’s Business

    113  


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Restrictions on Solicitation of Other Offers

     118  

Restrictions on Changes of Recommendation to Company Stockholders

     121  

Additional Agreements of the Parties to the Amended and Restated Merger Agreement

     123  

Conditions to the Merger

     127  

Termination

     128  

Termination Fee

     129  

Amendment; Extension; Waiver

     131  

Required Vote; Recommendation of the Board of Directors

     131  

VOTING AGREEMENTS

     132  

NONBINDING ADVISORY PROPOSAL REGARDING COMPENSATION PAYABLE TO OUR NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER (PROPOSAL TWO)

     133  

AUTHORITY TO ADJOURN THE SPECIAL MEETING (PROPOSAL THREE)

     134  

MARKET PRICE AND DIVIDEND DATA OF COMPANY COMMON STOCK

     135  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     136  

APPRAISAL RIGHTS

     139  

DELISTING AND DEREGISTRATION OF COMPANY COMMON STOCK

     144  

CONDUCT OF OUR BUSINESS IF THE MERGER IS NOT COMPLETED

     144  

OTHER MATTERS

     145  

Other Matters for Action at the Special Meeting

     145  

Future Stockholder Proposals

     145  

Stockholders Sharing the Same Address

     146  

WHERE YOU CAN FIND MORE INFORMATION

     147  

ANNEX A — Agreement and Plan of Merger

     A-1  

ANNEX B — Opinion of Goldman Sachs

     B-1  

ANNEX C — Form of Voting Agreement

     C-1  

ANNEX D — Section 262 of the General Corporation Law of the State of Delaware

     D-1  


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We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by the Company’s board of directors, which we refer to as the board of directors, for use at the special meeting of stockholders described herein. This proxy statement and the enclosed proxy card or voting instruction form are first being mailed on or about February 8, 2021 to our stockholders who owned shares of Company common stock as of the close of business on February 5, 2021.

SUMMARY

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents we refer to in this proxy statement. Each topic in this summary includes a page reference directing you to a more complete description of such topic. 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 147.

Parties to the Merger (Page 37)

In this proxy statement, we refer to the Amended and Restated Agreement and Plan of Merger, dated as of January 14, 2021, as it may be amended from time to time, among Parent, Merger Sub and the Company, as the amended and restated merger agreement, and the merger of Merger Sub with and into the Company as the merger. The parties to the amended and restated merger agreement and the merger are:

 

   

Acacia Communications, Inc., which we refer to as “we,” “us,” “Acacia” or the “Company,” is a Delaware corporation that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. By implementing optical interconnect technology in a silicon-based platform, a process Acacia refers to as the “siliconization of optical interconnect,” Acacia is able to offer products at higher speeds and density with lower power consumption, that meet the needs of cloud and service providers and can be easily integrated in a cost-effective manner with existing network equipment. Shares of Acacia common stock are traded on the Nasdaq Global Select Market under the symbol “ACIA.” The principal executive offices of Acacia are located at Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754, and its telephone number is (978) 938-4896.

 

   

Cisco Systems, Inc., which we refer to as “Parent,” is a Delaware corporation that designs and sells a broad range of technologies that have been powering the Internet since 1984. Parent is integrating intent-based technologies across networking, security, collaboration, applications and the cloud. These technologies are designed to help Parent’s customers manage more users, devices and things connecting to their networks. This will enable Parent to provide customers with a highly secure, intelligent platform for their digital business. Parent reincorporated from a California corporation into a Delaware corporation on January 25, 2021. The principal executive offices of Parent are located at 170 West Tasman Drive, San Jose, California 95134, and its telephone number is (408) 526-4000.

 

   

Amarone Acquisition Corp., which we refer to as “Merger Sub,” is a Delaware corporation that was formed solely for the purpose of entering into the amended and restated merger agreement and related agreements and consummating the merger and the other transactions contemplated thereby. Merger Sub is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the amended and restated merger agreement. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation of the merger, which we refer to as the surviving corporation. The principal executive offices of Merger Sub are located at 170 West Tasman Drive, San Jose, California 95134, and its telephone number is (408) 526-4000.



 

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The Special Meeting (Page 31)

Time, Place and Purpose of the Special Meeting (Page 31)

The special meeting of the stockholders of the Company, which we refer to as the special meeting, will be held on Monday, March 1, 2021, starting at 8:00 a.m., Eastern time. Due to public health and travel concerns related to coronavirus (COVID-19), the special meeting will be held virtually, conducted by webcast. You may attend the special meeting online, vote your shares electronically and submit questions during the special meeting by visiting www.proxydocs.com/ACIA. You will need to have your control number, included on your proxy card or voting instruction form, to join and participate in the special meeting, and you will need to register for the special meeting in advance in order to virtually attend the special meeting by visiting www.proxydocs.com/ACIA. Instructions on how to attend and participate online will be provided to you via email after you register. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021. Approximately one hour prior to the start of the special meeting, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. We encourage you to access the meeting 15 minutes prior to the start time to allow ample time to check your connection and visual and audio settings. If you encounter any difficulties accessing the virtual meeting prior to or during the meeting time, please call the technical support number provided to you in such emailed instructions for the special meeting.

At the special meeting, holders, which we refer to as stockholders, of common stock, $0.0001 par value per share, of the Company, which we refer to as Company common stock, will be asked to consider and vote on:

 

   

a proposal to adopt the amended and restated merger agreement;

 

   

a proposal to approve, on a nonbinding advisory basis, the compensation that may be payable to our named executive officers in connection with the merger as reported on the table on page 99, including the associated narrative discussion; and

 

   

a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies to approve the proposal to adopt the amended and restated merger agreement.

Stockholders will also be asked to act on any other business that may properly come before the special meeting.

Record Date and Quorum (Page 31)

You are entitled to receive notice of, and to vote at, the special meeting if you owned shares of Company common stock as of the close of business on February 5, 2021, which is the date we have set as the record date for the special meeting, and which we refer to as the record date. You will have one vote for each share of Company common stock that you owned on the record date. As of the record date, there were 42,608,420 shares of Company common stock outstanding and entitled to vote at the special meeting. A quorum is necessary for us to be able to conduct business at the special meeting. A majority of the shares of Company common stock that are issued and outstanding at the close of business on the record date, present virtually or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting. The special meeting may be adjourned whether or not a quorum is present.

Vote Required (Page 32)

Approval of the proposal to adopt the amended and restated merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date.

In accordance with the General Corporation Law of the State of Delaware, as amended, and all rules and regulations promulgated thereunder, which we refer to as the DGCL, the amendment and restatement of the



 

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Agreement and Plan of Merger, dated as of July 8, 2019, which we refer to as the original merger agreement, by and among the Company, Parent and Merger Sub, necessitates that the amended and restated merger agreement be adopted by the affirmative vote of the holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date. As a result, you are now being asked to vote on the proposal to adopt the amended and restated merger agreement, which amended and restated in its entirety the original merger agreement, despite the fact that you may have voted on the proposal to adopt the original merger agreement in connection with the September 6, 2019 special meeting of the Company’s stockholders.

Under our amended and restated by-laws, as amended, which we refer to as our by-laws, approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies, require the affirmative vote of a majority of the votes cast by the holders of all of the shares present or represented at the special meeting and voting on such matters.

Shares Owned by Our Directors and Executive Officers (Page 34)

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 3,435,179 shares of Company common stock, representing approximately 8.1% of the issued and outstanding shares of Company common stock on the record date. The directors and executive officers have informed the Company that they currently intend to vote all of their shares of Company common stock “FOR the proposal to adopt the amended and restated merger agreement, “FOR approval of the advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. In addition, the shares described above include shares beneficially owned by Murugesan Shanmugaraj, Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi (including certain entities holding common shares of the Company on their behalf) and such stockholders are obligated, pursuant to voting agreements entered into on January 14, 2021 between Parent and each of such stockholders, to vote such shares, representing approximately 6.6% of the issued and outstanding shares of Company common stock on the record date, in favor of the adoption of the amended and restated merger agreement and any matter that would reasonably be expected to facilitate the merger.

Proxies and Revocation (Page 34)

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or online while virtually attending the special meeting. If your shares of Company common stock are held in “street name” through a bank, brokerage firm or other nominee, please contact your bank, brokerage firm or other nominee for their instructions on how to vote your shares. Please note that if you are a beneficial owner of shares of Company common stock held in “street name” and wish to vote online while virtually attending the special meeting, you must request and obtain a legal proxy from your bank, brokerage firm or other nominee prior to the special meeting.

If you fail to submit a proxy or to vote online while virtually attending the special meeting, or if you do not provide your bank, brokerage firm or other nominee with voting instructions, your shares of Company common stock will not be voted on the proposal to adopt the amended and restated merger agreement, which will have the same effect as a vote “AGAINST the proposal to adopt the amended and restated merger agreement, and your shares of Company common stock will not have an effect on approval of the advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger or the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by submitting a later-dated proxy through any of the methods available to you, by giving



 

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written notice of revocation to our Secretary at Acacia Communications, Inc., Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754 before the time the special meeting begins, or by voting online while virtually attending the special meeting. Virtually attending the special meeting will not, in itself, revoke a previously submitted proxy. If you are a beneficial owner of our shares, you will need to contact your bank, brokerage firm, trustee, or other nominee to revoke any prior voting instructions.

The Merger (Page 38)

On July 8, 2019, the Company entered into the original merger agreement. On January 14, 2021, the Company, Parent and Merger Sub entered into the amended and restated merger agreement, which amended and restated the original merger agreement in its entirety.

The amended and restated merger agreement provides that Merger Sub will merge with and into the Company. The Company will be the surviving corporation in the merger and will continue to do business following the merger. As a result of the merger, the Company will cease to be a publicly traded company. If the merger is consummated, you will not own any shares of the capital stock of the surviving corporation.

Changes to the Original Merger Agreement Pursuant to the Amended and Restated Merger Agreement (Page 38)

The original merger agreement was amended and restated pursuant to the amended and restated merger agreement to, among other things, (i) increase the per share merger consideration from $70.00 to $115.00 in cash, without interest and subject to deduction for any required withholding tax, (ii) eliminate certain conditions to the closing, such as the elimination of the condition regarding the absence of a material adverse effect on the company, (iii) narrow certain other conditions to the closing, such as limiting the condition with respect to the accuracy of the Company’s representations and warranties to certain fundamental representations and warranties (relating to the Company’s organization, good standing and qualification, capital structure, corporate authority and approval, brokers’ and advisors’ fees, the Company’s receipt of a fairness opinion and the information contained in this proxy statement), (iv) increase the termination fee payable by the Company under certain circumstances set forth in the amended and restated merger agreement in proportion to the increase in the per share merger consideration, from $120 million to $197 million and (v) amend the addendum to the Master Purchase Agreements by and between the Company, Parent and a wholly owned subsidiary of Parent, to provide that no fee is payable by Parent to the Company under any circumstances in connection with the merger or related transactions.

Merger Consideration (Page 107)

In the merger, each share of Company common stock, other than as provided below, will be converted into the right to receive $115.00 in cash, without interest and subject to deduction for any required withholding tax. We refer to this consideration per share of Company common stock to be paid in the merger as the merger consideration. The following shares of Company common stock will not be converted into the right to receive the merger consideration in connection with the merger: (a) shares held by any of our stockholders who do not vote in favor of the proposal to adopt the amended and restated merger agreement and who otherwise properly exercise, and do not withdraw or lose, appraisal rights under Section 262 of the DGCL, (b) shares held in the treasury of the Company and (c) shares owned by Parent or any direct or indirect wholly owned subsidiary of the Company or subsidiary of Parent. We refer to the shares described in the foregoing sentence, collectively, as the excluded shares.



 

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Reasons for the Merger; Recommendation of the Board of Directors (Page 63)

After careful consideration of various factors described in the section entitled “The Merger — Reasons for the Merger; Recommendation of the Board of Directors,” the board of directors, by a unanimous vote of all directors:

 

   

determined and declared that the terms and conditions of the amended and restated merger agreement, the merger and the other transactions contemplated thereby, on the terms and subject to the conditions set forth in the amended and restated merger agreement, are advisable, fair to and in the best interests of the Company and its stockholders;

 

   

adopted and approved the amended and restated merger agreement, the merger and the other transactions contemplated by the amended and restated merger agreement; and

 

   

determined that it is advisable and in the best interests of the Company for the board of directors to submit the amended and restated merger agreement to the Company’s stockholders for adoption and directed that the amended and restated merger agreement be submitted to the Company’s stockholders at a special meeting of the Company’s stockholders for their adoption, and recommended that the Company’s stockholders adopt the amended and restated merger agreement.

The board of directors recommends that you vote “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

Opinion of the Company’s Financial Advisor (Page 68)

Goldman Sachs & Co. LLC, which we refer to as Goldman Sachs, delivered its opinion to the board of directors that, as of January 14, 2021 and based upon and subject to the factors and assumptions set forth therein, the $115.00 in cash per share to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the amended and restated merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated January 14, 2021, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Company common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between the Company and Goldman Sachs, the Company has agreed to pay Goldman Sachs a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $56,000,000, $3,000,000 of which was paid in connection with the presentation by Goldman Sachs to the board of directors of the final results of the study Goldman Sachs undertook to determine whether it was able to render a fairness opinion in connection with the consideration payable pursuant to the original merger agreement, and the remainder of which is contingent upon the consummation of the merger.

Interests of Certain Persons in the Merger (Page 82)

In considering the recommendation of the board of directors with respect to the amended and restated merger agreement, you should be aware that the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally, as more fully described below. The board of directors was aware of these interests and considered them, among other matters, in reaching



 

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the determination that the terms and conditions of the merger and the amended and restated merger agreement were advisable, fair to and in the best interests of the Company and its stockholders and in making their recommendations regarding adoption of the merger and the amended and restated merger agreement as described in “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 63. These interests include:

 

   

conversion at the effective time of each Company stock option that is outstanding, vested and unexercised immediately prior to the effective time of the merger into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option subject to deduction for any required withholding tax; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect;

 

   

conversion at the effective time of each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested stock option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the terms of the Company’s Amended and Restated Severance and Change in Control Benefits Plan, which we refer to as the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect;

 

   

conversion at the effective time of each Company restricted stock unit, or RSU, and Company performance-based restricted stock unit, or PRSU, that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes PRSUs with a total stockholder return, or TSR, performance metric that will become vested based on actual results as of the closing of the merger and certain RSUs that will become vested as of the closing of the merger) into the right to receive an amount in cash, without interest, equal to the merger consideration, subject to deduction for any required withholding tax;

 

   

conversion at the effective time of each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger into the right to receive an amount in cash, without interest, equal to the merger consideration, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan, any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent and any amendments agreed to between Parent and the Company, as described herein;

 

   

amendment of the terms of PRSUs with a TSR performance metric granted to the Company’s executive officers in 2018, the three-year performance period of which ended on December 31, 2020, providing for settlement of such PRSUs based on the merger consideration of $115.00 per share;

 

   

cash retention awards that may be granted by Parent to the Company’s executive officers in connection with their performance of services following the closing of the merger, including pursuant to employment and other agreements entered into between certain executive officers and Parent;

 

   

potential severance and acceleration of unvested equity compensation awards upon certain types of termination of employment following the closing of the merger;



 

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accelerated vesting of RSUs held by non-employee directors of the Company;

 

   

subject to approval by the board of directors and in lieu of equity awards that were not granted in 2020 under the director compensation plan, the potential payment of a special cash bonus to each of the Company’s independent directors in an amount equal to $200,000, payable at, and conditioned upon, the closing of the merger; and

 

   

continued indemnification and liability insurance for directors and officers following completion of the merger.

See “The Merger — Interests of Certain Persons in the Merger” beginning on page 82 for additional information.

Approval of Compensation Payable to Named Executive Offices in Connection with the Merger (page 133)

In accordance with Section 14A of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and Rule 14a-21(c) under the Exchange Act, we are providing stockholders with the opportunity to cast a nonbinding advisory vote with respect to compensation that may be payable to our named executive officers in connection with the merger, as reported on the table on page 99, including the associated narrative discussion. The board of directors recommends that you vote “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger.

Approval of the proposal regarding compensation that may be payable to our named executive officers in connection with the merger requires the approval of a majority of the votes cast on this proposal. Approval of this proposal is not a condition to completion of the merger. The vote with respect to compensation that may be payable to our named executive officers in connection with the merger is an advisory vote and will not be binding on us. Therefore, regardless of whether stockholders approve the compensation that may be payable to our named executive officers in connection with the merger, if the amended and restated merger agreement is adopted by the stockholders and the merger is completed, such compensation will still be paid to our named executive officers to the extent payable in accordance with the terms of such compensation.

U.S. Federal Income Tax Consequences of the Merger (Page 101)

The exchange of shares of Company common stock for cash pursuant to the merger will generally be a taxable transaction to U.S. holders and certain non-U.S. holders for U.S. federal income tax purposes. A U.S. holder (or a non-U.S. holder that is subject to U.S. federal income tax on its gain from the merger) who exchanges shares of Company common stock for cash in the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before deduction of any applicable withholding taxes) with respect to such shares and the stockholder’s adjusted tax basis in such shares. This may also be a taxable transaction under applicable state, local and/or foreign income or other tax laws. You should read “The Merger U.S. Federal Income Tax Consequences of the Merger” beginning on page 101 for the definition of “U.S. holder” and “non-U.S. holder” and a more detailed discussion of the U.S. federal income tax consequences of the merger. You should also consult your tax advisor for a complete analysis of the effect of the merger on your U.S. federal, state and local and/or foreign taxes.

Regulatory Approvals (Page 104)

The merger is subject to the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, it being understood that the existing clearance of the merger thereunder, to the extent still in effect, shall be deemed to satisfy such condition.



 

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Following the execution of the original merger agreement, Parent and the Company filed notification of the merger with the Federal Trade Commission, or the FTC, and the Department of Justice, or the DOJ, under the HSR Act. On September 26, 2019, the waiting period under the HSR Act with respect to the merger expired, which we refer to as the original clearance. Prior to the expiration of the original clearance, Parent withdrew and refiled its HSR Act notification form to avoid expiration of the original clearance under the HSR Act. On September 22, 2020, the parties received notice from the FTC that early termination of the waiting period applicable to the refiled notification form had been granted, which we refer to as the renewed HSR clearance. The renewed HSR clearance will expire on September 21, 2021.

In addition, following the execution of the original merger agreement, the parties prepared and submitted regulatory filings in the jurisdictions in which the parties agreed that regulatory filings may be required. Regulatory clearance was later received with respect to the merger from the Austrian Federal Competition Authority on September 3, 2019, and from the German Federal Cartel Office on November 11, 2019. On January 19, 2021, the State Administration for Market Regulation in China posted on its website its decision conditionally approving the merger, which was dated January 14, 2021.

Under the terms of the amended and restated merger agreement, the merger cannot be consummated if any governmental entity of the United States of competent jurisdiction has issued, promulgated or entered any judgment, writ, decree, stipulation, determination, decision, legal or arbitration award, settlement or consent agreement, charge, ruling, injunction, restraining order or other order (whether temporarily, preliminary or permanently in effect), and no law, statute, constitution, resolution, ordinance, code, permit, rule, regulation, ruling or requirement has been enacted in the United States that prohibits, makes illegal or enjoins the consummation of the merger.

Litigation Relating to the Merger (Page 104)

Shareholder Litigation

On August 5, 2019, a lawsuit, captioned Jiang v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-07267, or the Jiang Action, was filed against the Company and each of the Company’s directors in the United States District Court for the Southern District of New York alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, or the Exchange Act, and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a materially incomplete and misleading preliminary proxy statement in connection with the merger. In the following days, three additional lawsuits, including two putative class action lawsuits, were filed against the Company and its directors making similar allegations and asserting similar claims regarding the preliminary proxy statement: O’Brien v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-01463 (D. Del., filed August 5, 2019); Rosenblatt v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-01470 (D. Del., filed August 6, 2019); and Mac v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-11706 (D. Mass., filed August 7, 2019). The O’Brien action asserted an additional claim that the Company’s directors breached their fiduciary duties by, among other things, agreeing to the merger without taking steps to obtain adequate, fair and maximum consideration under the circumstances and engineering the merger to improperly benefit themselves, Company management and/or Parent without regard for the Company’s public stockholders. The plaintiffs in these four lawsuits sought various forms of injunctive and declaratory relief, as well as awards of damages, costs, expert fees, and attorneys’ fees.

On August 27, 2019, the Company and the plaintiffs in the O’Brien Action, the Rosenblatt Action, and the Mac Action entered into a memorandum of understanding in which these plaintiffs agreed to dismiss with prejudice their individual claims and to dismiss without prejudice the class claims asserted in those actions, in return for the Company’s agreement to make the supplemental disclosures set forth under the heading “Supplement to Proxy Statement” in a Form 8-K filed by the Company with the Securities and Exchange Commission, or the



 

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SEC, on August 27, 2019, or the Supplemental Disclosures. On August 27, 2019, prior to the filing of the Company’s Form 8-K containing the Supplemental Disclosures, the Company and the plaintiff in the Jiang Action agreed in principle that the plaintiff would dismiss with prejudice his claims asserted in that action, in return for the Company’s agreement to make the Supplemental Disclosures. That agreement was memorialized in a memorandum of understanding between the Company and the plaintiff in the Jiang Action entered into on August 28, 2019. Pursuant to the memoranda of understanding, the plaintiffs in all four actions filed notices of voluntary dismissal on September 11, 2019. Pursuant to the memoranda of understanding, the parties thereafter negotiated an award of attorney’s fees and expenses based upon the purported benefit conferred upon the Company’s stockholders by causing the Supplemental Disclosures to be disseminated.

Litigation between the Company and Parent

On January 8, 2021, Parent commenced litigation against the Company in the Court of Chancery of the State of Delaware, or the Court of Chancery, which we refer to as the merger litigation. The lawsuit, captioned Cisco Systems, Inc. v. Acacia Communications, Inc., Civil Action No. 2021-0018-JTL, sought, among other things, a temporary restraining order to enjoin the Company from terminating the original merger agreement, a declaratory judgment that all necessary conditions to closing were satisfied and that the Company’s notice of termination of the original merger agreement was invalid, and an order requiring the Company to specifically perform its obligations under the original merger agreement and close the merger as soon as practicable.

Later on January 8, 2021, the Court of Chancery granted Parent’s motion for a temporary restraining order. In addition, the Court of Chancery granted Parent’s motion for expedited proceedings for consideration of Parent’s claims. Pursuant to the temporary restraining order, the Company continued to be bound by the terms of the original merger agreement until further order of the Court of Chancery or as otherwise agreed by the parties.

On January 11, 2021, the Company filed its answer and affirmative defenses in response to the complaint filed by Parent and simultaneously filed a counterclaim against Parent seeking a declaration that the Company validly terminated the original merger agreement pursuant to the terms thereof.

On January 14, 2021, in connection with the execution of the amended and restated merger agreement, the Company and Parent jointly requested that the Court of Chancery lift the temporary restraining order and dismiss with prejudice the litigation pending between the parties in that court. Later that same day, the Court of Chancery entered an order vacating the temporary restraining order and dismissing the parties’ respective claims with prejudice, with each party bearing its own costs.

The Amended and Restated Merger Agreement (Page 106)

Merger Consideration (Page 107)

If the merger is completed, each share of Company common stock, other than the excluded shares, will be converted into the right to receive $115.00 in cash, without interest and subject to deduction for any required withholding tax.

Treatment of Company Equity Awards and Employee Stock Purchase Plan (Page 109)

Each Company stock option that is outstanding, vested and unexercised immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.



 

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Each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option payable to the extent, and at the applicable times, such unvested option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the terms of the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

Each RSU and PRSU that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes PRSUs with a TSR performance metric that will become vested based on actual results as of the closing of the merger and certain RSUs that will become vested as of the closing of the merger) will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the merger consideration.

Each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the merger consideration payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent.

Each cash payment for the stock options, RSUs and PRSUs described above will be subject to deduction for any applicable withholding taxes.

Following execution of the original merger agreement, the Company took all actions with respect to the Company’s Amended and Restated 2016 Employee Stock Purchase Plan, which we refer to as the Company ESPP, that were required to provide that, (i) with respect to any offering period in effect as of the date of the original merger agreement, no employee who was not a participant in the Company ESPP as of the date of the original merger agreement could become a participant in the Company ESPP and no participant could increase the percentage amount of his or her payroll deduction election from that in effect on the date of the original merger agreement for such offering period; (ii) subject to the consummation of the merger, the Company ESPP will terminate effective immediately prior to the effective time of the merger; and (iii) the Company ESPP was suspended and no new offering periods have been or will be commenced under the Company ESPP prior to the termination of the amended and restated merger agreement.

Restrictions on Solicitation of Other Offers (Page 118)

Under the amended and restated merger agreement, during the period beginning on the date of the original merger agreement until the earlier of the effective time of the merger or the termination of the amended and restated merger agreement, the board of directors, the Company and its subsidiaries will not, and will direct their respective representatives not to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, knowingly facilitate or knowingly induce the making, submission or public announcement of any inquiry, indication of interest, proposal or offer that constitutes, or could reasonably be expected to lead to, an acquisition proposal;

 

   

enter into, participate in, maintain or continue any communications (except to provide written notice as to the existence of these restrictions and to clarify the terms and conditions of any acquisition proposal)



 

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or negotiations regarding, or deliver or make available to any person any non-public information with respect to any inquiry, indication of interest, proposal or offer that constitutes, or could reasonably be expected to lead to, an acquisition proposal;

 

   

agree to, accept, approve, endorse or recommend (or publicly propose or announce any intention to agree to, accept, approve, endorse or recommend) any acquisition proposal;

 

   

enter into any agreement in principle, letter of intent, term sheet or any other agreement, understanding or contract (whether binding or not) contemplating or otherwise relating to any acquisition proposal (other than confidentiality agreements that are permitted pursuant to the amended and restated merger agreement);

 

   

submit any acquisition proposal to the vote of any securityholders of the Company or any of its subsidiaries;

 

   

approve any transaction, or any third party becoming an “interested stockholder,” under Section 203 of the DGCL; or

 

   

resolve, propose or agree to do any of the foregoing, in each case except under specified circumstances set forth in the amended and restated merger agreement.

Notwithstanding these restrictions, if, at any time prior to the time that the Company’s stockholders approve the adoption of the amended and restated merger agreement, the Company or any of its representatives receives an unsolicited, written acquisition proposal that the board of directors concludes in good faith (after consultation with its outside legal counsel and a financial advisor of national standing) is, or could reasonably be expected to lead to, a superior proposal, the Company may:

 

   

enter into discussions with such person regarding such acquisition proposal; and

 

   

deliver or make available to such person non-public information regarding the Company and its subsidiaries.

However, prior to taking any of the actions listed above, the Company must have complied with the following:

 

   

none of the Company, its subsidiaries or any of their respective representatives has violated the non-solicitation and related provisions contained in the amended and restated merger agreement in any material respect;

 

   

the board of directors must first conclude in good faith (after consultation with its outside legal counsel) that the failure to take such action would be inconsistent with its fiduciary obligations to the Company’s stockholders under applicable laws;

 

   

prior to making available any material non-public information, the Company must first receive from such person an executed confidentiality agreement that contains terms that are no less favorable in any material respect to the Company than the terms in the confidentiality agreement between the Company and Parent but does not have to contain any “standstill” provisions and that does not include any exclusive right to negotiate with such person or having the effect of restricting the Company from fulfilling its obligations under the amended and restated merger agreement; and

 

   

prior to or contemporaneously with delivering or making available any non-public information, the Company must concurrently deliver to Parent such non-public information to the extent such non-public information has not been previously delivered or made available to Parent by the Company.

You should read “The Amended and Restated Merger Agreement — Restrictions on Solicitation of Other Offers” beginning on page 118 for the definitions of “acquisition proposal” and “superior proposal.”



 

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Restrictions on Changes of Recommendation to Company Stockholders (Page 121)

Under the amended and restated merger agreement, the board of directors must submit the amended and restated merger agreement to the Company’s stockholders for adoption and must recommend that the Company’s stockholders vote in favor of adopting the amended and restated merger agreement. The amended and restated merger agreement provides that neither the board of directors, nor any committee thereof, may:

 

   

fail to include the board of directors’ recommendation with respect to the amended and restated merger agreement in this proxy statement;

 

   

withhold, withdraw, qualify, amend or modify, or publicly propose or resolve to withhold, withdraw, qualify, amend or modify in a manner adverse to Parent or Merger Sub, the board of directors’ recommendation with respect to the amended and restated merger agreement; or

 

   

adopt, accept, approve, endorse or recommend, or publicly propose to adopt, approve, endorse or recommend, any acquisition proposal (each of the foregoing, referred to as a change of recommendation).

However, nothing in the amended and restated merger agreement will prevent the board of directors from effecting a change of recommendation in connection with a superior proposal or the Company from terminating the amended and restated merger agreement to enter into a definitive agreement to accept a superior proposal if:

 

   

the approval of the Company’s stockholders of the adoption of the amended and restated merger agreement has not yet been obtained;

 

   

the Company has not breached in any material respect its obligations with respect to calling and conducting the special meeting of the Company’s stockholders and has not breached the non-solicitation and related provisions of the amended and restated merger agreement;

 

   

a superior proposal has been submitted to the Company, has not been withdrawn and continues to be a superior proposal;

 

   

the Company has given Parent at least four business days’ prior written notice of its intention to take such action along with certain information relating to such superior proposal;

 

   

if requested by Parent, the Company makes its representatives available to discuss and negotiate in good faith with Parent’s representatives any modifications to the terms and conditions of the amended and restated merger agreement that Parent desires to propose such that such superior proposal would no longer be a superior proposal in comparison to the revised terms of the amended and restated merger agreement proposed by Parent;

 

   

within such four-business day period, Parent has not made a written, binding and irrevocable offer that the board of directors has concluded in good faith (following consultation with its outside legal counsel and a financial advisor of national standing) to be at least as favorable to the Company’s stockholders as such superior proposal; and

 

   

the board of directors has concluded in good faith (following consultation with its outside legal counsel) that, in light of the superior proposal and any modifications to the amended and restated merger agreement proposed by Parent, the failure to effect a change of recommendation and terminate the amended and restated merger agreement would be inconsistent with its fiduciary obligations to the Company’s stockholders under applicable law.

In addition, nothing in the amended and restated merger agreement will prevent the board of directors from effecting a change of recommendation for a reason unrelated to an acquisition proposal if:

 

   

the approval of the Company’s stockholders of the adoption of the amended and restated merger agreement has not yet been obtained;



 

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the Company has not breached in any material respect its obligations with respect to calling and conducting the special meeting of the Company’s stockholders and has not breached the non-solicitation and related provisions of the amended and restated merger agreement;

 

   

the board of directors has concluded in good faith (after consultation with its outside legal counsel) that, in light of an intervening event (after taking into account the results of any discussions with Parent and any proposed modifications of the amended and restated merger agreement, as contemplated by the amended and restated merger agreement), the failure to make a change of recommendation would be inconsistent with its fiduciary obligations to the Company’s stockholders under applicable law (provided that in no event will any of the following, in and of itself, constitute or be deemed an intervening event: (a) any determination by the board of directors that the amount payable by Parent in the merger is not sufficient, (b) the Company exceeding any earnings projections or predictions made by the Company (whether or not publicly announced) or securities or financial analysts and any resulting analyst upgrades of the Company’s securities or any change in the trading price of its common stock, (c) any facts, events or circumstances resulting from any breach of the amended and restated merger agreement by the Company or (d) the receipt, existence or terms of any acquisition proposal or any matter relating thereto or the consequences thereof);

 

   

the Company has given Parent at least four business days’ prior written notice of its intention to take such action along with certain information relating to such intervening event;

 

   

if requested by Parent, the Company has made its representatives available during such four-business day period to discuss with Parent’s representatives the facts and circumstances underlying such proposed change in recommendation and any modifications to the terms and conditions of the amended and restated merger agreement that Parent desires to propose that would obviate the need for the board of directors to effect a change of recommendation for an intervening event; and

 

   

if within such four-business day period, Parent has not made a written, binding and irrevocable offer that the board of directors concludes in good faith (after consultation with its outside legal counsel and a financial advisor of national standing) would obviate the need for the board of directors to effect such change of recommendation (with the amended and restated merger agreement providing that (a) the board of directors must convene a meeting to consider any such offer by Parent promptly following the receipt thereof, (b) the board of directors will not effect a change of recommendation for four business days after receipt by Parent of the notice of an intervening event and (c) any material change in the facts, events or circumstances related to the intervening event will require a new notice of an intervening event to Parent and a new two-business day period and discussion process).

In addition, if the board of directors decides to terminate the amended and restated merger agreement with Parent following receipt of a superior proposal upon the terms summarized above or Parent terminates the amended and restated merger agreement following a change of recommendation under certain scenarios, the Company must pay the applicable termination fee as described beginning on page 129 under “The Amended and Restated Merger Agreement — Termination Fee.”

You should read “The Amended and Restated Merger Agreement — Restrictions on Changes of Recommendation to Company Stockholders” beginning on page 121 for the definitions of “change of recommendation” and “intervening event.”

Conditions to the Merger (Page 127)

The obligation of the parties to consummate the merger is subject to the satisfaction or waiver of a number of conditions, including:

 

   

the adoption of the amended and restated merger agreement by the Company’s stockholders at the special meeting;



 

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the absence of any order or restraint issued by a governmental entity of the United States, or the enactment of any applicable legal requirement in the United States prohibiting, making illegal or enjoining the completion of the merger;

 

   

the expiration or termination of the applicable waiting period under the HSR Act, it being understood that the existing clearance of the merger thereunder, to the extent still in effect, shall be deemed to satisfy such condition;

 

   

the accuracy of the representations and warranties of Parent (subject to certain materiality exceptions) and the accuracy of specified representations and warranties of the Company (subject to certain materiality exceptions) as of the closing date; and

 

   

material compliance by Parent with its covenants under the amended and restated merger agreement and material compliance by the Company of certain of its covenants, and the absence of any intentional or material breach of the Company’s other covenants, under the amended and restated merger agreement.

Please see “The Amended and Restated Merger Agreement — Conditions to the Merger” beginning on page 127 for a more complete summary of the conditions to the merger.

Termination (Page 128)

The amended and restated merger agreement may be terminated under specified circumstances set forth in the amended and restated merger agreement, including, among others, the following:

 

   

by mutual written consent of the Company and Parent;

 

   

by either the Company or Parent if (a) the merger has not been completed on or before the end date (provided that a party will not be permitted to terminate the amended and restated merger agreement due to the nonoccurrence of the closing before the end date if the failure to close is principally caused by the breach by such party of the amended and restated merger agreement), (b) a governmental entity of the United States has issued a final and nonappealable order or taken any other final and nonappealable action, permanently restraining, enjoining or otherwise prohibiting the merger (provided that this right to terminate the amended and restated merger agreement will not be available to any party that has materially breached its obligations under the amended and restated merger agreement in any manner that principally caused the existence of such order or action in any material respect), (c) the approval of the adoption of the amended and restated merger agreement by holders of Company common stock entitled to vote thereon is not obtained or (d) upon a breach of any covenants or other obligations on the part of the other party set forth in the amended and restated merger agreement, or if any representation or warranty of the other party has become inaccurate, in each case such that the closing condition with respect to the other party regarding the accuracy of representations and warranties or compliance with covenants and other obligations would not be satisfied;

 

   

by Parent, if a triggering event occurs; or

 

   

by the Company, to accept a superior proposal and concurrently enter into a definitive agreement for such superior proposal; provided that the Company has complied in all material respects with the non-solicitation and related provisions under the amended and restated merger agreement and makes a payment to Parent of a termination fee of $197 million.

You should read “The Amended and Restated Merger Agreement — Termination” beginning on page 128 for the definitions of “end date” and “triggering event.”



 

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Termination Fee (Page 129)

Subject to certain limitations, the Company will be required to pay Parent a termination fee equal to $197 million if the amended and restated merger agreement is terminated:

 

   

by Parent because of the occurrence of a triggering event;

 

   

by either Parent or the Company because (a) the holders of Company common stock failed to approve adoption of the amended and restated merger agreement at the special meeting of the Company’s stockholders or any adjournment or postponement thereof or (b) the closing did not occur on or prior to the end date, in each case at a time that Parent would have been entitled to terminate the amended and restated merger agreement because of the occurrence of a triggering event;

 

   

by the Company in order to accept a superior proposal; provided that the Company concurrently enters into a definitive agreement for such superior proposal; or

 

   

by either Parent or the Company because (a) the holders of Company common stock failed to approve adoption of the amended and restated merger agreement at the special meeting of the Company’s stockholders or any adjournment or postponement thereof, (b) the closing did not occur on or prior to the end date and such termination of the amended and restated merger agreement occurred prior to obtaining approval of the adoption of the amended and restated merger agreement at the special meeting of the Company’s stockholders or (c) the Company breached a representation or warranty contained in the amended and restated merger agreement or failed to perform any of its covenants or other obligations contained in the amended and restated merger agreement, which breach or failure to perform or comply would give rise to the failure to satisfy one of certain conditions to completion of the merger, and, in each such case, (i) any person will have publicly announced an acquisition proposal (or an acquisition proposal will have become publicly known) prior to such termination (unless publicly withdrawn prior to such termination) and (ii) within 12 months of such termination either an acquisition with respect to the Company is consummated or the Company enters into a definitive agreement with respect to an acquisition that is ultimately consummated (even if consummated following such 12-month period).

You should read “The Amended and Restated Merger Agreement — Termination Fee” beginning on page 129 for the definitions of “acquisition” and “triggering event.”

Voting Agreements (Page 132)

On January 14, 2021, concurrently with the execution of the amended and restated merger agreement, Parent entered into voting agreements with each of Murugesan Shanmugaraj, Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi (including certain entities holding common shares of the Company on their behalf), pursuant to which such stockholders agreed, among other things, to vote their shares of Company common stock in favor of the adoption of the amended and restated merger agreement and any matter that would reasonably be expected to facilitate the merger, and agreed to certain restrictions on their ability to take actions with respect to the Company and their shares of Company common stock. As of the record date, these stockholders beneficially owned and were entitled to vote approximately 6.6% of the issued and outstanding shares of Company common stock. A copy of the form of voting agreement is attached as Annex C to this proxy statement.

Market Price and Dividend Data of Company Common Stock (Page 135)

The Company common stock is listed on the Nasdaq Global Select Market under the ticker symbol “ACIA.” On January 13, 2021, the last full trading day prior to the public announcement of the amended and restated merger



 

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agreement, the closing price of the Company common stock on the Nasdaq Global Select Market was $86.45 per share. The merger consideration of $115.00 per share of Company common stock represents an approximately 33% premium to the closing price of the Company’s common stock on the Nasdaq Global Select Market on January 13, 2021, the last full trading day prior to the public announcement of the amended and restated merger agreement. On February 5, 2021, the latest practicable trading day before the printing of this proxy statement, the closing price of the Company common stock on the Nasdaq Global Select Market was $114.78 per share. You are encouraged to obtain current market quotations for Company common stock in connection with voting your shares of Company common stock.

The Company has never paid cash dividends on the Company common stock.

Appraisal Rights (Page 139)

If the merger is completed, record holders of Company common stock as of the record date who submit a written demand for appraisal before the vote is taken on the adoption of the amended and restated merger agreement, do not vote in favor of the adoption of the amended and restated merger agreement, hold their shares of Company common stock continuously through the effective time of the merger and otherwise comply with the procedures set forth in Section 262 of the DGCL may elect to pursue their appraisal rights to receive, in lieu of the $115.00 per share merger consideration, an amount in cash equal to the judicially determined “fair value” of their shares, which fair value will be determined as of the effective time of the merger and could be more or less than, or the same as, the per share merger consideration for the Company common stock. For a summary of the procedures set forth in Section 262 of the DGCL, see “Appraisal Rights” beginning on page 139. An executed proxy that is not marked “AGAINST” or “ABSTAIN” with respect to the adoption of the amended and restated merger agreement will be voted “FOR” the adoption of the amended and restated merger agreement and the stockholder submitting that proxy will lose the right to seek an appraisal of his, her or its shares of Company common stock.

A copy of Section 262 of the DGCL is included as Annex D to this proxy statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights. We encourage you to read these provisions carefully and in their entirety.

ANY COMPANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX D CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISORS, SINCE FAILURE TO TIMELY AND FULLY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

Delisting and Deregistration of Company Common Stock (Page 144)

If the merger is consummated, the Company common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act. Accordingly, following the consummation of the merger, we would no longer file periodic reports with the SEC.

Conduct of Our Business if the Merger is Not Completed (Page 144)

In the event that the amended and restated merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any consideration from Parent or Merger Sub for their shares of Company common stock. Instead, we would remain an independent public company, our common stock would continue to be listed and traded on the Nasdaq Global Select Market and our stockholders would continue to be subject to the same risks and opportunities to which they currently are subject with respect to their ownership of Company common stock. If the merger is not completed, there can be no assurance as to the



 

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effect of these risks and opportunities on the future value of our shares, including the risk that the market price of Company common stock may decline to the extent that the current market price of our stock reflects a market assumption that the merger will be completed. If the merger is not completed, our business could be disrupted, including our ability to retain and hire key personnel, potential adverse reactions or changes to our business relationships and uncertainty surrounding our future plans and prospects.



 

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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 amended and restated merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Company stockholder. Please refer to the “Summary” 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, which you should read carefully and in their entirety. 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 147.

 

Q.

What is the proposed transaction and what effects will it have on the Company?

 

A.

The proposed transaction is the acquisition of the Company by Parent pursuant to the amended and restated merger agreement. If the proposal to adopt the amended and restated merger agreement is approved by our stockholders and the other closing conditions under the amended and restated merger agreement are satisfied or waived, Merger Sub will merge with and into the Company, with the Company being the surviving corporation. As a result of the merger, the Company will become a subsidiary of Parent and will no longer be a publicly held corporation, and you will no longer have any interest in our future earnings or growth. In addition, the Company common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC.

 

Q.

What will I receive if the merger is consummated?

 

A.

Upon completion of the merger, you will be entitled to receive the per share merger consideration of $115.00 in cash, without interest and subject to deduction for any required withholding tax, for each share of Company common stock that you own, unless you are entitled to and have properly demanded appraisal under Section 262 of the DGCL. For example, if you own 1,000 shares of Company common stock, you will receive $115,000 in cash in exchange for your shares of Company common stock, without interest and subject to deduction for any required withholding tax. You will not receive any shares of the capital stock in the surviving corporation.

 

Q.

How does the per share merger consideration compare to the market price of Company common stock prior to announcement of the amended and restated merger agreement?

 

A.

The merger consideration of $115.00 per share of Company common stock represents an approximately 33% premium to the closing price of the Company’s common stock on the Nasdaq Global Select Market on January 13, 2021, the last full trading day prior to the public announcement of the amended and restated merger agreement.

 

Q.

Why is there a second special meeting relating to the merger?

 

A.

The Company, Parent and Merger Sub agreed to amend and restate the original merger agreement to increase the per share merger consideration from $70.00, as set forth in the original merger agreement, to $115.00, as set forth in the amended and restated merger agreement, and to make other amendments to the original merger agreement. The board of directors believes, for the reasons described in this proxy statement, that it is in the best interests of the Company and its stockholders to agree to the increased per share merger consideration and other amended terms. For a discussion of the changes made to the original merger agreement pursuant to the amended and restated merger agreement, please see the section of this proxy statement entitled “The Merger — Changes to the Original Merger Agreement Pursuant to the Amended and Restated Merger Agreement” beginning on page 38.

In accordance with the DGCL, the amendment and restatement of the original merger agreement necessitates that the amended and restated merger agreement be adopted by the affirmative vote of the

 

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holders of a majority of the shares of our common stock issued and outstanding as of the close of business on the record date. As a result, you are now being asked to vote on the proposal to adopt the amended and restated merger agreement, which amended and restated the original merger agreement in its entirety, despite the fact that you may have voted on the proposal to adopt the original merger agreement in connection with the September 6, 2019 special meeting of the Company’s stockholders.

 

Q.

What changes were made to the original merger agreement pursuant to the amended and restated merger agreement?

 

A.

The original merger agreement was amended and restated pursuant to the amended and restated merger agreement to, among other things, (i) increase the per share merger consideration from $70.00 to $115.00 in cash, without interest and subject to deduction for any required withholding tax, (ii) eliminate certain conditions to the closing, such as the elimination of the condition regarding the absence of a material adverse effect on the Company, (iii) narrow certain other conditions to the closing, such as limiting the condition with respect to the accuracy of the Company’s representations and warranties to certain fundamental representations and warranties (relating to the Company’s organization, good standing and qualification, capital structure, corporate authority and approval, brokers’ and advisors’ fees, the Company’s receipt of a fairness opinion and the information contained in this proxy statement), (iv) increase the termination fee payable by the Company under certain circumstances set forth in the amended and restated merger agreement in proportion to the increase in the per share merger consideration, from $120 million to $197 million and (v) amend the addendum to the Master Purchase Agreements by and between the Company, Parent and a wholly owned subsidiary of Parent, to provide that no fee is payable by Parent to the Company under any circumstances in connection with the merger or related transactions.

 

Q.

Is it possible for stockholders to reject the amended and restated merger agreement and return to the terms of the original merger agreement?

 

A.

No, the adoption of the amended and restated merger agreement (which amended and restated the original merger agreement in its entirety) by our stockholders is a condition to closing the merger. In the event that the amended and restated merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any consideration from Parent or Merger Sub for their shares of Company common stock. Instead, we would remain an independent public company and our common stock would continue to be listed and traded on the Nasdaq Global Select Market.

 

Q.

What will holders of Company equity awards receive if the merger is consummated?

 

A.

Each Company stock option that is outstanding, vested and unexercised immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

Each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option payable to the extent, and at the applicable times, such unvested option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the terms of the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents received from Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

 

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Each RSU and PRSU that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes PRSUs with a TSR performance metric that will become vested based on actual results as of the closing of the merger and certain RSUs that will become vested as of the closing of the merger) will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the merger consideration.

Each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the merger consideration payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent.

Each cash payment for the options, RSUs and PRSUs described above will be subject to deduction for any applicable withholding taxes.

 

Q.

What will happen to the Company’s employee stock purchase plan?

 

A.

Following execution of the original merger agreement, the Company took all actions with respect to the Company ESPP, that were required to provide that, (i) with respect to any offering period in effect as of the date of the original merger agreement, no employee who was not a participant in the Company ESPP as of the date of the original merger agreement could become a participant in the Company ESPP and no participant could increase the percentage amount of his or her payroll deduction election from that in effect on the date of the original merger agreement for such offering period; (ii) subject to the consummation of the merger, the Company ESPP will terminate effective immediately prior to the effective time of the merger; and (iii) the Company ESPP was suspended and no new offering periods have been or will be commenced under the Company ESPP prior to the termination of the amended and restated merger agreement.

 

Q.

How does the board of directors recommend that I vote?

 

A.

The board of directors recommends that you vote “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Q.

Why is the board of directors recommending that I vote “FOR” approval of the proposal to adopt the amended and restated merger agreement?

 

A.

After careful consideration of various factors described in the section entitled “The Merger — Reasons for the Merger; Recommendation of the Board of Directors,” the board of directors, by a unanimous vote of all directors:

 

   

determined and declared that the terms and conditions of the amended and restated merger agreement, the merger and the other transactions contemplated thereby, on the terms and subject to the conditions set forth in the amended and restated merger agreement, are advisable, fair to and in the best interests of the Company and its stockholders;

 

   

adopted and approved the amended and restated merger agreement, the merger and the other transactions contemplated by the amended and restated merger agreement; and

 

   

determined that it is advisable and in the best interests of the Company for the board of directors to submit the amended and restated merger agreement to the Company’s stockholders for adoption,

 

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directed that the amended and restated merger agreement be submitted to the Company’s stockholders at a special meeting of the Company’s stockholders for their adoption and recommended that the Company’s stockholders adopt the amended and restated merger agreement.

 

Q.

When do you expect the merger to be consummated?

 

A.

We are working towards completing the merger as soon as possible. The amended and restated merger agreement provides that the closing of the merger shall take place no later than the third business day after the satisfaction or waiver of the closing conditions set forth in the amended and restated merger agreement or such other time as the parties may agree in writing. Assuming timely satisfaction of necessary closing conditions, including the approval by our stockholders of the proposal to adopt the amended and restated merger agreement, we currently anticipate that the merger will be consummated on or about March 1, 2021.

 

Q.

What happens if the merger is not consummated?

 

A.

If the amended and restated merger agreement is not adopted by the stockholders of the Company or if the merger is not consummated for any other reason, the stockholders of the Company would not receive any payment for their shares of Company common stock in connection with the merger. Instead, the Company would remain an independent public company, and the Company common stock would continue to be listed and traded on the Nasdaq Global Select Market. Under specified circumstances, the Company may be required to pay to Parent a termination fee as described in the section entitled “The Amended and Restated Merger Agreement — Termination Fee” beginning on page 129.

 

Q.

Is the merger expected to be taxable to me?

 

A.

Yes. The exchange of shares of Company common stock for cash pursuant to the merger will generally be a taxable transaction to U.S. holders and certain non-U.S. holders for U.S. federal income tax purposes. A U.S. holder (or a non-U.S. holder that is subject to U.S. federal income tax on its gain from the merger) who exchanges shares of Company common stock for cash in the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before deduction of any applicable withholding taxes) with respect to such shares and the stockholder’s adjusted tax basis in such shares. This may also be a taxable transaction under applicable state, local and/or foreign income or other tax laws. You should read “The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 101 for the definition of “U.S. holder” and “non-U.S. holder” and a more detailed discussion of the U.S. federal income tax consequences of the merger. Because individual circumstances may differ, you should also consult your tax advisor for a complete analysis of the effect of the merger on your U.S. federal, state and local and/or foreign taxes.

 

Q.

Do any of the Company’s directors or officers have interests in the merger that may differ from or be in addition to my interests as a stockholder?

 

A.

Yes. In considering the recommendation of the board of directors with respect to the proposal to adopt the amended and restated merger agreement, you should be aware that our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the amended and restated merger agreement and the merger, and in recommending that the amended and restated merger agreement be adopted by the stockholders of the Company. See “The Merger — Interests of Certain Persons in the Merger” beginning on page 82.

 

Q.

Why am I receiving this proxy statement and a proxy card or voting instruction form?

 

A.

You are receiving this proxy statement and a proxy card or voting instruction form in connection with the solicitation of proxies by the board of directors for use at the special meeting because you owned shares of

 

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  Company common stock as of the record date for the special meeting. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of Company common stock with respect to such matters.

In accordance with the DGCL, the amendment and restatement of the original merger agreement necessitates that the amended and restated merger agreement be adopted by the affirmative vote of the holders of a majority of the shares of our common stock issued and outstanding as of the close of business on the record date. As a result, you are now being asked to vote on the proposal to adopt the amended and restated merger agreement, which amended and restated the original merger agreement in its entirety, despite the fact that you may have voted on the proposal to adopt the original merger agreement in connection with the September 6, 2019 special meeting of the Company’s stockholders.

 

Q.

When and where is the special meeting?

 

A.

The special meeting of stockholders of the Company will be held on Monday, March 1, 2021 at 8:00 a.m., Eastern time. Due to public health and travel concerns related to coronavirus (COVID-19), the special meeting will be held virtually, conducted via webcast. You may attend the special meeting online, vote your shares electronically and submit questions during the special meeting by visiting www.proxydocs.com/ACIA. You will need to have your control number, included on your proxy card or voting instruction form, to join and participate in the special meeting, and you will need to register for the special meeting in advance in order to virtually attend the special meeting by visiting www.proxydocs.com/ACIA. Instructions on how to attend and participate online will be provided to you via email after you register. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021. Approximately one hour prior to the start of the special meeting, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. We encourage you to access the meeting 15 minutes prior to the start time to allow ample time to check your connection and visual and audio settings. If you encounter any difficulties accessing the virtual meeting prior to or during the meeting time, please call the technical support number provided to you in such emailed instructions for the special meeting.

 

Q.

What am I being asked to vote on at the special meeting?

 

A.

You are being asked to consider and vote on:

 

   

a proposal to adopt the amended and restated merger agreement that provides for the acquisition of the Company by Parent;

 

   

a proposal to approve, on an advisory basis, the compensation that may be payable to our named executive officers in connection with the merger as reported on the table on page 99, including the associated narrative discussion; and

 

   

a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the amended and restated merger agreement.

 

Q.

What vote is required for the Company’s stockholders to approve the proposal to adopt the amended and restated merger agreement?

 

A.

The adoption of the amended and restated merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date.

In accordance with the DGCL, the amendment and restatement of the original merger agreement necessitates that the amended and restated merger agreement be adopted by the affirmative vote of holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date. As a result, you are now being asked to vote on the proposal to adopt the amended and restated merger agreement, despite the fact that you may have voted on the proposal to adopt the original merger agreement in connection with the September 6, 2019 special meeting of the Company’s stockholders.

 

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Pursuant to voting agreements entered into on January 14, 2021 between Parent and each of Murugesan Shanmugaraj, Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi (including certain entities holding shares of Company common stock on their behalf), such stockholders agreed, among other things, to vote their shares of Company common stock in favor of the adoption of the amended and restated merger agreement and any matter that would reasonably be expected to facilitate the merger. As of the record date, these stockholders beneficially owned and were entitled to vote approximately 6.6% of the issued and outstanding shares of Company common stock.

Because the affirmative vote required to approve the proposal to adopt the amended and restated merger agreement is based upon the total number of outstanding shares of Company common stock, if you fail to submit a proxy or to vote online while virtually attending the special meeting, or if you vote “ABSTAIN”, or if you do not provide your bank, brokerage firm or other nominee with voting instructions, it will have the same effect as a vote “AGAINST” the proposal to adopt the amended and restated merger agreement.

 

Q.

What vote is required for the Company’s stockholders to approve the proposal regarding compensation that may be payable to our named executive officers in connection with the merger and the proposal to adjourn the special meeting, if necessary or appropriate?

 

A.

Approval of the proposals regarding compensation that may be payable to our named executive officers in connection with the merger and adjournment of the special meeting, if necessary or appropriate, require the affirmative vote of a majority of the votes cast by the holders of all of the shares present or represented at the special meeting and voting on each of these proposals.

If you vote “ABSTAIN” on the proposal regarding compensation that may be payable to our named executive officers in connection with the merger or the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies, this will have no effect on these proposals. If you fail to submit a proxy or to vote online while virtually attending the special meeting, or if you do not provide your bank, brokerage firm or other nominee with voting instructions, your shares of Company common stock will not be voted on these proposals, and thus will have no effect on these proposals.

 

Q.

Why am I being asked to cast a nonbinding advisory vote to approve compensation that may be payable to the Company’s named executive officers in connection with the merger?

 

A.

The SEC’s rules require us to seek a nonbinding advisory vote with respect to certain payments that will be made to our named executive officers in connection with the merger.

 

Q.

What will happen if stockholders do not approve the compensation that may be payable to our named executive officers in connection with the merger at the special meeting?

 

A.

Approval of compensation payable under existing agreements with the Company and, in certain cases, new agreements with Parent that our named executive officers may receive in connection with the merger is not a condition to completion of the merger. The vote with respect to such compensation is an advisory vote and will not be binding on us. Therefore, regardless of whether stockholders approve such compensation, if the amended and restated merger agreement is adopted by the stockholders and the merger is completed, this compensation will still be paid to our named executive officers to the extent payable in accordance with the terms of such agreements.

 

Q.

Who can vote at the special meeting?

 

A.

All holders of Company common stock of record as of the close of business on February 5, 2021, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. Each holder of Company common stock is entitled to cast one vote on each matter properly brought before the special meeting for each share of Company common stock that such holder owned as of the record date. As of the record date, there were 42,608,420 shares of our common stock issued and outstanding held collectively by 13 stockholders of record.

 

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Q.

What is a “broker non-vote”?

 

A.

Banks, brokerage firms or other nominees who hold shares in “street name” for customers have the authority to vote on “discretionary” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-discretionary matters, such as the proposal to adopt the amended and restated merger agreement, the proposal to approve the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies, and, as a result, absent specific instructions from the beneficial owner of such shares of Company common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of Company common stock on non-discretionary matters. Shares held by banks, brokerage firms or nominees that are present virtually or by proxy at the special meeting, but with respect to which the broker or other stockholder of record is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal are referred to generally as “broker non-votes.” Because none of the proposals to be voted on at the special meeting are routine matters for which brokers may have discretionary authority to vote, the Company does not expect any broker non-votes at the special meeting.

 

Q.

What constitutes a quorum for the special meeting?

 

A.

A quorum is necessary to adopt the amended and restated merger agreement and approve the proposal regarding compensation that may be payable to our named executive officers in connection with the merger at the special meeting. The presence at the special meeting, virtually or by proxy, of the holders of a majority of the shares of Company common stock that are issued and outstanding at the close of business on the record date constitutes a quorum for the purposes of the special meeting. Abstentions and “broker non-votes” (as described above) will be counted as present for the purpose of determining whether a quorum is present. Because none of the proposals to be voted on at the special meeting are routine matters for which brokers may have discretionary authority to vote, the Company does not expect any broker non-votes at the special meeting. The special meeting may be adjourned whether or not a quorum is present.

 

Q.

How do I virtually attend the special meeting?

 

A.

We will host the special meeting online via webcast. You may attend the special meeting online by visiting www.proxydocs.com/ACIA. You will need to register for the special meeting in advance in order to virtually attend the special meeting by visiting www.proxydocs.com/ACIA. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021. You will need the control number included on your proxy card or voting instruction form in order to be able to register. Instructions on how to attend and participate online will be provided to you via email after you register, and you will receive further instructions via email, including your unique links that will allow you access to the meeting and also permit you to submit questions, approximately one hour prior to the start of the meeting. The webcast will start at 8:00 a.m., Eastern time, on Monday, March 1, 2021, and you should sign in approximately 15 minutes prior to the start of the meeting to check your connection and visual and audio settings. Mediant Communications Inc. will have technicians standing by and ready to assist you with any technical difficulties you may have accessing the virtual meeting via the email address provided to you prior to the special meeting.

 

Q.

How do I vote?

 

A.

If you are a stockholder of record, you may vote your shares of Company common stock on matters presented at the special meeting in any of the following ways:

 

   

online while virtually attending the special meeting — the special meeting will be held virtually via webcast. You may virtually attend and vote at the special meeting by visiting www.proxydocs.com/ACIA and registering in advance. You will need to have your control number, included on your proxy

 

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card or voting instruction form to register. Instructions on how to attend and participate online will be provided to you via email after you register; or

 

   

by proxy — stockholders of record have a choice of having their shares voted by proxy by submitting a proxy in one of the following ways:

 

   

over the Internet — the website for Internet proxy submission is on your proxy card;

 

   

by using a toll-free telephone number noted on your proxy card; or

 

   

by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope.

If you hold your shares of Company common stock in “street name,” please refer to the instructions provided by your bank, brokerage firm or other nominee to see the methods available to you. Please note that if you are a beneficial owner of shares of Company common stock held in “street name” and wish to vote online while virtually attending the special meeting, you must request and obtain a legal proxy from your bank, brokerage firm or other nominee prior to the special meeting.

A control number, located on your proxy card, is designed to verify your identity and allow you to submit a proxy for your shares of Company common stock, and to confirm that your voting instructions have been properly recorded when submitting a proxy over the Internet or by telephone.

 

Q.

What is the difference between holding shares as a stockholder of record and in “street name”?

 

A.

If your shares of Company common stock are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares of Company common stock, as the “stockholder of record.” This proxy statement, and your proxy card, have been sent directly to you by the Company.

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

 

Q.

If my shares of Company common stock are held in “street name” by my bank, brokerage firm or other nominee, will my bank, brokerage firm or other nominee vote my shares of Company common stock for me?

 

A.

Your bank, brokerage firm or other nominee will only be permitted to vote your shares of Company common stock if you instruct your bank, brokerage firm or other nominee how to vote. You should follow the procedures provided by your bank, brokerage firm or other nominee regarding the voting of your shares of Company common stock. If you do not instruct your bank, brokerage firm or other nominee to vote your shares of Company common stock, your shares of Company common stock will not be voted and the effect will be the same as a vote “AGAINST” the proposal to adopt the amended and restated merger agreement and your shares of Company common stock will not have an effect on approval of the advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger or the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Q.

How can I change or revoke my proxy?

 

A.

You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by submitting a later-dated proxy through any of the methods available to you,

 

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  by giving written notice of revocation to our Secretary at Acacia Communications, Inc., Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754 before the special meeting begins, or by voting online while virtually attending the special meeting. Virtually attending the special meeting will not, in itself, revoke a previously submitted proxy.

 

Q.

What is a proxy?

 

A.

A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of Company common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Company common stock is called a “proxy card.” The board of directors has designated John F. Gavin and Janene I. Asgeirsson, and each of them singly, with full power of substitution, as proxies for the special meeting.

 

Q.

If a stockholder gives a proxy, how will its shares of Company common stock be voted?

 

A.

Regardless of the method you choose to submit your proxy, the individuals named on the enclosed proxy card, as your proxies, will vote your shares of Company common stock in the way that you indicate. When completing the Internet or telephone proxy processes or the enclosed proxy card, you may specify whether your shares of Company common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of Company common stock should be voted on a matter, the shares represented by your properly signed proxy will be voted “FOR” the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Q.

How are votes counted?

 

A.

With respect to the proposal to adopt the amended and restated merger agreement, you may vote “FOR”, “AGAINST” or “ABSTAIN.” Abstentions and broker non-votes will have the same effect as votes “AGAINST” the proposal to adopt the amended and restated merger agreement.

With respect to the proposal regarding compensation that may be payable to our named executive officers in connection with the merger and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies, you may vote “FOR”, “AGAINST” or “ABSTAIN.” Abstentions and broker non-votes will have no effect on these proposals.

 

Q.

What do I do if I receive more than one proxy or set of voting instructions?

 

A.

If you hold shares of Company common stock in more than one account, you may receive more than one proxy or set of voting instructions relating to the special meeting. These should each be voted or returned separately in accordance with the instructions provided in this proxy statement in order to ensure that all of your shares of Company common stock are voted.

 

Q.

How do I submit a question at the special meeting?

 

A.

If you wish to submit a question upon registering for the special meeting or during the special meeting, you may visit www.proxydocs.com/ACIA, type your question into the “Questions for Management” field, and click “Submit.” The Company’s virtual meeting will be governed by the Company’s Rules of Conduct and Procedures which will be posted at www.proxydocs.com/ACIA during the meeting. The Rules of Conduct

 

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  and Procedures will address the ability of stockholders to ask questions during the meeting, including rules on permissible topics, and rules for how questions and comments will be recognized.

 

Q.

What if prior to or during the special meeting I have technical difficulties or trouble accessing the virtual meeting website?

 

A.

Mediant Communications Inc. will have technicians ready to assist you with any individual technical difficulties you may have accessing the virtual meeting website. Contact information for technical support will appear in the instructions emailed to you prior to the start of the special meeting. If the Company experiences technical difficulties during the special meeting (e.g., a temporary or prolonged power outage), it will determine whether the special meeting can be promptly reconvened (if the technical difficulty is temporary) or whether the special meeting will need to be reconvened on a later day (if the technical difficulty is more prolonged).

 

Q.

What happens if I sell my shares of Company common stock before the special meeting?

 

A.

The record date for stockholders entitled to vote at the special meeting is earlier than both the date of the special meeting and the consummation of the merger. If you transfer your shares of Company common stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies the Company in writing of such special arrangements, you will retain your right to vote such shares at the special meeting but will transfer the right to receive the per share merger consideration to the person to whom you transfer your shares. You will also lose the ability to exercise appraisal rights in connection with the merger.

 

Q.

Who will solicit and pay the cost of soliciting proxies?

 

A.

The Company has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support for the special meeting, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $30,000 in the aggregate. The Company will also indemnify The Proxy Advisory Group, LLC and its affiliates against certain claims, expenses, losses, damages, liabilities and judgments. The Company may also reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of Company common stock for their expenses in forwarding soliciting materials to beneficial owners of Company common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q.

What do I need to do now?

 

A.

Even if you plan to virtually attend the special meeting, after carefully reading and considering the information contained in this proxy statement, please submit your proxy promptly to ensure that your shares are represented at the special meeting. If you hold your shares of Company common stock in your own name as the stockholder of record, please submit a proxy for your shares of Company common stock by (a) completing, signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope, (b) using the telephone number printed on your proxy card or (c) using the Internet proxy instructions printed on your proxy card. If you decide to vote online while virtually attending the special meeting, your vote at the meeting will revoke any proxy previously submitted. If you are a beneficial owner of shares of Company common stock held in “street name,” please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you.

 

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Q.

Should I send in my stock certificates now?

 

A.

No. A letter of transmittal will be mailed to you promptly, and in any event within three business days, after the effective time of the merger, describing how you should surrender your shares of Company common stock for the per share merger consideration. If your shares of Company common stock are held in “street name” by your bank, brokerage firm or other nominee, you will receive instructions from your bank, brokerage firm or other nominee as to how to effect the surrender of your “street name” shares of Company common stock in exchange for the per share merger consideration. Please do NOT return your stock certificate(s) with your proxy.

 

Q.

What should I do if I have lost my stock certificate?

 

A.

If you have lost your stock certificate, please contact our transfer agent, Computershare Trust Company, N.A., at (877) 373-6374, to obtain replacement certificates.

 

Q.

What rights do I have if I oppose the merger?

 

A.

Stockholders of record as of the record date are entitled to exercise appraisal rights under the DGCL only if they do not vote for the adoption of the amended and restated merger agreement and otherwise follow the procedures and satisfy the requirements specified in Section 262 of the DGCL. A copy of Section 262 of the DGCL is attached as Annex D to this proxy statement. See “Appraisal Rights” beginning on page 139.

 

Q.

Are there any other risks to me from the merger that I should consider?

 

A.

Yes. There are risks associated with all business combinations, including the merger. See “Cautionary Statement Concerning Forward-Looking Information” beginning on page 29.

 

Q.

Who can help answer my other questions?

 

A.

If you have additional questions about the merger, need assistance in submitting your proxy or voting your shares of Company common stock, or need additional copies of this proxy statement or the enclosed proxy card, please call The Proxy Advisory Group, LLC, our proxy solicitor, at (212) 616-2181.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contain a number of “forward-looking statements,” including all statements relating directly or indirectly to the timing or likelihood of completing the merger to which this proxy statement relates, financial forecasts and other information with respect to our plans and strategies. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “may,” “should,” “would,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “forecasts,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “will” or “continue” or the negative of these terms or other similar expressions are intended to help you identify forward-looking statements. Forward-looking statements may include statements regarding the expected benefits to Parent, the Company and their respective customers from completing the merger; integration of the Company’s technology into Parent’s networking portfolio, accelerating the trend toward coherent technology and pluggable solutions, supporting the Company’s current merchant business, including the Company’s existing customers and new customers; and the expected completion of the merger. Forward-looking statements are only predictions. The events and circumstances reflected in forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and trends that the Company believes may affect its business, financial condition and results of operations. These forward-looking statements speak only as of the date they were made and are subject to a number of risks, uncertainties and assumptions including, without limitation: the risk that the merger may not be completed in a timely manner, or at all, which may adversely affect the Company’s business and the price of its common stock; obtaining the approval of the Company’s stockholders of the merger or that other conditions to the closing of the merger may not be satisfied; the potential impacts on the Company’s business, reputation, relationships, results of operations, cash flows and financial condition as a result of the merger, uncertainty with respect to the merger or litigation relating to the merger; litigation against the Company or its directors or officers related to the merger and any adverse outcome of such litigation; the effects of announcements relating to the merger; the costs, fees, expenses and other charges related to the merger, including with respect to related litigation; risks that the merger may disrupt the Company’s plans and business operations; risks that the merger and litigation relating to the merger may divert management’s attention from the Company’s ongoing business operations, disrupt the Company’s operations and result in potential difficulties in the Company’s ability to attract and retain employees; the occurrence of any event, change or other circumstances that could give rise to the termination of the amended and restated merger agreement; general economic conditions; the ability of Parent to successfully integrate the Company’s market opportunities, technology, personnel and operations and to achieve expected benefits; the Company’s ability to maintain its listing on the Nasdaq Global Select Market; uncertainty regarding the extent to which the coronavirus disease, COVID-19, pandemic and related response measures will adversely affect the Company’s business, results of operations, cash flows and financial condition, or the business and financial condition of the Company’s customers and suppliers; the Company’s ability to sustain or increase revenue from its larger customers, generate revenues from new customers, or offset the discontinuation of concentrated purchases by its larger customers with purchases by new or existing customers; the Company’s ability to anticipate the timing and scale of demand for its products, including from its largest customers; the adverse impact of negative economic conditions created or exacerbated by the ongoing COVID-19 pandemic; the Company’s expectations regarding expenses and revenue, its ability to maintain and expand gross profit, the sufficiency of the Company’s cash resources and needs for additional financing; the Company’s ability to produce products free of problems, defects, errors and vulnerabilities; the Company’s anticipated growth strategies, its expectations regarding competition, the anticipated trends and challenges in the Company’s business and the markets in which it operates; the Company’s expectations regarding, and the capacity and stability of, its supply chain and manufacturing; the size and growth of the potential markets for the Company’s products and the ability to serve those markets; the scope, progress, expansion and costs of developing and commercializing the Company’s products; the timing, rate and degree of introducing any of its products into the market and the market acceptance of any of its products; the Company’s ability to establish and maintain development partnerships; the Company’s

 

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ability to attract or retain key personnel; the Company’s expectations regarding federal, state and foreign regulatory requirements, including export controls, tax law changes and interpretations, economic sanctions and anti-corruption regulations; regulatory or legislative developments in the United States and foreign countries, including trade policy and tariffs and export control laws or regulations that could impede the Company’s ability to sell its products to its customer ZTE Kangxun Telecom Co. Ltd. or any of its affiliates or that could impede the Company’s ability to sell its products to other customers in certain foreign jurisdictions, particularly in China, or that could impede sales by such customers in the United States; the Company’s ability to obtain and maintain intellectual property protection for its products and other risks set forth under the caption “Risk Factors” in the Company’s most recent Annual Report on Form 10-K and subsequently filed quarterly reports on Form 10-Q filed with the SEC, and in other filings that the Company may make with the SEC from time to time. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as indicative of future events. Except to the extent otherwise required by law, while we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

 

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THE SPECIAL MEETING

Time, Place and Purpose of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the board of directors for use at the special meeting to be held on Monday, March 1, 2021, starting at 8:00 a.m., Eastern time, or at any adjournment thereof. Due to public health and travel concerns related to coronavirus (COVID-19), the special meeting will be a virtual stockholder meeting, conducted via webcast. You may attend the special meeting online, vote your shares electronically and submit questions during the special meeting by visiting www.proxydocs.com/ACIA. You will need to have your control number, included on your proxy card or voting instruction form, to join and participate in the special meeting, and you will need to register for the special meeting in advance in order to virtually attend the special meeting by visiting www.proxydocs.com/ACIA. Instructions on how to attend and participate online will be provided to you via email after you register. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021. Approximately one hour prior to the start of the special meeting, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will also permit you to submit questions. We encourage you to access the meeting 15 minutes prior to the start time to allow ample time to check your connection and visual and audio settings. If you encounter any difficulties accessing the virtual meeting prior to or during the meeting time, please call the technical support number provided to you in such emailed instructions for the special meeting.

At the special meeting, holders of Company common stock will be asked to approve the proposal to adopt the amended and restated merger agreement, to approve the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and to approve the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the amended and restated merger agreement.

Our stockholders must approve the proposal to adopt the amended and restated merger agreement in order for the merger to be consummated. If our stockholders fail to approve the proposal to adopt the amended and restated merger agreement, the merger will not be consummated. A copy of the amended and restated merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

Record Date and Quorum

We have fixed the close of business on February 5, 2021 as the record date for the special meeting, and only holders of record of Company common stock on the record date are entitled to vote at the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you are the holder of record of Company common stock at the close of business on the record date. On the record date, there were 42,608,420 shares of Company common stock outstanding and entitled to vote. Each share of Company common stock entitles its holder to one vote on all matters properly coming before the special meeting.

A majority of the shares of Company common stock that are issued and outstanding at the close of business on the record date, present virtually or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting. Shares of Company common stock represented at the special meeting but not voted, including shares of Company common stock for which a stockholder directs voting “ABSTAIN”, as well as broker non-votes, will be counted for purposes of establishing a quorum. Because none of the proposals to be voted on at the special meeting are routine matters for which brokers may have discretionary authority to vote, the Company does not expect any broker non-votes at the special meeting. A quorum is necessary for us to be able to conduct business at the special meeting. Once a share of Company common stock is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any recess or adjournment of the special meeting. However, if a new record date is set for the adjourned special meeting, then a new quorum will have to be established. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned or recessed.

 

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Attendance

Only stockholders of record or their duly authorized proxies have the right to virtually attend the special meeting. Beneficial owners of shares are invited to virtually attend the special meeting. You will need to register in advance in order to virtually attend the special meeting. The deadline for registering to virtually attend the special meeting is 5:00 p.m., Eastern time on February 25, 2021.

Vote Required

Approval of the proposal to adopt the amended and restated merger agreement requires the affirmative vote of the holders of a majority of the shares of Company common stock that are issued and outstanding as of the record date. For the proposal to adopt the amended and restated merger agreement, you may vote “FOR”, “AGAINST” or “ABSTAIN.” Voting “ABSTAIN” will not be counted as a vote cast in favor of the proposal to adopt the amended and restated merger agreement but will count for the purpose of determining whether a quorum is present. If you fail to submit a proxy or to vote online while virtually attending the special meeting, or if you vote “ABSTAIN”, it will have the same effect as a vote “AGAINST” the proposal to adopt the amended and restated merger agreement.

If your shares of Company common stock are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares of Company common stock, the “stockholder of record.” This proxy statement and proxy card have been sent directly to you by the Company.

If your shares of Company common stock are held through a bank, brokerage firm or other nominee, you are considered the beneficial owner of shares of Company common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of Company common stock, the stockholder of record. As the beneficial owner of shares of Company common stock held in “street name,” you have the right to direct your bank, brokerage firm or other nominee how to vote your shares by following their instructions for voting. If you hold your shares of Company common stock in “street name,” please contact your bank, brokerage firm or other nominee for their instructions on how to vote your shares. Please note that if you are a beneficial owner of shares of Company common stock held in “street name” and wish to vote online while virtually attending the special meeting, you must request and obtain a legal proxy from your bank, brokerage firm or other nominee prior to the special meeting.

Under applicable stock exchange rules, banks, brokerage firms or other nominees who hold shares in “street name” for customers have the authority to vote on “discretionary” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-discretionary matters, such as the proposal to adopt the amended and restated merger agreement, the proposal to approve the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies, and, as a result, absent specific instructions from the beneficial owner of such shares of Company common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of Company common stock on non-discretionary matters. Shares held by banks, brokerage firms or nominees that are present virtually or by proxy at the special meeting but with respect to which the broker or other stockholder of record is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal are referred generally as “broker non-votes.” These broker non-votes will be counted for purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the proposal to adopt the amended and restated merger agreement. Because none of the proposals to be voted on at the special meeting are routine matters for which brokers may have discretionary authority to vote, the Company does not expect any broker non-votes at the special meeting.

Approval of the non-binding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and approval of the proposal to adjourn the special meeting, if

 

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necessary or appropriate, for the purpose of soliciting additional proxies, require a majority of the votes cast on each of these proposals. For the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and the proposal to adjourn the special meeting, if necessary or appropriate, you may vote “FOR”, “AGAINST” or “ABSTAIN.” For purposes of each of these proposals, if you fail to submit a proxy or to vote online while virtually attending the special meeting, or if you have given a proxy and vote “ABSTAIN”, the shares of Company common stock will not be counted in respect of, and will not have any effect on, the proposal.

If you are a stockholder of record, you may vote your shares of Company common stock on matters presented at the special meeting in any of the following ways:

 

   

online while virtually attending the special meeting — the special meeting will be held virtually via webcast. You may virtually attend and vote at the special meeting by visiting www.proxydocs.com/ACIA. You will need to have your control number, included in your proxy card or in the instructions that accompanied your proxy materials, to join the virtual meeting; or

 

   

by proxy — stockholders of record have a choice of having their shares voted by proxy by submitting a proxy in one of the following ways:

 

   

over the Internet — the website for Internet proxy submission is on your proxy card;

 

   

by using a toll-free telephone number noted on your proxy card; or

 

   

by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope.

If you are a beneficial owner of Company common stock held in “street name,” you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Company common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner of Company common stock held in “street name” and wish to vote online while virtually attending the special meeting, you must request and obtain a legal proxy from your bank, brokerage firm or other nominee prior to the special meeting.

A control number, located on your proxy card, is designed to verify your identity and allow you to submit a proxy for your shares of Company common stock, and to confirm that your voting instructions have been properly recorded when submitting a proxy over the Internet or by telephone.

If you choose to submit your proxy over the Internet or by telephone, you must do so by the time the special meeting begins. If you choose to submit your proxy by mailing a proxy card, your proxy card must be received by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. Following the consummation of the merger, a separate letter of transmittal will be mailed to you that will enable you to surrender your stock certificates and receive the per share merger consideration.

If you vote by proxy, regardless of the method you choose to submit a proxy, the individuals named as your proxies on the enclosed proxy card, and each of them, with full power of substitution, will vote your shares of Company common stock in the way that you indicate. When completing the Internet or telephone proxy processes or the enclosed proxy card, you may specify whether your shares of Company common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of Company common stock should be voted on a matter, the shares of Company common stock represented by your properly signed proxy will be voted “FOR” the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

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If you have any questions or need assistance in submitting your proxy or voting your shares, please call The Proxy Advisory Group, LLC, our proxy solicitor, at (212) 616-2181.

IT IS IMPORTANT THAT YOU SUBMIT A PROXY FOR YOUR SHARES OF COMPANY COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO VIRTUALLY ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS MAY REVOKE THEIR PROXIES BY VOTING ONLINE WHILE VIRTUALLY ATTENDING THE SPECIAL MEETING.

Our Board’s Recommendation

The board of directors has unanimously determined that the terms and conditions of the merger and the amended and restated merger agreement are advisable, fair to and in the best interests of the Company and its stockholders and recommends that all Company stockholders vote in favor of the proposal to adopt the amended and restated merger agreement. The board of directors made its determination after consultation with its legal and financial advisors and consideration of a number of factors, as described in “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 63. The board of directors recommends that you vote “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

Shares Owned by Our Directors and Executive Officers

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 3,435,179 shares of Company common stock, representing approximately 8.1% of the issued and outstanding shares of Company common stock on the record date. The directors and executive officers have informed the Company that they currently intend to vote all of their shares of Company common stock “FOR” the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. In addition, the shares described above include shares beneficially owned by Murugesan Shanmugaraj, Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi (including certain entities holding shares of Company common stock on their behalf) and such stockholders are obligated, pursuant to voting agreements entered into on January 14, 2021 between Parent and each of such stockholders, to vote such shares, representing approximately 6.6% of the issued and outstanding shares of Company common stock on the record date, in favor of the adoption of the amended and restated merger agreement and any matter that would reasonably be expected to facilitate the merger.

Proxies and Revocation

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote online while virtually attending the special meeting. If your shares of Company common stock are held in “street name” by your bank, brokerage firm or other nominee, please contact your bank, brokerage firm or other nominee for their instructions on how to vote your shares. If you fail to submit a proxy or to vote online while virtually attending the special meeting, or if you vote “ABSTAIN”, or if you do not provide your bank, brokerage firm or other nominee with voting instructions, your shares of Company common stock will not be voted on the proposal to adopt the amended and restated merger agreement, which will have the same effect as a vote “AGAINST” the proposal to adopt the amended and restated merger agreement.

 

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You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by submitting a later-dated proxy through any of the methods available to you, by giving written notice of revocation to our Secretary, which must be received by the Company at Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754 before the time the special meeting begins, or by voting online while virtually attending the special meeting. Virtually attending the special meeting will not, in itself, revoke a previously submitted proxy. If you are a beneficial owner of our shares, you will need to contact your bank, brokerage firm, trustee, or other nominee to revoke any prior voting instructions.

Adjournments and Recesses

Although it is not currently expected, the special meeting may be adjourned or recessed, including for the purpose of soliciting additional proxies, if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the amended and restated merger agreement or if a quorum is not present at the special meeting. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned meeting, an adjournment generally may be made without notice. Any adjournment or recess of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or recessed.

Stockholder List

A list of registered stockholders as of the close of business on the record date will be available for examination by any stockholder for any purpose germane to the special meeting at www.proxydocs.com/ACIA for a period of at least 10 days prior to the special meeting. Such list will also be available for examination by the stockholders during the whole time of the special meeting. Instructions regarding how to access the stockholder list will be provided in the emailed instructions that you will receive prior to the start of the meeting.

Anticipated Date of Completion of the Merger

We are working towards completing the merger as soon as possible. Assuming timely satisfaction of necessary closing conditions, including the approval by our stockholders of the proposal to adopt the amended and restated merger agreement, we currently anticipate that the merger will be consummated on or about March 1, 2021.

Appraisal Rights

If the merger is completed, record holders of Company common stock as of the record date who submit a written demand for appraisal before the vote is taken on the adoption of the amended and restated merger agreement, do not vote in favor of the adoption of the amended and restated merger agreement, hold their shares of Company common stock continuously through the effective time of the merger and otherwise comply with the procedures set forth in Section 262 of the DGCL may elect to pursue their appraisal rights to receive, in lieu of the $115.00 per share merger consideration, an amount in cash equal to the judicially determined “fair value” of their shares, which fair value will be determined as of the effective time of the merger and could be more or less than, or the same as, the per share merger consideration for the common stock. For a summary of the procedures set forth in Section 262 of the DGCL, see “Appraisal Rights” beginning on page 139. An executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the adoption of the amended and restated merger agreement and the stockholder submitting that proxy will lose the right to seek an appraisal of his, her or its shares of Company common stock.

A copy of Section 262 of the DGCL is included as Annex D to this proxy statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights. We encourage you to read these provisions carefully and in their entirety.

 

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ANY COMPANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX D CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISORS, SINCE FAILURE TO TIMELY AND FULLY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

Solicitation of Proxies; Payment of Solicitation Expenses

The Company has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support for the special meeting, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $30,000 in the aggregate. The Company will also indemnify The Proxy Advisory Group, LLC and its affiliates against certain claims, expenses, losses, damages, liabilities and judgments. The Company may also reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of Company common stock for their expenses in forwarding soliciting materials to beneficial owners of Company common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

Householding of Special Meeting Materials

Some banks, brokerage firms and other nominee record holders may be participating in the practice of “householding.” This means that only one copy of our proxy statement may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of our proxy statement to you if you write, call or email us at:

Acacia Communications, Inc.

Three Mill and Main Place, Suite 400

Maynard, Massachusetts 01754

Attention: Investor Relations

(212) 871-3927

If you would like to receive separate copies of our proxy statements in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, brokerage firm or other nominee record holder, or you may contact us at the above address or phone number.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call The Proxy Advisory Group, LLC, our proxy solicitor, at (212) 616-2181.

 

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PARTIES TO THE MERGER

THE COMPANY

Acacia Communications, Inc.

Acacia Communications, Inc., which we refer to as the Company, is a Delaware corporation that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. By implementing optical interconnect technology in a silicon-based platform, a process Acacia refers to as the “siliconization of optical interconnect,” Acacia is able to offer products at higher speeds and density with lower power consumption, that meet the needs of cloud and service providers and can be easily integrated in a cost-effective manner with existing network equipment. Shares of Acacia common stock are traded on the Nasdaq Global Select Market under the symbol “ACIA.” The principal executive offices of Acacia are located at Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754, and its telephone number is (978) 938-4896.

For more information about the Company, see “Where You Can Find More Information” beginning on page 147.

PARENT

Cisco Systems, Inc.

Cisco Systems, Inc., which we refer to as Parent, is a Delaware corporation that designs and sells a broad range of technologies that have been powering the Internet since 1984. Parent is integrating intent-based technologies across networking, security, collaboration, applications and the cloud. These technologies are designed to help Parent’s customers manage more users, devices and things connecting to their networks. This will enable Parent to provide customers with a highly secure, intelligent platform for their digital business. Parent reincorporated from a California corporation into a Delaware corporation on January 25, 2021. The principal executive offices of Parent are located at 170 West Tasman Drive, San Jose, California 95134, and its telephone number is (408) 526-4000.

MERGER SUB

Amarone Acquisition Corp.

Amarone Acquisition Corp., which we refer to as Merger Sub, is a Delaware corporation that was formed solely for the purpose of entering into the amended and restated merger agreement and related agreements and consummating the merger and the other transactions contemplated thereby. Merger Sub is a wholly owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the amended and restated merger agreement. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation of the merger, which we refer to as the surviving corporation. The principal executive offices of Merger Sub are located at 170 West Tasman Drive, San Jose, California 95134, and its telephone number is (408) 526-4000.

 

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THE MERGER

This discussion of the merger is qualified in its entirety by reference to the amended and restated merger agreement, which is attached to this proxy statement as Annex A. You should read the entire amended and restated merger agreement carefully as it is the legal document that governs the merger.

The amended and restated merger agreement provides that Merger Sub will merge with and into the Company. The Company will be the surviving corporation in the merger and will continue to do business following the merger. As a result of the merger, the Company will cease to be a publicly traded company. You will not own any shares of the capital stock of the surviving corporation.

Changes to the Original Merger Agreement Pursuant to the Amended and Restated Merger Agreement

The original merger agreement was amended and restated pursuant to the amended and restated merger agreement to, among other things, (i) increase the per share merger consideration from $70.00 to $115.00 in cash, without interest and subject to deduction for any required withholding tax, (ii) eliminate certain conditions to the closing such as the elimination of the condition regarding the absence of a material adverse effect on the Company, (iii) narrow certain other conditions to the closing, such as limiting the condition with respect to the accuracy of the Company’s representations and warranties to certain fundamental representations and warranties (relating to the Company’s organization, good standing and qualification, capital structure, corporate authority and approval, brokers’ and advisors’ fees, the Company’s receipt of a fairness opinion and the information contained in this proxy statement), (iv) increase the termination fee payable by the Company under certain circumstances set forth in the amended and restated merger agreement in proportion to the increase in the per share merger consideration, from $120 million to $197 million and (v) amend the addendum to the Master Purchase Agreements by and between the Company, Parent and a wholly owned subsidiary of Parent, to provide that no fee is payable by Parent to the Company under any circumstances in connection with the merger or related transactions.

Overview of the Merger

The amended and restated merger agreement provides that Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent. The following will occur in connection with the merger:

 

   

each share of Company common stock issued and outstanding immediately prior to the effective time of the merger (other than the excluded shares) will be automatically converted at the effective time into the right to receive the per share merger consideration, without interest and subject to deduction for any required withholding tax;

 

   

each Company stock option that is outstanding, vested and unexercised immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect;

 

   

each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested stock option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the

 

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terms of the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect;

 

   

each RSU and PRSU that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes PRSUs with a total stockholder return, or TSR, performance metric that will become vested based on actual results as of the closing of the merger and certain RSUs that will become vested as of the closing of the merger) will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax;

 

   

each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent.

Following and as a result of the merger:

 

   

Company stockholders will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

 

   

shares of Company common stock will no longer be listed on the Nasdaq Global Select Market, and price quotations with respect to shares of Company common stock in the public market will no longer be available; and

 

   

the registration of shares of Company common stock under the Exchange Act will be terminated.

Directors and Officers of the Surviving Corporation

Certain officers of the Company immediately prior to the effective time of the merger will continue as the officers of the surviving corporation immediately following the effective time of the merger and will be appointed as directors of the surviving corporation upon the effective time of the merger, and the officers and directors of Merger Sub immediately prior to the effective time of the merger will become the officers and directors of the surviving corporation effective after the close of business on the closing date.

Background of the Merger

The board of directors, together with members of the Company’s senior management, regularly reviews and assesses the Company’s operations, financial condition, and industry developments in the context of the Company’s strategic plans and, in connection with this review and assessment, periodically considers strategic acquisitions, strategic alliances, business combinations and other strategic alternatives.

On May 15, 2017, Raj Shanmugaraj, the President and Chief Executive Officer of the Company, had dinner with the Chief Executive Officer of a company that we refer to as “Party A” at the invitation of Party A. During the dinner, the Chief Executive Officer of Party A reflected on the potential benefits of a strategic combination of the Company and Party A, but did not propose a transaction.

On October 12, 2017, Mr. Shanmugaraj and Benny Mikkelsen, a director and Founder and Chief Technology Officer of the Company, met with the Chief Executive Officer of Party A at the Company’s headquarters at

 

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Party A’s request. The Chief Executive Officer of Party A expressed Party A’s interest, subsequently affirmed in a written indication of interest, in acquiring the Company for cash and stock consideration valued at $65 per share, consisting of 30% cash and 70% common stock of Party A. Mr. Shanmugaraj and Mr. Mikkelsen responded that the Company had not been contemplating a sale, but noted that they would review the offer with the board of directors. On October 11, 2017, the closing price for Company common stock on the Nasdaq Global Select Market was $46.20 per share.

From mid-October 2017 to mid-December 2017, the Company’s management engaged in discussions with the board of directors and Party A to evaluate the potential transaction. During this period, the Company executed a confidentiality agreement with Party A, which included a standstill provision that would terminate if the Company agreed to be acquired by a third party, and consulted Goldman Sachs & Co. LLC (“Goldman Sachs”) as its financial advisor and Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) as its legal counsel. At a special meeting of the board of directors, held on December 18, 2017, a representative of WilmerHale reviewed the fiduciary duties of the board of directors and the board of directors instructed Goldman Sachs to respond to Party A’s proposal by informing Party A that it would need to make an offer above $70 per share to adequately compensate the Company for the risk of accepting Party A’s common stock as consideration and including a greater cash component. Representatives of Party A responded by saying they would discuss Party A’s strategic alternatives with their board, and thereafter abandoned the discussions. On December 15, 2017 (the immediately preceding trading day), the closing price for Company common stock on the Nasdaq Global Select Market was $39.38 per share.

Beginning in April 2018, representatives of the Company and a company we refer to as “Party B” engaged in preliminary discussions regarding a potential strategic combination, following a proposal by Party B to explore a stock-for-stock combination. The Company concluded that the future growth prospects of Party B, whose stock price had declined significantly over the preceding 12 months, were not attractive. Neither party pursued the matter beyond preliminary due diligence, and discussions ended in June 2018.

On April 15, 2018, the U.S. Department of Commerce activated a denial order against ZTE Kangxun Telecom Co. Ltd., the Company’s largest customer by revenue, accounting for approximately 20% and 31% of the Company’s revenue during fiscal year 2018 and the first quarter of 2019, respectively, which we refer to as ZTE, based on adverse findings relating to the activities covered by ZTE’s 2016 settlement with the U.S. Department of Commerce to resolve charges of export control violations by ZTE. This denial order added ZTE to the “Denied Persons List,” which, among other things, prohibited the Company from making sales and providing certain services to ZTE. On April 16, 2018, the first trading day following announcement of this decision, the closing price of Company common stock was $25.63 per share, representing a 36% decrease from the closing price of $40.03 per share on the previous trading day.

On June 1, 2018, Mehrdad Givehchi, Founder and Vice President of Hardware and Software of the Company, spoke by telephone to a representative of a company that we refer to as “Party C” at the request of Party C. The representative of Party C expressed interest in exploring a strategic partnership or an acquisition involving the Company in order to more effectively serve one of Party C’s markets.

On June 4, 2018, after consulting with other members of the Company’s senior management, Mr. Givehchi called the representative of Party C and expressed management’s concern that Party C might be seeking to exploit the recent decline in the Company’s stock price due to events involving ZTE, which management did not believe was indicative of the Company’s long-term value. The representative of Party C assured Mr. Givehchi that Party C was not “bottom fishing,” and the parties agreed to negotiate a confidentiality agreement and to schedule a meeting among members of management of both parties. On June 1, 2018 (the immediately preceding trading day) the closing price for Company common stock on the Nasdaq Global Select Market was $32.79 per share.

On June 8, 2018, the Company and Party C executed a confidentiality agreement and scheduled the management meeting for June 20, 2018. The confidentiality agreement included a standstill provision that would terminate if the Company agreed to be acquired by a third party.

 

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Also on June 8, 2018, ZTE and the U.S. Department of Commerce reached a new settlement imposing additional penalties and compliance measures upon ZTE, pursuant to which the denial order was terminated and ZTE was removed from the Denied Persons List effective July 13, 2018. This further U.S. Department of Commerce action authorized the Company to resume sales to, and related activities involving, ZTE.

On June 20, 2018, members of Company management attended a meeting at Party C’s headquarters with representatives of Party C at which management presented information regarding the Company’s business and discussed strategic partnership opportunities with Party C.

On June 22, 2018, Mr. Shanmugaraj received an email from a representative of Party C, indicating that the possibility of a strategic transaction with the Company would be discussed among senior management at Party C, and that Party C expected to follow up with the Company in the next couple of weeks with additional information.

On June 25, 2018, Mr. Shanmugaraj sent an email to the board of directors updating them on the discussions to date with Party C and notifying them that the Company might receive a proposal from Party C.

On July 2, 2018, the Company received a letter from Party C containing a non-binding expression of interest in acquiring the Company at a price of $41 per share. On June 29, 2018 (the immediately preceding trading day), the closing price for Company common stock on the Nasdaq Global Select Market was $ 34.81 per share.

On July 6, 2018, the board of directors held a telephonic special meeting to discuss the letter from Party C. At the meeting, a representative of WilmerHale reviewed the fiduciary duties of the board of directors regarding their consideration of a potential strategic transaction. After discussion of the proposed price, the perceived dislocation in the current trading price given the recent denial order against ZTE and the Company’s standalone prospects, the board of directors concluded that the offer was too low to accept or to justify further discussions. The board of directors instructed Mr. Shanmugaraj to reject the offer.

On July 10, 2018, Mr. Shanmugaraj telephoned a member of senior management of Party C and informed him that the expression of interest significantly undervalued the Company, and that the Company could not accept the proposed terms.

On July 13, 2018, a representative of Party C contacted Mr. Givehchi via text to request a meeting. After consultation with other members of Company management, Mr. Givehchi agreed to a meeting on July 17, 2018.

On July 17, 2018, Mr. Givehchi met with the representative of Party C over coffee at a location outside of Boston. The representative of Party C expressed regret that Party C had not presented a more attractive offer to the Company, noting that certain members of senior management of Party C had doubts about the competitive position of the Company and had been unwilling to agree to a higher price. The representative noted that Party C would continue to monitor the Company’s performance and guidance to determine whether a stronger case could be made in support of a transaction in the future. Later that day, Mr. Givehchi updated the board of directors on his conversation with the representative from Party C during a regularly scheduled meeting of the board of directors.

The Company periodically prepares and updates internal projections for internal budgeting and business planning purposes. On October 18, 2018, the board of directors held a regularly scheduled meeting at which senior management presented internal projections for the fiscal years ending December 31, 2019 through 2021 and engaged in a strategic discussion with the board of directors regarding the Company’s product roadmap and markets.

On February 23, 2019, following an introductory email from Bill Gartner, Senior Vice President and General Manager of the Optical Systems and Optics business unit of Parent, David Goeckeler, the Executive Vice

 

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President and General Manager of Parent’s Networking and Security Business, contacted Mr. Shanmugaraj by email requesting a telephone call. Parent had been a customer of the Company since 2015, accounting for 14% of the Company’s reported revenues for the fiscal year ended December 31, 2018, and would account for 18.1% of the Company’s reported revenues for the fiscal quarter ended March 31, 2019.

On February 25, 2019, Messrs. Goeckeler and Shanmugaraj spoke by telephone. Mr. Goeckeler expressed Parent’s interest in exploring strategic opportunities with the Company, ranging from partnership opportunities to the possibility of an acquisition. They agreed to meet to discuss further.

On March 1, 2019, Mr. Shanmugaraj received an email from Mr. Goeckeler in which he suggested, as the next step, an in-person meeting between Messrs. Goeckeler, Gartner, Shanmugaraj and Mikkelsen in the near future.

On March 5, 2019, Mr. Gartner contacted Mr. Shanmugaraj by text to request that he meet representatives of Parent for dinner the following night while both parties attended the Optical Fiber Communication Conference in San Diego.

On March 6, 2019, Mr. Shanmugaraj and Mr. Mikkelsen met Messrs. Goeckeler and Gartner for dinner. Mr. Goeckeler described Parent’s desire and rationale for pursuing a strategic partnership with the Company, and both parties concluded that it was worth exploring further and agreed to arrange a meeting with additional members of management from both companies. Thereafter, the Company and Parent scheduled a meeting at Parent’s offices in San Jose, California among members of management from both parties to be held on March 21, 2019.

On March 17, 2019, the Company and Parent executed a confidentiality agreement. The confidentiality agreement included a standstill provision that would terminate if the Company agreed to be acquired by a third party.

During March 2019, the Company prepared an update to the internal projections for the fiscal years ending December 31, 2019 through 2021 that had been presented to the board of directors on October 18, 2018 (which updated projections the Company referred to as the “Long-Range Plan”) in order to reflect subsequent developments, including (i) increased operating costs, including costs observed over the intervening period and research and development related costs due to a new product development program that had been launched internally in late December 2018, (ii) subsequent increases in revenue expected for the new product launched in December 2018 partially offset in 2021 by lower introductory revenue for a new product expected to initially enter production in late 2020 and (iii) decreases in gross margins resulting from changes in product mix and observed changes to product costs over the intervening period.

On March 21, 2019, members of Company management attended a meeting at Parent’s offices in San Jose, California with representatives of Parent at which management presented information regarding the Company’s business, including the Long-Range Plan, and discussed strategic partnership opportunities with Parent.

On March 31, 2019, Mr. Goeckeler called Mr. Shanmugaraj to inform him that further evaluation of a potential transaction would be managed by Parent’s corporate development team, and that Rob Salvagno, Parent’s Vice President of Corporate Development and Cisco Investments, would be in contact with Mr. Shanmugaraj to continue the discussions.

On April 1, 2019, Mr. Salvagno called Mr. Shanmugaraj to communicate a proposal by Parent to acquire the Company at $62 per share. On March 29, 2019 (the immediately preceding trading day), the closing price for Company common stock on the Nasdaq Global Select Market was $57.35 per share.

On April 3, 2019, Mr. Shanmugaraj called Mr. Salvagno to inform him that Parent’s proposal did not reflect a sufficient premium to warrant further discussion with respect to a potential transaction. Mr. Shanmugaraj noted that the parties could continue to work together in the context of their commercial relationship.

 

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On April 10, 2019, Mr. Salvagno called Mr. Shanmugaraj to inform him that Parent was increasing its offer to $67 per share. Mr. Shanmugaraj told Mr. Salvagno that he would discuss the offer with the board of directors and get back to him afterwards. On April 9, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $57.72 per share.

On April 11, 2019, a representative of Party C contacted Mr. Shanmugaraj by text to request a meeting on April 15, 2019.

On April 15, 2019, Mr. Shanmugaraj met the representative of Party C for lunch in Boston. The representative indicated that members of senior management of Party C had been discussing the potential strategic importance of the Company to Party C and wanted to gauge the Company’s interest in exploring a strategic transaction. Mr. Shanmugaraj expressed skepticism based on the prior acquisition proposal from Party C, but said he would keep an open mind with respect to any proposal that reflected the strategic value of the Company.

On April 17, 2019, the board of directors held a telephonic special meeting with members of senior management and a representative of WilmerHale present. Mr. Shanmugaraj described to the board of directors his discussions with Parent to date, including the $67 per share offer by Parent. John Gavin, the Chief Financial Officer of the Company, next reviewed the Long-Range Plan with the board of directors, and presented management’s assessment of potential risks to achieving the results forecast in the projections, including the potential weakening (and potential loss longer term) of the customer relationship with Parent if it shifted purchasing to a second source, sought to develop competitive technology internally or pursued an acquisition of a Company competitor in lieu of completing a transaction with the Company. The board of directors then compared the potential risks and benefits of pursuing a transaction with Parent versus other strategic alternatives, including continuing to operate on a standalone basis. One of the major risks to pursuing a transaction with Parent that the board of directors discussed was the potential that other customers might not view Parent as committed to serving as a long-term supplier of components to third parties and the potential implications on the ability to receive regulatory approval for a transaction. One of the standalone alternatives discussed was an acquisition of assets from a company we refer to as “Party D” then under consideration by management. The board of directors noted that Parent’s proposal was not a significant premium over the current trading price of Company common stock, which had closed at $60.59 per share on April 16, 2019. The board of directors also discussed the fact that the Company would be making its quarterly earnings announcement in approximately two weeks, and expected to report strong results for the first quarter, exceeding analyst expectations and prior Company guidance. The board of directors concluded that Mr. Shanmugaraj should tell Parent that any further discussions should be deferred until after the upcoming earnings announcement.

On April 19, 2019, Mr. Shanmugaraj called Mr. Salvagno to inform him that the board of directors had concluded that further discussions should be deferred until after the Company’s upcoming earnings announcement.

During May 2019, there were several events reflecting worsening trade relations between China and the United States, including the failure of China and the United States to negotiate a trade deal prior to the May 9 deadline set by the United States, the imposition of additional tariffs by the United States the following day, the imposition of additional tariffs by China in response, and the addition of Huawei Technologies Co., Ltd. and certain of its affiliates, referred to collectively as Huawei, to the “Entity List” by the U.S. Department of Commerce. During May 2019, the closing price of the Company’s common stock on the Nasdaq Global Select Market declined from $60.45 per share on May 1 to $46.60 per share on May 31.

On May 2, 2019, the Company reported first quarter 2019 results, exceeding the high end of Company guidance on revenue, non-GAAP gross margin, non-GAAP net income and non-GAAP diluted earnings per share, and held a call to discuss such results. On May 3, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $59.00 per share, as compared to the closing price of $60.55 per share on May 2, 2019, prior to the reporting of its first quarter results.

 

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On May 3, 2019, a representative of Party C contacted Mr. Shanmugaraj by email to propose a meeting between Mr. Shanmugaraj and members of Party C’s senior management to explore strategic options.

On May 10, 2019, the board of directors held a telephonic special meeting with members of senior management and a representative of WilmerHale present. The board of directors discussed strategic alternatives to a transaction with Parent, including continuing to operate on a standalone basis and pursuing the asset acquisition discussed at the April 17, 2019 board of directors meeting. The Company’s management provided an updated assessment of the potential risks and benefits of remaining a standalone entity in light of recent market and customer developments, including the worsening trade relations between China and the United States and the potential weakening (and potential loss longer term) of the customer relationship with Parent if it shifted purchasing to a second source, sought to develop competitive technology internally or pursued an acquisition of a Company competitor in lieu of completing a transaction with the Company, as well as the continued volatility in the price of Company common stock, as witnessed by the price decline following the recent announcement of a successful first quarter. The board of directors authorized management to submit a non-binding indication of interest with respect to the potential acquisition of assets from Party D, but concluded that the board of directors should continue to discuss whether to pursue a transaction with Parent at the regularly scheduled board of directors meeting on May 16, 2019, and that management should be prepared to discuss its recommendation at that meeting.

On May 13, 2019, Mr. Shanmugaraj called the representative of Party C and informed the representative that the board of directors was skeptical of further engagement with Party C in light of the offer made the prior year, which the board of directors felt undervalued the Company significantly. Mr. Shanmugaraj told the representative that Party C should provide a firm proposal that shows they are serious about the strategic value of the Company before the Company would engage in further discussions. The representative of Party C acknowledged Mr. Shanmugaraj’s request and suggested a further discussion between Mr. Shanmugaraj and the Chief Executive Officer of Party C.

On May 14, 2019, Mr. Salvagno emailed Mr. Shanmugaraj to inquire about the status of the Company’s consideration of Parent’s proposal. Mr. Salvagno and Mr. Shanmugaraj then spoke by telephone the following day, and Mr. Shanmugaraj informed Mr. Salvagno that he would be working with the board of directors to prepare a response to the April 10, 2019 proposal.

On May 16, 2019, the board of directors held a regularly scheduled meeting with members of senior management and a representative of WilmerHale present for certain portions. Mr. Gavin reviewed the Company’s Long-Range Plan, which had been provided to Parent and previously discussed at the April 17, 2019 board of directors meeting, as well as recent customer, product and market developments that could affect projected revenue in the second half of 2020 and in 2021. Next, Mr. Shanmugaraj discussed management’s perspective on the potential risks and benefits of exploring a strategic transaction with Parent as an alternative to standalone operations and provided management’s recommendation that the Company further explore pursuing a strategic transaction with Parent, but in a manner designed not to result in any leaks to the market, given the customer concerns previously discussed. Mr. Shanmugaraj also described the outreach from and discussions with Party C, noting the uncertainty as to whether this would result in a viable alternative. The board of directors then discussed with management the potential risks to achieving the projected revenues in 2020 and 2021, the potential impact of worsening trade relations between China and the United States, the potential impact that recent actions by the U.S. Department of Commerce against Huawei could have on overall optical market timing and spending expectations in China and the potential risks and benefits of a strategic transaction with Parent. The board of directors then concluded that the Company should explore a potential strategic transaction with Parent, and instructed management that the next step should be to consult with financial and legal advisors on process, valuation and other matters. The board of directors then directed Mr. Shanmugaraj to communicate the Company’s interest in further discussions to Parent and authorized management to contact Goldman Sachs, which was selected based on its prior service as the Company’s financial advisor, to discuss its potential retention as the Company’s financial advisor for a potential sale transaction. The board of directors next discussed the

 

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status of the potential asset acquisition with Party D and whether to proceed in light of the decision to pursue further discussions with Parent. Messrs. Shanmugaraj and Gavin reported that the Company had been told its indication of interest was not in an appropriate value range, and that further engagement would not continue without an upward adjustment. They also reported that, as a result of an organizational change, Party D may be deferring further consideration of any strategic transaction for an indeterminate period of time. The board of directors concluded that the Company should delay any further activity with respect to the potential asset acquisition until it had an opportunity to further explore a transaction with Parent.

On May 17, 2019, a member of the board of directors and Company management each contacted Goldman Sachs to initiate discussions regarding its potential engagement as the Company’s financial advisor.

On May 20, 2019, Mr. Salvagno called Mr. Shanmugaraj to express concerns regarding recent global events and what impact they might have on the Company’s business, including recent actions by the U.S. Department of Commerce against Huawei, the applicability of existing and future tariffs imposed on the Company’s products and ongoing trade discussions between the U.S. and China governments and requested that Mr. Shanmugaraj provide Parent further information supporting the Company’s views that the potential impact of the actions with respect to Huawei would not adversely affect the Company’s business during the remainder of 2019.

Also on May 20, 2019, a representative of Party C called Mr. Shanmugaraj and again suggested that Mr. Shanmugaraj speak to the Chief Executive Officer of Party C by telephone in order to confirm Party C’s strategic interest in the Company and commitment to exploring a strategic transaction at valuation ranges that might be attractive. Following an exchange of emails between Mr. Shanmugaraj and the representative of Party C, Mr. Shanmugaraj agreed to a call between himself and the Chief Executive Officer of Party C, which was scheduled for May 24, 2019.

On May 23, 2019, members of Company management attended a telephonic meeting with representatives of Parent at which management presented information requested by Mr. Salvagno on the May 20, 2019 telephone call. During the meeting, the Company’s management expressed its willingness to bring Parent’s $67 per share offer back before the board of directors for further discussion. In response, Parent noted that they needed to reassess their valuation in light of recent events and the information presented by the Company.

On May 24, 2019, Mr. Shanmugaraj spoke to the Chief Executive Officer of Party C by telephone. During the call, the Chief Executive Officer of Party C described Party C’s interest in the Company and his vision of the potential strategic benefits of a transaction between the two companies. At the end of the call, the Chief Executive Officer of Party C invited Mr. Shanmugaraj to a dinner to discuss next steps for exploring the possibility of a transaction. The dinner was scheduled for June 4, 2019.

On June 4, 2019, Mr. Shanmugaraj spoke to Mr. Salvagno, who communicated that Parent remained interested in pursuing a strategic transaction with the Company but, in light of recent market developments, was now prepared to offer only $62 per share. On June 3, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $46.50 per share.

Later on June 4, 2019, Mr. Shanmugaraj had dinner with the Chief Executive Officer of Party C, who reiterated that Party C was interested in continuing to explore a strategic transaction with the Company. The Chief Executive Officer expressed his expectation that Party C would submit an offer, but noted that Party C’s management would need additional financial and product information before Party C would be in the position to submit a proposal. Mr. Shanmugaraj agreed that the Company would work with Party C’s management to provide the requested information.

On June 6, 2019, the Company and Party C executed an amendment to the confidentiality agreement entered on June 8, 2018, which reinstated the standstill provision for an additional nine months and otherwise extended the term of the confidentiality agreement for an additional two years. The standstill provision, as amended, would terminate if the Company agreed to be acquired by a third party.

 

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Later on June 6, 2019, members of Company management met with representatives of Party C to provide additional product and financial information. At this meeting, the members of Company management presented projections for 2019 through 2024, referred to as the June LRP, which reflected updates to the Long-Range Plan subsequently discussed at the June 8, 2019 board of directors meeting as described below.

On June 7, 2019, Mr. Shanmugaraj sent an email to Mr. Salvagno with an update on the board of director’s discussions, and indicating that the board of directors was continuing to consider Parent’s offer.

On June 8, 2019, the board of directors held a telephonic special meeting with members of senior management and representatives of Goldman Sachs and WilmerHale present for certain portions. Mr. Gavin provided the board of directors with the June LRP, which reflected projections for 2019 through and including 2024 proposed for use by Goldman Sachs to prepare financial analyses, noting that the three additional years of projections were added to facilitate a discounted cash flow analysis. Mr. Gavin described the detailed and updated review undertaken of the Company’s product roadmap, customer and market developments to prepare the projections, as well as the key assumptions underlying them. In particular, Mr. Gavin noted somewhat lower projected revenue in 2020 than in the prior projections for 2019 through 2021, based on a slower increase in the production rate for a new Company product due to the complexity of scaling initial production and the potential impact of trade and tariff discussions and actions by the U.S. Department of Commerce against Huawei on overall optical market timing and spending expectations in China. He also noted the impact these factors were anticipated to have on projected revenues in 2021, where growth rates were similar to those in the Long-Range Plan, but were growing from a lower base. Thereafter, the board of directors approved the June LRP for use by Goldman Sachs for purposes of its financial analyses. Representatives of Goldman Sachs reviewed an overview of public market data, a comparison of the Company’s internal projections against published analyst estimates (which analyst estimates were generally more conservative) and certain illustrative preliminary financial analyses. The representatives of Goldman Sachs then discussed certain process considerations with the board of directors, including the merits of doing a targeted approach to other potential strategic partners that were likely to be interested in and capable of executing a transaction on acceptable terms. Mr. Shanmugaraj again emphasized the competitive harm that could result from a leak regarding any sale process, and provided his assessment of potential candidates for future outreach. Mr. Shanmugaraj identified the five additional parties (beyond Parent, but including Party C) that he considered the most promising candidates from a strategic fit perspective. He noted that Party C had reached out to reengage in exploring a potential strategic transaction and was already having preliminary discussions with the Company, and that another party on the list had already declined the opportunity (based on outreach by Mr. Shanmugaraj to a director of the Company who was affiliated with such party to determine whether such director, who had previously been excluded from all discussions of the board of directors of a potential transaction, should continue to be excluded from discussions of a potential transaction). Mr. Shanmugaraj then noted that two other parties on the list did not have a presence in the coherent optical market and lacked the financial capacity to make a competitive all-cash offer. He further noted that pursuing a non-cash transaction with these two parties was not attractive given his view of their prospects and the risk that the delay associated with exploring non-cash consideration could jeopardize a potential transaction with Parent. He then stated that the fifth party on the list either had, or had the ability to develop, its own internal coherent optical technologies and, in any event, was unlikely to come up to speed on the Company’s technology, customers and markets quickly. Consequently, Mr. Shanmugaraj recommended continuing discussions with Parent and Party C without additional outreach at that time. The board of directors then discussed next steps for engaging with Parent and Party C and the desirability of confirming with Parent that any subsequent proposal by Parent would be for an all-cash transaction, given the greater value certainty provided by cash consideration. The board of directors instructed Mr. Shanmugaraj to respond to Parent with a counter-proposal of $72 per share in an all-cash transaction, and to advise Parent that the Company would be willing to proceed with formal due diligence at that price. The board of directors also directed Mr. Shanmugaraj to continue discussions with Party C to determine whether Party C could provide an attractive proposal. Finally, in anticipation of the possibility that discussions could accelerate if Parent agreed to a price at which the Company would be willing to proceed with negotiations and formal due diligence, the board of directors discussed formation of a Transaction Committee to allow for flexible and timely support of management under circumstances when it might not be practical to

 

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assemble the full board of directors. The board of directors agreed that all directors would be invited to attend meetings of the Transaction Committee, and that the Transaction Committee should be formed by written consent following the meeting.

On June 11, 2019, Mr. Shanmugaraj spoke to Mr. Salvagno by telephone and informed him that the board of directors had evaluated the Company’s standalone prospects and felt the current weakness in stock price was attributable to short-term volatility that had nothing to do with the long-term prospects the Company. Mr. Shanmugaraj noted that Parent’s offer of $62 per share was just at the 12-month high price with no premium and failed to capture this long-term value. Mr. Shanmugaraj stated that the Company was prepared to initiate formal due diligence and engage in further discussions to explore a potential transaction if Parent increased its offer to $72 per share. Mr. Shanmugaraj also informed Mr. Salvagno that the Company was using Goldman Sachs as its financial advisor.

On June 12, 2019, Mr. Shanmugaraj received an email from the Chief Executive Officer of Party C thanking Mr. Shanmugaraj for their recent meeting and indicating that he expected to be back to the Company with additional information late the following week.

On June 13, 2019, Mr. Salvagno called Mr. Shanmugaraj and told him that Parent was concerned about the potential negative impact on the Company of current market conditions and felt that $62 per share was a fair value. Mr. Salvagno then stated that Parent was nonetheless willing to increase its offer to $64.50 per share, noting that it had difficulty getting to this price. On June 12, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $46.90 per share.

On June 17, 2019, the board of directors held a telephonic special meeting with members of senior management and representatives of Goldman Sachs and WilmerHale present for certain portions. Mr. Shanmugaraj provided the board of directors with an update on the status of discussions with Parent and Party C, informing the board of directors that Parent had increased its offer to $64.50 per share, but that Parent expressed difficulty in getting to this price. Mr. Shanmugaraj noted that there had been ongoing communications with Party C, but that Party C had still not provided any indication of value. Representatives of Goldman Sachs then presented illustrative preliminary financial analyses of Parent’s proposal of $64.50 per share. The representatives of Goldman Sachs also discussed the potential for Parent to further increase its offer for the Company. There followed a discussion of the possibility of Party C placing a bid for the Company given their demonstrated interest. The representatives of Goldman Sachs expressed their view that Parent and Party C presented the best combination of strategic fit and ability to provide an attractive, all-cash offer. The representatives of Goldman Sachs and Mr. Shanmugaraj then provided their respective views on the remaining prospective outreach candidates, which included Party A, noting that one had already declined to pursue the opportunity and that each of the remaining parties was significantly less likely to make a competitive proposal at that point in time due to one or more of a variety of factors, including: (i) lack of strategic fit, (ii) low probability of interest in light of strategic priorities, (iii) lack of familiarity with the Company’s technology, (iv) lack of ability to finance a competitive, all-cash offer, (v) concerns over the prospects of parties that would need to offer stock consideration and (vi) the low probability of a timely offer or attractive valuation in light of such party’s historical M&A activity. In addition, Mr. Shanmugaraj reiterated his concern that expanding the process would likely result in rumors regarding a potential sale and have a significant negative impact on the Company. Mr. Shanmugaraj also observed that the remaining parties on the list were unlikely to be able to act as quickly as Parent and Party C had each indicated they desired to move, and that any significant delay could put Parent’s proposal and any proposal received from Party C at risk. A representative of WilmerHale then reviewed the fiduciary duties of the board of directors and the application of those duties in the context of a potential sale transaction. The board of directors then asked whether senior management supported continued pursuit of a potential sale transaction with Parent at $64.50 per share. Mr. Shanmugaraj stated that the price offered by Parent reflected an appropriate valuation when compared with management’s assessment of the risks associated with standalone operations, where even if the Company executed its business plan, stockholders would be exposed to risks associated with the expected continued volatility resulting from the Company’s exposure to China—where the two largest Chinese customers by revenue

 

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accounted for approximately 27% and 39% of the Company’s revenue during fiscal year 2018 and the first fiscal quarter of 2019, respectively — under the current political and macroeconomic climate, as well as the risks to the Company’s relationship with Parent as a key customer if a transaction were not pursued, and that management thus viewed this as an attractive outcome for stockholders and supported continuing the sale process as a result. The board of directors then asked Mr. Shanmugaraj if Parent had communicated its plans for management. Mr. Shanmugaraj replied that no arrangements had been discussed. Mr. Shanmugaraj then stated that his impression, based on discussions with Parent, was that the Company would likely have a certain degree of independence for a transitional period following the closing. After further consultation with management, the board of directors concluded that management and Goldman Sachs should propose to Parent that it increase its bid to $67 per share. The board of directors noted the importance of clarifying other key terms of Parent’s proposal, including what commitments Parent was willing to make to obtain required regulatory approvals. The board of directors directed management to inform Party C that the Company was likely to move forward with another party in the near term unless Party C acted quickly to make a more specific proposal. Finally, in light of the risks associated with further outreach and the low probability that it would result in an offer that would be competitive with Parent’s current offer, the board of directors determined not to pursue outreach to additional parties at that time.

Later on June 17, 2019, Mr. Shanmugaraj spoke to Mr. Salvagno by telephone and delivered the Company’s counter-proposal to Parent of $67 per share, noting that Parent had been prepared to offer $67 per share at the outset of discussions and that he believed he could get the board of directors to accept this original proposal. Mr. Shanmugaraj went on to note that the Company felt $67 per share was a fair value of the Company based on its long-term prospects. Mr. Salvagno agreed to follow up with feedback to Mr. Shanmugaraj within the next few days.

Also on June 17, 2019, in anticipation of the possibility that discussions could accelerate if Parent agreed to a price at which the Company would be willing to proceed with negotiations and formal due diligence, the board of directors established the Transaction Committee, consisting of directors David Aldrich, Peter Chung, Stan Reiss and John Ritchie, by unanimous written consent to allow for flexible and timely support of management under circumstances when it might not be practical to assemble the full board of directors.

On June 18, 2019, Mr. Shanmugaraj spoke to the Chief Executive Officer of Party C by telephone. The Chief Executive Officer of Party C stated that Party C was still interested in exploring a transaction, but noted that it still needed to complete further due diligence to validate the business case for the transaction and to complete its valuation. In response to further inquiry from Mr. Shanmugaraj, the Chief Executive Officer of Party C said that Party C expected its proposal to value the Company between $2.5 and $3.0 billion, but that he could not provide more than a range at that time. Mr. Shanmugaraj responded that Party C would need to be at the high end of this range to be competitive. On June 17, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $44.79 per share.

Also on June 18, 2019, representatives of Goldman Sachs spoke by telephone with the Chief Financial Officer of Party C, who indicated that Party C had more technical diligence to do, as it did not have significant familiarity with the Company’s products. The Chief Financial Officer of Party C also stated that he hoped to have preliminary due diligence completed by the end of that week.

Also on June 18, 2019, Mr. Shanmugaraj spoke to Mr. Salvagno by telephone. Mr. Salvagno stated that Parent was willing to increase its offer to $65.50 per share and confirmed that this offer reflected an all cash transaction that would be subject only to customary closing conditions. Mr. Salvagno expressed confidence in the parties’ ability to obtain regulatory clearance, but did not provide further details. Mr. Salvagno then indicated that Parent was targeting a signing in two to three weeks. On June 17, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $44.79 per share.

On June 19, 2019, the Transaction Committee held a telephonic meeting with other members of the board of directors and senior management and representatives of WilmerHale present and representatives of Goldman

 

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Sachs present for certain portions. Mr. Shanmugaraj provided an update on his conversations with Parent and Party C, noting that Parent had increased its bid to $65.50 per share and had requested a prompt response. He also noted that Party C had suggested its bid would value the Company in the range of $2.5 billion to $3.0 billion. A representative of Goldman Sachs then described his separate conversations with representatives of Party C, expressing concern about the breadth of the range communicated by Party C. The representatives of Goldman Sachs recommended continuing to support Party C’s due diligence efforts. Goldman Sachs next provided its perspective on the $65.50 per share offer from Parent. The board of directors then discussed with its legal and financial advisors whether it was realistic to expect Parent to raise its price further absent competitive pressure, and that to continue to condition diligence meetings and information on further price increases would put Parent’s offer at risk. Upon the recommendation of management, the board of directors concluded that the Company should communicate to Parent that the Company was willing to engage in detailed due diligence and negotiations at the current price, but would need further assurance and clarity regarding Parent’s proposal to obtain regulatory approval and share the risk of not obtaining approval. The board of directors also concluded the Company should continue to support Party C’s due diligence in the hope of eliciting a more specific proposal. After the representatives of Goldman Sachs left the meeting, a representative of WilmerHale reviewed the proposed terms of a Goldman Sachs engagement letter with the Transaction Committee, along with a disclosure letter provided by Goldman Sachs, which summarized Goldman Sachs’ relationship with Parent and Party C over the last two years, including information regarding compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Parent and/or its affiliates and the presence of a director on the board of directors of Parent that is currently affiliated with the Goldman Sachs Group, Inc. as a director.

Later on June 19, 2019, Mr. Shanmugaraj spoke to Mr. Salvagno by telephone and informed him that the board of directors was willing to engage in detailed due diligence and negotiations at Parent’s offer price of $65.50 per share. Mr. Shanmugaraj impressed upon Mr. Salvagno that the most significant remaining concern of the board of directors was understanding the commitments that Parent was willing to make to mitigate the potential risks to obtain required regulatory approvals for the transaction.

On June 20, 2019, members of the Company’s management spoke by telephone with representatives of Party C at Party C’s request and provided information regarding the Company’s business in response to due diligence questions from Party C.

Also on June 20, 2019, Mr. Salvagno sent an email to Mr. Shanmugaraj with a list of due diligence requests. He also informed Mr. Shanmugaraj that Parent expected to deliver a draft of the original merger agreement in the next day or two.

Also on June 20, 2019, a representative from Goldman Sachs received a text from the Chief Financial Officer of Party C, asking to speak over the phone on June 21, 2019, and noting that Party C would be submitting a proposal on June 21, 2019.

On June 21, 2019, counsel to Parent Fenwick & West LLP, which we refer to as Fenwick, delivered a draft original merger agreement to WilmerHale. From June 21 to July 8, 2019, Fenwick and WilmerHale negotiated the terms of the definitive original merger agreement, including the provisions relating to (i) the allocation of the risks associated with regulatory approvals, (ii) restrictions on the Company’s operations between signing and closing, (iii) the ability of the board of directors to respond to unsolicited acquisition proposals, change its recommendation and accept a superior proposal, (iv) the amount and triggers for the Company’s termination fee, (v) the closing conditions, (vi) the definition of a material adverse effect and (vii) the scope of the representations and warranties.

Also on June 21, 2019, a representative of Party C called a representative of Goldman Sachs and informed him that Party C expected to deliver a written indication of interest in acquiring the Company for $73 per share in cash, with no financing contingency. A representative of Party C also called Mr. Shanmugaraj and provided this same information. Later that day, Party C delivered a non-binding indicative offer letter expressing Party C’s

 

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interest in acquiring the Company at $73 per share in cash, subject to the satisfactory completion of due diligence, negotiation of a mutually acceptable merger agreement and final approval of Party C’s board of directors. The letter indicated that the completion of the transaction would not be subject to any financing contingency. The letter indicated that Party C expected that a definitive agreement for such a transaction could be signed by the week of July 8, 2019. On June 20, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $47.38 per share.

On June 22, 2019, the Transaction Committee held a telephonic meeting with other members of the board of directors and senior management and representatives of WilmerHale present and representatives of Goldman Sachs present for certain portions. Mr. Shanmugaraj and a representative of Goldman Sachs reviewed the terms of the non-binding indicative offer letter received from Party C and provided their perspective on the risks associated with Party C’s proposal, noting that Party C’s internal process and due diligence efforts were considerably behind those of Parent. The Transaction Committee instructed management to continue exploring a potential transaction with Party C in parallel with its discussions with Parent, including facilitating formal due diligence. The Transaction Committee also authorized management to finalize the terms of and execute an engagement letter with Goldman Sachs on terms consistent with those discussed at the prior meeting, with such changes as deemed appropriate by management.

On June 23, 2019, Mr. Salvagno called Mr. Shanmugaraj and told him that Parent was requesting exclusivity, which it felt was appropriate given the progress to date. Later that day, Mr. Salvagno sent Mr. Shanmugaraj a draft exclusivity agreement, which provided for a 30-day period of exclusivity. Mr. Shanmugaraj responded that he would have to take the matter to the board of directors for further discussion.

On June 24, 2019, the Company provided access to an electronic data room to Parent and Party C to facilitate their due diligence. The June LRP was made available to Parent on June 25, 2019, when it was posted to the electronic data room. Between June 26, 2019 and July 6, 2019, the Company conducted numerous due diligence meetings and teleconferences with both Parent and Party C, including in-person due diligence meetings with Party C on June 26—27, 2019, and with Parent on June 27—29, 2019, in each case at the offices of WilmerHale in Boston.

Also on June 24, 2019, representatives of Goldman Sachs spoke by telephone with Mr. Salvagno and informed him that the Company had received an inbound expression of interest from a third party that was continuing to evaluate the Company, and that the Company could not agree to exclusivity under those circumstances. The representatives of Goldman Sacks noted that the third party had expressed interest at a higher price, but was earlier in its evaluation of the Company, and that the Company would continue to support Parent’s due diligence efforts.

Also on June 24, 2019, Mr. Salvagno spoke by telephone with Mr. Shanmugaraj, who confirmed the receipt of an inbound expression of interest at a higher price and that the Company would continue to support Parent’s due diligence efforts.

On June 25, 2019, the Company executed an engagement letter with Goldman Sachs to serve as the Company’s financial advisor in connection with a potential transaction. Additionally, certain members of senior management of Party C met with Mr. Shanmugaraj and selected members of the Company’s management for dinner in Boston prior to Party C’s in-person diligence meetings on June 26—27, 2019, as noted above.

On June 25 and 26, 2019, the Company entered into Clean Team Confidentiality Agreements with each of Parent and Party C, respectively, providing for additional access and disclosure restrictions on certain competitively sensitive information.

On June 28, 2019, Mr. Shanmugaraj spoke to representatives of Party C by telephone to discuss certain process and timing matters. The representative of Party C indicated that Party C’s counsel was starting on a draft merger

 

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agreement, to which Mr. Shanmugaraj replied that the Company was already preparing to send a draft merger agreement to Party C in the next 24 – 48 hours.

Later on June 28, 2019, Mr. Shanmugaraj and selected members of the Company management met with selected members of Parent management for dinner in Boston on the second day of the in-person diligence meetings on June 27—29, 2019, as noted above.

On June 29, 2019, WilmerHale delivered a draft merger agreement to counsel to Party C. Despite repeated requests for comments on the draft merger agreement, none were ever provided by or on behalf of Party C.

On June 30, 2019, Mr. Shanmugaraj spoke to a representative of Party C by telephone and to confirm Party C’s anticipated timeline for signing a definitive agreement as outlined in its June 21, 2019 proposal. The representative of Party C suggested that Mr. Shanmugaraj meet with the Chief Executive Officer of Party C to further discuss plans for proceeding to a definitive agreement.

On July 1, 2019, representatives of Goldman Sachs spoke by telephone with representatives of Parent to confirm Parent’s anticipated timeline for executing a definitive agreement. The representatives of Parent indicated that they were anticipating approval from Parent’s board of directors on July 8, 2019, with signing occurring by July 10, 2019, but as early as July 9, 2019.

Also on July 1, 2019, Mr. Shanmugaraj received a text message from the Chief Executive Officer of Party A, indicating that he had heard “rumors” and expressed interest in connecting to discuss a potential strategic transaction with Party A. After consulting with representatives of Goldman Sachs and WilmerHale, Mr. Shanmugaraj replied by text to the Chief Executive Officer of Party A on July 2, 2019 and suggested a meeting during the week of July 8, 2019.

On July 2, 2019, Mr. Shanmugaraj spoke with a representative of Party C by telephone. The representative communicated that Party C was working towards a timeline that would result in the signing of a merger agreement with the Company on July 9, 2019.

Also on July 2, 2019, a representative of Parent sent to the Company initial drafts of proposed employment arrangements for Mr. Shanmugaraj, Mr. Mikkelsen, Mr. Givehchi, and Christian Rasmussen, Founder and Vice President of Digital Signal Processing and Optics of the Company.

On July 3, 2019, Mr. Shanmugaraj and other members of the Company’s senior management met with the Chief Executive Officer of Party C over lunch near Party C’s headquarters. The Chief Executive Officer of Party C indicated that he and other members of senior management were still evaluating the transaction, and given that such a transaction would involve a new business model, would need at least an additional two weeks to finalize its evaluation of, and determine its willingness to proceed with, a transaction. Mr. Shanmugaraj asked if this was just a situation of needing more time to complete confirmatory due diligence, or if more evaluation of the merits and risks of the transaction, due to the nature of the Company’s business model, had to be performed, to which the Chief Executive Officer of Party C responded that additional analysis of the business model and the merits of the transaction needed to be performed. Mr. Shanmugaraj informed the Chief Executive Officer of Party C that the other party was moving very quickly and that a definitive agreement might be signed with the other party the week of July 8, 2019. Mr. Shanmugaraj asked the Chief Executive Officer of Party C if he was willing to risk loss of the transaction through the delay, to which the Chief Executive Officer of Party C responded that he understood the risk and was willing to take it.

On July 3, 2019, a representative of Parent sent a detailed plan to representatives of Goldman Sachs outlining steps to a sign a definitive agreement on July 8, 2019.

On July 4, 2019, representatives of Goldman Sachs spoke by telephone to the Chief Financial Officer of Party C, who conveyed that Party C was still evaluating the business case for a potential transaction with the Company

 

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and would need at least two more weeks to reach a decision on whether it would proceed with any transaction. The representatives of Goldman Sachs reminded the Chief Financial Officer of Party C that the Company was engaged in discussions with another interested party, and the Chief Financial Officer of Party C acknowledged the risk that the Company could move forward with another transaction within this timeframe.

On July 5, 2019, Mr. Shanmugaraj received a text message from a representative of Party C expressing Party C’s continued interest in pursuing a transaction.

Also on July 5, 2019, the Transaction Committee held a telephonic meeting with other members of the board of directors and senior management and representatives of WilmerHale present and representatives of Goldman Sachs present for certain portions. Mr. Shanmugaraj provided an update on the status of discussions and due diligence with Parent and Party C. Mr. Shanmugaraj noted that Parent was highly engaged and progressing rapidly, whereas Party C was less engaged and falling further behind Parent. Mr. Shanmugaraj noted that Parent had internal management support to pursue the transaction, whereas Party C had communicated that its senior management was still evaluating the merits of the potential transaction and needed more time to make a final determination. Mr. Shanmugaraj then described the text message he had received from the Chief Executive Officer of Party A and his response. A representative of Goldman Sachs next described a conversation between the representative of Goldman Sachs and the Chief Financial Officer of Party C. The representative of Goldman Sachs stated that, in view of Party C’s admission that it was still working to validate the business case for a transaction, the lack of any response to the draft merger agreement, and the additional time required before Party C would finalize its evaluation of the Company’s business model and determine its willingness to proceed with a transaction, there was risk that Party C might not move forward with any transaction with the Company within a reasonable timeframe. Representatives of WilmerHale next provided an update regarding the negotiation of the original merger agreement with Parent, discussing in particular the proposed allocation of the risks associated with regulatory approvals, including terms of an addendum to the existing Master Purchase Agreements with Parent providing for additional purchase commitments by Parent, agreed upon commitments to achieve regulatory approvals and special interim operating covenants that would permit the Company greater flexibility to enter into new, or amendments to existing, supply agreements with customers, and Parent’s commitment to affirm such agreements. Representatives of Goldman Sachs provided an overview of prior discussions with Party A regarding a potential strategic transaction. Representatives of Goldman Sachs then presented an illustrative analysis of a combination with Party A, noting in particular that it would be very difficult for Party A to complete an all-cash transaction at the prices under discussion with Parent and Party C, given Party A’s available cash and the implied leverage required to finance such a transaction, and that a mixed cash and stock transaction would be highly dilutive to Party A’s earnings per share. As a result, representatives of Goldman Sachs expressed skepticism that Party A would be in a position to make a competitive offer. The representatives of Goldman Sachs also noted that any mixed cash and stock transaction with Party A would likely require approval by Party A’s stockholders, which would increase the execution risk of pursuing such a transaction. A representative of WilmerHale then reviewed the fiduciary duties of the board of directors. The Transaction Committee then discussed next steps with the various parties. The representatives of Goldman Sachs expressed concern that Parent might terminate discussions if the Company attempted to delay negotiations in an effort to provide the additional two weeks requested by Party C. Mr. Gavin also noted that there had been very little engagement by Party C or its advisors on due diligence over the last few days, which supported heightened concern that Party C was not committed to a transaction. The Transaction Committee concluded that management and Goldman Sachs should indicate to Parent that the Company had a superior cash offer, but was willing to move forward quickly with Parent if it significantly increased its price to a number “in the $70s” and agreed to a satisfactory resolution of regulatory matters, including a reverse termination fee for failure to close due to failure to obtain regulatory approvals, while continuing to pursue engagement with Party C. The Transaction Committee also decided not to pursue further discussions with Party A at that time.

On July 5, 2019, Mr. Shanmugaraj had a telephone call with Mr. Salvagno and informed him that, because the Company had received a higher offer from another party, Parent would have to increase its offer to a number “in the $70s.” In addition, Mr. Shanmugaraj stated that the board of directors would require a reverse termination fee

 

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for failure to close due to the failure to obtain regulatory approvals in order to proceed with signing a definitive agreement. Mr. Salvagno replied that he would discuss the matter internally and work to get back with a response quickly.

On July 6, 2019, Mr. Goeckeler called Mr. Shanmugaraj to discuss the message conveyed to Mr. Salvagno. Mr. Shanmugaraj reiterated that, since the Company had a higher offer from another party, Parent had to increase its offer to a number “in the $70s.” Mr. Shanmugaraj also repeated that the board of directors would require a reverse termination fee for failure to close due to the failure to obtain regulatory approvals in order to proceed with signing a definitive agreement. Mr. Goeckeler indicated that he would work internally to come back with an acceptable proposal.

Later on July 6, 2019, Mr. Shanmurgaraj spoke with Mr. Salvagno by telephone. Mr Salvagno informed Mr. Shanmurgaraj that Parent’s board of directors of Directors had approved an offer of $68 per share for the Company. Mr Shanmugaraj responded that the value gap between this offer and the competing offer was still too wide, and that an acceptable offer would also need to include a reverse termination fee, as previously discussed. Later that day, Mr. Salvagno called Mr. Shanmugaraj to indicate that Parent was prepared to increase its proposed price to $70 per share and to pay a reverse termination fee equal to approximately 4% of equity value for failure to close due to the failure to obtain regulatory approvals; provided that the Company agreed to an equivalent amount for its termination fee. He also indicated that this was Parent’s best and final offer, and that Parent needed a response to such offer within 24 hours. Following this call, the Company received a revised written proposal from Mr. Salvagno that Parent was prepared to increase its proposed price to $70 per share and to pay a reverse termination fee equal to approximately 4% of equity value for failure to close due to specified regulatory matters; provided that the Company agreed to an equivalent amount for its termination fee. The proposal indicated that it was Parent’s best and final offer, and was contingent on the Company executing a definitive agreement on July 8, 2019. On July 5, 2019, the closing price for Company common stock on the Nasdaq Global Select Market was $48.14 per share.

On July 7, 2019, the Transaction Committee held a telephonic meeting with other members of the board of directors and senior management and representatives of WilmerHale present and representatives of Goldman Sachs present for certain portions. Mr. Shanmugaraj summarized the discussions with Parent and Party C since the last meeting and the terms of the updated proposal from Parent at $70 per share, noting that the proposal was contingent on executing a definitive agreement on July 8, 2019. Mr. Shanmugaraj and a representative of WilmerHale summarized the agreements reached with Parent regarding commitments to mitigate regulatory risk, including the reverse termination fee in the latest Parent proposal. Representatives of Goldman Sachs and the Transaction Committee also discussed the proposed size of the Company’s termination fee, as well as termination fees in precedent transactions distributed in advance of the meeting. The representatives of Goldman Sachs next presented illustrative preliminary financial analyses of Parent’s latest offer. A representative of Goldman Sachs recommended one more final outreach to Party C to confirm that no formal offer was forthcoming and to advise them that the Company was prepared to move forward promptly with an alternative transaction if that were not the case. Mr. Shanmugaraj then provided an overview of the employment and non-compete arrangements proposed by Parent for certain members of senior management, including himself and Benny Mikkelsen, who was also a member of the board of directors, and it was agreed that a summary of these arrangements would be provided to the board of directors in advance of its next meeting. A representative of WilmerHale then reviewed the fiduciary duties of the board of directors and the application of those duties to the decision of whether to proceed with a transaction with Parent. At the request of the Transaction Committee, each member of management present confirmed his or her view that a transaction with Parent at $70 per share was superior to the prospects of remaining an independent standalone entity. The Transaction Committee instructed Goldman Sachs and management to contact Party C prior to the next board of directors meeting and, absent a definitive commitment from Party C to move forward promptly at a higher price, to finalize the terms of a transaction with Parent.

 

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On July 7, 2019, Mr. Shanmugaraj spoke to Mr. Salvagno by telephone and conveyed that the board of directors was prepared to proceed based on the latest proposal from Parent. Mr. Shanmugaraj also spoke by telephone with Mr. Goeckeler the same day to convey the board of directors’s support for the proposed transaction.

On July 8, 2019, a representative of Goldman Sachs spoke to the Chief Financial Officer of Party C and inquired if Party C’s perspective or timetable had changed and was informed that it had not. The representative of Goldman Sachs indicated to the Chief Financial Officer of Party C that given the risk associated with Party C and the available alternative, the Company would likely move forward with an alternative transaction. Following this discussion, at the direction of the Company, representatives from Goldman Sachs terminated Party C’s access to the electronic data room.

Later on July 8, 2019, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. The representatives of Goldman Sachs reported on its outreach to Party C and the lack of any change in Party C’s position. Representatives of WilmerHale reviewed the fiduciary duties of the board of directors in connection with their consideration and approval of the original merger agreement and presented a summary of the principal terms of the definitive original merger agreement between Parent and the Company previously distributed to the directors. Representatives of Goldman Sachs reviewed financial analyses of the $70 in cash per share of Company common stock to be paid by Parent pursuant to the original merger agreement. Representatives of Goldman Sachs then rendered to the board of directors its oral opinion, subsequently confirmed in writing, to the effect that, as of July 8, 2019, and based upon and subject to the factors and assumptions set forth therein, the $70.00 per share merger consideration to be paid to the holders (other than Parent or any affiliate of Parent) of Company common stock was fair from a financial point of view to such holders. After discussion, the board of directors unanimously voted to approve the original merger agreement and the transactions contemplated thereby, including the merger, to recommend the original merger agreement to the Company’s stockholders and to adopt a forum selection by-law amendment.

Following the board of directors meeting, the Company and Parent executed and delivered the original merger agreement and issued a joint press release on July 9, 2019 announcing the transaction.

During the period following the execution of the original merger agreement until the execution of the amended and restated merger agreement, representatives of the Company frequently communicated, and periodically met, with representatives of Parent regarding integration and regulatory matters and preparations for closing and provided Parent with access to certain books, records and personnel of the Company and its subsidiaries in accordance with the original merger agreement.

The Company filed a preliminary proxy statement on July 26, 2019, a definitive proxy statement on August 7, 2019 and a supplement to the proxy statement on August 28, 2019 in advance of the special meeting of stockholders of the Company held on September 6, 2019, in which the holders of Company common stock voted to approve the adoption of the original merger agreement and, by non-binding, advisory vote, certain compensation arrangements for the Company’s named executive officers in connection with the merger proposed under the original merger agreement. At the special meeting, approximately 99.64% of the votes cast (representing more than 70.3% of all outstanding shares of our stock) approved the adoption of the original merger agreement.

Following the execution of the original merger agreement, the parties prepared and submitted regulatory filings in the jurisdictions in which the parties agreed that regulatory filings may be required.

On September 3, 2019, the Company received regulatory clearance from the Austrian Federal Competition Authority with respect to the merger.

On September 26, 2019, the waiting period under the HSR Act expired with respect to the merger.

 

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On October 22, 2019, Parent and the Company submitted a merger control notification to the State Administration for Market Regulation in China, referred to as SAMR, which SAMR accepted on December 20, 2019.

On November 11, 2019, the Company received regulatory clearance from the German Federal Cartel Office with respect to the merger.

On June 11, 2020, Parent and the Company withdrew their merger control notification previously submitted to SAMR on October 22, 2019 and accepted by SAMR on December 20, 2019. On June 12, 2020, Parent and the Company refiled their merger control notification with SAMR which SAMR accepted on June 16, 2020.

On July 22, 2020, the Company and Parent issued a joint press release regarding the status of the transaction pending under the original merger agreement, stating that the parties remained actively engaged with SAMR and expected the acquisition to receive regulatory clearance. The press release noted that regulatory clearance from SAMR represented the only remaining closing condition under the original merger agreement, other than customary conditions that were to be satisfied at the time of closing.

On September 15, 2020, Parent submitted to SAMR a final remedy proposal of restrictive conditions regarding the post-closing conduct of the Company’s business in China.

On September 21, 2020, Parent withdrew and refiled its HSR Act notification form to avoid expiration of the original clearance under the HSR Act. The parties later received notice from the FTC that early termination of the waiting period applicable to the refiled notification form had been granted.

On October 23, 2020, Mr. Shanmugaraj and Ms. Asgeirsson spoke by telephone with Mr. Gartner, Mark Chandler, Parent’s Executive Vice President, Chief Legal Officer and Chief Compliance Officer, and Graham Allan, Parent’s Vice President, Legal—Legal Department Operations and M&A Legal, regarding the status of the pending regulatory approval in China. During the call, Mr. Shanmugaraj inquired about Parent’s plans if SAMR approval were not obtained prior to the end date under the original merger agreement. Mr. Chandler replied that Parent remained confident that SAMR approval would be obtained, and the merger closed, before the end date under the original merger agreement.

On November 10 and 11, 2020, the board of directors held a regularly scheduled meeting by teleconference, with members of senior management and representatives of WilmerHale present for portions of the meeting. During the first day of the meeting, among other matters, Janene Asgeirsson, the Company’s Chief Legal Officer and Secretary, reviewed the status of regulatory review in China, noting that it was uncertain whether or not regulatory approval would be obtained prior to the end date under the original merger agreement of January 8, 2021. Next, a representative of WilmerHale discussed the Company’s obligations and rights under the original merger agreement in connection with obtaining or failing to obtain, regulatory approval in China prior to January 8, 2021. On the second day of the meeting, representatives of WilmerHale joined portions of the meeting to answer questions from the board of directors regarding the Company’s obligations and rights under the original merger agreement in connection with obtaining or failing to obtain, regulatory approval in China prior to January 8, 2021.

On November 20, 2020, Mr. Shanmugaraj spoke to Mr. Gartner by telephone on a variety of business matters. During the call, Mr. Shanmugaraj inquired about Parent’s plans if SAMR approval were not obtained prior to the end date under the original merger agreement and noted that the board of directors could expect him to evaluate all of the Company’s options in that scenario. Mr. Gartner replied that Parent remained confident that SAMR approval would be obtained, and the merger closed, before the end date under the original merger agreement.

On December 10, 2020, Parent and the Company withdrew their merger control notification previously submitted to SAMR on June 12, 2020 and accepted by SAMR on June 16, 2020. On the same day, Parent and the Company refiled their merger control notification with SAMR, which SAMR accepted on December 11, 2020.

 

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On December 11, 2020, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj provided a brief update on the status of the merger and then turned the meeting over to Ms. Asgeirsson, who reviewed the status of regulatory review in China, noting that it continued to be uncertain whether or not regulatory approval would be obtained prior to the end date under the original merger agreement of January 8, 2021. The representatives of Goldman Sachs reviewed current market conditions, as well as the financial performance of the Company and certain other optical and semiconductor companies, since the announcement of the original merger agreement. The representatives of Goldman Sachs then left the meeting and a representative of WilmerHale reviewed with the board of directors the potential decisions that could be faced by the board of directors in connection with the approaching end date under the original merger agreement, as well as their fiduciary duties in connection with such potential decisions. Next, Mr. Gavin presented a draft of a new long-range plan, which reflected projected performance of the Company on a stand-alone basis for fiscal years 2020 through 2025 and included updated estimates and assumptions reflecting the Company’s performance through September 30, 2020 and currently anticipated prospects and described how the new long-range plan differed from the June LRP. Following questions and comments from board of directors, it was agreed that management should continue refining the new long-term plan for redistribution to the board of directors.

On December 12, 2020, Ms. Asgeirsson provided a revised draft of the new long-range plan, referred to as the December LRP, to the board of directors by posting it to an electronic board portal. The December LRP was subsequently approved by email by the members of the board of directors.

On December 18, 2020, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Ms. Asgeirsson reviewed the status of regulatory review in China, noting that little had changed since the previous meeting, although Parent’s advisors continued to express optimism that approval would be obtained within the timeframe contemplated by the original merger agreement. A representative of WilmerHale next confirmed that the board of directors had received and reviewed an updated disclosure letter provided by Goldman Sachs, which summarized Goldman Sachs’ relationship with Parent over the last two years, including information regarding compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Parent and/or its affiliates and the presence of a director on the board of directors of Parent that is currently affiliated with the Goldman Sachs Group, Inc. as a director. Representatives of Goldman Sachs then reviewed an update on market developments and certain illustrative preliminary financial analyses of the Company based, in part, on current market data and the December LRP. The representatives noted that the illustrative preliminary financial analyses reflected the same methodologies as those reviewed by Goldman Sachs with the board of directors in July 2019, except reflected current market developments that the representatives reviewed with the board of directors and did not include any historical stock trading analysis or premia analysis given that the Company common stock had not traded on an unaffected basis since the announcement of the original merger agreement in July 2019. The representatives of Goldman Sachs also reviewed the Company’s current stockholder base, potential changes in the composition of the stockholder base if the original merger agreement were terminated, and the potential impact of such a change on trading in, and the market price of, Company common stock. The representatives of Goldman Sachs then left the meeting. The board of directors next discussed the Company’s ability to operate and prospects as a stand-alone company if the original merger agreement were terminated, including the potential consequences of such termination on the significant customer relationship with Parent and execution risks associated with the December LRP. The board of directors also discussed the possibility of extending the end date under the original merger agreement and determined that such an extension would not be advisable due to the potential consequences of continued uncertainty regarding the status of the merger on the Company’s business and employees. Following further discussion, the board of directors concluded that it would not be in the best interest of the Company’s stockholders to proceed with the transaction at the current price of $70.00 per share under the terms of the original merger agreement if a closing did not occur prior to the end date of January 8, 2021.

On December 31, 2020, Mr. Shanmugaraj spoke to Mr. Gartner by telephone. Mr. Gartner informed Mr. Shanmugaraj that Parent remained optimistic that it would receive regulatory approval in China before

 

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January 8, 2021, but inquired whether the Company would consider a waiver of the applicable condition in the event such approval were not received. Mr. Shanmugaraj said that any such waiver was a decision for the board of directors and that he would bring it to the board of directors if he were more formally requested to do so by Parent in a written communication, noting that he personally would not recommend to the board of directors an extension of the end date under the original merger agreement as an alternative to the waiver due to the potential consequences of continued uncertainty regarding the status of the merger on the Company’s business and employees. Shortly thereafter, Mr. Gartner sent an email to Mr. Shanmugaraj communicating Parent’s request that the Company agree with Parent to execute such waiver. Later on December 31, 2020, Ms. Asgeirsson sent an email to representatives of Parent, confirming that the email from Mr. Gartner to Mr. Shanmugaraj earlier that day was sufficient to allow the Company to bring Parent’s request to the board of directors.

On January 1, 2021, in anticipation of receiving SAMR approval based on the September 15, 2020 proposal of restrictive conditions, and given the uncertainty of the precise timing (including as a result of time zone differences) and form of such approval, in light of the approaching end date under the original merger agreement, Mr. Allan delivered to the Company by email a waiver to facilitate the expeditious closing of the merger by providing that all applicable conditions to the closing would be satisfied or waived on the day prior to the end date under the original merger agreement. The email requested that the Company provide a similar waiver in a form attached to the email.

On January 3, 2021, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj reported on discussions with Parent regarding Parent’s request that the Company waive the conditions to closing in the original merger agreement related to regulatory approval in China. A representative of WilmerHale next described the content and implications of the waiver delivered by Parent on January 1, 2021, including that the delivery of the waiver meant that the reverse termination fee under the Addendum to the Supply Agreement would no longer be payable by Parent if Parent or the Company terminated the original merger agreement on or after the end date under the original merger agreement. The representative of WilmerHale also reviewed the fiduciary duties of the board of directors in determining how to respond to Parent’s request. Representatives of Goldman Sachs next reviewed certain illustrative preliminary financial analyses of the Company. After further discussion, the board of directors concluded that the merger consideration under the original merger agreement of $70.00 per share no longer reflected an appropriate valuation for the Company and, in the event SAMR approval was not obtained prior to January 8, 2021, it would be in the best interest of the Company’s stockholders to terminate the original merger agreement and remain an independent, publicly traded company unless a higher price could be negotiated with Parent. The board of directors next discussed potential responses to Parent. A representative of WilmerHale described structural options for increasing the value paid to stockholders, as well as the steps required to renegotiate the terms of the transaction. After further discussion of the alternatives available to the Company, the board of directors instructed management to inform Parent that, if SAMR approval were not obtained prior to January 8, 2021, the Company was not prepared to waive the conditions to closing in the original merger agreement related to regulatory approval in China in order to close the merger upon the original terms. Instead, the Company was prepared to (i) terminate the original merger agreement on January 8, 2021 if SAMR approval was not obtained and negotiate an expanded partnership to deepen the customer/supplier relationship between the parties or (ii) renegotiate the deal terms to reflect the increase in the value of the Company since the announcement of the original merger agreement. The board of directors also determined that it was not prepared to make a determination of what an acceptable value for the Company might be at that time and that the Company should not propose a price. Finally, the board of directors discussed the potential for events to proceed rapidly, given the proximity of the end date under the original merger agreement, and concluded that it would be desirable to reconstitute the Transaction Committee to allow for flexible and timely support of management under circumstances when it might not be practical to assemble the full board of directors. The board of directors then reestablished the Transaction Committee, consisting of directors David Aldrich, Peter Chung, Stan Reiss and John Ritchie.

 

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On January 4, 2021, Mr. Shanmugaraj spoke to Mr. Gartner by telephone. Mr. Shanmugaraj informed Mr. Gartner that the Company believed the current price of $70.00 per share undervalued the Company due to the Company’s performance and market developments since the execution of the original merger agreement, and that, as a result, the Company was not able to grant Parent’s request for a waiver and would not extend the end date under the original merger agreement. Mr. Shanmugaraj then described two alternative paths that the Company was willing to pursue, including (i) terminating the original merger agreement on January 8, 2021 if SAMR approval was not obtained and negotiating an expanded partnership to deepen the customer/supplier relationship between the parties and (ii) renegotiating the deal terms to reflect the increase in the value of the Company since the announcement of the original merger agreement. Mr. Shanmugaraj also noted that the Company understood its obligations to proceed to a closing under the terms of the original merger agreement if SAMR approval were received prior to January 8, 2021. Mr. Gartner suggested that Mr. Shanmugaraj discuss the matter further with Derek Idemoto, Parent’s Senior Vice President of Corporate Development, who would reach out to Mr. Shanmugaraj. After the call between Mr. Shanmugaraj and Mr. Gartner, Mr. Idemoto sent a text to Mr. Shanmugaraj proposing a call the following day.

On January 5, 2021, Mr. Shanmugaraj spoke to Mr. Idemoto by telephone and reiterated the Company’s position as he had described to Mr. Gartner the previous day. Mr. Idemoto then asked Mr. Shanmugaraj for a price proposal. Mr. Shanmugaraj declined to propose a price, but offered to connect Mr. Idemoto to representatives of Goldman Sachs, who could provide market data on the Company’s peers and comparable transactions that would inform the Company’s perspective on price. Mr. Idemoto said he would consider the matter and follow up with Mr. Shanmugaraj.

On January 5, 2021, the Transaction Committee held a telephonic meeting, with members of the board of directors, members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj opened the meeting by describing his calls with Mr. Gartner and Mr. Idemoto. Next, a representative of WilmerHale described structural options for delivering additional value to the Company’s stockholders if Parent were willing to renegotiate. During the meeting, Mr. Idemoto contacted Mr. Shanmugaraj by text, indicating that Parent would be connecting with Goldman Sachs that same day and expressing interest in receiving updated financial forecasts for the Company. After further discussion of potential approaches for engaging with representatives of Parent, consistent with the prior determination of the board of directors, the Transaction Committee directed management and the representatives of Goldman Sachs to advise Parent that any renegotiation of terms should be initiated by a price proposal by Parent, and not the Company.

Later on January 5, 2021, the Company provided the December LRP to Parent by email.

Later on January 5, 2021, representatives of Goldman Sachs spoke by telephone with representatives of Parent. The representatives of Goldman Sachs reviewed significant changes in the relevant markets and precedent transactions since July 2019. At the direction of the board of directors, the representatives of Goldman Sachs also stated that the Company was prepared to terminate the original merger agreement on January 8, 2021 if SAMR approval had not been obtained prior to such date, and was not willing to extend the timeframe for termination at the current price. The representatives of Goldman Sachs also noted that the Company was willing to entertain negotiations to close after January 8, 2021 if Parent made a proposal at a higher price. Parent requested price guidance, but the representatives of Goldman Sachs declined, citing the prior direction of the board of directors.

Later on January 5, 2021, representatives of the Company’s management spoke by telephone with representatives of Parent to discuss the assumptions underlying the December LRP. The Company continued to respond to information requests regarding the December LRP through January 7, 2021.

On January 6, 2021, the Transaction Committee held a telephonic meeting, with members of the board of directors, members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj provided a status update, noting that the December LRP had been provided to Parent, but Parent had not yet proposed a price increase. Representatives of Goldman Sachs next described their call with

 

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Parent the previous day. Mr. Shanmugaraj noted that discussions with Parent regarding the December LRP were ongoing, and he expected that further updates would be available later that day.

Later on January 6, 2021, Mr. Shanmugaraj spoke to Mr. Idemoto by telephone. Mr. Idemoto informed Mr. Shanmugaraj that, if SAMR approval were not obtained prior to the end date under the original merger agreement, Parent was willing to enter into an amendment to the original merger agreement to increase the price to $83.00 per share. Mr. Idemoto noted that Fenwick was preparing a draft amendment to the original merger agreement, which would be provided to the Company later that day. Mr. Shanmugaraj characterized the $83.00 per share price as a “non-starter” given the market developments and Company performance since July 2019, and Mr. Idemoto asked for guidance on a price that would be acceptable. Mr. Shanmugaraj said that he would discuss the matter with the board of directors, but he was not sure whether the board of directors would be willing to provide a counter offer to such a low price.

Later on January 6, 2021, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj reported on his discussion with Mr. Idemoto, including the $83.00 per share price proposed on the call and Mr. Shanmugaraj’s response. The board of directors observed that the proposed price was well below the level at which the Company would be prepared to consider a modified transaction and discussed potential responses to the $83.00 per share price proposal with its advisors. A representative of Goldman Sachs noted that it would be difficult to counter and negotiate with such a wide valuation gap, and suggested that the Company consider rejecting the proposal without a counteroffer to see if Parent was willing to increase its price further. The representatives of Goldman Sachs then left the meeting, and the board of directors discussed the illustrative preliminary financial analyses reviewed by Goldman Sachs at the January 3, 2021 meeting and the directors’ perspectives on value. Following further discussion, the board of directors instructed management to inform Parent that its offer was too low to warrant further engagement.

Later on January 6, 2021, Fenwick sent a draft of the amended and restated merger agreement to WilmerHale, along with a draft of a new form of voting agreement.

Later on January 6, 2021, Mr. Shanmugaraj spoke to Mr. Idemoto by telephone and informed him that the $83.00 per share price proposed by Parent was too low to justify further discussion and that Parent would need to raise its price before the Company engaged. Mr. Idemoto asked whether the Company would be looking for a value approaching “triple digits” and stated that, although he was not authorized to offer above $83.00 per share, he wanted to understand the Company’s expectations. Mr. Shanmugaraj declined to engage in price discussions, consistent with the prior instructions of the board of directors, but confirmed that the Company’s value expectations were “well into the triple digits.” Mr. Idemoto then asked if the Company’s desired price was as high as $105.00 per share, noting again that he was not authorized to offer that number, but needed a better sense of the Company’s expectations. Mr. Shanmugaraj responded that he did not think that such price would get a deal done at this time, but that he would bring any proposal to the board of directors.

On the morning of January 7, 2021, the Transaction Committee held a telephonic meeting, with other members of the board of directors, members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj reported on his discussion with Mr. Idemoto, including Mr. Idemoto’s statement that he did not have authority to offer a price in excess of the prior offer, but was instead trying to gather information on the Company’s price expectations. Mr. Shanmugaraj noted that Parent had not contacted the Company or its advisors since that call, and that the Transaction Committee should consider providing a price proposal to Parent if they continued to remain silent due to the limited time remaining before the end date under the original merger agreement. The Transaction Committee decided that it should reconvene later that day and to determine a price proposal if Parent had not responded with an updated proposal in the interim. The Transaction Committee then recessed the meeting until later that day.

Later on January 7, 2021, the Transaction Committee reconvened by telephone with other members of the board of directors, members of senior management and representatives of Goldman Sachs and WilmerHale present.

 

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Mr. Shanmugaraj reported that Parent had not contacted the Company or its advisors since the meeting had been recessed earlier that day and suggested that, given the limited time remaining before the original merger agreement became terminable, the Company should make a price proposal to Parent. After further discussion, the Transaction Committee concluded that the Company should propose a price of $115.00 per share, noting that the Company should also communicate to Parent that this proposal would expire at 5:00 p.m. Eastern time if Parent and the Company had not agreed to proceed at a mutually acceptable price by that time, since shortly thereafter it would be the opening of business in China and the Company would be at risk that SAMR might approve the transaction during its business day and the Company would be required to proceed to a closing under the terms of the original merger agreement.

Later on January 7, 2021, Mr. Shanmugaraj spoke to Mr. Idemoto by telephone and informed him that the Company was prepared to recommend to the board of directors proceeding to a closing at price per share of $115.00, but only if Parent agreed to promptly engage and get to a negotiated deal by 5:00 p.m. Eastern time. Mr. Idemoto told Mr. Shanmugaraj that he would follow up with Parent’s response.

Later on January 7, 2021, at the direction of the Company, a representative of WilmerHale sent a proposed form of letter agreement to Fenwick that contemplated closing the merger at the original $70.00 per share price under the original merger agreement, but permitting the Company to declare a cash dividend to Company stockholders as of immediately prior to the closing in order to increase the overall consideration payable to such stockholders to achieve the Company’s proposed price, which dividend would be payable contingent upon such closing.

Later on January 7, 2021, Mr. Shanmugaraj received a text from Mr. Idemoto shortly before 5:00 p.m. Eastern time stating that Parent was not in a position to have a price conversation at that time.

Later on January 7, 2021, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj reported on his call with Mr. Idemoto and the text he received in response, noting that the text was the only response he had received prior to the 5:00 p.m. Eastern time deadline communicated on the call. The board of directors discussed the potential implications of this response with its advisors, and determined that the Company should be prepared for the possibility that Parent would not reengage at the proposed price or any other acceptable price, and that the Company should be prepared to terminate the original merger agreement if Parent was not willing to reengage within an acceptable price range and SAMR approval was not received by the end of the day. A representative of WilmerHale noted that if Parent and the Company were able to agree on a price before the end of the day, it would be possible to enter into a letter agreement that could delay the termination of the original merger agreement long enough to allow for negotiation of definitive documentation without putting the Company at risk of being forced to close at the original price of $70.00 per share if SAMR were to approve the transaction before the delayed termination of the original merger agreement. After further discussion, the board of directors authorized the Company’s management to terminate the original merger agreement as early as possible on January 8, 2021 if SAMR approval had not been obtained and the parties had not reached an agreement on price by the end of the day on January 7, 2021. Mr. Shanmugaraj proposed that the board of directors plan to reconvene later that day in case the Company received any further communications from Parent. The board of directors then recessed the meeting until later that day.

Later on January 7, 2021, the board of directors reconvened by telephone with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj informed the board of directors that Parent had not contacted the Company or its advisors since the meeting had been recessed earlier that day. A representative of WilmerHale described a form of extension letter that could be used if Parent was willing to negotiate within an acceptable price range, but was unable to complete definitive documentation before the end date under the original merger. Under the proposed form of extension letter, the parties would mutually agree not to require closing to occur prior to 12:01 a.m. Eastern time on January 11, 2021 and that the original merger agreement would automatically terminate immediately prior to such time if the parties had not previously entered into an amendment to the original merger agreement providing for a specified increase in the merger

 

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consideration. The board of directors authorized the Company’s management to execute the extension letter if the parties reached an agreement on price.

Also on January 7, 2021, a representative of Parent received by email a notification from a SAMR representative stating that SAMR “have determined that the proposal of restrictive conditions which [Parent] submitted on September 15th is sufficient to address the relevant competition concerns.” Fenwick delivered this notification to the Company by email on behalf of Parent and conveyed Parent’s position that the notification of such determination confirmed that the antitrust approval condition had been satisfied and that the Company was required by the original merger agreement to proceed with the closing immediately.

Shortly thereafter, Fenwick sent a second email stating that, if the Company did not promptly proceed with closing, Parent would seek emergency relief in the Court of Chancery of the State of Delaware, referred to as the Court of Chancery, including to enjoin or invalidate any attempted termination of the original merger agreement.

Following receipt of the first Fenwick email, the Company consulted with its regulatory counsel in China and concluded that the email from the SAMR representative attached to the Fenwick email was not sufficient evidence of an official approval by SAMR. Ms. Asgeirsson then responded to Fenwick and Parent that the Company did not believe that the notification represented formal approval by SAMR and therefore the closing condition relating to antitrust approval in China had not been satisfied. At the direction of the Company, WilmerHale subsequently delivered to Parent a notice of termination of the original merger agreement based on the failure to satisfy all closing conditions prior to the end date.

On January 8, 2021, shortly after delivery of the termination notice, the board of directors held a telephonic meeting, with members of senior management and representatives of WilmerHale and Potter Anderson & Corroon, the Company’s special Delaware counsel, present. Mr. Shanmugaraj and Ms. Asgeirsson reviewed the events preceding the decision to deliver the notice of termination. After further discussion, the board of directors ratified the decision to terminate the original merger agreement.

Later on January 8, 2021, Parent filed a complaint in the Court of Chancery seeking a temporary restraining order enjoining the Company’s purported termination of the original merger agreement. Parent also sought an expedited trial to resolve Parent’s request for a declaratory judgment that all necessary conditions to closing were satisfied prior to the end date under the original merger agreement and the Company’s termination of the original merger agreement was invalid, and an order requiring the Company to close the merger pursuant to the original merger agreement.

Later on January 8, 2021, the Court of Chancery held a hearing and granted Parent’s request for a temporary restraining order, enjoining the Company’s purported termination of the original merger agreement. The Court of Chancery also granted Parent’s motion for expedited proceedings for consideration of Parent’s claims. Pursuant to the temporary restraining order, the Company remained bound by the terms of the original merger agreement pending resolution of the matters before the Court of Chancery, unless otherwise agreed by the parties.

On January 11, 2021, the Company filed its answer and affirmative defenses in response to the complaint filed by Parent in the Court of Chancery and simultaneously filed a counterclaim against Parent seeking a declaration that the Company validly terminated the original merger agreement.

Overnight between January 12 and 13, 2021, each of Parent and the Company received by email a notification from SAMR, dated January 9, 2021, stating that “upon preliminary review, it is hereby decided to conduct further review” of the merger, which notification cast substantial doubt on the conclusiveness of the notification from SAMR received by Parent on January 7, 2021. In light of the continuing uncertain state of antitrust approval in China, and the continuing desire of Parent and the Company to consummate the merger and to resolve the inherent uncertainty related to the litigation between the parties regarding the Company’s purported termination of the merger agreement and whether the antitrust approval condition had been satisfied prior to the end date,

 

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following receipt of SAMR’s January 12-13, 2021 notification and into the early morning of January 14, 2021, representatives of Parent and the Company continued discussions of the terms pursuant to which the original merger agreement could be amended and the merger could be effected.

On January 13, 2021, Mr. Shanmugaraj received a text message from Chuck Robbins, the Chief Executive Officer and Chairman of Parent, proposing a telephone conversation between Mr. Shanmugaraj and Mr. Robbins.

Later on January 13, 2021, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj and Ms. Asgeirsson informed the board of directors of the recent notice from SAMR and reported on the status of discussions between representatives of Parent and the Company and the text from Mr. Robbins. Mr. Shanmugaraj noted that he was not sure what Mr. Robbins’ response would be, but said that he felt the board of directors should reach a consensus on value in case Mr. Robbins was prepared to discuss an increase in merger consideration. Representatives of Goldman Sachs observed that recent trading prices for Company common stock had exceeded $85.00 per share, even with the uncertainty of the existing litigation in the Court of Chancery. After further discussion, the board of directors authorized Mr. Shanmugaraj to propose $115.00 per share, but noted that Mr. Shanmugaraj should remain firm at that price and communicate the Company’s desire for terms that would deliver closing certainty. The board of directors then recessed the meeting until later that day.

Later on January 13, 2021, Mr. Shanmugaraj spoke to Mr. Robbins by telephone, and Mr. Robbins indicated that Parent was prepared to engage in price negotiations. Mr. Shanmugaraj informed him that the Company would be prepared to proceed with a transaction at a price of $115.00 per share, but only if the agreement eliminated any material conditionality beyond stockholder approval. Mr. Robbins responded that he would need time to consult with members of Parent’s board, and proposed that they speak again the next morning at which time he would deliver Parent’s response. Mr. Shanmugaraj agreed and scheduled a call with Mr. Robbins the following morning. Mr. Shanmugaraj also indicated to Mr. Robbins that the Company would send proposed revisions to the form of amended and restated merger agreement previously received from Fenwick in order to advance the drafting in parallel in the interest of time.

Later on January 13, 2021, the board of directors reconvened by telephone with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj reported on his conversation with Mr. Robbins, noting that he was scheduled to speak to Mr. Robbins the following morning and suggesting that the board of directors plan to reconvene shortly after that call. A representative of WilmerHale reviewed the two structures that the parties had proposed during the previous price discussions. WilmerHale noted that there was likely a limited window of time to negotiate before the Company would be compelled to take steps in the litigation that could make negotiating and completing the transaction more difficult, and that adopting Parent’s preferred structure (amending and restating the original merger agreement) would make it more likely that an agreement could be reached before that window closed. The board of directors agreed to reconvene the following morning after Mr. Shanmugaraj’s next call with Mr. Robbins and directed WilmerHale to deliver a draft amended and restated merger agreement to Fenwick so that the parties could advance discussions regarding structure and terms in the interim.

Later on January 13, 2021, at the direction of the Company, WilmerHale sent revised drafts of the amended and restated merger agreement and the new form of voting agreement to Fenwick, which each reflected comments to the drafts sent by Fenwick on January 6, 2021. From January 13, 2021 until the execution of the amended and restated merger agreement on January 14, 2021, the parties and their respective legal advisors exchanged several drafts of, and engaged in multiple discussions and negotiations concerning the terms of, the amended and restated merger agreement. Significant areas of discussion and negotiation included, among others, the conditions to closing the merger and the amount of the Company’s termination fee. The form of voting agreement proposed by WilmerHale was accepted without further discussion.

 

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On January 14, 2021, Mr. Shanmugaraj spoke to Mr. Robbins by telephone. Mr. Robbins informed Mr. Shanmugaraj that Parent was prepared to enter into the amended and restated merger agreement at a price of $115.00 in cash per share of Company common stock.

On January 14, 2021, the board of directors held a telephonic meeting, with members of senior management and representatives of Goldman Sachs and WilmerHale present. Mr. Shanmugaraj reported on his conversation with Mr. Robbins in which Mr. Robbins confirmed that Parent was willing to increase its price to $115.00 in cash per share of Company common stock. Representatives of WilmerHale reviewed the terms of the definitive amended and restated merger agreement between Parent and the Company as previously distributed to the directors. Representatives of Goldman Sachs reviewed financial analyses of the $115.00 in cash per share of Company common stock to be paid by Parent pursuant to the amended and restated merger agreement. Representatives of Goldman Sachs then rendered to the board of directors its oral opinion, subsequently confirmed in writing, to the effect that, as of January 14, 2021, and based upon and subject to the factors and assumptions set forth therein, the $115.00 per share merger consideration to be paid to the holders (other than Parent or any affiliate of Parent) of Company common stock was fair from a financial point of view to such holders. (See “The Merger — Opinion of the Company’s Financial Advisor.”) After discussion, the board of directors unanimously voted to approve the amended and restated merger agreement and the transactions contemplated thereby, including the merger and to recommend that the Company’s stockholders adopt the amended and restated merger agreement.

On January 14, 2021, following the board of directors meeting, Parent, merger sub and the Company executed the amended and restated merger agreement and publicly announced such execution shortly before the opening of the Nasdaq stock market on January 14, 2021. Later that same day, Parent and the Company filed with the Court of Chancery a joint stipulation and proposed order asking the court to lift the temporary restraining order previously issued and dismiss with prejudice all claims asserted by the parties in the litigation. Later on January 14, 2021, the Court of Chancery entered the parties’ proposed order vacating the temporary restraining order and dismissing the parties’ respective claims with prejudice.

On January 19, 2021, SAMR published its approval, which approval was dated effective January 14, 2021 and conditioned on the restrictive conditions submitted to SAMR on September  15, 2020.

Reasons for the Merger; Recommendation of the Board of Directors

At a meeting held on January 14, 2021, the board of directors, by a unanimous vote of all of its directors, (a) determined and declared that the amended and restated merger agreement, the merger and the other transactions contemplated by the amended and restated merger agreement, on the terms and subject to the conditions set forth therein, are advisable, fair to and in the best interests of the Company and its stockholders, (b) adopted and approved the amended and restated merger agreement, the merger and the other transactions contemplated by the amended and restated merger agreement and (c) determined that it is advisable and in the best interests of the Company for the board of directors to submit the amended and restated merger agreement to the Company’s stockholders for adoption and directed that the amended and restated merger agreement be submitted to the Company’s stockholders at a special meeting of the Company’s stockholders for their adoption, and recommended that the Company’s stockholders adopt the amended and restated merger agreement.

Before making its recommendation, the board of directors consulted with its outside legal and financial advisors and with the Company’s senior management team. In reaching its recommendation, the board of directors considered the following material factors that it believes support its decision to enter into the amended and restated merger agreement and consummate the merger (which factors are not necessarily presented in order of relative importance):

 

   

Best Alternative for Maximizing Stockholder Value. The board of directors believed that receipt of the merger consideration of $115.00 per share in cash was more favorable to the Company stockholders

 

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than the likely value that would result from other potential transactions or seeking to remain independent. This decision was based on, among other things, the board of directors’ assessment of:

 

     

the Company’s historical operating and financial performance;

 

     

the Company’s competitive position, including potential competition from larger companies and concerns that Parent, the Company’s third largest customer by revenue, accounting for approximately 17% and 15% of the Company’s revenue during fiscal year 2019 and the first nine months of 2020, respectively, might shift its purchasing to a second source or develop competitive technology internally if it were unable to acquire the Company, with the resulting loss in revenue and potentially increased competitive risk;

 

     

the Company’s future prospects on a standalone basis, including continued risks related to the Company’s exposure to China—where the Company’s two largest Chinese customers by revenue accounted for approximately 34% and 25% of the Company’s revenue during fiscal year 2019 and the first nine months of 2020, respectively—under the current political and macroeconomic climate, as well as the resulting volatility in the Company’s stock price;

 

     

the advantages of entering into the amended and restated merger agreement in comparison with the risks and opportunities of remaining independent, including risks and opportunities related to executing the Company’s business plan and achieving the Company’s financial projections as a standalone company; the risks inherent in the Company’s industry, including historical volatility in end-customer demand for optical technologies; risks associated with the development and market acceptance of its products under development and the continued operating expenses to sustain the product roadmap; the risk of increased competitive pressure; the economy and capital markets as a whole; and the various additional risks and uncertainties that are described in the Company’s most recent annual report on Form 10-K filed with the SEC or subsequently filed quarterly reports on Form 10-Q;

 

     

the risk that prolonging the merger litigation further could have (i) resulted in the loss of an opportunity to consummate a transaction with Parent and could have damaged the customer relationship with Parent, the third largest customer of the Company, (ii) created uncertainty and confusion among the Company’s customers, employees and other significant business relationships, due to the uncertain outcome and timing of a final, non-appealable decision in respect of the merger litigation, (iii) resulted in the Company being required to complete the merger on the terms of the original merger agreement, including the consideration under the original merger agreement of $70.00 per share and (iv) distracted senior management from implementing the Company’s business plan and resulted in significant costs, especially with the unknown timing of a final resolution of the merger litigation;

 

     

the board of directors’ belief that its negotiations with Parent, including the 64.3% increase in the merger consideration, as compared to the original merger agreement, had resulted in a full and fair price for the Company; and

 

     

the fact that any potential alternative transaction would likely include regulatory approval conditions to its consummation that would potentially require a substantial time period to satisfy, and the uncertainty as to whether any such conditions would be satisfied.

 

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Attractive Value. The board of directors concluded that the consideration of $115.00 per share represented an attractive valuation for the Company and an opportunity for the Company’s stockholders to receive a significant premium over the market price of the Company common stock, including the market price during the period after the Company gave notice to terminate the original merger agreement. The board of directors reviewed and considered the historical market prices, volatility and trading information with respect to the Company common stock, the negotiations with Parent and the potential outcomes of the merger litigation, including:

 

     

the fact that the proposed consideration of $115.00 per share represents a premium of 34.9% compared to the closing price of the Company common stock of $85.23 per share on January 12, 2021, the last trading date prior to the final price proposal by the board of directors and two trading days after the Company’s announcement that it was seeking to terminate the original merger agreement; and

 

     

the unlikelihood of an executable transaction at a higher value than the cash price to be paid by Parent, in light of (i) the fact that the Company remained bound by the terms of the original merger agreement, including the prohibition on soliciting alternative proposals, under the temporary restraining order issued by the Court of Chancery in the merger litigation, (ii) management and Goldman Sachs’ assessment of potential candidates for further outreach and their ability to transact on competitive terms, informed by the sale process conducted in connection with the original merger agreement, (iii) the fact that, under both the original merger agreement and amended and restated merger agreement, the board of directors may consider and respond to, under certain circumstances specified in such merger agreements, unsolicited written acquisition proposals prior to the stockholder vote to adopt the relevant merger agreement, although no such acquisition proposals were received following execution of the original merger agreement at any time prior to the board of directors making its recommendation and (iv) the fact that Parent had been unwilling to formally propose a price greater than $83.00 per share prior to the Company’s proposal of $115.00 per share.

 

   

Greater Certainty of Value. The proposed consideration consists solely of cash, which provides immediate liquidity and certainty of value to the Company’s stockholders. The receipt of cash consideration also eliminates for the Company’s stockholders the risks of (i) the continued execution of the Company’s business on a standalone basis and (ii) the merger litigation, including the possibility that the Company could be required to complete the merger at the price under the original merger agreement of $70.00 per share.

 

   

Likelihood of Completion. The likelihood that the merger will be consummated, particularly in view of the terms of the amended and restated merger agreement and the closing conditions. In that regard, the board of directors noted:

 

     

that the merger is not subject to any financing-related condition;

 

     

the size and financial strength of Parent, and Parent’s ability to fund the merger consideration with cash;

 

     

the limited number of conditions to the merger, which conditions reflect modifications to increase the certainty of closing relative to the conditions set forth in the original merger agreement; and

 

     

the remedy of specific performance available to the Company under the amended and restated merger agreement in the event of breaches by Parent.

 

   

Business Reputation of Parent. The board of directors considered Parent’s business reputation, management, financial resources and extensive history of successfully consummating transactions, as well as the existing positive commercial relationship between the Company and Parent, as the

 

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Company’s third largest customer by revenue in the first nine months of 2020. The board of directors believed these factors supported the conclusion that a transaction with Parent could be completed in a timely and orderly manner.

 

   

Relationships with Financial Advisor. The determination of the board of directors that the relationships between Goldman Sachs, on the one hand, and each of the Company and Parent, on the other hand, would not impair the ability of Goldman Sachs to provide impartial advice to the board of directors and the fact that Goldman Sachs agreed at the outset of its engagement with the Company that it would not finance an acquisition of the Company without the Company’s consent.

 

   

Receipt of Opinion from Goldman Sachs. The financial analyses presented to the board of directors by Goldman Sachs, as well as the opinion of Goldman Sachs, dated January 14, 2021, to the effect that, as of the date of such opinion, and based upon and subject to the factors and assumptions set forth therein, the $115.00 per share merger consideration to be paid to the holders (other than Parent or any affiliate of Parent) of Company common stock is fair from a financial point of view to such holders, as more fully described below in “The Merger — Opinion of the Company’s Financial Advisor” beginning on page 68 and the full text of such opinion is attached to this proxy statement as Annex B.

 

   

Terms of Amended and Restated Merger Agreement. The terms and conditions of the amended and restated merger agreement, including the Company’s ability to consider and respond to, under certain circumstances specified in the amended and restated merger agreement, an unsolicited written acquisition proposal (as more fully described under the heading “The Amended and Restated Merger Agreement — Restrictions on Solicitation of Other Offers”), and the board of directors’ right, after complying with the terms of the amended and restated merger agreement, to terminate the amended and restated merger agreement in order to enter into an agreement with respect to a superior proposal (as more fully described under the heading “The Amended and Restated Merger Agreement — Restrictions on Changes of Recommendation to Company Stockholders”), subject to certain match rights in favor of Parent and upon payment of a termination fee to Parent of $197,000,000, which is approximately 4% of the equity value of the Company, as described under “The Amended and Restated Merger Agreement — Termination Fee” beginning on page 129.

 

   

Required Stockholder Approval. The amended and restated merger agreement is subject to adoption by the Company’s stockholders, who are free to reject the amended and restated merger agreement.

 

   

Appraisal Rights. The board of directors considered the fact that stockholders who properly exercise and perfect their appraisal rights under Delaware law will be entitled to such appraisal rights in connection with the merger.

The board of directors also weighed the factors described above against the following factors and risks that generally weighed against entering into the amended and restated merger agreement (which factors and risks are not necessarily presented in order of relative importance):

 

   

No Stockholder Participation in Future Growth or Earnings. The Company will no longer exist as an independent company, and accordingly, Company stockholders will no longer participate in any future growth the Company may have or any potential future increase in its value.

 

   

Effect of Failure to Complete Transactions. While the Company expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied, and thus it is possible that the merger may not be completed in a timely manner or at all. If the merger is not completed, (i) the Company will have incurred significant risk and transaction and opportunity costs, including the possibility of disruption to the Company’s operations, diversion of management and employee attention, employee attrition and a potentially negative effect on the Company’s business and customer and supplier relationships, (ii) the trading price of shares of

  Company common stock would likely be adversely affected and (iii) the market’s perceptions of the Company’s prospects could be adversely affected.

 

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Closing Conditions. The fact that completion of the merger would require the satisfaction of closing conditions that are not entirely within the Company’s control and that there can be no assurances that any or all such conditions will be satisfied.

 

   

Interim Restrictions on Business. The Company’s management’s focus and resources may become diverted from other important business opportunities and operational matters while working to implement the merger, and the amended and restated merger agreement imposes restrictions on the conduct of the Company’s business prior to the effective time of the merger, which could adversely affect the Company’s business.

 

   

Risk of Litigation. There is a risk of litigation arising in respect of the amended and restated merger agreement or the transactions contemplated by the amended and restated merger agreement.

 

   

Taxable Consideration. The merger will be a taxable transaction to the Company’s stockholders that are U.S. holders (as defined under the heading “—U.S. Federal Income Tax Consequences of the Merger” below) for U.S. federal income tax purposes and, therefore, such stockholders generally will be required to pay U.S. federal income tax on any gains they recognize as a result of the merger.

 

   

No Solicitation. The terms of the amended and restated merger agreement prohibit the Company and its representatives from soliciting third-party bids, and Parent has the right to match an unsolicited third-party bid if made, which terms could reduce the likelihood that other potential acquirers would propose an alternative transaction that may be more advantageous to the Company’s stockholders.

 

   

Termination Fee. The possibility that if the merger is not consummated, subject to certain limited exceptions, the Company will be required to pay its own expenses associated with the amended and restated merger agreement and the transactions contemplated thereby and, under certain circumstances, to pay Parent a termination fee of $197,000,000 in connection with the termination of the amended and restated merger agreement.

In considering the recommendation of the board of directors with respect to the proposal to adopt the amended and restated merger agreement, you should be aware that the Company’s directors and executive officers may have interests in the merger that are different from, or in addition to, yours. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the amended and restated merger agreement and the merger, and in their recommendations with respect to the amended and restated merger agreement. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 82.

The foregoing discussion of the information and factors considered by the board of directors in reaching its conclusions and recommendations is not intended to be exhaustive, but includes the material factors considered by the directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the board of directors did not find it practicable to, and did not attempt, to quantify, rank or assign any relative or specific weights to the various factors considered in reaching its determination and making its recommendation. In addition, individual directors may have given different weights to different factors. The board of directors considered all of the foregoing factors as a whole and based its recommendation on the totality of the information presented.

The board of directors recommends that you vote “FOR” approval of the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

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Opinion of the Company’s Financial Advisor

Goldman Sachs rendered its opinion to the board of directors that, as of January 14, 2021 and based upon and subject to the factors and assumptions set forth therein, the $115.00 in cash per share to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the amended and restated merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated January 14, 2021, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of Company common stock should vote with respect to the merger, or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

   

the amended and restated merger agreement;

 

   

Annual Reports to stockholders and Annual Reports on Form 10-K of the Company for the four years ended December 31, 2019;

 

   

the Company’s Registration Statement on Form S-1, including the prospectus contained therein dated May 13, 2016, relating to an initial public offering of Company common stock;

 

   

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company;

 

   

certain other communications from the Company to its stockholders;

 

   

certain publicly available research analyst reports for the Company; and

 

   

certain updated internal financial analyses and forecasts for the Company prepared by its management, as approved for Goldman Sachs’ use by the Company, which are referred to as the “Forecasts”. See “Financial Forecasts—December LRP” beginning on page 80 for additional information.

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition, and future prospects of the Company; reviewed the reported price and trading activity for the Company common stock; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the communication technology and semiconductor industries and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering its opinion, Goldman Sachs, with the Company’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with the Company’s consent that the Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs has also assumed that the merger will be consummated on the terms set forth in the amended and restated merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the transaction or the relative merits of the transaction as compared to any strategic alternatives that may be available

 

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to the Company; including an expression of interest for a transaction proposed by a third party that may have resulted in a higher price per share in cash than in the merger, which the Company advised Goldman Sachs, the Company determined not to further pursue because of risks and uncertainties concerning such potential transaction, nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, to the holders (other than Parent and its affiliates) of shares of Company common stock, as of the date of Goldman Sachs’ opinion, of the $115.00 in cash per share to be paid to such holders pursuant to the amended and restated merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the amended and restated merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the amended and restated merger agreement or entered into or amended in connection with the merger, including the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the merger, whether relative to the $115.00 in cash per share to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the amended and restated merger agreement or otherwise. Goldman Sachs did not express any opinion as to the prices at which shares of Company common stock will trade at any time, the potential effects of volatility in the credit, financial and stock markets on the Company, Parent or the merger, or the impact of the merger on the solvency or viability of the Company or Parent or the ability of the Company or Parent to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary market and other conditions, as in effect on, and the information made available to it as of the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 12, 2021, the second-to-last completed trading day before the date of Goldman Sachs’ opinion, and is not necessarily indicative of current market conditions.

Historical Stock Trading Analysis

Goldman Sachs reviewed the historical trading prices and volumes for the Company common stock for the 52-week period ended January 12, 2021, the second-to-last completed trading day before the date of Goldman Sachs’ opinion. In addition, Goldman Sachs analyzed the $115.00 in cash per share of the Company’s common stock to be paid to the holders of the Company’s common stock pursuant to the amended and restated merger agreement in relation to (i) the volume weighted average price (the “VWAP”) per share of Company common stock during each of the one-month, three-month, six-month and one-year periods, each ended January 12, 2021, (ii) the highest closing price per share of Company common stock for the 52-week period ended January 12, 2021 and (iii) the lowest closing price per share of Company common stock for the 52-week period ended January 12, 2021.

This analysis indicated that the price per share to be paid to the holders of the Company’s common stock pursuant to the amended and restated merger agreement represented:

 

   

a premium of 56.9% to the VWAP per share of Company common stock of $73.29 during the one-month period ended January 12, 2021;

 

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a premium of 64.0% to the VWAP per share of Company common stock of $70.12 during the three-month period ended January 12, 2021;

 

   

a premium of 66.7% to the VWAP per share of Company common stock of $68.98 during the six-month period ended January 12, 2021;

 

   

a premium of 68.4% to the VWAP per share of Company common stock of $68.31 during the one-year period ended January 12, 2021;

 

   

a premium of 34.9% to the highest closing trading price per share of Company common stock of $85.23 for the 52-week period ended January 12, 2021; and

 

   

a premium of 89.7% to the lowest closing trading price per share of Company common stock of $60.62 for the 52-week period ended January 12, 2021.

Selected Companies Analysis

Goldman Sachs reviewed and compared certain financial information for the Company to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the optical and semiconductor industries, which we refer to as the selected companies:

Optical Industry:

 

   

ADVA Optical Networking SE

 

   

Ciena Corporation

 

   

II-VI Incorporated

 

   

Lumentum Holdings Inc.

Semiconductor Industry:

 

   

MACOM Technology Solutions Holdings, Inc.

 

   

Inphi Corporation

 

   

IPG Photonics Corporation

 

   

Semtech Corporation

 

   

Marvell Technology Group Ltd.

 

   

MaxLiner, Inc.

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of the Company.

Goldman Sachs calculated and compared various financial multiples and ratios for the Company and the selected companies based on financial and trading data as of January 12, 2021 (except for Inphi Corporation, which was as of October 28, 2020, the last day prior to the announcement of its acquisition by Marvell Technology Group Ltd.), information it obtained from SEC filings, the Institutional Brokers’ Estimate System consensus estimates, S&P Capital IQ, Bloomberg, and, for the Company, also the Forecasts. With respect to the selected companies, Goldman Sachs calculated the average multiples of such company’s estimated future earnings before interest, tax depreciation and amortization (which we refer to as “EBITDA”) and its assumed next 12-month enterprise value to EBITDA multiple (which we refer to as “NTM EV/EBITDA”) over certain time periods ending January 12, 2021. The results of these analyses are summarized as follows:

 

Average NTM EV / EBITDA Multiples

   Three Months      Six Months      One Year      Two Years      Three Years      Five Years  

Optical Peers

     9.5x        9.4x        9.3x        8.9x        8.7x        8.7x  

Semiconductor Peers

     21.7x        21.3x        20.2x        18.3x        16.5x        14.4x  

 

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Goldman Sachs also calculated the average multiples of such company’s estimated future earnings per share (which we refer to as “EPS”) and its assumed next 12-month price to future earnings per share multiple (which we refer to as “NTM P/E”) over certain time periods ending January 12, 2021 for the selected companies. The results of these analyses are summarized as follows:

 

Average NTM P/E Multiples

   Three Months      Six Months      One Year      Two Years      Three Years      Five Years  

Optical Peers

     17.0x        16.6x        16.0x        15.3x        15.7x        15.7x  

Semiconductor Peers

     31.8x        32.8x        31.7x        27.8x        25.0x        22.1x  

Illustrative Present Value of Future Share Price Analysis

Goldman Sachs performed an illustrative analysis of the implied present value of the future value per share of Company common stock, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of (1) such company’s NTM EV/EBITDA, and (2) such company’s NTM P/E. For this analysis, Goldman Sachs used the Forecasts for each of the fiscal years 2020 through 2023 to calculate a range of implied present values per share of Company common stock as of December 31, 2020. Goldman Sachs first calculated illustrative implied future equity values per share of Company common stock as of December 31, 2020 by applying NTM EV/EBITDA multiples ranging from 16.0x to 20.0x to estimated adjusted earnings before interest expense, income taxes, depreciation and amortization (which is referred to in this section as “Adjusted EBITDA”) for each of the fiscal years 2021 to 2023. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account, among other things, current and historical NTM EV/EBITDA multiples for common stock during the two-year period ended January 12, 2021 for the Company and the selected companies which, for the purpose of analysis, may be considered similar to certain operations of the Company and which are summarized above. Goldman Sachs then subtracted estimated net debt for each of the fiscal years 2020 to 2022, as provided by management of the Company, as of the relevant year-end per the Forecasts, from the respective implied enterprise values in order to derive a range of illustrative equity values for the Company for each of the fiscal years 2020 to 2022. Goldman Sachs then divided the results by the applicable projected year-end fully diluted shares outstanding for the Company’s common stock, as reflected in the Forecasts, 44.7 million for 2020, 45.1 million for 2021 and 45.3 million for 2022, to derive a range of implied future share prices. These implied per share values were then discounted back to December 31, 2020, using an illustrative discount rate of 8.5%, reflecting an estimate of the Company’s cost of equity. Goldman Sachs derived this discount rate by applying the Capital Asset Pricing Model, which requires certain company-specific inputs, including a beta for the company and certain financial metrics for the United States financial markets generally. This analysis resulted in a range of illustrative implied present values per share of Company common stock of $75.14 to $118.76.

Goldman Sachs also calculated illustrative implied future equity values per share of Company common stock as of December 31, 2020 by applying NTM P/E multiples ranging from 22.5x to 27.5x to estimated future Non-GAAP earnings per share (which is referred to in this section as “Non-GAAP EPS”) for each of the fiscal years 2021 to 2023, to derive a range of implied future share prices. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account, among other things, current and historical NTM P/E multiples for common stock during the two-year period ended January 12, 2021 for the Company and the selected companies which, for the purpose of analysis, may be considered similar to certain operations of the Company and which are summarized above. These implied per share values were then discounted back to December 31, 2020, using an illustrative discount rate of 8.5%, reflecting an estimate of the Company’s cost of equity. Goldman Sachs derived this discount rate by applying the Capital Asset Pricing Model, which requires certain company-specific inputs, including a beta for the company and certain financial metrics for the United States financial markets generally. This analysis resulted in a range of illustrative implied present values per share of Company common stock of $77.59 to $122.58.

 

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Illustrative Discounted Cash Flow Analysis

Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on the Company. Using discount rates ranging from 8.0% to 9.0%, reflecting estimates of the Company’s weighted average cost of capital, Goldman Sachs discounted to present value as of December 31, 2020 (i) estimates of unlevered free cash flow for the Company for January 1, 2021 through December 31, 2025 reflected in the Forecasts and (ii) a range of illustrative terminal values for the Company, which were calculated by applying perpetuity growth rates ranging from 2.75% to 3.75%, to a $259 million terminal year estimate of the free cash flow to be generated by the Company, as reflected in the Forecasts (which analysis implied exit terminal year EBITDA multiples ranging from 11.3x to 16.5x). Goldman Sachs derived such range of discount rates by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including the company’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company and certain financial metrics for the United States financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived ranges of illustrative enterprise values for the Company by adding the ranges of present values it derived above. Goldman Sachs then subtracted the net debt of the Company as of December 31, 2020, as provided by the management of the Company, to derive a range of illustrative equity values for the Company. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of the Company, as provided by the management of the Company. This analysis resulted in a range of illustrative values per share of Company common stock of $88.54 to $123.09.

Selected Transactions Analysis

Goldman Sachs analyzed certain information relating to selected transactions in the optical and high-growth semiconductor industries since September 2011. For each of the selected transactions, Goldman Sachs calculated and compared the NTM P/E multiple of the applicable target company based on Institutional Brokers’ Estimate System estimates at the time each such selected transaction was announced. While none of the target companies that participated in the selected transactions are directly comparable to the Company, the target companies that participated in the selected transactions are companies with operations that, for the purpose of analysis, may be considered similar to certain of the Company’s results, market size and product profile.

The following table presents the results of this analysis:

 

Date Announced

   Target      Acquiror      NTM P/E
Multiple
 

Optical(1)

        

November 2018

     Finisar Corporation        II-VI Incorporated        25.1x  

March 2018

     Oclaro Japan, Inc.        Lumentum Holdings Inc.        20.0x  

April 2016

     Alliance Fiber Optic Products, Inc.        Corning Incorporated        16.2x  

March 2016

     Rofin-Sinar Technologies, Inc.        Coherent, Inc.        22.0x  

November 2014

     Oplink Communications, Inc.        Koch Industries, Inc.        19.8x  

High Growth Semiconductor

        

October 2020

     Inphi Corporation        Marvell Technology Group Ltd.        46.5x  

March 2019

     Mellanox Technologies, Ltd.        Nvidia Corp.        21.2x  

March 2019

     Quantenna Communications Inc.        ON Semiconductor Corporation        29.6x  

November 2017

     Cavium, Inc.        Marvell Technology Group Ltd.        22.8x  

September 2011

     NetLogic Microsystems, Inc.        Broadcom Corporation        35.0x  

 

(1)

Opnext, Inc.s acquisition by Oclaro, Inc., announced in March 2012, also fell within the transaction criteria utilized by Goldman Sachs, but because the NTM P/E multiple in that transaction was negative, in

 

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  Goldman Sachs professional judgment the NTM P/E multiple in such transaction was not meaningful for purpose of this analysis.

Based on the results of the foregoing calculations and Goldman Sachs’ analyses of the various transactions and its professional judgment, Goldman Sachs applied a reference range of NTM P/E multiples of 21.2x (the lowest of the selected transactions involving high growth semiconductor companies) to 46.5x (the highest of the selected transactions involving high growth semiconductor companies) to the Company’s estimated EPS for the fiscal year 2021, as reflected in the Forecasts, to derive a range of illustrative per share values for the Company’s common stock. This analysis resulted in a range of illustrative values per share of Company common stock of $73.10 to $160.35. Goldman Sachs then applied a reference range of NTM P/E multiples of 16.2x (the lowest of the selected transactions involving optical companies) to 25.1x (the highest of the selected transactions involving optical companies) to the Company’s estimated EPS for the fiscal year 2021, as reflected in the Forecasts, to derive a range of illustrative per share values for the Company’s common stock. This analysis resulted in a range of illustrative values per share of Company common stock of $55.86 to $86.55.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or Parent or the contemplated transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the board of directors as to the fairness from a financial point of view of the $115.00 in cash per share to be paid to the holders (other than Parent and its affiliates) of shares of the Company common stock pursuant to the amended and restated merger agreement was fair from a financial point of view to such holders. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecasts.

The merger consideration was determined through arm’s-length negotiations between the Company and Parent and was approved by the board of directors. Goldman Sachs provided advice to the Company during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the merger.

As described above, Goldman Sachs’ opinion to the board of directors was one of many factors taken into consideration by the board of directors in making its determination to approve the amended and restated merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities,

 

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currencies, credit default swaps and other financial instruments of the Company, Parent, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the transaction contemplated by the amended and restated merger agreement for the accounts of Goldman Sachs and its affiliates and employees and their customers. Goldman Sachs acted as financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the amended and restated merger agreement. Goldman Sachs has also provided certain investment banking services to Parent and its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as a commercial paper dealer for Parent since 2015. During the two-year period ended January 14, 2021, Goldman Sachs has received compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Parent and/or its affiliates of approximately $200,000. Other than in connection with the transaction, as described below, during the two year period ended January 14, 2021, the Investment Banking Division of Goldman Sachs has not been engaged by the Company or its affiliates to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. Goldman Sachs may also in the future provide investment banking services to the Company, Parent and their respective affiliates for which the Investment Banking Division of Goldman Sachs may receive compensation. In addition, a Director on the Board of Parent is currently affiliated with the Goldman Sachs Group, Inc. as a Director.

The board of directors of selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated June 25, 2019, the Company engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. The engagement letter between the Company and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $56,000,000, $3,000,000 of which was paid in connection with the presentation by Goldman Sachs to the board of directors of the final results of the study Goldman Sachs undertook to determine whether it was able to render a fairness opinion in connection with the consideration paid pursuant to the original merger agreement, and the remainder of which is contingent upon the consummation of the merger. In addition, the Company has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Financial Forecasts

The Company does not, as a matter of course, publicly disclose financial forecasts as to future financial performance, earnings or other results for extended periods due to, among other reasons, the unpredictability of its business and competitive markets in which it operates, the historic demand volatility in the optical market, limitations of customer order visibility and lack of customer demand forecast predictability, the inherent difficulty of accurately predicting future periods and the likelihood that the underlying assumptions and estimates may prove incorrect. While the Company prepares forecasts periodically for internal budgeting and business planning purposes, such periodic forecasts generally focus on the then-current quarter and calendar year and, from time to time, the two to three immediately following fiscal years, and are updated from time to time to reflect historical results, product and market developments and any changes to customer forecasts.

However, in connection with the evaluation of a possible transaction, the Company provided the following projections to its directors and their advisors in connection with their consideration of the merger, as well as to Parent and, in the case of the June LRP described below, to Party C, in connection with their due diligence review of the Company.

 

   

Forecasts prepared in March 2019 for the fiscal years ending December 31, 2019 through 2021 (which the Company referred to as the “Long-Range Plan”). The Long-Range Plan was made available to Parent on March 21, 2019. Although the Long-Range Plan was made available to Goldman Sachs during the initial discussions of its potential engagement in late May 2019, it was never used in the financial analyses prepared by Goldman Sachs. The Long-Range Plan constituted an update to internal

 

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projections for the fiscal years ending December 31, 2019 through 2021 that had been presented to the board of directors on October 18, 2018 (the “October Projections”). The October Projections were never made available to Goldman Sachs, Parent, Party C or any other potential bidder.

 

   

Updated forecasts prepared in June 2019 for the fiscal years ending December 31, 2019 through 2024 (which the Company referred to as the “June LRP”) to facilitate certain financial analyses by Goldman Sachs prepared in connection with the study Goldman Sachs undertook to determine whether it was able to render a fairness opinion in connection with the consideration payable pursuant to the original merger agreement, which forecasts reflected product, market and customer developments as of that date. These developments included a slower increase in the production rate for a new Company product due to the complexity of scaling initial production, the potential impact of actions by the U.S. Department of Commerce against Huawei on overall optical market timing and spending expectations in China and ongoing trade discussions between the U.S. and China governments. The June LRP also reflected three additional years of projections to facilitate a discounted cash flow analysis.

 

   

Updated forecasts prepared in December 2020 for the fiscal years ending December 31, 2020 through 2025 (which the Company referred to as the “December LRP”) to facilitate certain financial analyses by Goldman Sachs prepared in connection with the study Goldman Sachs undertook to determine whether it was able to render a fairness opinion in connection with the consideration payable pursuant to the amended and restated merger agreement, which forecasts reflected product, market and customer developments as of that date. These developments included an increase in the production rate for a new Company product after scaling initial production in 2020, the potential impact of actions by the U.S. Department of Commerce against Huawei on overall optical market timing and spending expectations in China and ongoing trade discussions between the U.S. and China governments. The December LRP also included updates reflecting additional new product and adjacent market expansion opportunities and the operating expenses in support of those initiatives that developed subsequent to the June LRP. The December LRP also reflected one additional year of projections to facilitate a discounted cash flow analysis.

These projections contained certain non-public financial forecasts that were prepared by our management.

A summary of the financial forecasts included in the October Projections, the Long-Range Plan, the June LRP and the December LRP is included below. This summary is not being included in this proxy statement to influence your decision whether to vote for or against the proposal to adopt the amended and restated merger agreement, but is being included because these financial forecasts were made available to the Company’s directors and their advisors as well as to Parent and Party C, as applicable. The inclusion of this information should not be regarded as an indication that the Company’s directors or their advisors, or any other person, considered, or now considers, such financial forecasts to be material or to be necessarily predictive of actual future results, and these forecasts should not be relied upon as such. Internal financial forecasts prepared by the Company’s management, upon which the summary financial forecasts included below were based, are subjective in many respects. There can be no assurance that these financial forecasts will be realized or that actual results will not be significantly higher or lower than forecasted.

In addition, the financial forecasts were not prepared with a view toward public disclosure or toward complying with generally accepted accounting principles, which we refer to as GAAP, the published guidelines of the SEC regarding projections or the use of non-GAAP financial measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither our independent registered public accounting firm, nor any other independent accountants, have audited, compiled, examined or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

These financial forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond our control. We believe the assumptions that our management used as a basis for this projected financial information were reasonable, and that the bases on which the financial forecasts were prepared reflected

 

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the best currently available estimates and judgments of management of the future financial performance of the Company, at the time our management prepared these financial forecasts, given the information our management had at the time. Important factors that may affect actual results and cause these financial forecasts not to be achieved include, but are not limited to, risks and uncertainties relating to our business (including our ability to achieve strategic and product development goals, objectives and targets over the applicable periods), industry performance and historical optical market demand volatility, general business and economic conditions, including the concentrated nature of the Company’s revenue profile and the scope of its dependency on volatile markets like China and the Data Center Interconnect market, international trade and tariff developments, impacts of the global COVID-19 pandemic and related response measures, increases in operating expenses to maintain product innovation and expand the product portfolio, the regulatory environment, including actions of the U.S. Department of Commerce, and other factors described in or referenced under “Cautionary Statement Concerning Forward-Looking Information” beginning on page 29 and “—Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 63 and those risks and uncertainties detailed in the Company’s public periodic filings with the SEC. In addition, the forecasts also reflect assumptions that are subject to change and do not reflect revised prospects for our business or our major customers, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. Accordingly, there can be no assurance that these financial forecasts will be realized or that our future financial results will not materially vary from these financial forecasts.

No one has made or makes any representation to any stockholder regarding the information included in the financial forecasts set forth below. We have made no representation to Parent or Merger Sub in the amended and restated merger agreement concerning these financial forecasts.

We have not updated and do not intend to update or otherwise revise the financial forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions on which such forecasts were based are shown to be in error. In light of the foregoing factors and the uncertainties inherent in these projections, stockholders are cautioned not to place undue, if any, reliance on these projections.

In preparing the October Projections, our management made the following material assumptions:

 

   

Parent assumed to be a more material customer of newly introduced products and would continue to be a module customer for next generation products in the product roadmap.

 

   

New products are to enter production in early volumes in 2019, allowing resources to be reassigned to a derivative design for a significant new customer and additional projects on the product roadmap.

 

   

China continues as a large regional revenue base for the company and discussions regarding ongoing trade and tariff concerns are resolved without a material impact on the expected timing of anticipated carrier tenders in 2019 and subsequent years.

 

   

New product production volumes and costs would progress as expected meeting levels necessary to achieve target gross margin objectives.

 

   

No operating expenses included for new product programs that were not approved at the time of the October Projections.

 

   

Lower operating cost growth rates, reflecting increased internal development for newer semiconductor products using internal development resources.

 

   

Revenue growth rates reflect achievement of target increases in new product production volumes.

In preparing the Long-Range Plan, our management made the following material assumptions:

 

   

Parent becomes a more material customer of the Company and continues to utilize the Company’s new and future roadmap products in its optical based systems. Revenue from Parent increased to 18% of

 

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revenue in the first quarter of 2019, up from 14% in fiscal year 2018, and was expected to continue to be more meaningful over the period reflected in the Long-Range Plan.

 

   

Further revenue growth penetration into new and existing customers, as coherent technology gets utilized to facilitate data transmission over shorter distances, but with increased competition, as standards-based interoperability enables more competitors, and expected pricing pressure as a result.

 

   

China remains a large regional revenue base of the Company, but with concentrated customers and a slower growth rate, as domestic capability is favored over U.S. sources, lower-cost optical interconnect solution options are favored and competition increases.

 

   

Expansion of the Company’s product portfolio driving revenue growth through the addition of new customers and entry into new markets, including increased importance of the datacenter market to anticipated revenue growth and diversification.

In preparing the June LRP, our management made the following material assumptions:

 

   

A slower increase in the production rate for a new Company product due to the complexity of scaling initial production.

 

   

Reduced spending due to timing delays in the China optical market caused by recent actions by the U.S. Department of Commerce against Huawei that impact overall China optical infrastructure projects and ongoing trade discussions between the U.S. and Chinese governments.

 

   

Continued expansion of the Company’s product portfolio beyond 2021, including expansion into new product categories and markets, continuing to drive revenue growth through the addition of new customers and new market opportunities.

 

   

Product unit mix shifts toward pluggable modules from semiconductor products as pluggables become more widely adopted across the industry.

 

   

Continuation of gross margin trends and new operating cost investments needed to support development of the product roadmap.

In preparing the December LRP, our management made the following material assumptions:

 

   

The China market remains a large strategic revenue base of the Company with concentrated customers, but at a reduced percent of overall revenue and a slower growth rate, as domestic capability is favored over U.S. sources, lower-cost optical interconnect solution options are favored, competition increases and ongoing trade and regulatory issues between the United States and China impacts market growth.

 

   

Continuation of ramping of new products that are designed to meet emerging datacenter and telecommunications applications increases the potential for further market opportunities with datacenter end-customers through direct sales and network equipment manufacturers, which we refer to as NEMs.

 

   

Product unit mix shifts toward 400G pluggable modules from semiconductor products as pluggables become more widely adopted across the industry and as standards-based pluggable products become more widely deployed in the edge and access parts of the optical network in both datacenter and telecommunications applications.

 

   

Continued expansion of the Company’s product portfolio beyond 2021, including expansion into new product categories and markets, continuing to drive revenue growth through the addition of new customers and new market expansion opportunities.

 

   

Gross margin trends incrementally improve as embedded modules margins benefit from effective production volume learning curves and favorable increases in the new product 400G pluggable revenue mix, offset by lower semiconductor mix. Adjacent new market growth products have favorable impact on overall gross margin.

 

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Additional operating expense investments needed to support development of the product and technology roadmap and expanding into adjacent markets.

 

   

The Company continues ongoing programs to extend the current product roadmap for revenue growth beyond 2024.

 

   

The Company continues to be competitively positioned with legacy NEM customers with increasing levels of competition and, in some customer cases, to provide a complementary product offering to what some NEM customers are developing through internal product development.

 

   

Parent continues to be a significant top 3 customer of the Company based on utilization of embedded, pluggable and, to a lesser extent, semiconductor products in current and future roadmap products.

The estimates of adjusted EBITDA, non-GAAP operating income, non-GAAP net income, diluted shares outstanding, non-GAAP earnings per share and unlevered free cash flow constitute non-GAAP financial measures within the meaning of applicable rules and regulations of the SEC. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable to similarly titled amounts used by other companies.

The following is a summary of the financial forecasts for the Company prepared by its management and provided to its directors and, in the case of the Long-Range Plan, the June LRP and the December LRP, their advisors as well as to Parent and, in the case of the June LRP, to Party C:

October Projections

 

(in millions, except per share data)    2019      2020      2021  

Revenue

   $ 450      $ 545      $ 711  

Non-GAAP Operating Income(1)

   $ 85      $ 144      $ 224  

Non-GAAP Net Income(2)

   $ 84      $ 137      $ 208  

Non-GAAP Earnings Per Share(3)

   $ 1.98      $ 3.21      $ 4.81  
  

 

 

    

 

 

    

 

 

 

 

(1)

Non-GAAP operating income is calculated as income from operations as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments and certain litigation-related costs and settlement reserves.

(2)

Non-GAAP net income is calculated as net income as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation which is a non-cash charge, as well as warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments, certain litigation-related costs and settlement reserves, the tax effects of those excluded items and certain valuation allowance adjustments against deferred tax assets.

(3)

Non-GAAP earnings per share is calculated as non-GAAP net income divided by a non-GAAP weighted-average share count, which includes the impact of dilutive stock-based awards for periods in which there was a GAAP net loss resulting in GAAP diluted net loss per share.

Long-Range Plan

 

     2019                
(in millions, except per share data)    Base      Upside(1)      2020      2021  

Revenue

   $ 450      $ 475      $ 567      $ 714  

Adjusted EBITDA(2)

   $ 99      $ 93      $ 147      $ 226  

Non-GAAP Operating Income(3)

   $ 85      $ 79      $ 132      $ 208  

Non-GAAP Net Income(4)

   $ 84      $ 81      $ 128      $ 197  

Non-GAAP Earnings Per Share(5)

   $ 1.98      $ 1.93      $ 2.99      $ 4.48  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1)

The “Upside” case reflected management’s estimate at that time of potential upside to its projections if a trade deal with China were completed by July 2019 and if major backbone network upgrade tenders by the China carriers were awarded on time and meaningful deployment commenced in the second half of 2019. The potential scenarios underlying these upside estimates were not consistent with subsequent market developments reflected in the June LRP.

(2)

Adjusted EBITDA is calculated as net income as reported on the Company’s consolidated statements of operations before depreciation, interest income, net, and its (benefit) provision for income taxes and excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments and certain litigation-related costs and settlement reserves.

(3)

Non-GAAP operating income is calculated as income from operations as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments and certain litigation-related costs and settlement reserves.

(4)

Non-GAAP net income is calculated as net income as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation which is a non-cash charge, as well as warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments, certain litigation-related costs and settlement reserves, the tax effects of those excluded items and certain valuation allowance adjustments against deferred tax assets.

(5)

Non-GAAP earnings per share is calculated as non-GAAP net income divided by a non-GAAP weighted-average share count, which includes the impact of dilutive stock-based awards for periods in which there was a GAAP net loss resulting in GAAP diluted net loss per share.

June LRP

 

(in millions, except per share data)    2019     2020     2021     2022     2023     2024  

Revenue

   $ 455     $ 542     $ 671     $ 770     $ 865     $ 962  

Adjusted EBITDA(1)

   $ 86     $ 116     $ 171     $ 210     $ 247     $ 286  

Cash, Equivalents and Investments(2)

   $ 481     $ 565     $ 703     $ 886     $ 1,099     $ 1,358  

Non-GAAP Operating Income(3)

   $ 72     $ 103     $ 157     $ 196     $ 233     $ 272  

Non-GAAP Net Income(4)

   $ 76     $ 105     $ 150     $ 187     $ 221     $ 254  

Diluted Shares Outstanding(5)

     42.0       43.2       44.3       45.3       46.3       47.4  

Non-GAAP Earnings Per Share(6)

   $ 1.80     $ 2.42     $ 3.39     $ 4.12     $ 4.77     $ 5.37  

Stock-Based Compensation

   $ (35   $ (40   $ (44   $ (49   $ (53   $ (57

Cash Taxes

   $ 2     $ 3     $ (2   $ (6   $ (9   $ (11

Depreciation, Amortization and Other(7)

   $ 13     $ 14     $ 14     $ 14     $ 14     $ 14  

Changes in Working Capital(8)

   $ (8   $ (25   $ (21   $ (14   $ (18   $ (12

Capital Expenditures

   $ (18   $ (23   $ (23   $ (23   $ (23   $ (23

 

(1)

The Adjusted EBITDA forecasts also included a value for Adjusted EBITDA for the period of April 1, 2019 to March 31, 2020 of $88 million. Adjusted EBITDA is calculated as net income as reported on the Company’s consolidated statements of operations before depreciation, interest income, net, and its (benefit) provision for income taxes, and excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments and certain litigation-related costs and settlement reserves.

(2)

Cash, equivalents and investments is calculated as the sum of cash and cash equivalents, short-term marketable securities and long-term marketable securities. Because the Company has no debt and assumes none during the June LRP project period, the “net debt” amounts referenced for purposes of the analyses by Goldman Sachs are simply the negative of the cash, equivalents and investments values corresponding to the applicable year above, or $(481) million for 2019, $(565) million for 2020, $(703) million for 2021, $(886) million for 2022, $(1,099) million for 2023 and $(1,358) million for 2024. In addition, the Company’s net debt as of March 31, 2019 was $(429) million.

 

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(3)

Non-GAAP operating income is calculated as income from operations as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments and certain litigation-related costs and settlement reserves.

(4)

Non-GAAP net income is calculated as net income as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation which is a non-cash charge, as well as warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments, certain litigation-related costs and settlement reserves, the tax effects of those excluded items and certain valuation allowance adjustments against deferred tax assets.

(5)

Diluted shares outstanding is a non-GAAP weighted-average share count, which includes the impact of dilutive stock-based awards for periods in which there was a GAAP net loss resulting in GAAP diluted net loss per share.

(6)

Non-GAAP earnings per share is calculated as non-GAAP net income divided by diluted shares outstanding.

(7)

Depreciation, amortization and other reflects depreciation, amortization and certain foreign exchange translation expenses and excludes amounts related to certain software amortized over a period of 12 months or less that also correspond to a cash expense.

(8)

Changes in working capital excludes changes in cash and cash equivalents. In 2019, changes in working capital includes certain operating assets and liabilities with long term components, including income taxes payable, certain lease accounting balances, prepaid software subscriptions and deferred revenue.

Using the June LRP provided by the Company, Goldman Sachs calculated and assumed unlevered free cash flows for the Company that were approved by the Company for use by Goldman Sachs in its analyses prepared in connection with the study Goldman Sachs undertook to determine whether it was able to render a fairness opinion in connection with the consideration payable pursuant to the original merger agreement, consisting of: $27 million for calendar year 2019; $32 million for calendar year 2020; $80 million for calendar year 2021; $118 million for calendar year 2022; $145 million for calendar year 2023; and $184 million for calendar year 2024. The unlevered free cash flow forecasts calculated and assumed by Goldman Sachs also included a terminal year value of $192 million and a value for unlevered free cash flow for the period of April 1 to December 31, 2019 of $11 million. Unlevered free cash flow is calculated as non-GAAP operating income, less stock-based compensation, less cash taxes, plus depreciation, amortization and other, less changes in working capital, less capital expenditures. In addition, the unlevered free cash flow calculation for 2019 includes a $1 million positive adjustment to incorporate the impact of deferred income taxes, non-cash lease expenses, certain litigation related expenses and other selected expenses.

December LRP

 

(in millions, except per share data)    2020(10)     2021     2022     2023     2024     2025  

Revenue

   $ 579     $ 670     $ 791     $ 909     $ 1,046     $ 1,202  

Adjusted EBITDA(1)

   $ 137     $ 174     $ 222     $ 272     $ 321     $ 383  

Cash, Equivalents and Investments(2)

   $ 576     $ 728     $ 910     $ 1,140     $ 1,413     $ 1,745  

Non-GAAP Operating Income (3)

   $ 124     $ 160     $ 208     $ 256     $ 304     $ 365  

Non-GAAP Net Income(4)

   $ 122     $ 152     $ 194     $ 241     $ 288     $ 349  

Diluted Shares Outstanding(5)

     43.3       44.1       45.0       45.9       46.8       47.7  

Non-GAAP Earnings Per Share(6)

   $ 2.82     $ 3.45     $ 4.32     $ 5.25     $ 6.15     $ 7.32  

Stock-Based Compensation

   $ (34   $ (39   $ (45   $ (49   $ (54   $ (60

Cash Taxes(7)

   $ (4   $ (4   $ (17   $ (46   $ (50   $ (51

Depreciation, Amortization and Other(8)

   $ 11     $ 14     $ 15     $ 16     $ 17     $ 18  

Changes in Working Capital(9)

   $ (11   $ (1   $ (18   $ (17   $ (20   $ (23

Capital Expenditures

   $ (14   $ (19   $ (17   $ (18   $ (19   $ (20

 

(1)

Adjusted EBITDA is calculated as net income as reported on the Company’s consolidated statements of operations before depreciation, interest income, net, and its (benefit) provision for income taxes, and

 

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  excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments, certain litigation-related costs and settlement reserves and acquisition related costs.
(2)

Cash, equivalents and investments is calculated as the sum of cash and cash equivalents, short-term marketable securities and long-term marketable securities. At the direction of the Company, the cash, equivalents and investments forecasts used by Goldman Sachs in its financial analyses included a risk adjustment to reflect uncertainty regarding potential limits that might be imposed on the use of the Company’s research and development tax credits in fiscal years 2021 through 2025. The cash, equivalents and investments forecasts used in the analyses performed by Goldman Sachs were as follows: $725 million for fiscal year 2021, $899 million for fiscal year 2022, $1,100 million for fiscal year 2023, $1,345 million for fiscal year 2024 and $1,657 million for fiscal year 2025. Because the Company has no debt and assumes none during the December LRP project period, the “net debt” amounts referenced for purposes of the analyses by Goldman Sachs are simply the negative of the cash, equivalents and investments values corresponding to the applicable year, as contained in this note (2), or $(576) million for 2020, $(725) million for 2021, $(899) million for 2022, $(1,100) million for 2023, $(1,345) million for 2024 and $(1,657) million for 2025.

(3)

Non-GAAP operating income is calculated as income from operations as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation, warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments, certain litigation-related costs and settlement reserves and acquisition related costs.

(4)

Non-GAAP net income is calculated as net income as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation which is a non-cash charge, as well as warranty and other charges arising from a manufacturing process quality issue, ZTE-related inventory write-offs and subsequent adjustments, certain litigation-related costs and settlement reserves, acquisition related costs and the tax effects of those excluded items.

(5)

Diluted shares outstanding is a non-GAAP weighted-average share count, which includes the impact of dilutive stock-based awards for periods in which there was a GAAP net loss resulting in GAAP diluted net loss per share.

(6)

Non-GAAP earnings per share is calculated as non-GAAP net income divided by diluted shares outstanding.

(7)

The financial forecasts provided to Parent did not include forecasts of cash taxes.

(8)

Depreciation, amortization and other reflects depreciation, amortization and certain foreign exchange translation expenses and excludes amounts related to certain software amortized over a period of 12 months or less that also correspond to a cash expense. The depreciation, amortization and other forecast provided by the Company to Goldman Sachs for fiscal year 2020 was $13 million (instead of $11 million) due to a transposition error. This figure was not used in the financial analyses performed by Goldman Sachs.

(9)

Changes in working capital excludes changes in cash and cash equivalents. In 2020, changes in working capital includes certain operating assets and liabilities with long term components, including income taxes payable, certain lease accounting balances, prepaid software subscriptions and deferred revenue.

(10)

The financial forecasts provided to the board of directors did not include values for fiscal year 2020 of stock-based compensation, cash taxes, changes in working capital or capital expenditures.

Using the December LRP provided by the Company, Goldman Sachs calculated and assumed unlevered free cash flows for the Company that were approved by the Company for use by Goldman Sachs in its analyses prepared in connection with the study Goldman Sachs undertook to determine whether it was able to render a fairness opinion in connection with the consideration payable pursuant to the amended and restated merger agreement of: $104 million for calendar year 2021; $119 million for calendar year 2022; $135 million for calendar year 2023; $168 million for calendar year 2024; and $219 million for calendar year 2025. The unlevered free cash flow forecasts calculated and assumed by Goldman Sachs also included a terminal year value of $259 million. Unlevered free cash flow is calculated as non-GAAP operating income, less stock-based compensation, less cash taxes, plus depreciation, amortization and other, less changes in working capital, less capital expenditures.

 

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Closing and Effective Time of the Merger

The closing of the merger will occur no later than the third business day following the satisfaction or waiver of all of the closing conditions set forth in the amended and restated merger agreement (described in the section entitled “The Amended and Restated Merger Agreement — Conditions to the Merger” beginning on page 127). The parties may also agree in writing to close at any other time.

Assuming timely satisfaction of necessary closing conditions, including the approval by our stockholders of the proposal to adopt the amended and restated merger agreement, we currently anticipate that the merger will be consummated on or about March 1, 2021. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such subsequent time or date as Parent and the Company may agree and specify in the certificate of merger, which we refer to as the effective time.

Payment of Merger Consideration and Surrender of Stock Certificates

Promptly, and in any event within three business days, after the effective time of the merger, a letter of transmittal will be mailed to each record holder of shares of Company common stock describing how such holder should surrender such holder’s shares of Company common stock for the merger consideration.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the exchange agent (described in the section entitled “The Amended and Restated Merger Agreement — Payment Procedures” beginning on page 107) without a letter of transmittal.

If your shares of Company common stock are certificated, you will not be entitled to receive the per share merger consideration until you deliver a duly completed and executed letter of transmittal to the exchange agent and you must also surrender your stock certificate or certificates to the exchange agent. If your shares of Company common stock are held in book entry, which we refer to as uncertificated shares, surrender of any uncertificated shares will be effected in accordance with the exchange agent’s customary procedures with respect to securities that are uncertificated or represented by book entry and no holder of uncertificated shares will be required to deliver a certificate or an executed letter of transmittal to the exchange agent in order to receive the merger consideration to which such holder is otherwise entitled under the amended and restated merger agreement. If ownership of your shares is not registered in the transfer records of the Company, a check for any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required by the Company to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the merger consideration, you will have to make an affidavit of the loss, theft or destruction and, if reasonably required by Parent or the exchange agent, post a bond, in such reasonable and customary amount as Parent or the exchange agent may reasonably direct, as indemnity against any claim that may be made against Parent, the surviving corporation, the exchange agent or any of their respective representatives with respect to such certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

Interests of Certain Persons in the Merger

In considering the recommendation of the board of directors with respect to the amended and restated merger agreement, you should be aware that the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally, as more fully described below. The board of directors was aware of these interests and considered them, among other matters, in reaching the determination that the terms and conditions of the merger and the amended and restated merger agreement

 

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were advisable, fair to and in the best interests of the Company and its stockholders and in making their recommendations regarding adoption of the merger and the amended and restated merger agreement as described in the section entitled “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 63.

Please see the section of this proxy statement entitled “The Merger — Compensation Payable to our Named Executive Officers” beginning on page 98 for additional information with respect to the compensation that our named executive officers may receive in connection with the merger.

Interests With Respect to Company Equity

Amendment of 2018 TSR PRSUs

In 2018, as part of the annual equity grant process, the Company granted PRSU awards to the Company’s executive officers under the Company’s 2016 Equity Incentive Plan. The number of shares that vest under the PRSU awards is measured based on the Company’s percentile achievement of relative TSR against a peer group over a three-year performance period that ran from January 1, 2018 to December 31, 2020. We refer to these PRSUs as the 2018 TSR PRSUs. The number of shares that could have been earned under the 2018 TSR PRSUs ranged from 0% to 200% of the target numbers of shares subject to the PRSU awards depending on the level of achievement of the TSR performance metric.

In connection with the Company’s execution of the amended and restated merger agreement, the parties agreed that the 2018 TSR PRSUs could be amended to provide that, for purposes of determining the Company’s TSR pursuant to the 2018 TSR PRSU agreements, the “ending price” (as defined in the agreements) of the Company’s common stock would be determined based on the merger consideration of $115.00 per share. As a result, the compensation committee of the Company’s board of directors, which we refer to as the compensation committee, determined that the number of shares that were earned under the 2018 TSR PRSUs based on the Company’s relative TSR calculated using the “ending price” of $115.00 was equal to 200% of the target number of shares subject to the awards. The 2018 TSR PRSUs were settled on January 15, 2021 and are no longer outstanding awards. If the 2018 TSR PRSUs had not been so amended, the number of shares earned under the 2018 TSR PRSUs would have been equal to 148% of the target number of shares subject to the awards.

2019 TSR PRSUs

In 2019, as part of the annual equity grant process, the Company granted PRSU awards to the Company’s executive officers under the Company’s 2016 Equity Incentive Plan. The number of shares that vest under the PRSU awards is measured based on the Company’s percentile achievement of relative TSR against a peer group over a three-year performance period that runs from January 1, 2019 to December 31, 2021. We refer to these PRSUs as the 2019 TSR PRSUs. The number of shares that may be earned under the 2019 TSR PRSUs ranges from 0% to 200% of the target numbers of shares subject to the PRSU awards depending on the level of achievement of the TSR performance metric.

Pursuant to the PRSU agreements with respect to the 2019 TSR PRSUs, in the event of a “change in control” (as defined in the CIC plan) during the applicable performance period pursuant to which consideration is received by holders of Company common stock, the performance period will be deemed to end upon the closing date of the change in control. For purposes of determining the Company’s TSR pursuant to the applicable 2019 TSR PRSU agreement, the “ending price” (as defined in the applicable agreement) of the Company’s common stock will be determined based on the price to be paid to holders of Company common stock in connection with the change in control, as determined by the compensation committee.

For purposes of the 2019 TSR PRSU agreements, the merger will constitute a change in control of the Company and the per share merger consideration will be the “ending price” as defined in such agreements. The Company’s

 

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share price performance based on the per share merger consideration will be compared to share price performance of the peer groups on or shortly prior to the closing of the merger to determine the level of achievement of the 2019 TSR PRSUs and the number of 2019 TSR PRSUs that will vest immediately prior to the merger.

Pursuant to the 2019 TSR PRSU award agreements, any such PRSUs for which performance has been achieved will vest immediately prior to the change in control and any such 2019 TSR PRSUs that do not so vest will be cancelled at such time for no consideration. In light of the increased per share merger consideration from $70.00 to $115.00 in cash pursuant to the amended and restated merger agreement, the Company believes it is possible that the number of 2019 TSR PRSUs that will become vested as of the closing of the merger could be 200% of the target number of 2019 TSR PRSUs. However, in the event that less than 200% of the target number of 2019 TSR PRSUs become vested as of the closing, Parent has consented to a potential amendment to the 2019 TSR PRSUs that would allow 2019 TSR PRSUs reflecting such shortfall to be treated as unvested PRSUs for purposes of the amended and restated merger agreement in order to provide additional retention following the effective time of the merger. Each such unvested 2019 TSR PRSU would be converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax, payable on December 31, 2021 (the last day of the original performance period), subject to the CIC plan or an employment offer document entered into with Parent.

Treatment of Company Equity Awards and Employee Stock Purchase Plan

Each Company stock option that is outstanding, vested and unexercised immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

Each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested stock option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the terms of the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

Each RSU and PRSU that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes the 2019 TSR PRSUs and certain RSUs that will become vested as of the closing of the merger) will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax.

Each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent.

 

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Following execution of the original merger agreement, the Company took all actions with respect to the Company ESPP that were required to provide that, (i) with respect to any offering period in effect as of the date of the original merger agreement, no employee who was not a participant in the Company ESPP as of the date of the original merger agreement could become a participant in the Company ESPP and no participant could increase the percentage amount of his or her payroll deduction election from that in effect on the date of the original merger agreement for such offering period; (ii) subject to the consummation of the merger, the Company ESPP will terminate effective immediately prior to the effective time of the merger; and (iii) the Company ESPP was suspended and no new offering periods have been or will be commenced under the Company ESPP prior to the termination of the amended and restated merger agreement.

Outstanding Shares of Company Common Stock Beneficially Owned by Certain Persons

The Company’s directors and executive officers will receive the same cash consideration for any shares of Company common stock that they hold on the same terms and conditions as other Company stockholders. The following table sets forth, as of February 5, 2021, for each person who has served as a director or executive officer of the Company since the beginning of our last completed fiscal year (i) the aggregate number of outstanding shares of Company common stock beneficially owned and (ii) the aggregate merger consideration that would be payable with respect to such shares of Company at the closing of the merger. The amounts shown in the following table do not reflect any future grants, dividends, deferrals, sales or other dispositions that may occur following February 5, 2021 and prior to the closing of the merger or shares underlying options, RSUs or 2019 TSR PRSUs outstanding as of February 5, 2021 held by each such person.

 

Director or Officer

   Number of
Shares of
Common
Stock
     Cash Payment
on Shares of
Common
Stock
 

Murugesan “Raj” Shanmugaraj

     846,747      $ 97,375,905  

John F. Gavin

     43,375      $ 4,988,125  

Benny P. Mikkelsen

     906,506      $ 104,248,190  

Eric L. Fisher

     36,477      $ 4,194,855  

Bhupendra C. Shah

     202,595      $ 23,298,425  

Mehrdad Givehchi

     543,986      $ 62,558,390  

Christian J. Rasmussen

     511,749      $ 58,851,135  

Vincent T. Roche

     19,512      $ 2,243,880  

David J. Aldrich

     16,687      $ 1,919,005  

Peter Y. Chung

     14,600      $ 1,679,000  

Laurinda Y. Pang

     2,128      $ 244,720  

Stan J. Reiss

     265,497      $ 30,532,155  

John Ritchie

     25,320      $ 2,911,800  

Outstanding Company Equity Awards Held by Certain Persons

As described above, at the effective time of the merger, (i) each Company stock option that is outstanding, vested and unexercised will be canceled and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect and (ii) each RSU and PRSU that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes the 2019 TSR PRSUs that will become vested based on actual results as of the closing of the merger and certain RSUs that will become vested as of the closing of the merger) will be canceled at the effective time and converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax.

 

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The following table sets forth the cash payments that would be payable at the closing of the merger in respect of Company stock options, RSUs and PRSUs held as of February 5, 2021 by each person who has served as a director or executive officer of the Company since the beginning of our last completed fiscal year and, in the case of stock options and RSUs, assuming vesting of such awards in accordance with their terms through an assumed closing date of the merger of March 1, 2021 (which is the date assumed solely for the purposes of this disclosure) and, in the case of 2019 TSR PRSUs, reflecting performance-based vesting of such awards immediately prior to closing based on the merger consideration of $115.00 per share in accordance with the terms of such awards (and assuming that the Company’s relative percentile TSR achievement against the applicable peer groups as of February 5, 2021, based on that $115.00 per share price, which would result in 151% of the shares subject to such awards vesting, remains unchanged through the assumed closing date of the merger). All unvested RSUs held by non-employee directors will accelerate at the closing of the merger and such RSUs are included in the table below. The amounts shown in the following table do not reflect any future grants, dividends, deferrals or forfeitures that may occur following February 5, 2021 and prior to the closing of the merger.

 

Director or Officer

  Number of
Shares
Underlying
Vested
Stock
Options
    Cash Payment
on Vested
Stock Options
    Number of
Shares
Underlying
RSUs
Scheduled
to Vest
Between
February 5,
2021 and
March 1,
2021
    Cash
Payment on
Shares
Underlying
RSUs
Scheduled to
Vest
Between
February 5,
2021 and
March 1,
2021
    Number
of
Vested
RSUs
    Cash
Payment on
Vested
RSUs
    Number
of
Vested

2019 TSR
PRSUs (1)
    Cash
Payment on
Vested

2019 TSR
PRSUs (1)
    Aggregate
Cash Payment
on Vested
Equity
Awards at
Closing
 

Murugesan “Raj” Shanmugaraj

    0     $ 0       0     $             0       0     $ 0       18,841     $ 2,166,715     $ 2,166,715  

John F. Gavin

    166,500     $ 19,079,235       0     $ 0       0     $ 0       12,336     $ 1,418,640     $ 20,497,875  

Benny P. Mikkelsen

    0     $ 0       0     $ 0       0     $ 0       11,774     $ 1,354,010     $ 1,354,010  

Eric L. Fisher

    0     $ 0       0     $ 0       0     $ 0       16,992     $ 1,954,080     $ 1,954,080  

Bhupendra C. Shah

    18,546     $ 2,125,186       0     $ 0       0     $ 0       11,774     $ 1,354,010     $ 3,479,196  

Mehrdad Givehchi

    0     $ 0       0     $ 0       0     $ 0       11,774     $ 1,354,010     $ 1,354,010  

Christian J. Rasmussen

    39,535     $ 4,530,316       0     $ 0       0     $ 0       11,774     $ 1,354,010     $ 5,884,326  

Vincent T. Roche

    0     $ 0       0     $ 0       0     $ 0       0     $ 0     $ 0  

David J. Aldrich

    0     $ 0       0     $ 0       0     $ 0       0     $ 0     $ 0  

Peter Y. Chung

    0     $ 0       0     $ 0       0     $ 0       0     $ 0     $ 0  

Laurinda Y. Pang

    0     $ 0       0     $ 0       4,323     $ 497,145       0     $ 0     $ 497,145  

Stan J. Reiss

    0     $ 0       0     $ 0       0     $ 0       0     $ 0     $ 0  

John Ritchie

    0     $ 0       0     $ 0       0     $ 0       0     $ 0     $ 0  

 

(1)

If the maximum number of shares underlying the 2019 TSR PRSUs (i.e., 200% of the target number of shares) vest by either achievement or amendment, the number of vested 2019 TSR PRSUs for Mr. Shanmugaraj would be 24,956, for Mr. Gavin would be 16,340, for Mr. Fisher would be 22,506 and for each of Messrs. Mikkelsen, Shah, Givehchi, and Rasmussen would be 15,596, resulting in cash payments of $2,869,940 for Mr. Shanmugaraj, $1,879,100 for Mr. Gavin, $2,588,190 for Mr. Fisher, and $1,793,540 for each of Messrs. Mikkelsen, Shah, Givehchi, and Rasmussen.

 

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In addition, as described above at the effective time of the merger, (i) each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger will be canceled and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested stock option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the terms of the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled, without any consideration being payable in respect thereof and have no further force or effect and (ii) each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger will be canceled and converted into the right to receive an amount in cash, without interest, equal to the merger consideration, subject to deduction for any required withholding tax, payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent.

The following table sets forth the cash payments that could become payable following the closing of the merger in respect of RSUs held as of February 5, 2021 by each person who has served as a director or executive officer of the Company since the beginning of our last completed fiscal year, based on the RSUs reflected in the table below that are expected to remain unvested in accordance with their terms as of an assumed closing date of the merger of March 1, 2021 (which is the date assumed solely for the purposes of this disclosure). Based on holdings and the terms of the applicable awards as of February 5, 2021, none of the following individuals will hold unvested stock options or unvested PRSUs following the assumed closing date of the merger of March 1, 2021. The amounts shown in the following table do not reflect any future grants, dividends, deferrals or forfeitures that may occur following February 5, 2021 and prior to the closing of the merger.

 

Director or Officer

   Number of
Unvested
RSUs
     Potential Cash
Payment on
Unvested
RSUs
 

Murugesan “Raj” Shanmugaraj

     30,777      $ 3,539,355  

John F. Gavin

     19,933      $ 2,292,295  

Benny P. Mikkelsen

     19,235      $ 2,212,025  

Eric L. Fisher

     22,842      $ 2,626,830  

Bhupendra C. Shah

     19,235      $ 2,212,025  

Mehrdad Givehchi

     19,235      $ 2,212,025  

Christian J. Rasmussen

     19,235      $ 2,212,025  

Vincent T. Roche

     0      $ 0  

David J. Aldrich

     0      $ 0  

Peter Y. Chung

     0      $ 0  

Laurinda Y. Pang

     0      $ 0  

Stan J. Reiss

     0      $ 0  

John Ritchie

     0      $ 0  

Severance/ Change in Control Benefits and Employment and Retention Agreements

Pursuant to (i) the CIC plan and (ii) the employment agreements into which Parent (or an affiliate thereof) has entered with certain of the Company’s executive officers, the Company’s executive officers are entitled to specified benefits in the event of the termination of their employment under specified circumstances, including a termination of employment following a change in control of the Company. As described below, Messrs. Shanmugaraj, Mikkelsen, Givehchi and Rasmussen have entered into employment agreements with Parent or its affiliates that become effective upon the closing of the merger and will supersede the offer letters and

 

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employment agreements between such executive officers and the Company at such time. Pursuant to those employment agreements, the specified executives waived their rights to participation in, and benefits under, the CIC plan and are instead entitled to the benefits under their employment agreements with Parent following the closing of the merger. In addition to the employment agreements, each of the specified executives has entered into an agreement with Parent providing for an additional retention bonus payable by the Parent as further described below. While negotiations regarding post-closing employment arrangements and compensation are ongoing between Messrs. Gavin, Fisher and Shah and Parent, each of Messrs. Gavin, Fisher and Shah currently remain participants under the CIC plan. Additionally, as described above, (i) the 2018 TSR PRSUs were amended to pay out based on the merger consideration instead of the “ending price” (as defined in the 2018 TSR PRSU award agreements) resulting in a payout at 200% instead of 148% and (ii) the outstanding 2019 TSR PRSUs held by each of the executive officers will, pursuant to their terms, become vested based on actual results as of the closing of the merger.

CIC Plan

The CIC plan provides severance benefits to the Company’s executive officers, including certain of the Company’s named executive officers, if their employment is terminated by the Company without “cause” (as defined in the CIC plan) or if they terminate their employment with the Company for “good reason” (as defined in the CIC plan), and additional severance benefits if such terminations occur within one year of a “change in control” (as defined in the CIC plan) of the Company. For purposes of the CIC plan, the merger will constitute a change in control of the Company.

Under the CIC plan, if the Company terminates an eligible executive officer’s employment without cause prior to or more than 12 months following the closing of a change in control of the Company, which we refer to as an “involuntary termination,” the executive officer is entitled to:

 

   

continue receiving his or her base salary for a specified period following the date of termination (in the case of the Company Chief Executive Officer, for 12 months, and in the case of all other participants, for nine months);

 

   

Company contributions to the cost of health care continuation under the Consolidated Omnibus Budget Reconciliation Act, or COBRA, for U.S.-based eligible executive officers, or substantially equivalent medical benefits for non-U.S.-based eligible executive officers, for up to 12 months following the date of termination of employment (or, to the extent a non-U.S. based eligible executive officer is then receiving a stipend from the Company in lieu of benefits coverage, continued payment of such stipend for up to 12 months following the date of termination of employment); and

 

   

the amount of any unpaid annual bonus determined by the board of directors to be payable to the executive officer for any completed bonus period which ended prior to the date of such executive officer’s termination.

In addition, under the terms of the CIC plan, in the case of an involuntary termination, all the executive officer’s outstanding equity awards that vest solely based on the passage of time will be accelerated and become vested to the extent the award would have vested if the executive had remained employed through a specified period following the date of termination (in the case of the Company’s Chief Executive Officer, for 12 months, and, in the case of all other participants, for nine months). The vesting of outstanding performance-based equity awards in connection with an involuntary termination is determined in accordance with the terms of the applicable award agreements.

The CIC plan also provides that, if, within 12 months following a change in control of the Company, the Company terminates an eligible executive officer’s employment without cause or such executive terminates his or her employment with the Company for good reason, which we refer to as a “change in control termination,” the executive is entitled to the following benefits; provided that, as noted above, each of Messrs. Shanmugaraj,

 

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Mikkelsen, Givehchi and Rasmussen have entered into employment agreements with Parent or its affiliates that become effective upon the closing of the merger and supersede the CIC plan such that each of Messrs. Shanmugaraj, Mikkelsen, Givehchi and Rasmussen will not be entitled to the following benefits upon a qualifying termination of employment following the merger and will instead be entitled to the benefits described further below in the description of the Parent employment agreements:

 

   

a single lump-sum payment in an amount equal to 100% of his or her annual base salary;

 

   

a single lump-sum payment in an amount equal to 100% of his or her target annual bonus for the year in which the termination of employment occurs;

 

   

Company contributions to the cost of health care continuation under COBRA for U.S.-based eligible executive officers, or substantially equivalent medical benefits for non-U.S. based eligible executive officers, for up to 12 months following the date of termination of employment (or, to the extent a non-U.S. based eligible executive officer is then receiving a stipend from us in lieu of benefits coverage, continued payment of such stipend for up to 12 months following the date of termination of employment); and

 

   

the amount of any unpaid annual bonus determined by the board of directors to be payable to the executive officer for any completed bonus period which ended prior to the date of such executive officer’s termination.

In addition, under the terms of the CIC plan, in the case of a change in control termination, all of the executive officer’s outstanding unvested time-based equity awards will immediately vest in full on the date of such termination. The vesting of outstanding performance-based equity awards in connection with a change in control termination is determined in accordance with the terms of the applicable award agreements.

Each executive is also entitled to certain severance benefits upon a termination of employment due to death or disability (as described in the CIC plan), which severance benefits are not enhanced in connection with a change in control of the Company.

All payments and benefits provided under the CIC plan are contingent upon the execution and effectiveness of a release of claims by the executive officer in the Company’s favor and continued compliance by the executive officer with any proprietary information and inventions, nondisclosure, non-competition, non-solicitation (or similar) agreement to which the Company and the executive are party.

Employee Offer Letter and Employee Agreements with the Company

The Company has entered into employee offer letters with each of its executive officers, including its named executive officers, other than one executive officer, Christian J. Rasmussen (whose primary location of employment is Denmark), pursuant to which such executive officers are employed “at will,” meaning that, subject to any statutorily imposed notice period, the executive officer or the Company may terminate the employment arrangement at any time. Such offer letters establish the executive officer’s title, initial compensation arrangements and eligibility for benefits made available to employees generally. Because employment agreements are required under Danish law, the Company, through its wholly owned subsidiary Acacia Communications Europe A/S, entered into an employment agreement with Christian J. Rasmussen, which is generally consistent with the offer letters provided to our other named executive officers, except that the employment agreement provides for a statutorily required six months’ notice period prior to the termination of Mr. Rasmussen’s employment by the Company or by Mr. Rasmussen (which would run concurrently with any severance period applicable to Mr. Rasmussen). As noted above, Parent has entered into employment agreements with each of Messrs. Shanmugaraj, Mikkelsen, Givehchi and Rasmussen, which employment agreements will become effective upon the closing of the merger and will supersede the CIC plan and, as applicable, the offer letters and employment agreements between such executive officers and the Company at such time.

 

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Parent Agreements for Murugesan “Raj” Shanmugaraj

Under the employment agreement entered into between Parent and Murugesan “Raj” Shanmugaraj on July 8, 2019 to be effective upon the closing of the merger, which we refer to as the Shanmugaraj agreement, Mr. Shanmugaraj is expected to remain employed for at least two years following the closing date of the merger, which we refer to as the minimum employment period. Mr. Shanmugaraj’s base salary will be $350,000 per annum. Until the end of Parent’s fiscal year in which the closing of the merger occurs, Mr. Shanmugaraj will remain on his current incentive plan with a target bonus of $327,250 and will receive a prorated bonus on the first payroll period after such date, subject to his continued service through such date. At the beginning of the next Parent fiscal year (or such other date as determined by Parent), Mr. Shanmugaraj will join Parent’s Executive Incentive Plan, with a target bonus of $245,000. The Shanmugaraj agreement provides that Mr. Shanmugaraj will be eligible to receive a retention bonus of $1,000,000 subject to his providing active “service” (as defined in the Shanmugaraj agreement) to Parent through the second anniversary of the closing date of the merger. The retention bonus will vest in full on the second anniversary of the closing date of the merger subject to Mr. Shanmugaraj’s executing a release in favor of Parent and will be payable as soon as practicable following the effectiveness of the release. In addition, pursuant to the Shanmugaraj agreement, Mr. Shanmugaraj will be eligible to receive a one-time cash bridging allowance of $117,250 to assist him in adjusting to the overall change in his total compensation. The bridging allowance will be paid in four equal installments within 30 days of the third, sixth, ninth and twelfth monthly anniversaries of Mr. Shanmugaraj’s commencing employment with Parent, subject to Mr. Shanmugaraj’s continued employment with Parent on the applicable payment date.

Pursuant to the Shanmugaraj agreement, Mr. Shanmugaraj has waived any severance benefits to which he may have been entitled arising under any agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Shanmugaraj is entitled to the following severance benefits:

 

   

If within the first year following the closing date of the merger, Parent terminates Mr. Shanmugaraj’s employment without “cause” (as defined in the Shanmugaraj agreement) or if he resigns his employment for “good reason” (as defined in the Shanmugaraj agreement), and subject to Mr. Shanmugaraj’s executing a release in favor of Parent, he will be paid a lump sum equal to the sum of: (i) 24 months of his monthly base salary, less applicable deductions; plus (ii) an amount equal to 1.5 times his target annual bonus, less applicable deductions; plus (iii) an amount equal to any unpaid annual bonus in respect of any completed bonus period which has ended prior to the date of termination, less applicable deductions; plus (iv) the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of 12 months following his termination, which will be grossed up to cover taxes.

 

   

If Mr. Shanmugaraj remains employed by Parent through the end of the minimum employment period or if Parent terminates Mr. Shanmugaraj’s employment without “cause” or if he resigns his employment for “good reason” after the first anniversary of the closing date of the merger but prior to the second anniversary of the closing date of the merger, and subject to Mr. Shanmugaraj’s executing a release in favor of Parent, Mr. Shanmugaraj will be entitled to: (i) monthly base salary continuation for 12 months, less applicable deductions; plus (ii) monthly continuation of the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of 12 months following his termination, which will be grossed up to cover taxes.

Furthermore, pursuant to the Shanmugaraj agreement, Mr. Shanmugaraj has waived any acceleration of equity benefits to which he may have been entitled arising under any agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Shanmugaraj will be entitled to the acceleration of the cash payments with respect to his unvested Company RSUs described in the following sentence. If, within 12 months following the closing date of the merger, (i) Mr. Shanmugaraj’s employment is terminated without “cause,” (ii) Mr. Shanmugaraj resigns from his employment for “good reason” or (iii) Mr. Shanmugaraj’s employment is terminated due to his death or “permanent disability” (as defined in the Shanmugaraj agreement), then, subject to Mr. Shanmugaraj’s executing a release in favor of Parent, the cash

 

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payments with respect to his unvested Company RSUs outstanding as of the date of the Shanmugaraj agreement will fully accelerate. Mr. Shanmugaraj will also be entitled to acceleration benefits for the cash payments with respect to his unvested Company RSUs consistent with the terms and conditions of Parent’s Vesting Acceleration Policy for Death and Terminal Illness then in effect. Mr. Shanmugaraj’s PRSUs will be treated in accordance with their terms.

In addition, the parties agreed that a separate retention bonus award may be granted to Mr. Shanmugaraj in light of the fact that Mr. Shanmugaraj did not receive an annual equity grant in 2020. Under the retention bonus agreement entered into between Parent and Mr. Shanmugaraj on December 21, 2020 (which we refer to as the Shanmugaraj retention agreement) and subject to the closing of the merger, Mr. Shanmugaraj will be eligible to receive a cash retention bonus in the amount of $1,125,000 subject to his continued provision of “service” (as defined in the Shanmugaraj retention agreement) to Parent following the closing of the merger through each applicable vesting date. One fourth (1/4) of the retention bonus will vest on April 1, 2021 and one sixteenth (1/16) of the retention bonus will vest upon each quarterly anniversary thereafter until the award is fully vested on April 1, 2024, with payment to be made within 30 days of the applicable vesting date. Such retention bonus is not subject to acceleration under any circumstances.

Parent Agreements for Benny P. Mikkelsen

Under the Employment Agreement entered into between Parent and Benny P. Mikkelsen on July 8, 2019 to become effective upon the closing of the merger, which we refer to as the Mikkelsen agreement, Mr. Mikkelsen’s base salary will be $320,000 per annum. Until the end of the Parent fiscal year in which the closing of the merger occurs, Mr. Mikkelsen will remain on his current incentive plan with a target bonus of $230,620 and will receive a prorated bonus on the first payroll period after such date, subject to his continued service through such date. At the beginning of the next Parent fiscal year (or such other date as determined by Parent), Mr. Mikkelsen will join Parent’s Professional & Leadership Incentive Plan, with a target bonus of $112,000. The Mikkelsen agreement provides that Mr. Mikkelsen will be eligible to receive a retention bonus of $2,500,000 subject to his continued provision of “service” (as defined in the Mikkelsen agreement) to Parent through each applicable vesting date. One twelfth (1/12) of the retention bonus will vest on the fifth quarterly anniversary of the closing date of the merger and one twelfth (1/12) of the retention bonus will vest upon each quarterly anniversary thereafter, with payment to be made within 30 days of the applicable vesting date. In addition, pursuant to the Mikkelsen agreement, Mr. Mikkelsen will be eligible to receive a one-time cash bridging allowance of $153,420 to assist him in adjusting to the overall change in his total compensation. The bridging allowance will be paid in four equal installments within 30 days of the third, sixth, ninth and twelfth monthly anniversaries of Mr. Mikkelsen’s commencing employment with Parent, subject to Mr. Mikkelsen’s continued employment with Parent on the applicable payment date.

Pursuant to the Mikkelsen agreement, Mr. Mikkelsen has waived any severance benefits to which he may have been entitled arising under an agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Mikkelsen is entitled to the following severance benefits:

 

   

If within the first year following the closing date of the merger, Parent terminates Mr. Mikkelsen’s employment without “cause” (as defined in the Mikkelsen agreement) or if he resigns his employment for “good reason” (as defined in the Mikkelsen agreement), and subject to Mr. Mikkelsen’s executing a release in favor of Parent, he will be paid a lump sum equal to the sum of: (i) 12 months of his monthly base salary, less applicable deductions; plus (ii) an amount equal to his target annual bonus, less applicable deductions; plus (iii) an amount equal to any unpaid annual bonus in respect of any completed bonus period which has ended prior to the date of termination, less applicable deductions; plus (iv) the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of 12 months following his termination, which will be grossed up to cover taxes.

 

   

If after the first anniversary of the closing date of the merger but prior to the second anniversary of the closing date of the merger, Parent terminates Mr. Mikkelsen’s employment without “cause” or if he

 

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resigns his employment for “good reason,” and subject to Mr. Mikkelsen’s executing a release in favor of Parent, Mr. Mikkelsen will be entitled to: (i) monthly base salary continuation for nine months, less applicable deductions; plus (ii) monthly continuation of the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of nine months following his termination, which will be grossed up to cover taxes.

 

   

If after the second anniversary of the closing date of the merger but prior to the third anniversary of the closing date of the merger, Parent terminates Mr. Mikkelsen’s employment without “cause” or if he resigns his employment for “good reason,” and subject to Mr. Mikkelsen’s executing a release in favor of Parent, Mr. Mikkelsen will be entitled to: (i) monthly base salary continuation for seven months, less applicable deductions; plus (ii) monthly continuation of the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of seven months following his termination, which will be grossed up to cover taxes.

Furthermore, pursuant to the Mikkelsen agreement, Mr. Mikkelsen has waived any acceleration of equity benefits to which he may have been entitled arising under any agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Mikkelsen will be entitled to the following acceleration of the cash payments with respect to his unvested Company RSUs:

 

   

If, within 12 months following the closing date of the merger, (i) Mr. Mikkelsen’s employment is terminated without “cause,” (ii) Mr. Mikkelsen resigns from his employment for “good reason” or (iii) Mr. Mikkelsen’s employment is terminated due to his death or “permanent disability” (as defined in the Mikkelsen agreement), then, subject to Mr. Mikkelsen’s executing a release in favor of Parent, the cash payments with respect to his unvested Company RSUs outstanding as of the date of the Mikkelsen agreement will fully accelerate.

 

   

If, more than 12 months following the closing date of the merger and up to 24 months following the closing date of the merger, (i) Mr. Mikkelsen’s employment is terminated without “cause,” (ii) Mr. Mikkelsen resigns from his employment for “good reason,” or (iii) Mr. Mikkelsen’s employment is terminated due to his death or “permanent disability,” then, subject to Mr. Mikkelsen’s executing a release in favor of Parent, the cash payments with respect to his unvested Company RSUs outstanding as of the date of the Mikkelsen agreement will vest as if he had provided another nine months of service.

Mr. Mikkelsen will also be entitled to acceleration benefits for the cash payments with respect to his unvested Company RSUs consistent with the terms and conditions of Parent’s Vesting Acceleration Policy for Death and Terminal Illness then in effect. Mr. Mikkelsen’s PRSUs will be treated in accordance with their terms.

In addition, the parties agreed that a separate retention bonus award may be granted to Mr. Mikkelsen in light of the fact that Mr. Mikkelsen did not receive an annual equity grant in 2020. Under the retention bonus agreement entered into between Parent and Mr. Mikkelsen on January 19, 2021 (which we refer to as the Mikkelsen retention agreement) and subject to the closing of the merger, Mr. Mikkelsen will be eligible to receive a cash retention bonus in the amount of $700,000 subject to his continued provision of “service” (as defined in the Mikkelsen retention agreement) to Parent following the closing of the merger through each applicable vesting date. One fourth (1/4) of the retention bonus will vest on April 1, 2021 and one sixteenth (1/16) of the retention bonus will vest upon each quarterly anniversary thereafter until the award is fully vested on April 1, 2024, with payment to be made within 30 days of the applicable vesting date. Such retention bonus is not subject to acceleration under any circumstances.

Parent Agreements for Mehrdad Givehchi

Under the Employment Agreement entered into between Parent and Mehrdad Givehchi on July 8, 2019 to become effective upon the closing of the merger, which we refer to as the Givehchi agreement, Mr. Givehchi’s

 

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base salary will be $300,000 per annum. Until the end of the Parent fiscal year in which the closing of the merger occurs, Mr. Givehchi will remain on his current incentive plan with a target bonus of $215,020 and will receive a prorated bonus on the first payroll period after such date, subject to his continued service through such date. At the beginning of the next Parent fiscal year (or such other date as determined by Parent), Mr. Givehchi will join Parent’s Professional & Leadership Incentive Plan, with a target bonus of $105,000. The Givehchi agreement provides that Mr. Givehchi will be eligible to receive a retention bonus of $2,500,000 subject to his continued provision of “service” (as defined in the Givehchi agreement) to Parent through each applicable vesting date. One twelfth (1/12) of the retention bonus will vest on the fifth quarterly anniversary of the closing date of the merger and one twelfth (1/12) of the retention bonus will vest upon each quarterly anniversary thereafter, with payment to be made within 30 days of the applicable vesting date. In addition, pursuant to the Givehchi agreement, Mr. Givehchi will be eligible to receive a one-time cash bridging allowance of $140,820 to assist him in adjusting to the overall change in his total compensation. The bridging allowance will be paid in four equal installments within 30 days of the third, sixth, ninth and twelfth monthly anniversaries of Mr. Givehchi’s commencing employment with Parent, subject to Mr. Givehchi’s continued employment with Parent on the applicable payment date.

Pursuant to the Givehchi agreement, Mr. Givehchi has waived any severance benefits to which he may have been entitled arising under an agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Givehchi is entitled to the following severance benefits:

 

   

If within the first year following the closing date of the merger, Parent terminates Mr. Givehchi’s employment without “cause” (as defined in the Givehchi agreement) or if he resigns his employment for “good reason” (as defined in the Givehchi agreement), and subject to Mr. Givehchi’s executing a release in favor of Parent, he will be paid a lump sum equal to the sum of: (i) 12 months of his monthly base salary, less applicable deductions; plus (ii) an amount equal to his target annual bonus, less applicable deductions; plus (iii) an amount equal to any unpaid annual bonus in respect of any completed bonus period which has ended prior to the date of termination, less applicable deductions; plus (iv) the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of 12 months following his termination, which will be grossed up to cover taxes.

 

   

If after the first anniversary of the closing date of the merger but prior to the second anniversary of the closing date of the merger, Parent terminates Mr. Givehchi’s employment without “cause” or if he resigns his employment for “good reason,” and subject to Mr. Givehchi’s executing a release in favor of Parent, Mr. Givehchi will be entitled to: (i) monthly base salary continuation for nine months, less applicable deductions; plus (ii) monthly continuation of the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of nine months following his termination, which will be grossed up to cover taxes.

 

   

If after the second anniversary of the closing date of the merger but prior to the third anniversary of the closing date of the merger, Parent terminates Mr. Givehchi’s employment without “cause” or if he resigns his employment for “good reason,” and subject to Mr. Givehchi’s executing a release in favor of Parent, Mr. Givehchi will be entitled to: (i) monthly base salary continuation for seven months, less applicable deductions; plus (ii) monthly continuation of the COBRA premiums required to continue his group health care coverage for him and his eligible dependents for a period of seven months following his termination, which will be grossed up to cover taxes.

Furthermore, pursuant to the Givehchi agreement, Mr. Givehchi has waived any acceleration of equity benefits to which he may have been entitled arising under any agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Givehchi will be entitled to the following acceleration of the cash payments with respect to his unvested Company RSUs:

 

   

If, within 12 months following the closing date of the merger, (i) Mr. Givehchi’s employment is terminated without “cause,” (ii) Mr. Givehchi resigns from his employment for “good reason” or

 

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(iii) Mr. Givehchi’s employment is terminated due to his death or “permanent disability” (as defined in the Givehchi agreement), then, subject to Mr. Givehchi’s executing a release in favor of Parent, the cash payments with respect to his unvested Company RSUs outstanding as of the date of the Givehchi agreement will fully accelerate.

 

   

If, more than 12 months following the closing date of the merger and up to 24 months following the closing date of the merger, (i) Mr. Givehchi’s employment is terminated without “cause,” (ii) Mr. Givehchi resigns from his employment for “good reason” or (iii) Mr. Givehchi’s employment is terminated due to his death or “permanent disability,” then, subject to Mr. Givehchi’s executing a release in favor of Parent, the cash payments with respect to his unvested Company RSUs outstanding as of the date of the Givehchi agreement will vest as if he had provided another nine months of service.

Mr. Givehchi will also be entitled to acceleration benefits for the cash payments with respect to his unvested Company RSUs consistent with the terms and conditions of Parent’s Vesting Acceleration Policy for Death and Terminal Illness then in effect. Mr. Givehchi’s PRSUs will be treated in accordance with their terms.

In addition, the parties agreed that a separate retention bonus award may be granted to Mr. Givehchi in light of the fact that Mr. Givehchi did not receive an annual equity grant in 2020. Under the retention bonus agreement entered into between Parent and Mr. Givehchi on January 2, 2021 (which we refer to as the Givehchi retention agreement) and subject to the closing of the merger, Mr. Givehchi will be eligible to receive a cash retention bonus in the amount of $700,000 subject to his continued provision of “service” (as defined in the Givehchi retention agreement) to Parent following the closing of the merger through each applicable vesting date. One fourth (1/4) of the retention bonus will vest on April 1, 2021 and one sixteenth (1/16) of the retention bonus will vest upon each quarterly anniversary thereafter until the award is fully vested on April 1, 2024, with payment to be made within 30 days of the applicable vesting date. Such retention bonus is not subject to acceleration under any circumstances.

Parent Agreements for Christian J. Rasmussen

Mr. Rasmussen entered into an employment agreement with Cisco Systems Danmark ApS (an affiliate of Parent), which we refer to as Sub DK, on July 7, 2019 to become effective upon the closing of the merger, which we refer to as the Rasmussen agreement. The Rasmussen agreement, when effective, will replace the Service Contract between Mr. Rasmussen and Acacia Communications Europa A/S (a subsidiary of the Company). Pursuant to the Rasmussen agreement, Mr. Rasmussen’s base salary will be DKK 1,900,000 per annum. He will be entitled to insurance, pension and healthcare benefits in accordance with applicable Danish law and Sub DK’s company schemes. Until the end of the Parent fiscal year in which the closing of the merger occurs, Mr. Rasmussen will remain on his current incentive plan with a target bonus of DKK 1,357,543 and will receive a prorated bonus on the first payroll period after such date, subject to his continued service through such date. At the beginning of the next Parent fiscal year (or such other date as determined by Sub DK), Mr. Rasmussen will join Parent’s Professional & Leadership Incentive Plan, with a target bonus of DKK 665,000. The Rasmussen agreement provides that Mr. Rasmussen will be eligible to receive a retention bonus of $2,500,000 subject to his continued provision of “service” (as defined in the Rasmussen agreement) to Sub DK through each applicable vesting date. One twelfth (1/12) of the retention bonus will vest on the fifth quarterly anniversary of the closing date of the merger and one twelfth (1/12) of the retention bonus will vest upon each quarterly anniversary thereafter, with payment to be made within 30 days of the applicable vesting date. In addition, pursuant to the Rasmussen agreement, Mr. Rasmussen will be eligible to receive a one-time cash bridging allowance of DKK 881,071 to assist him in adjusting to the overall change in his total compensation. The bridging allowance will be paid in four equal installments within 30 days of the third, sixth, ninth and twelfth monthly anniversaries of Mr. Rasmussen’s commencing employment with Sub DK, subject to Mr. Rasmussen’s continued employment with Sub DK on the applicable payment date.

 

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Pursuant to the Rasmussen agreement, Mr. Rasmussen has waived any severance benefits to which he may have been entitled arising under an agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Rasmussen is entitled to the following severance benefits:

 

   

If within the first year following the closing date of the merger, Sub DK terminates Mr. Rasmussen’s employment without “cause” (as defined in the Rasmussen agreement) or if he resigns his employment for “good reason” (as defined in the Rasmussen agreement), and subject to Mr. Rasmussen’s executing a release in favor of Sub DK, he will be paid a lump sum equal to the sum of: (i) 12 months of his monthly base salary, less applicable deductions; plus (ii) an amount equal to his target annual bonus, less applicable deductions; plus (iii) an amount equal to any unpaid annual bonus in respect of any completed bonus period which has ended prior to the date of termination, less applicable deductions.

 

   

If after the first anniversary of the closing date of the merger but prior to the second anniversary of the closing date of the merger, Sub DK terminates Mr. Rasmussen’s employment without “cause” or if he resigns his employment for “good reason,” and subject to Mr. Rasmussen’s executing a release in favor of Sub DK, Mr. Rasmussen will be entitled to monthly base salary continuation for nine months, less applicable deductions.

 

   

If after the second anniversary of the closing date of the merger but prior to the third anniversary of the closing date of the merger, Sub DK terminates Mr. Rasmussen’s employment without “cause” or if he resigns his employment for “good reason,” and subject to Mr. Rasmussen’s executing a release in favor of Sub DK, Mr. Rasmussen will be entitled to monthly base salary continuation for seven months, less applicable deductions.

Pursuant to the Danish Salaried Employees Act, termination of the Rasmussen agreement by Sub DK generally requires Sub DK to provide notice to Mr. Rasmussen, the length of which is determined based on Mr. Rasmussen’s length of employment (up to a maximum notice period of six months). Any mandatory entitlements in the case of Mr. Rasmussen’s termination of employment will be considered included in the severance payments described above.

Furthermore, pursuant to the Rasmussen agreement, Mr. Rasmussen has waived any acceleration of equity benefits to which he may have been entitled arising under any agreement or understanding between him and the Company or any Company policy, including the CIC plan. Instead, Mr. Rasmussen will be entitled to the following acceleration of the cash payments with respect to his unvested Company RSUs:

 

   

If, within 12 months following the closing date of the merger, (i) Mr. Rasmussen’s employment is terminated without “cause,” (ii) Mr. Rasmussen resigns from his employment for “good reason” or (iii) Mr. Rasmussen’s employment is terminated due to his death or “permanent disability” (as defined in the Rasmussen agreement), then, subject to Mr. Rasmussen’s executing a release in favor of Sub DK, the cash payments with respect to his unvested Company RSUs outstanding as of the date of the Rasmussen agreement will fully accelerate.

 

   

If, more than 12 months following the closing date of the merger and up to 24 months following the closing date of the merger, (i) Mr. Rasmussen’s employment is terminated without “cause,” (ii) Mr. Rasmussen resigns from his employment for “good reason” or (iii) Mr. Rasmussen’s employment is terminated due to his death or “permanent disability,” then, subject to Mr. Rasmussen’s executing a release in favor of Sub DK, the cash payments with respect to his unvested Company RSUs outstanding as of the date of the Rasmussen agreement will vest as if he had provided another nine months of service.

Mr. Rasmussen will also be entitled to acceleration benefits for the cash payments with respect to his unvested Company RSUs consistent with the terms and conditions of Parent’s Vesting Acceleration Policy for Death and Terminal Illness then in effect. Mr. Rasmussen’s PRSUs will be treated in accordance with their terms.

In addition, the parties agreed that a separate retention bonus award may be granted to Mr. Rasmussen in light of the fact that Mr. Rasmussen did not receive an annual equity grant in 2020. Under the retention bonus agreement

 

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entered into between Parent and Mr. Rasmussen on January 5, 2021 (which we refer to as the Rasmussen retention agreement) and subject to the closing of the merger, Mr. Rasmussen will be eligible to receive a cash retention bonus in the amount of $700,000 subject to his continued provision of “service” (as defined in the Rasmussen retention agreement) to Parent following the closing of the merger through each applicable vesting date. One fourth (1/4) of the retention bonus will vest on April 1, 2021 and one sixteenth (1/16) of the retention bonus will vest upon each quarterly anniversary thereafter until the award is fully vested on April 1, 2024, with payment to be made within 30 days of the applicable vesting date. Such retention bonus is not subject to acceleration under any circumstances.

Change in Control Benefits Under 2019 TSR PRSUs

In 2019 as part of the annual equity grant process, the Company granted the 2019 TSR PRSUs to the Company’s executive officers under the Company’s 2016 Equity Incentive Plan. The number of shares that vest under the 2019 TSR PRSUs is measured based on the Company’s percentile achievement of relative TSR against a peer group over a three-year performance period running from January 1, 2019 to December 31, 2021. The number of shares that may be earned under the 2019 TSR PRSUs ranges from 0% to 200% of the target numbers of shares subject to each 2019 TSR PRSU award depending on the level of achievement of the TSR performance metric.

Pursuant to the PRSU agreements with respect to the 2019 TSR PRSUs, in the event of a “change in control” (as defined in the CIC plan) during the applicable performance period pursuant to which consideration is received by holders of Company common stock, the performance period will be deemed to end upon the closing date of the change in control. For purposes of determining the Company’s TSR pursuant to the applicable 2019 TSR PRSU agreement, the “ending price” (as defined in the applicable agreement) of the Company’s common stock will be determined based on the price to be paid to holders of Company common stock in connection with the change in control, as determined by the compensation committee.

For purposes of the 2019 TSR PRSU agreements, the merger will constitute a change in control of the Company and the per share merger consideration will be the “ending price” as defined in such agreements. The Company’s share price performance based on the per share merger consideration will be compared to share price performance of the peer groups on or shortly prior to the closing of the merger to determine the level of achievement of the 2019 TSR PRSUs and the number of 2019 TSR PRSUs that will vest immediately prior to the merger. Pursuant to the 2019 TSR PRSU award agreements, any such PRSUs for which performance has been achieved will vest immediately prior to the change in control and any such TSR PRSUs that do not so vest will be cancelled at such time for no consideration.

In light of the increased per share merger consideration from $70.00 to $115.00 in cash pursuant to the amended and restated merger agreement, the Company believes it is possible that the number of 2019 TSR PRSUs that will become vested as of the closing of the merger could be 200% of the target number of 2019 TSR PRSUs. However, in the event that less than 200% of the target number of 2019 TSR PRSUs become vested as of the closing, Parent has consented to a potential amendment to the 2019 TSR PRSUs that would allow 2019 TSR PRSUs reflecting such shortfall to be treated as unvested PRSUs for purposes of the amended and restated merger agreement in order to provide additional retention following the effective time of the merger. Each such unvested 2019 TSR PRSU would be converted into the right to receive an amount in cash without interest, equal to the merger consideration, subject to deduction for any required withholding tax, payable on December 31, 2021 (the last day of the original performance period), subject to the CIC plan or an employment offer document entered into with Parent.

Employee Benefits

Pursuant to the amended and restated merger agreement, Parent will, or will cause the surviving corporation and its other affiliates to, assume and honor the obligations of the Company and its subsidiaries under the CIC plan and other specified contracts, providing for the payment of severance set forth in accordance with their terms,

 

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and to honor all provisions with respect to vesting, accelerated vesting under the CIC plan and any retention agreement and/or payment of any options to purchase shares of Company common stock, RSUs or PRSUs, in each case, unvested as of the effective time of the merger, following the merger and cause all such provisions to apply to payment of the per share merger consideration with respect to such unvested equity awards to the same extent as if the applicable unvested equity awards had been assumed by Parent under the amended and restated merger agreement, subject in each case to the right to make amendments or modifications to the extent permitted by such terms and subject to any applicable agreements entered into between any employees of the Company and its subsidiaries as of the effective time of the merger (which we refer to as continuing employees).

For a more detailed description of these provisions of the amended and restated merger agreement, please see the section of the proxy statement entitled “The Amended and Restated Merger Agreement — Additional Agreements of the Parties to the Amended and Restated Merger Agreement — Employee Benefits Matters” on page 124.

Bonus Payments to Independent Directors

Given the pendency of the merger, the Company did not make annual equity grants under its director compensation program to its independent directors in 2020. As a result, in connection with the execution of the amended and restated merger agreement, the parties have agreed that the Company may, and it is expected that the board of directors will, approve the payment of a one-time special cash bonus to each of the Company’s independent directors in an amount equal to $200,000, which bonus payment will be payable at, and conditioned upon, the closing of the merger.

Indemnification of Directors and Officers

The amended and restated merger agreement provides that, from and after the effective time of the merger until the sixth anniversary of the effective time of the merger, Parent will assume, and will cause the surviving corporation to honor and fulfill in all respects all rights to indemnification by the Company and its subsidiaries to their respective present and former directors and officers pursuant to any indemnification agreements with the Company or such subsidiary made available to Parent and any indemnification or advancement provisions under the Company’s or such subsidiary’s certificate of incorporation or bylaws (or equivalent organizational documents) as in effect on the date of the amended and restated merger agreement with respect to their acts and omissions as directors and officers of the Company or such subsidiary occurring prior to the effective time of the merger, in each case, subject to applicable law.

For a more detailed description of these provisions of the amended and restated merger agreement, please see the section of this proxy statement entitled “The Amended and Restated Merger Agreement — Additional Agreements of the Parties to the Amended and Restated Merger Agreement —Indemnification and Insurance” on page 125.

Intent to Vote in Favor of the Merger

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 3,435,179 shares of Company common stock, representing approximately 8.1% of the outstanding shares of Company common stock on the record date. The directors and executive officers have informed the Company that they currently intend to vote all of their shares of Company common stock “FOR” the proposal to adopt the amended and restated merger agreement, “FOR” approval of the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. In addition, the shares described above include shares beneficially owned and entitled to vote by Murugesan Shanmugaraj, Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi (including certain entities holding shares of Company common stock on their behalf) and such stockholders are obligated, pursuant to voting agreements entered into on January 14, 2021 between Parent and each of such stockholders, to vote

 

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such shares, representing approximately 6.6% of the issued and outstanding shares of Company common stock on the record date, in favor of the adoption of the amended and restated merger agreement and any matter that would reasonably be expected to facilitate the merger.

Compensation Payable to our Named Executive Officers

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of our named executive officers that is based on or otherwise relates to the merger. This compensation is referred to as compensation that may be payable to our named executive officers in connection with the merger. The amounts set forth in the table are estimates based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement and in the footnotes to the table. As a result, the actual amounts, if any, that an executive officer receives may materially differ from the amounts set forth in the table. The table below does not include any retention bonuses payable pursuant to arrangements with Parent, as described above, as such retention bonuses require continued employment following the closing of the merger and are not subject to acceleration.

The table below describes the estimated potential payments to each of our named executive officers pursuant to the terms of their 2019 TSR PRSUs and under the CIC plan or the terms of their respective employment agreements with Parent, as applicable. The amounts shown in the table do not include the value of payments or benefits that would have been earned, or any amounts associated with equity awards that would vest pursuant to their terms, on or prior to the effective date of the merger (including payments in respect of the 2018 TSR PRSUs that were settled on January 15, 2021 as described above) or the value of payments or benefits that are not based on or otherwise related to the merger. In addition, the table does not reflect any increases in compensation that may be approved by the compensation committee in connection with its annual compensation review process prior to the closing of the merger to the extent permitted by the terms of the amended and restated merger agreement or agreed to by the Company and Parent pursuant to the terms of the amended and restated merger agreement. Parent has agreed that, in connection with such annual compensation review process and for the primary purpose of retention, the compensation committee may adjust the compensation of certain executives, including our named executive officers, to make a one-time equity incentive grant for 2021 that shall not exceed the aggregate value of time-based awards granted to the applicable individual in 2019 by more than 5%, which equity awards may not be subject to acceleration.

For purposes of calculating the potential payments set forth in the table below, the Company has assumed that (i) the merger will become effective on, and the date of termination of employment of the named executive officers is, March 1, 2021 (which is the date assumed solely for the purposes of this disclosure); (ii) the termination of employment is a change in control termination pursuant to the CIC plan or a termination that results in severance benefits pursuant to the named executive officer’s employment agreement with Parent, as applicable; (iii) the stock price is $115.00 per share, which is the per share merger consideration; (iv) for purposes of calculating the number of 2019 TSR PRSUs that will vest, the Company’s percentile TSR achievement against the applicable peer groups as of February 5, 2021 (based on an ending price for the Company common stock of $115.00 per share, which would result in 151% of the shares subject to such awards vesting), remains unchanged through the assumed effective date of the merger; and (v) no withholding taxes are applicable to any payments set forth in the table. The amounts shown in the table are estimates only and are based on assumptions and information available to date. The actual amounts that may be paid upon an individual’s termination of employment can only be determined at the actual time of such termination.

 

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Name

   Cash($)(1)      Equity($)(2)      Perquisites/
Benefits($)(3)
     Tax
Reimbursement
($)(4)
     Total($)  

Murugesan “Raj” Shanmugaraj

     1,190,875        5,706,070        31,200        34,692        6,962,837  

John F. Gavin

     614,625        3,710,935        21,357        0        4,346,917  

Benny P. Mikkelsen

     550,620        3,566,035        31,200        34,692        4,182,547  

Eric Fisher

     585,420        4,580,910        21,299        0        5,187,629  

Bhupendra C. Shah

     545,820        3,566,035        14,676        0        4,126,531  

 

1)

The amounts listed in this column represent, for Messrs. Shanmugaraj and Mikkelsen, cash severance amounts that are payable pursuant to their respective employment agreements with Parent which become effective upon the closing of the merger and which are payable if, within the first 12 months following the closing of the merger, Parent terminates the executive’s employment without cause or if he resigns his employment for good reason, as such terms are defined in the applicable employment agreement, and therefore such amounts are “double trigger” benefits. Such cash severance amounts are paid in a lump sum and for Mr. Shanmugaraj include (a) 200% of his annual base salary, (b) 150% of his target annual bonus and (c) an amount equal to any unpaid annual bonus in respect of any completed bonus period which has ended prior to the date of termination. For Mr. Mikkelsen, such cash severance amounts include (a) 100% of the executive officer’s annual base salary, (b) 100% of the executive officer’s target annual bonus and (c) an amount equal to any unpaid annual bonus in respect of any completed bonus period which has ended prior to the date of termination.

The amounts listed in this column represent, for Messrs. Gavin, Fisher and Shah, cash severance payments that are payable under the CIC plan upon a change in control termination and therefore such amounts are “double trigger” benefits. For this purpose, a “change in control termination” occurs when, within 12 months following a change in control of the Company, the Company terminates an eligible executive officer’s employment without cause or such executive terminates his employment with the Company for good reason, as such terms are defined in the CIC plan. Such cash severance payments are paid in a lump sum and for each of Messrs. Gavin, Fisher and Shah include (a) 100% of the executive officer’s annual base salary, (b) 100% of the executive officer’s target annual bonus for the year in which the termination of employment occurs and (c) the amount of any unpaid annual bonus determined by the board of directors to be payable to the executive officer for any completed bonus period which ended prior to the date of such executive’s termination.

The amounts listed in this column were calculated assuming (i) the target annual bonuses for each named executive officer is the target annual bonus to which each named executive officer is currently entitled (and will remain in effect through the end of Parent’s current fiscal year) and (ii) that the annual base salary for each named executive officer entitled to severance under the CIC plan or his employment agreement with Parent effective as of the assumed closing date of the merger of March 1, 2021 (which is the date assumed solely for the purposes of this disclosure) is equal to, for Messrs. Shanmugaraj, and Mikkelsen, the amounts provided for under their respective employment agreements entered into with Parent in connection with the merger, and for Messrs. Gavin, Fisher and Shah, the amounts pursuant to their current employment arrangements with the Company, which amounts are set forth in the table below. However, the table does not reflect any increases in compensation that may be approved by the compensation committee in connection with its annual compensation review process prior to the closing of the merger to the extent permitted by the terms of the amended and restated merger agreement or agreed to by the Company and Parent pursuant to the terms of the amended and restated merger agreement.

 

Name

   Base
Salary($)
     Target
Annual
Bonus($)
 

Murugesan “Raj” Shanmugaraj

     350,000        327,250  

John F. Gavin

     372,500        242,125  

Benny P. Mikkelsen

     320,000        230,620  

Eric Fisher

     354,800        230,620  

Bhupendra C. Shah

     330,800        215,020  

 

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2)

The amounts listed in this column represent, in accordance with the terms of the 2019 TSR PRSU award agreements and the CIC plan or the named executive officers’ employment agreements with Parent, as applicable, the cash payments in respect of (a) the accelerated cash payment for cancellation of unvested RSUs held by each executive officer, calculated as the product of (i) the per share merger consideration of $115.00 multiplied by (ii) the number of unvested RSUs with respect to which such cash payments are being made, which amounts are “double trigger” benefits payable upon certain terminations of employment following the closing of the merger, as described below; and (b) the settlement of the 2019 TSR PRSUs pursuant to their terms, calculated as the product of (i) the per share merger consideration of $115.00 multiplied by (ii) the number of 2019 TSR PRSUs that vest immediately prior to the effective time pursuant to the terms of the applicable 2019 TSR PRSU award agreements, which amounts are “single trigger” benefits payable upon the closing of the merger.

The accelerated cash payments for cancellation of unvested RSUs are “double-trigger” benefits and (i) for each of Messrs. Shanmugaraj and Mikkelsen are payable pursuant to his employment agreement with Parent, within the first 12 months following the closing of the merger, if Parent terminates the executive’s employment without cause, if he resigns his employment for good reason, or if his employment is terminated due to his death or permanent disability, as such terms are defined in the applicable employment agreement and (ii) for each of Messrs. Gavin, Fisher and Shah are payable pursuant to the CIC plan upon a change in control termination. For this purpose, a “change in control termination” occurs when, within 12 months following a change in control of the Company, the Company terminates an eligible executive’s employment without cause or such executive terminates his employment with the Company for good reason, as such terms are defined in the CIC plan.

The number of unvested RSUs and 2019 TSR PRSUs held by each named executive officer to be treated as described in this note 2 and the cash payments payable with respect to such RSUs and 2019 TSR PRSUs are as follows:

 

Name

   Unvested
RSUs at
Closing
(Double
Trigger)
     Value of
Unvested
RSUs at
Closing
(Double
Trigger)
     Vested
2019
TSR
PRSUs
(Single
Trigger) (1)
     Value of
Vested 2019
TSR
PRSUs
(Single
Trigger) (1)
 

Murugesan “Raj” Shanmugaraj

     30,777      $ 3,539,355        18,841      $ 2,166,715  

John F. Gavin

     19,933      $ 2,292,295        12,336      $ 1,418,640  

Benny P. Mikkelsen

     19,235      $ 2,212,025        11,774      $ 1,354,010  

Eric Fisher

     22,842      $ 2,626,830        16,992      $ 1,954,080  

Bhupendra C. Shah

     19,235      $ 2,212,025        11,774      $ 1,354,010  

 

  (1)

The number of vested 2019 TSR PRSUs assumes performance at 151%. If the maximum number of shares underlying the 2019 TSR PRSUs (i.e., 200% of the target number of shares) vest by either achievement or amendment, the number of vested 2019 TSR PRSUs for Mr. Shanmugaraj would be 24,956, for Mr. Gavin would be 16,340, for Mr. Fisher would be 22,506 and for each of Messrs. Mikkelsen and Shah would be 15,596, resulting in cash payments of $2,869,940 for Mr. Shanmugaraj, $1,879,100 for Mr. Gavin, $2,588,190 for Mr. Fisher, and $1,793,540 for each of Messrs. Mikkelsen and Shah. Any amendment could potentially be a “double trigger” benefit.

 

3)

The amounts in this column represent, for Messrs. Shanmugaraj and Mikkelsen, the total estimated COBRA premiums required to continue the executive’s group health care coverage for him and his eligible dependents for a period of 12 months based on estimated COBRA costs for each executive under Parent’s benefits plans. The actual COBRA premiums for Messrs. Shanmugaraj and Mikkelsen may be different from the estimates above depending on the benefit elections each executive makes. For Messrs. Gavin, Fisher and Shah, the amount in this column represents the Company contributions to the cost of health care continuation under COBRA for 12 months for the executive. These amounts are “double trigger” in nature for each of the named executive officers and are payable, in the case of Messrs. Shanmugaraj and Mikkelsen, within the first 12 months following the closing of the merger, if Parent terminates the

 

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  executive’s employment without cause or if he resigns his employment for good reason, as such terms are defined in the applicable employment agreement, and for Messrs. Gavin, Fisher and Shah upon a change in control termination under the CIC plan.

 

4)

The amounts in this column represent, for Messrs. Shanmugaraj and Mikkelsen, the tax gross up payments that each would be entitled to receive from the Company with respect to the estimated COBRA premiums described in note 3 above. As noted above, these tax gross up payments may be different from the estimates set forth above depending on the actual value of the COBRA premiums to which each executive is entitled. These amounts are “double trigger” in nature for Messrs. Shanmugaraj and Mikkelsen, within the first 12 months following the closing of the merger, if Parent terminates the named executive officer’s employment without cause or if he resigns his employment for good reason, as such terms are defined in the applicable employment agreement.

Accounting Treatment

The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

U.S. Federal Income Tax Consequences of the Merger

The following is a summary of the U.S. federal income tax consequences of the merger to “U.S. holders” and certain “non-U.S. holders” (both terms defined below) whose shares of our common stock are converted into the right to receive cash pursuant to the merger. This summary is for information purposes only and is not tax advice. It does not purport to consider all aspects of U.S. federal income taxation that might be relevant for holders of our common stock. This summary is based on the Internal Revenue Code of 1986, as amended, which we refer to as the Code, the applicable U.S. Treasury regulations promulgated under the Code, published rulings by the Internal Revenue Service, which we refer to as the IRS, and judicial authorities and administrative decisions, all as in effect as of the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change could alter the tax consequences to the holders described herein. This summary is not binding on the IRS or a court, and there can be no assurance that the tax consequences described in this summary will not be challenged by the IRS or that they would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS, and no opinion of counsel has been or will be rendered, as to the U.S. federal income tax consequences of the merger.

For purposes of this summary, the term “U.S. holder” means a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust that (a) is subject to the primary supervision of a court within the United States and all substantial decisions of which are controlled by one or more U.S. persons or (b) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

   

an estate the income of which is subject to U.S. federal income tax regardless of its source.

As used herein, a “non-U.S. holder” means a beneficial owner of shares of our common stock that is neither a U.S. holder nor an entity or arrangement treated as a partnership for U.S. federal income tax purposes.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. A partner of a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holding our common stock should consult the partner’s tax advisor regarding the U.S. federal income tax consequences of the merger to such partner.

 

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This summary applies only to holders who hold shares of our common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment), and does not address or consider all of the U.S. federal income tax consequences that may be applicable to holders of our common stock in light of their particular circumstances. For instance, this summary does not address the alternative minimum tax or the tax consequences to stockholders who validly exercise dissenters’ rights under the DGCL. In addition, this summary does not address the U.S. federal income tax consequences of the merger to holders who are subject to special treatment under U.S. federal income tax rules, including, for example, banks and other financial institutions; insurance companies; securities dealers or broker-dealers; mutual funds; traders in securities who elect to use the mark-to-market method of accounting; tax-exempt investors; S corporations; holders classified as partnerships or other flow-through entities under the Code; U.S. expatriates; holders who hold their shares of our common stock as part of a hedge, straddle, conversion transaction, or other integrated investment or constructive sale transaction; holders whose functional currency is not the U.S. dollar; holders who acquired their shares of our common stock through the exercise of Company stock options or otherwise as compensation; and, except to the extent described below, holders who actually or constructively own 5% or more of the outstanding shares of our common stock. In addition, this summary does not address the impact of the Medicare contribution tax, any aspects of foreign, state, local, estate, gift, or other tax laws (or any U.S. federal tax laws other than those pertaining to income tax) that may be applicable to a particular holder in connection with the merger.

Further, this summary does not address any tax consequences of the merger to holders of options or restricted stock units whose options or restricted stock units are cancelled in exchange for cash pursuant to the merger. Such option and restricted stock unit holders should consult their tax advisors regarding the tax consequences of the merger to them. Moreover, this summary does not discuss any other matters relating to equity compensation or benefit plans (including our 401(k) plan).

U.S. Holders

A U.S. holder’s receipt of the per share merger consideration in exchange for shares of our common stock will generally be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of common stock are converted into the right to receive cash pursuant to the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before deduction of any applicable withholding taxes) with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such shares. The amount of gain or loss must be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) surrendered by the U.S. holder in the merger. Such gain or loss will generally be long-term capital gain or loss if the U.S. holder’s holding period for such shares is more than 12 months at the effective time of the merger. Long-term capital gains recognized by individual and certain other non-corporate U.S. holders are generally taxed at preferential U.S. federal income tax rates. A U.S. holder’s ability to deduct capital losses may be limited.

Non-U.S. Holders

Cash received in the merger by a non-U.S. holder generally will not be subject to U.S. withholding tax (other than potentially to backup withholding tax or FATCA withholding, as discussed below) and will not be subject to U.S. federal income tax unless:

 

   

the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if an income tax treaty applies, is attributable to a United States permanent establishment maintained by such non-U.S. holder), in which case the non-U.S. holder generally will be subject to tax on such gain in the same manner as if it were a U.S. holder, and, if the non-U.S. holder is a foreign corporation, such gain may also be subject to an additional branch profits tax at a rate of 30% or at such lower rate as may be specified by an applicable income tax treaty;

 

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the non-U.S. holder is an individual who was present in the United States for 183 days or more in the taxable year of the merger and certain other conditions are met, in which case the non-U.S. holder generally will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence) on the net gain derived from the disposition, which may be offset by certain U.S.-source capital losses of the non-U.S. holder recognized in the taxable year of the disposition, if any; or

 

   

the Company was a “United States real property holding corporation”, which we refer to as a USRPHC, within the meaning of Section 897(c)(2) of the Code for U.S. federal income tax purposes within the five years preceding the merger and the non-U.S. holder owned, actually or constructively, more than 5% of the Company common stock at any time during the five-year period preceding the merger. In general, the Company would be a USRPHC if interests in U.S. real estate comprised most of its assets. Although there can be no assurances in this regard, the Company does not believe it is, or has been during the five years preceding the merger, a USRPHC for U.S. federal income tax purposes.

Non-U.S. holders should consult their own tax advisors regarding the tax consequences to them of the merger.

Backup Withholding and Information Reporting

A U.S. holder may be subject to backup withholding on all payments to which such U.S. holder is entitled in connection with the merger, unless the U.S. holder provides its correct taxpayer identification number and complies with applicable certification procedures or otherwise establishes an exemption from backup withholding. In addition, if the exchange agent is not provided with a U.S. holder’s correct taxpayer identification number or other adequate basis for exemption, the U.S. holder may be subject to certain penalties imposed by the IRS. Each U.S. holder should complete and sign the IRS Form W-9 included as part of the letter of transmittal and timely return it to the exchange agent in order to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the exchange agent.

Certain non-U.S. holders may also be subject to backup withholding unless they establish an exemption from backup withholding in a manner satisfactory to the exchange agent (such as by completing and signing an appropriate IRS Form W-8) and otherwise comply with the backup withholding rules. Non-U.S. holders should consult their own tax advisors regarding these matters.

Backup withholding is not an additional tax. Rather, any amounts withheld under the backup withholding rules will generally be allowable as a refund or credit against a holder’s U.S. federal income tax liability; provided that certain required information is timely furnished to the IRS.

Payments made pursuant to the merger will also be subject to information reporting unless an exemption applies.

FATCA

Provisions of the Code commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, may impose a 30% withholding tax on gross proceeds received in the merger if paid to a foreign entity unless (i) if the foreign entity is a “foreign financial institution,” the foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the foreign entity is not a “foreign financial institution,” the foreign entity identifies certain of its U.S. investors, or (iii) the foreign entity is otherwise excepted under FATCA. Under proposed U.S. Treasury Regulations, withholding on payments of gross proceeds is not required. Although such regulations are not final, applicable withholding agents may rely on the proposed regulations until final regulations are issued. Non-U.S. holders should consult their own tax advisors regarding the possible implications of FATCA on their receipt of cash in the merger.

 

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This summary is provided for general information only and is not tax advice. The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each stockholder should consult the stockholder’s tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular tax effects to the stockholder of the merger in light of such stockholder’s particular circumstances and the application of state, local, foreign, estate, gift and other tax laws (or any U.S. federal tax laws other than those pertaining to income tax).

Regulatory Approvals

The merger is subject to the reporting and waiting period requirements of the HSR Act, it being understood that the existing clearance of the merger thereunder, to the extent still in effect, shall be deemed to satisfy such condition. Following the execution of the original merger agreement, Parent and the Company filed notification of the merger with the FTC and the DOJ under the HSR Act. On September 26, 2019, the waiting period under the HSR Act with respect to the merger expired, which we refer to as the original clearance. Prior to the expiration of the original clearance, Parent withdrew and refiled its HSR Act notification form to avoid expiration of the original clearance under the HSR Act. On September 22, 2020, the parties received notice from the FTC that early termination of the waiting period applicable to the refiled notification form had been granted, which we refer to as the renewed HSR clearance. The renewed HSR clearance will expire on September 21, 2021.

In addition, following the execution of the original merger agreement, the parties prepared and submitted regulatory filings in the jurisdictions in which the parties agreed that regulatory filings may be required. Regulatory clearance was later received with respect to the merger from the Austrian Federal Competition Authority on September 3, 2019, and from the German Federal Cartel Office on November 11, 2019. On January 19, 2021, the State Administration for Market Regulation in China posted on its website its decision conditionally approving the merger, which was dated January 14, 2021.

Under the terms of the amended and restated merger agreement, the merger cannot be consummated if any governmental entity of the United States of competent jurisdiction has issued, promulgated or entered any judgment, writ, decree, stipulation, determination, decision, legal or arbitration award, settlement or consent agreement, charge, ruling, injunction, restraining order or other order (whether temporarily, preliminary or permanently in effect), and no law, statute, constitution, resolution, ordinance, code, permit, rule, regulation, ruling or requirement has been enacted in the United States that prohibits, makes illegal or enjoins the consummation of the merger.

Litigation Relating to the Merger

Shareholder Litigation

On August 5, 2019, a lawsuit, captioned Jiang v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-07267, or the Jiang Action, was filed against the Company and each of the Company’s directors in the United States District Court for the Southern District of New York alleging violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a materially incomplete and misleading preliminary proxy statement in connection with the merger. In the following days, three additional lawsuits, including two putative class action lawsuits, were filed against the Company and its directors making similar allegations and asserting similar claims regarding the preliminary proxy statement: O’Brien v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-01463 (D. Del., filed August 5, 2019); Rosenblatt v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-01470 (D. Del., filed August 6, 2019); and Mac v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-11706 (D. Mass., filed August 7, 2019). The O’Brien action asserted an additional claim that the Company’s directors breached their fiduciary duties by, among other things, agreeing to the merger

 

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without taking steps to obtain adequate, fair and maximum consideration under the circumstances and engineering the merger to improperly benefit themselves, Company management and/or Parent without regard for the Company’s public stockholders. The plaintiffs in these four lawsuits sought various forms of injunctive and declaratory relief, as well as awards of damages, costs, expert fees, and attorneys’ fees.

On August 27, 2019, the Company and the plaintiffs in the O’Brien Action, the Rosenblatt Action, and the Mac Action entered into a memorandum of understanding in which these plaintiffs agreed to dismiss with prejudice their individual claims and to dismiss without prejudice the class claims asserted in those actions, in return for the Company’s agreement to make the supplemental disclosures set forth under the heading “Supplement to Proxy Statement” in a Form 8-K filed by the Company with the Securities and Exchange Commission on August 27, 2019, or the Supplemental Disclosures. On August 27, 2019, prior to the filing of the Company’s Form 8-K containing the Supplemental Disclosures, the Company and the plaintiff in the Jiang Action agreed in principle that the plaintiff would dismiss with prejudice his claims asserted in that action, in return for the Company’s agreement to make the Supplemental Disclosures. That agreement was memorialized in a memorandum of understanding between the Company and the plaintiff in the Jiang Action entered into on August 28, 2019. Pursuant to the memoranda of understanding, the plaintiffs in all four actions filed notices of voluntary dismissal on September 11, 2019. Pursuant to the memoranda of understanding, the parties thereafter negotiated an award of attorney’s fees and expenses based upon the purported benefit conferred upon the Company’s stockholders by causing the Supplemental Disclosures to be disseminated.

Litigation between the Company and Parent

On January 8, 2021, Parent commenced litigation against the Company in the Court of Chancery of the State of Delaware, or the Court of Chancery, which we refer to as the merger litigation. The lawsuit, captioned Cisco Systems, Inc. v. Acacia Communications, Inc., Civil Action No. 2021-0018-JTL, sought, among other things, a temporary restraining order to enjoin the Company from terminating the original merger agreement, a declaratory judgment that all necessary conditions to closing were satisfied and that the Company’s notice of termination of the original merger agreement was invalid, and an order requiring the Company to specifically perform its obligations under the original merger agreement and close the merger as soon as practicable.

Later on January 8, 2021, the Court of Chancery granted Parent’s motion for a temporary restraining order. In addition, the Court of Chancery granted Parent’s motion for expedited proceedings for consideration of Parent’s claims. Pursuant to the temporary restraining order, the Company continued to be bound by the terms of the original merger agreement until further order of the Court of Chancery or as otherwise agreed by the parties.

On January 11, 2021, the Company filed its answer and affirmative defenses in response to the complaint filed by Parent and simultaneously filed a counterclaim against Parent seeking a declaration that the Company validly terminated the original merger agreement pursuant to the terms thereof.

On January 14, 2021, in connection with the execution of the amended and restated merger agreement, the Company and Parent jointly requested that the Court of Chancery lift the temporary restraining order and dismiss with prejudice the litigation pending between the parties in that court. Later that same day, the Court of Chancery entered an order vacating the temporary restraining order and dismissing the parties’ respective claims with prejudice, with each party bearing its own costs.

 

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THE AMENDED AND RESTATED MERGER AGREEMENT (PROPOSAL ONE)

The following is a summary of the material terms and conditions of the amended and restated merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the amended and restated merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the amended and restated merger agreement that is important to you. We encourage you to read the amended and restated merger agreement carefully and in its entirety because it is the legal document that governs the merger.

Explanatory Note Regarding the Amended and Restated Merger Agreement

The amended and restated merger agreement is included to provide you with information regarding its terms. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the amended and restated merger agreement. The representations, warranties and covenants made in the amended and restated merger agreement by the Company, Parent and Merger Sub were qualified and subject to important limitations agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the amended and restated merger agreement. In particular, in your review of the representations and warranties contained in the amended and restated merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the amended and restated merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the amended and restated merger agreement, rather than establishing as facts the matters described therein. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC and in some cases were qualified by the matters contained in disclosure schedules that the Company delivered to Parent in connection with the original merger agreement and the amended and restated merger agreement, which we refer to as the Company disclosure schedules. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the amended and restated merger agreement, and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

The Merger

On the terms and subject to the conditions set forth in the amended and restated merger agreement and the applicable provisions of DGCL, at the effective time of the merger, Merger Sub, a wholly owned subsidiary of Parent, will merge with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue as the surviving corporation or the merger. As a result of the merger, the Company will become a wholly owned subsidiary of Parent. We sometimes refer to the Company after the consummation of the merger as the surviving corporation. The certificate of incorporation of the Company will be amended and restated in its entirety at the effective time of the merger, to read as set forth on an exhibit to the amended and restated merger agreement. The by-laws of the Company will also be amended and restated in their entirety at the effective time of the merger, to read as set forth on an exhibit to the amended and restated merger agreement. Certain officers of the Company immediately prior to the effective time of the merger will continue as the officers of the surviving corporation immediately following the effective time of the merger and will be appointed as directors of the surviving corporation upon the effective time of the merger, and the officers and directors of Merger Sub immediately prior to the effective time of the merger will become the officers and directors of the surviving corporation effective after the close of business on the closing date.

 

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Effective Time of the Merger

Unless the amended and restated merger agreement is terminated (as described under “— Termination”) and unless otherwise mutually agreed in writing between the Company, Parent and Merger Sub, subject to satisfaction or waiver of the conditions to the closing (described under “— Conditions to the Merger”), the consummation of the merger (which we refer to as the closing) will take place on the third business day (or as otherwise mutually agreed) after the satisfaction or waiver of the conditions to the closing (other than any such conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions).

The merger will become effective upon the date and time the certificate of merger is accepted by the Secretary of State of the State of Delaware or such later date and time as is agreed upon in writing by the Company and Parent and specified in the certificate of merger.

Merger Consideration

At the effective time of the merger, each share of Company common stock then outstanding will be converted automatically into the right to receive the merger consideration of $115.00 per share in cash upon the surrender of the stock certificates or book-entry shares, as applicable, without interest and subject to all applicable tax withholding, other than the following shares:

 

   

each share of Company common stock then held by the Company as treasury stock and by any of its direct or indirect wholly owned subsidiaries, which will be canceled and retired and will cease to exist, and no consideration will be delivered in exchange therefor;

 

   

each share of Company common stock then held by Parent, Merger Sub or any other subsidiary of Parent, which will be canceled and retired and will cease to exist, and no consideration will be delivered in exchange therefor; and

 

   

any dissenting shares, which are described below in the section entitled “— Appraisal Rights”.

Subject to the above exceptions, from and after the effective time of the merger, each holder of Company common stock outstanding immediately prior to the effective time of the merger will cease to have any rights with respect to such shares, except as otherwise provided in the amended and restated merger agreement or by applicable law, and such shares will no longer be outstanding and will automatically be canceled.

The merger consideration will be equitably adjusted to the extent necessary to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into capital stock), reorganization, reclassification, combination, recapitalization or other like change with respect to the Company common stock occurring after the date of the amended and restated merger agreement and prior to the effective time of the merger.

Payment Procedures

Parent has designated its transfer agent, Computershare Trust Company, N.A., to act as exchange agent for the holders of shares of Company common stock. At or prior to the effective time of the merger, Parent will deposit or cause its direct or indirect subsidiary to deposit, with such exchange agent cash sufficient to pay the aggregate merger consideration payable to the Company’s stockholders.

Promptly (and in any event within three business days) after the effective time of the merger, Parent will instruct the exchange agent to mail to all record holders of Company common stock represented by stock certificates whose shares were converted into the right to receive the merger consideration, a letter of transmittal and instructions for use in effecting the surrender of the stock certificates pursuant to such letter of transmittal. Holders of shares of Company common stock should not sign the back of their stock certificate(s) and should return any surrendered stock certificates with a letter of transmittal to the exchange agent by trackable mail. Upon surrender to the exchange agent of certificates representing shares of Company common stock, together with a letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and

 

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such other documents as may be reasonably required by the exchange agent, the holder of such certificates will be entitled to receive in exchange for the merger consideration for each share of Company common stock evidenced by such certificates. Each holder of book-entry shares will not be required to deliver a letter of transmittal and instead holders of such shares of Company common stock will automatically receive the merger consideration they are entitled to receive. No interest will accrue or be paid on the merger consideration payable upon the surrender of any certificates or book-entry shares for the benefit of the holder thereof. Holders of shares of Company common stock in street name with a bank, broker or nominee will receive the merger consideration for such shares directly from such bank, broker or nominee. Each of the surviving corporation, Parent, their respective subsidiaries and the exchange agent will be entitled to deduct and withhold (or cause the exchange agent to deduct and withhold) from the merger consideration payable to any holder of Company common stock, stock options, RSUs, PRSUs or any other consideration otherwise payable pursuant to the amended and restated merger agreement such amounts as it is required by any legal requirement to deduct and withhold with respect to taxes.

All merger consideration paid or payable upon the surrender for exchange of shares of Company common stock in accordance with the amended and restated merger agreement will be so paid or payable in full satisfaction of all rights pertaining to such shares, and there will be no further registration of transfers on the records of the surviving corporation of shares of Company common stock that were issued and outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, any stock certificate or book-entry shares are presented to the surviving corporation for any reason, such stock certificate or book-entry shares will be cancelled and exchanged as provided in this section.

Any portion of funds held by the exchange agent that has not been delivered to any holders of stock certificates or book-entry shares within 12 months after the effective time of the merger will promptly be paid to Parent, and thereafter each holder of a stock certificate or book-entry shares who has not theretofore complied with the exchange procedures set forth in the amended and restated merger agreement will look only to Parent (subject to abandoned property, escheat and similar laws) for its claim, only as a general unsecured creditor thereof, to the cash payable to such holder pursuant to the amended and restated merger agreement.

In the event any stock certificate has been lost, stolen or destroyed, the exchange agent will issue in exchange for such stock certificate, following the making of an affidavit of that fact by the record holder thereof, the merger consideration in respect of such stock certificate; provided that Parent or the exchange agent may, in its respective reasonable discretion and as a condition precedent to the issuance thereof, require the record holder of such stock certificate to deliver a customary bond, in such reasonable amount as Parent or the exchange agent may reasonably direct, as indemnity against any claim that may be made against Parent, the surviving corporation, the exchange agent or any of their respective representatives with respect to such certificate.

You should not send your certificates (if any) to the exchange agent until you have received transmittal materials from the exchange agent. Do not return your certificates (if any) with the enclosed proxy.

Appraisal Rights

Shares of Company common stock issued and outstanding immediately prior to the effective time of the merger that are held by a holder who has made a proper demand for appraisal of such shares of Company common stock in accordance with Section 262 of the DGCL, continuously holds such shares of record from the date of the making of the demand through the effective time of the merger and has not thereafter failed to perfect, withdraw or otherwise lose his, her or its rights to appraisal, which we refer to as dissenting shares, will not be converted into or represent the right to receive the merger consideration in accordance with the amended and restated merger agreement. Holders of dissenting shares will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive in lieu of the merger consideration payment in cash of the amount determined by the Delaware Court of Chancery to be the “fair value” of the shares of Company common stock as of the effective time of the merger. These rights are discussed more fully under the section of this proxy statement

 

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entitled “Appraisal Rights” beginning on page 139. If any dissenting shares lose their status as such (through failure to perfect or otherwise), then, as of the later of the effective time or the date of loss of such status, such shares will be deemed to have been converted as of the effective time into the right to receive the merger consideration in accordance with the amended and restated merger agreement, without interest and subject to deduction for any required tax withholding, and will not thereafter be deemed to be dissenting shares.

The Company must give Parent: (i) prompt notice of any written demand for appraisal received by the Company prior to the effective time pursuant to the DGCL, withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company that relate to such demands, and (ii) the right to participate in all negotiations and proceedings with respect to such demands under the DGCL. The Company may not, except with the prior written consent of Parent, voluntarily make any payment or offer to make any payment with respect to, or settle or offer to settle, any claim or demand in respect of any dissenting shares.

Treatment of Company Equity Awards and Employee Stock Purchase Plan

Each Company stock option that is outstanding, vested and unexercised immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option; provided that, in the event that the exercise price of any such vested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

Each Company stock option that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the excess, if any, of the merger consideration over the exercise price per share of such stock option, payable to the extent, and at the applicable times, such unvested stock option would have become vested under the vesting schedule in place for such stock option immediately prior to the effective time, including under the terms of the CIC plan, and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent; provided that, in the event that the exercise price of any such unvested stock option is equal to or greater than the merger consideration, such stock option will be canceled at the effective time, without any consideration being payable in respect thereof and have no further force or effect.

Each RSU and PRSU that is outstanding and vested and has not been settled immediately prior to the effective time of the merger (which includes PRSUs with a total stockholder return performance metric that will become vested based on actual results as of the closing of the merger and certain RSUs that will become vested as of the closing of the merger) will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the merger consideration.

Each RSU and PRSU that is outstanding and unvested immediately prior to the effective time of the merger will be canceled at the effective time and converted into the right to receive an amount in cash, without interest, equal to the merger consideration payable to the extent, and at the applicable times, such unvested RSU or PRSU would have become vested under the vesting schedule in place for such RSU or PRSU immediately prior to the effective time, including under the terms of the CIC plan and any scheduled retention agreement after giving effect to any applicable employment offer documents entered into with Parent.

Each cash payment for the stock options, RSUs and PRSUs described above will be subject to deduction for any applicable withholding taxes.

Following execution of the original merger agreement, the Company took all actions with respect to the Company ESPP that were required to provide that, (i) with respect to any offering period in effect as of the date of the original merger agreement, no employee who was not a participant in the Company ESPP as of the date of

 

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the original merger agreement could become a participant in the Company ESPP and no participant could increase the percentage amount of his or her payroll deduction election from that in effect on the date of the amended and restated merger agreement for such offering period; (ii) subject to the consummation of the merger, the Company ESPP will terminate effective immediately prior to the effective time of the merger; and (iii) the Company ESPP was suspended and no new offering periods have been or will be commenced under the Company ESPP prior to the termination of the amended and restated merger agreement.

Representations and Warranties

In the amended and restated merger agreement, the Company made representations and warranties to Parent and Merger Sub, including those relating to:

 

   

the corporate organization, good standing, power and qualification of the Company and its subsidiaries;

 

   

the Company’s capitalization, including with respect to its stock awards;

 

   

the Company’s corporate power and authority to enter into the amended and restated merger agreement;

 

   

the due execution and delivery by the Company of the amended and restated merger agreement and the enforceability of the amended and restated merger agreement against the Company;

 

   

the resolutions of the board of directors approving the amended and restated merger agreement, the merger and the other transactions contemplated by the amended and restated merger agreement;

 

   

the vote required of the stockholders of the Company to adopt the amended and restated merger agreement, the merger and the other transactions contemplated by the amended and restated merger agreement;

 

   

the absence of conflicts with the Company’s organizational documents, applicable law or certain material contracts to which the Company or any of its subsidiaries is a party;

 

   

required consents from governmental authorities;

 

   

the inapplicability of Section 203 of the DGCL to the transactions contemplated by the amended and restated merger agreement;

 

   

the Company’s financial statements, certain filings with the SEC and internal accounting controls;

 

   

the absence of certain changes or any material adverse effect (as defined below) from March 31, 2019 until July 8, 2019;

 

   

the absence of material legal proceedings involving the Company and its subsidiaries as of July 8, 2019;

 

   

compliance with legal requirements by the Company and its subsidiaries, including anti-corruption laws;

 

   

the permits issued by governmental authorities held by the Company and its subsidiaries;

 

   

title to assets owned by the Company and its subsidiaries;

 

   

real property leased by the Company and its subsidiaries;

 

   

intellectual property and information technology systems;

 

   

compliance by the Company and is subsidiaries with applicable privacy laws;

 

   

environmental matters;

 

   

tax matters;

 

   

employee benefits and other employee matters, including benefit plans;

 

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interested party transactions that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K;

 

   

insurance coverage;

 

   

the absence of any undisclosed fees owed to investment bankers, brokers or finders in connection with the merger;

 

   

the Company’s significant customers and suppliers;

 

   

material contracts;

 

   

compliance by the Company and is subsidiaries with applicable export control laws, import control laws and sanctions;

 

   

the fairness opinion delivered to the board of directors by Goldman Sachs, as financial advisor to the board of directors; and

 

   

the accuracy of the information provided by the Company in this proxy statement.

In the amended and restated merger agreement, Parent and Merger Sub made representations and warranties to the Company, including those relating to:

 

   

the corporate organization, good standing, power and qualification of Parent and Merger Sub;

 

   

Parent’s and Merger Sub’s corporate power and authority to enter into the amended and restated merger agreement;

 

   

the due execution and delivery by Parent and Merger Sub of the amended and restated merger agreement and the enforceability of the amended and restated merger agreement against Parent and Merger Sub;

 

   

the absence of conflicts with the organizational documents of Parent or Merger Sub, applicable law or material contracts to which Parent or Merger Sub is a party;

 

   

ownership and operations of Merger Sub since its formation;

 

   

Parent’s and Merger Sub’s ownership of Company common stock for purposes of Section 203 of the DGCL;

 

   

the accuracy of the information supplied by Parent or Merger Sub for inclusion in this proxy statement;

 

   

sufficiency of funds to consummate the transactions contemplated by the amended and restated merger agreement;

 

   

the absence of material legal proceedings involving Parent or Merger Sub as of July 8, 2019;

 

   

the absence of any undisclosed fees owed to investment bankers, brokers or finders in connection with the merger for which the Company or any of its subsidiaries would have obligations or liabilities prior to the effective time of the merger; and

 

   

an acknowledgment by Parent that neither the Company nor any of its representatives has made any representations and warranties to Parent, including with respect to forward-looking information, other than those contained in Article II of the amended and restated merger agreement.

Definitions of Knowledge and Material Adverse Effect

Many of the Company’s representations and warranties are qualified by a knowledge, materiality or material adverse effect standard. In addition, certain conditions to the performance of Parent’s obligations under the amended and restated merger agreement are qualified by reference to whether the item in question would have a material adverse effect. For purposes of the amended and restated merger agreement, “knowledge” means the

 

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knowledge of certain specified employees of the Company after reasonable inquiry. For purposes of the amended and restated merger agreement, “material adverse effect” means with respect to the Company and its subsidiaries, taken as a whole, any change, event, occurrence, circumstance, condition or effect (each referred to as an effect) that, individually or taken together with all other effects, and regardless of whether or not such effect, considered together with all other effects, would constitute a breach of the representations or warranties made by such person in the amended and restated merger agreement (a) would, or would reasonably be expected to, be or become materially adverse to the financial condition (including assets and liabilities, taken as a whole), business, operations or results of operations of the Company and its subsidiaries, taken as a whole and (b) would, or would reasonably be expected to, prohibit the Company’s ability to consummate the transactions in accordance with the amended and restated merger agreement and applicable laws of the United States. However, the absence of or failure to obtain any consent, approval, waiver or clearance from any governmental entity under antitrust laws with respect to the transactions contemplated under the amended and restated merger agreement will not constitute a material adverse effect. In addition, none of the following will be deemed in and of themselves, either alone or in combination, to constitute, and none of the following will be taken into account in determining whether there is, or would reasonably likely to be, a material adverse effect on the Company and its subsidiaries:

 

   

changes in general economic conditions or financial, credit, foreign exchange, securities, currency, or capital or other financial markets, including any disruption thereof, in the United States, any other country or region in the world or the global economy generally;

 

   

changes generally affecting the industry in which the Company and its subsidiaries operate;

 

   

changes in applicable laws;

 

   

changes in United States generally accepted accounting principles, or GAAP, or other accounting regulations or principles or interpretations thereof, that apply to the Company and its subsidiaries;

 

   

national or international political conditions, any outbreak or escalation of hostilities, insurrection or war, or acts of terrorism;

 

   

epidemics, quarantine restrictions, wildfires, earthquakes, hurricanes, tornadoes, other natural disasters or similar calamity or crisis;

 

   

changes in the trading volume or trading prices of such entity’s capital stock in and of themselves (however, such exception will not apply to any underlying effect that may have caused such change in the trading prices or volumes);

 

   

any failure, in and of itself, to meet market revenue or earnings expectations, including revenue or earnings projections or predictions made by the Company (whether or not publicly announced) or securities or financial analysts and any resulting analyst downgrades of the Company’s securities in and of themselves (however, such exception will not apply to any underlying effect that may have caused such failure or such downgrades);

 

   

changes in the Company’s and its subsidiaries’ relationships with employees, customers, distributors, suppliers, vendors, licensors or other business partners as a result of the announcement or pendency of the original merger agreement, the amended and restated merger agreement or the anticipated consummation of the merger and the other transactions contemplated by the amended and restated merger agreement (however, such exception will not apply with respect to the representations and warranties regarding non-contravention or, solely to the extent related to the representations and warranties regarding non-contravention, the closing condition regarding accuracy of representations of the Company and Parent’s termination right in the event of any breach of representations and warranties or covenants by the Company);

 

   

any actions taken or failure to take action, in each case, that Parent has expressly approved, consented to or requested in writing; or

 

   

any legal proceeding brought or threatened by a current or former stockholder of the Company against the Company relating to the transactions contemplated by the amended and restated merger agreement.

 

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The first six exceptions listed above will not apply to the extent that such changes disproportionately and adversely affect the Company and its subsidiaries, taken as a whole, as compared to other participants in the industry and the regions of the world in which the Company and its subsidiaries operate.

Definition of Parent Material Adverse Effect

Certain of the representations and warranties made by Parent and Merger Sub are qualified by a materiality or Parent material adverse effect standard. In addition, certain conditions to the performance of the Company’s obligations under the amended and restated merger agreement are qualified by reference to whether the item in question would have a Parent material adverse effect. For purposes of the amended and restated merger agreement, a “Parent material adverse effect” means any effect that would, or would reasonably be expected to, prohibit Parent’s or Merger Sub’s ability to consummate the transactions in accordance with the amended and restated merger agreement and applicable laws of the United States. However, the absence of or failure to obtain any consent, approval, waiver or clearance from any governmental entity under antitrust laws with respect to the transactions contemplated under the amended and restated merger agreement will not constitute a Parent material adverse effect.

Covenants Relating to the Conduct of the Company’s Business

The Company agreed in the amended and restated merger agreement that, until the effective time of the merger, except (a) to the extent expressly provided otherwise in the amended and restated merger agreement, (b) consented to in writing by Parent (which consent may not be unreasonably withheld, conditioned or delayed), (c) as set forth in the disclosure schedules that the Company delivered to Parent in connection with the execution of the original merger agreement and the amended and restated merger agreement or (d) as necessary to comply with applicable legal requirements or the Company’s material contracts in effect on the date of the original merger agreement or the amended and restated merger agreement and made available to Parent or entered with Parent’s prior written consent, the Company will, and will cause its subsidiaries to, use commercially reasonable efforts to:

 

   

conduct its and their businesses in the ordinary course of business;

 

   

preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having material business dealings with it; and

 

   

assure that each of its material contracts entered into after the date of the original merger agreement will not require the procurement of any consent, waiver or novation or provide for any material change in the obligations of any party thereto in connection with, or terminate as a result of the consummation of, the transactions contemplated by the amended and restated merger agreement.

The Company also agreed that, until the effective time of the merger, except to the extent expressly provided otherwise in the amended and restated merger agreement or as required to comply with applicable legal requirements, with the written consent of Parent (which consent may not be unreasonably withheld, conditioned or delayed) or as set forth in the disclosure schedules that the Company delivered to Parent in connection with the execution of the original merger agreement and the amended and restated merger agreement, the Company will not and will cause its subsidiaries not to:

 

   

amend its certificate of incorporation or bylaws, or comparable organizational or governing documents, other than amendments required solely due to capital contributions to foreign subsidiaries of the Company;

 

   

declare or pay any dividend on or make any other distribution (whether in cash, stock or property) in respect of any of its capital stock (other than the payment of any dividend or distribution by any subsidiary to the Company or another subsidiary), change any rights with respect to its outstanding

 

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securities, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock (subject to certain exceptions);

 

   

accelerate, amend or change the period of exercisability or vesting of any stock options, RSUs, PRSUs or other rights granted under the Company’s equity plans or the vesting of the securities purchased or purchasable under such stock options, RSUs, PRSUs or other rights or the vesting schedule issued under such equity plans or otherwise, amend or change any other terms of such stock options, RSUs, PRSUs or other rights or authorize cash payments in exchange for any stock options, RSUs, PRSUs or other rights granted under any of such plans or the securities purchased or purchasable under those stock options, RSUs, PRSUs issued under such plans or otherwise, in each case, other than actions as may be necessary for the board of directors to take during the period prior to the effective time of the merger to give effect to the provisions of the amended and restated merger agreement with respect to such stock options, RSUs or PRSUs;

 

   

enter into any material contract (subject to certain exceptions);

 

   

terminate (other than allowing expiration according to its scheduled term, including failure to renew) or waive any of the material terms of any material contracts;

 

   

amend or otherwise modify any of its material contracts in such a way as to materially reduce the expected business or economic benefits thereof;

 

   

issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any voting debt or any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other contracts of any character obligating it to issue any such shares or other convertible securities (subject to certain exceptions);

 

   

hire any additional officers or other employees, engage any consultants or independent contractors, amend any employment agreement or amend or extend the term by more than one year of any consulting agreement (except hiring of employees in the ordinary course of business and in accordance with, and up to two percent in excess of, the hiring plan set forth in the disclosure schedule that the Company delivered to Parent in connection with the execution of the original merger agreement and pursuant to certain other exceptions);

 

   

terminate the employment, change the title, office or position of any employee at or above the level of director (subject to certain exceptions);

 

   

enter into any contract with a labor union or collective bargaining agreement unless required by law;

 

   

incur material liabilities to directors, officers or stockholders (subject to certain exceptions);

 

   

other than (a) routine travel advances, sales commissions and draws and other business related expenses to employees and consultants of the Company or any subsidiary in the ordinary course of business and (b) payments or loans to any subsidiary in order to fund operations in the ordinary course of business, (i) make any loans or advances to, or any investments (other than as permitted under the Company’s corporate investment policy and in the ordinary course of business) in or capital contributions to, any person (including any officer, director or employee of the Company), (ii) forgive or discharge in whole or in part any outstanding loans or advances owed to the Company by any person or (iii) amend or modify in any material respect any loan previously granted by the Company to any person;

 

   

transfer or license to any person any rights to any intellectual property owned by the Company, or acquire or license from any person any third-party intellectual property, other than in the ordinary course of business;

 

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sell, dispose of, transfer or provide a copy of any source code to any person (including any current or former employee or consultant of the Company or any contractor or commercial partner of the Company outside the United States) (subject to certain exceptions);

 

   

enter into any contract that would constitute a material contract (if entered into prior to the date of the original merger agreement) that contains certain restrictions on the Company’s business as specified in the amended and restated merger agreement, or amend any contract that would, after giving effect to such amendment, constitute a material contract (if so amended prior to the date of the original merger agreement) that contains such restrictions;

 

   

sell, lease or otherwise dispose of or encumber any of its properties or assets that are material, individually or in the aggregate, to its business, other than (a) sales and non-exclusive licenses of its products in the ordinary course of business consistent, (b) pursuant to dispositions of obsolete, surplus or worn out assets that are no longer useful in conduct of its business, or enter into any contract with respect to the foregoing or (c) sales of other assets in an aggregate amount not to exceed $1,000,000;

 

   

incur any indebtedness, enter into any “keep well” or other contract to maintain any financial statement condition, or enter into any arrangement having the economic effect of any of the foregoing, other than (a) intercompany indebtedness between the Company and one of its wholly owned subsidiaries issued in the ordinary course of business or (b) in connection with the financing of ordinary course trade payables consistent with past practice, letters of credit or bonds in the ordinary course of business consistent with past practice of not more than $500,000 in the aggregate;

 

   

enter into any operating lease requiring payment in excess of $300,000 per year or any leasing transaction of the type required to be capitalized in accordance with GAAP;

 

   

make any capital expenditures, capital additions or capital improvements that are more than $22,000,000 in the aggregate in any trailing four quarter period or $7,000,000 in any individual calendar quarter;

 

   

materially adversely change the amount or terms of any insurance coverage (subject to policy changes made by carriers);

 

   

adopt or amend in any material respect any employee or compensation benefit plan, including any stock purchase, stock issuance, stock option, bonus or cash incentive plan, or amend in any material respect any compensation, benefit, entitlement, grant or award provided or made under any such plan (subject to certain exceptions);

 

   

materially amend any deferred compensation plan (subject to certain exceptions);

 

   

pay any special bonus or special remuneration to any employee or non-employee director or consultant or increase the salaries, wage rates or fees of its employees or consultants (other than pursuant to preexisting plans, policies, or contracts that have been made available to Parent) (subject to certain exceptions);

 

   

add any new members to the board of directors or to the board of directors or similar governing body of any subsidiary of the Company (other than to replace a member of the board of directors or the board of directors or similar governing body of such subsidiary who resigns or is otherwise removed from such position following the date of the original merger agreement and prior to the closing);

 

   

grant or pay, or enter into any contract providing for the granting of any severance, retention or termination pay (other than accrued but unpaid salary), or the acceleration of vesting or other benefits, upon a termination of employment, to any person (subject to certain exceptions);

 

   

commence a legal proceeding, other than, in any such case, (a) for the routine collection of accounts receivable or matters in the ordinary course of business, (b) in such cases where the Company in good faith determines that failure to commence such legal proceeding would result in the material impairment of a valuable aspect of its business (provided that the Company consults with Parent prior to the filing of such a suit) or (c) for a breach of the amended and restated merger agreement;

 

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settle, offer to settle or agree to settle any pending or threatened legal proceeding, including any such legal proceeding between a third party and any customers of the Company for which the Company is providing a defense or indemnity, in any such case, other than the settlement of any action, suit, proceeding, claim, arbitration or investigation (but not a criminal proceeding) that requires payments by the Company (net of insurance proceeds received and indemnity, contribution, or similar payments actually received) in an amount not to exceed, individually or in the aggregate, $1,000,000, and in each case does not involve any admission of wrongdoing or injunctive or other equitable relief;

 

   

acquire or agree to acquire by merging or consolidating with, or by purchasing substantially all of the assets of, or by any other manner, any business or any person or division thereof, or enter into any contract with respect to a joint venture, strategic alliance or partnership;

 

   

make or change any material election in respect of taxes;

 

   

adopt or change any accounting method in respect of taxes;

 

   

file any material tax return relating to the Company or any of its subsidiaries that has been prepared in a manner that is materially inconsistent with the past practices of the Company or such subsidiary (unless such inconsistency is required by applicable law), as applicable, or any amendment to any material tax return (provided that Parent will not unreasonably withhold, condition or delay its consent to such a filing);

 

   

enter into any tax sharing or similar agreement or closing agreement or assume any liability for taxes of any other person (subject to certain exceptions);

 

   

settle any claim or assessment in respect of taxes;

 

   

consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of taxes (subject to certain exceptions);

 

   

enter into intercompany transactions outside the ordinary course of business giving rise to deferred gain or loss;

 

   

enter into or amend any cost-sharing arrangement within the meaning of Treasury Regulation Section 1.482-7 or any other material intercompany agreement involving the transfer, license or development of intellectual property;