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

August 7, 2019

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 on Friday, September 6, 2019 at 10:00 a.m., Eastern time, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109.

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 merger agreement, with Cisco Systems, Inc., a California 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, providing 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 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 79 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 merger agreement.

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

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 $70.00 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 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 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 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 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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Approval of the proposal to adopt the merger agreement requires 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.

Your vote is very important. In order to ensure your representation at the special meeting, whether or not you plan to 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 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 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 or a written 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 attending the special meeting and voting in person. Attending the special meeting will not, in itself, revoke a previously submitted proxy. To revoke a proxy in person at the special meeting, you must obtain a ballot and vote in person at 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 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 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 merger agreement will have the same effect as voting “AGAINST” the proposal to adopt the 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 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 merger agreement, you must not vote in favor of adoption of the 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 121 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 merger agreement and the merger. A copy of the 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 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, toll-free at (888) 557-7699.

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 August 7, 2019 and is first being mailed to our stockholders on or about August 7, 2019.

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 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
ATTEND THE SPECIAL MEETING. PLEASE DO NOT SEND IN ANY CERTIFICATES FOR
YOUR SHARES OF COMPANY COMMON STOCK AT THIS TIME. IF THE 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

10:00 a.m., Eastern time, on Friday, September 6, 2019.

 

Place

The offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109.

 

Items of Business

To consider and vote on:

 

   

a proposal to adopt the Agreement and Plan of Merger, dated as of July 8, 2019, as it may be amended from time to time, which we refer to as the merger agreement, by and among Acacia Communications, Inc., which we refer to as the Company, Cisco Systems, Inc., a California corporation, which we refer to as Parent, and Amarone Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent. A copy of the 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 79 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 merger agreement.

 

Record Date

You may vote if you were a stockholder of record at the close of business on August 6, 2019.

 

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 merger agreement cannot be consummated unless the merger agreement is adopted by the affirmative vote of the holders of a majority of the shares of Company


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common stock that are issued and outstanding as of the record date. Even if you plan to attend the special meeting in person, 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 attend. If you do not 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 merger agreement.

 

  If you are a stockholder of record, voting in person at 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. You are also invited to attend the special meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid proxy from your bank, brokerage firm or other nominee.

 

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 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 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 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 attend the special meeting. Beneficial owners of shares are invited to attend the special meeting. If your shares of Company common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of Company common stock. If you are the representative of a corporate or institutional stockholder, you must present proof that you are the representative of such stockholder.


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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 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 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 merger agreement, you must not vote in favor of adoption of the 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 121 and Annex D of the accompanying proxy statement.

WHETHER OR NOT YOU PLAN TO 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 ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.

By Order of our Board of Directors,

 

LOGO

Janene I. Asgeirsson

Chief Legal Officer and Secretary

August 7, 2019

Maynard, Massachusetts


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PROXY STATEMENT

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SUMMARY

     1  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     16  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

     25  

THE SPECIAL MEETING

     26  

Time, Place and Purpose of the Special Meeting

     26  

Record Date and Quorum

     26  

Attendance

     26  

Vote Required

     26  

Our Board’s Recommendation

     29  

Shares Owned by Our Directors and Executive Officers

     29  

Proxies and Revocation

     29  

Adjournments and Recesses

     29  

Stockholder List

     30  

Anticipated Date of Completion of the Merger

     30  

Appraisal Rights

     30  

Solicitation of Proxies; Payment of Solicitation Expenses

     30  

Householding of Special Meeting Materials

     31  

Questions and Additional Information

     31  

PARTIES TO THE MERGER

     32  

THE MERGER

     33  

Overview of the Merger

     33  

Directors and Officers of the Surviving Corporation

     34  

Background of the Merger

     34  

Reasons for the Merger; Recommendation of the Board of Directors

     48  

Opinion of the Company’s Financial Advisor

     53  

Financial Forecasts

     60  

Closing and Effective Time of the Merger

     64  

Payment of Merger Consideration and Surrender of Stock Certificates

     64  

Interests of Certain Persons in the Merger

     65  

Compensation Payable to our Named Executive Officers

     78  

Accounting Treatment

     81  

U.S. Federal Income Tax Consequences of the Merger

     81  

Regulatory Approvals

     83  

Litigation Relating to the Merger

     84  

THE MERGER AGREEMENT (PROPOSAL ONE)

     85  

Explanatory Note Regarding the Merger Agreement

     85  

The Merger

     85  

Effective Time of the Merger

     85  

Merger Consideration

     86  

Payment Procedures

     86  

Appraisal Rights

     87  

Treatment of Company Equity Awards and Employee Stock Purchase Plan

     88  

Representations and Warranties

     89  

Definitions of Knowledge and Material Adverse Effect

     90  

Definition of Parent Material Adverse Effect

     92  

Covenants Relating to the Conduct of the Company’s Business

     92  


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Restrictions on Solicitation of Other Offers

     97  

Restrictions on Changes of Recommendation to Company Stockholders

     99  

Additional Agreements of the Parties to the Merger Agreement

     101  

Conditions to the Merger

     105  

Termination

     107  

Termination Fee

     108  

Amendment; Extension; Waiver

     109  

Governing Law; Submission to Jurisdiction

     110  

Required Vote; Recommendation of the Board of Directors

     110  

OTHER AGREEMENTS

     111  

Voting Agreements

     111  

Addendum to Master Purchase Agreements

     111  

AMENDMENT TO COMPANY BY-LAWS

     114  

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

     115  

AUTHORITY TO ADJOURN THE SPECIAL MEETING (PROPOSAL THREE)

     116  

MARKET PRICE AND DIVIDEND DATA OF COMPANY COMMON STOCK

     117  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     118  

APPRAISAL RIGHTS

     121  

DELISTING AND DEREGISTRATION OF COMPANY COMMON STOCK

     126  

CONDUCT OF OUR BUSINESS IF THE MERGER IS NOT COMPLETED

     126  

OTHER MATTERS

     127  

Other Matters for Action at the Special Meeting

     127  

Future Stockholder Proposals

     127  

Stockholders Sharing the Same Address

     128  

WHERE YOU CAN FIND MORE INFORMATION

     129  

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 August 7, 2019 to our stockholders who owned shares of Company common stock as of the close of business on August 6, 2019.

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 129.

Parties to the Merger (Page 32)

In this proxy statement, we refer to the Agreement and Plan of Merger, dated as of July 8, 2019, as it may be amended from time to time, among Parent, Merger Sub and the Company, as the merger agreement, and the merger of Merger Sub with and into the Company as the merger. The parties to the 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 California corporation that designs and sells a broad range of technologies that have been powering the Internet since 1984. Across networking, security, collaboration and the cloud, Parent’s evolving intent-based technologies are constantly learning and adapting to provide customers with a highly secure, intelligent platform for their digital business. 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 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 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 26)

Time, Place and Purpose of the Special Meeting (Page 26)

The special meeting of the stockholders of the Company, which we refer to as the special meeting, will be held on Friday, September 6, 2019, starting at 10:00 a.m., Eastern time, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109.

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 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 79, 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 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 26)

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 August 6, 2019, 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 41,079,815 shares of Company common stock outstanding and entitled to vote at the special meeting. A quorum is necessary to adopt the merger agreement and approve the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger 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 in person 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 26)

Approval of the proposal to adopt the 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.

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 29)

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 3,284,204 shares of Company common stock, representing approximately 8.0% 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 merger agreement, “FOR approval of the advisory proposal regarding



 

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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 July 8, 2019 between Parent and each of such stockholders, to vote such shares, representing approximately 6.7% of the issued and outstanding shares of Company common stock on the record date, in favor of the adoption of the merger agreement and any matter that would reasonably be expected to facilitate the merger.

Proxies and Revocation (Page 29)

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 in person by appearing at the special meeting. If your shares of Company common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Company common stock using the instructions provided by your bank, brokerage firm or other nominee. 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 in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at the special meeting.

If you fail to submit a proxy or to vote in person at 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 merger agreement, which will have the same effect as a vote “AGAINST the proposal to adopt the 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 written notice of revocation to our Secretary at Acacia Communications, Inc., Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754, which must be filed with the Secretary by the time the special meeting begins, or by attending the special meeting and voting in person. Attending the special meeting will not, in itself, revoke a previously submitted proxy.

The Merger (Page 33)

The 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.

Merger Consideration (Page 86)

In the merger, each share of Company common stock, other than as provided below, will be converted into the right to receive $70.00 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



 

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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 merger agreement and who otherwise properly exercise, and do not withdraw or lose, appraisal rights under Section 262 of the General Corporation Law of the State of Delaware, (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.

Reasons for the Merger; Recommendation of the Board of Directors (Page 48)

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

 

   

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

 

   

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

The board of directors recommends that you vote “FOR” approval of the proposal to adopt the 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 53)

Goldman Sachs & Co. LLC (“Goldman Sachs”) delivered its opinion to the board of directors that, as of July 8, 2019 and based upon and subject to the factors and assumptions set forth therein, the $70.00 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 merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated July 8, 2019, 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 expected to be approximately $33,600,000, $3,000,000 of which became payable upon 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, and the remainder of which is contingent upon the consummation of the merger.



 

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Interests of Certain Persons in the Merger (Page 65)

In considering the recommendation of the board of directors with respect to the 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 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 merger agreement as described in “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 48. 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 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;

 

   

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 certain 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 at 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 and any scheduled retention agreement after giving effect to any applicable employment offer documents received from Parent;

 

   

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

 

   

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

 

   

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



 

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See “The Merger — Interests of Certain Persons in the Merger” beginning on page 65 for additional information.

Approval of Compensation Payable to Named Executive Offices in Connection with the Merger (page 115)

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 79, 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 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 81)

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 81 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 83)

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, and obtaining antitrust approval in specified foreign jurisdictions, including Austria, China and Germany. Under the terms of the merger agreement, the merger cannot be consummated if any governmental entity 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), or has enacted any law, statute, constitution, resolution, ordinance, code, permit, rule, regulation, ruling or requirement that prohibits, makes illegal or enjoins the consummation of the merger.



 

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Litigation Relating to the Merger (Page 84)

On August 5, 2019, a complaint was filed against us and each of our directors in the United States District Court for the Southern District of New York. The lawsuit, captioned Jiang v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-07267, alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a materially incomplete and misleading preliminary proxy statement in connection with the proposed merger of the Company with Parent and Merger Sub. The plaintiff seeks to enjoin the defendants from proceeding with the stockholder vote to approve the proposed merger, or from consummating the proposed merger, unless and until the Company discloses to Acacia’s public common stockholders the allegedly material information discussed in the complaint; or, in the event the proposed merger is consummated, the plaintiff seeks to recover damages. The plaintiff also seeks an award of costs, expert fees and attorneys’ fees.

On August 5, 2019, a putative class action complaint was filed against us and each of our directors in the United States District Court for the District of Delaware. The lawsuit, captioned O’Brien v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-01463 and purportedly brought on behalf of a class of stockholders, alleges that our directors breached their fiduciary duties by, among other things, agreeing to the proposed merger without taking steps to obtain adequate, fair and maximum consideration under the circumstances and engineering the proposed merger to improperly benefit themselves, Company management and/or Parent without regard for the Company’s public stockholders, and that we and our directors violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 by disseminating a materially incomplete and misleading preliminary proxy statement in connection with the proposed merger. The plaintiff has asked the court to, among other things, (i) enjoin the stockholder vote to approve the proposed merger and the consummation of the proposed merger; (ii) in the event the merger is consummated, rescind the merger and award rescissory damages; (iii) declare that the merger agreement was agreed to in breach of our directors’ fiduciary duties and is therefore unlawful and unenforceable; (iv) direct our directors to conduct a sale process in accordance with their fiduciary duties; and (v) award damages, costs, expert fees and attorneys’ fees.

On August 6, 2019, a putative class action complaint was filed against us and each of our directors in the United States District Court for the District of Delaware. The lawsuit, captioned Rosenblatt v. Acacia Communications, Inc., et al., Civil Action No. 1:99-mc-09999 and purportedly brought on behalf of a class of stockholders, alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a false and misleading preliminary proxy statement in connection with the proposed merger of the Company with Parent and Merger Sub. The plaintiff has asked the court to, among other things, (i) enjoin the defendants from proceeding, consummating or closing the proposed merger; (ii) in the event the proposed merger is consummated, rescind and set aside the merger or award rescissory damages; (iii) declare that the defendants have violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder; and (iv) award costs, attorneys’ fees and experts’ fees.

We believe that the claims asserted in these suits are without merit.

The Merger Agreement (Page 85)

Merger Consideration (Page 86)

If the merger is completed, each share of Company common stock, other than the excluded shares, will be converted into the right to receive $70.00 in cash, without interest and subject to deduction for any required withholding tax.



 

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Treatment of Company Equity Awards and Employee Stock Purchase Plan (Page 88)

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.

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 certain 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 at 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 received from Parent.

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

As soon as practicable following the date of the merger agreement, the Company will take 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 are required to provide that, (i) with respect to any offering period in effect as of the date of the merger agreement, no employee who is not a participant in the Company ESPP as of the date of the merger agreement may become a participant in the Company ESPP and no participant may increase the percentage amount of his or her payroll deduction election from that in effect on the date of the 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; (iii) if the offering period in effect as of the date of the merger agreement terminates prior to the effective time of the merger, then the Company ESPP will be suspended and no new offering period will be commenced under the Company ESPP prior to the termination of the merger agreement; and (iv) if any offering period in effect as of the date of the merger agreement is still in effect at the effective time of the merger, then the last day of such offering period will be accelerated to the business day prior to the closing date of the merger, and each participant will be entitled to a cash payment to equal to (A) (1) the per share merger consideration times (2) the number of shares of Company common stock that the participant’s accumulated payroll deductions as of such date could purchase at the “Option Price” (as defined in the Company ESPP), where the per share merger consideration is treated as the fair market value of



 

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the Company common stock on the last day of the applicable offering period for purposes of determining the Option Price, and where the number of shares that could be purchased is subject to the limitations set forth in the Company ESPP, minus (B) the result of multiplying such number of shares by such Option Price.

Restrictions on Solicitation of Other Offers (Page 97)

Under the merger agreement, during the period beginning on the date of the merger agreement until the earlier of the effective time of the merger or the termination of the 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) 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 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 merger agreement.

Notwithstanding these restrictions, if, at any time prior to the time that the Company’s stockholders approve the adoption of the 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 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



 

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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 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 Merger Agreement — Restrictions on Solicitation of Other Offers” beginning on page 97 for the definitions of “acquisition proposal” and “superior proposal.”

Restrictions on Changes of Recommendation to Company Stockholders (Page 99)

Under the merger agreement, the board of directors must submit the merger agreement to the Company’s stockholders for adoption and must recommend that the Company’s stockholders vote in favor of adopting the merger agreement. The 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 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 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 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 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 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 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 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 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



 

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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 merger agreement proposed by Parent, the failure to effect a change of recommendation and terminate the merger agreement would be inconsistent with its fiduciary obligations to the Company’s stockholders under applicable law.

In addition, nothing in the 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 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 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 merger agreement, as contemplated by the 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 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 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 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 merger agreement with Parent following receipt of a superior proposal upon the terms summarized above or Parent terminates the merger agreement following a change of recommendation under certain scenarios, the Company must pay the applicable termination fee as described beginning on page 108 under “The Merger Agreement — Termination Fee.”

You should read “The Merger Agreement — Restrictions on Changes of Recommendation to Company Stockholders” beginning on page 99 for the definitions of “change of recommendation” and “intervening event.”



 

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Conditions to the Merger (Page 105)

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 merger agreement by the Company’s stockholders at the special meeting;

 

   

the absence of any order or restraint or applicable legal requirement prohibiting, making illegal or enjoining the completion of the merger;

 

   

the expiration or termination of the applicable waiting period under the HSR Act;

 

   

the receipt of certain applicable foreign antitrust approvals, including in Austria, China and Germany;

 

   

each party’s respective representations and warranties in the merger agreement being true and correct as of the closing date of the merger, subject to specified exceptions; and

 

   

each party having performed in all material respects its covenants and other obligations required to be performed by it under the merger agreement at or prior to the closing of the merger.

Please see “The Merger Agreement — Conditions to the Merger” beginning on page 105 for a more complete summary of the conditions to the merger.

Termination (Page 107])

The merger agreement may be terminated under specified circumstances set forth in the 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 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 merger agreement), (b) a governmental entity 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 merger agreement will not be available to any party that has materially breached its obligations under the 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 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 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 merger agreement and makes a payment to Parent of a termination fee of $120 million.

You should read “The Merger Agreement — Termination” beginning on page 107 for the definitions of “end date” and “triggering event.”



 

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Termination Fee (Page 108)

Subject to certain limitations, the Company will be required to pay Parent a termination fee equal to $120 million if the 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 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 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 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 merger agreement occurred prior to obtaining approval of the adoption of the merger agreement at the special meeting of the Company’s stockholders or (c) the Company breached a representation or warranty contained in the merger agreement or failed to perform any of its covenants or other obligations contained in the 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).

In addition, under an Addendum to Master Purchase Agreements that was entered into between the Company, Parent and a wholly owned subsidiary of Parent in connection with the merger agreement, Parent may be required to pay to the Company a special payment with respect to the termination of the merger agreement under specified circumstances, as described in the section entitled “Other Agreements — Addendum to Master Purchase Agreements” beginning on page 111.

You should read “The Merger Agreement — Termination Fee” beginning on page 108 for the definitions of “acquisition” and “triggering event.”

Other Agreements (Page 111)

Voting Agreements (Page 111)

On July 8, 2019, concurrently with the execution of the 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 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 approximately 6.7% 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.



 

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Addendum to Master Purchase Agreements (Page 111)

In connection with the execution of the merger agreement, on July 8, 2019, the Company, Parent and Cisco International B.V., a wholly owned subsidiary of Parent, also entered into an Addendum to the Master Purchase Agreements by and between such parties, which we refer to as the addendum, pursuant to which Parent and Cisco International B.V. agreed to purchase certain percentages, ranging from 70% to 100% depending on product and date, of Parent’s and Cisco International B.V.’s requirements for certain of the Company’s existing products at agreed upon prices and to negotiate in good faith with respect to Parent’s and Cisco International B.V.’s future purchase of a majority of its requirements for certain of the Company’s future products subject to certain additional requirements. Parent and Cisco International B.V. may elect to terminate the addendum upon any change in control of the Company or the termination of the merger agreement by (a) the Company in order to accept a superior proposal, (b) Parent because a triggering event has occurred or because the Company breached a representation or warranty contained in the merger agreement or failed to perform any of its covenants or other obligations contained in the merger agreement, which breach or failure to perform or comply would give rise to the failure to satisfy certain conditions to the completion of the merger, or (c) by the Company or Parent because the closing did not occur on or before the end date, in each case at a time that the merger agreement was terminable for the reasons set forth in clauses (a) and (b) above. In addition, the addendum provides that, subject to certain conditions, Parent would be required to make a payment to the Company in the amount of $120 million if the merger agreement is terminated for the failure to obtain required regulatory approvals when all other conditions to closing have been satisfied.

Market Price and Dividend Data of Company Common Stock (Page 117)

The Company common stock is listed on the Nasdaq Global Select Market under the ticker symbol “ACIA.” On July 8, 2019, the last full trading day prior to the public announcement of the merger, the closing price of the Company common stock on the Nasdaq Global Select Market was $48.06 per share. On August 6, 2019, 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 $65.06 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 121)

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 merger agreement, do not vote in favor of the adoption of the 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 $70.00 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 121. An executed proxy that is not marked “AGAINST” or “ABSTAIN” with respect to the adoption of the merger agreement will be voted “FOR” the adoption of the 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.

Delisting and Deregistration of Company Common Stock (Page 126)

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 Securities and Exchange Commission, or the SEC.

Conduct of Our Business if the Merger is Not Completed (Page 126)

In the event that the 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 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 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 129.

 

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 merger agreement. If the proposal to adopt the merger agreement is approved by our stockholders and the other closing conditions under the 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 $70.00 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 $70,000 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 merger?

 

A.

The merger consideration of $70.00 per share of Company common stock represents an approximately 46% premium to the closing price of the Company’s common stock on the Nasdaq Global Select Market on July 8, 2019, the last full trading day prior to the public announcement of the merger.

 

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

 

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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.

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 certain 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 at 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 received from 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.

As soon as practicable following the date of the merger agreement, the Company will take all actions with respect to the Company ESPP, that are required to provide that, (i) with respect to any offering period in effect as of the date of the merger agreement, no employee who is not a participant in the Company ESPP as of the date of the merger agreement may become a participant in the Company ESPP and no participant may increase the percentage amount of his or her payroll deduction election from that in effect on the date of the 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; (iii) if the offering period in effect as of the date of the merger agreement terminates prior to the effective time of the merger, then the Company ESPP will be suspended and no new offering period will be commenced under the Company ESPP prior to the termination of the merger agreement; and (iv) if any offering period in effect as of the date of the merger agreement is still in effect at the effective time of the merger, then the last day of such offering period will be accelerated to the business day prior to the closing date of the merger, and each participant will be entitled to a cash payment to equal to (A) (1) the per share merger consideration times (2) the number of shares of Company common stock that the participant’s accumulated payroll deductions as of such date could purchase at the “Option Price” (as defined in the Company ESPP), where the per share merger consideration is treated as the fair market value of the Company common stock on the last day of the applicable offering period for purposes of determining the Option Price, and where the number of shares that could be purchased is subject to the limitations set forth in the Company ESPP, minus (B) the result of multiplying such number of shares by such Option Price.

 

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 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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Q.

Why is the board of directors recommending that I vote “FOR” approval of the proposal to adopt the 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 merger agreement, the merger and the other transactions contemplated thereby, on the terms and subject to the conditions set forth in the merger agreement, are advisable, fair to and in the best interests of the Company and its stockholders;

 

   

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

 

   

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

 

Q.

When do you expect the merger to be consummated?

 

A.

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 merger agreement and regulatory approvals, we currently anticipate that the merger will be consummated during the second half of Parent’s 2020 fiscal year, or between January 26, 2020 and July 25, 2020.

 

Q.

What happens if the merger is not consummated?

 

A.

If the 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 Merger Agreement — Termination Fee” beginning on page 108. In addition, under the addendum Parent may be required to pay to the Company a special payment with respect to the termination of the merger agreement under specified circumstances, as described in the section entitled “Other Agreements — Addendum to Master Purchase Agreements” beginning on page 111.

 

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 81 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.

 

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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 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 merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of the Company. See “The Merger — Interests of Certain Persons in the Merger” beginning on page 65.

 

Q.

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

 

A.

You are receiving this proxy statement and 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 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.

 

Q.

When and where is the special meeting?

 

A.

The special meeting of stockholders of the Company will be held on Friday, September 6, 2019 at 10:00 a.m., Eastern time, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109.

 

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 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 79, 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 merger agreement.

 

Q.

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

 

A.

The adoption of the 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. Pursuant to voting agreements entered into on July 8, 2019 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 merger agreement and any matter that would reasonably be expected to facilitate the merger. As of the record date, these stockholders beneficially owned approximately 6.7% of the issued and outstanding shares of Company common stock.

Because the affirmative vote required to approve the proposal to adopt the 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 in person at 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 merger agreement.

 

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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 in person at 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 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 of our holders of Company common stock of record as of the close of business on August 6, 2019, 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 41,079,815 shares of our common stock issued and outstanding held collectively by 18 stockholders of record.

 

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 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

 

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  by banks, brokerage firms or nominees that are present in person 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.” 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 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, in person 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 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:

 

   

in person — you may attend the special meeting and cast your vote there; 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 which of the above choices are 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 in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at 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

 

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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 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, by giving written notice of revocation to our Secretary at Acacia Communications, Inc., Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754, or by attending the special meeting and voting in person. 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 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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Q.

How are votes counted?

 

A.

With respect to the proposal to adopt the 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 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.

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 $20,000 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 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 attend the special meeting and vote in person, your vote by ballot 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 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 121.

 

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 25.

 

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, toll-free at (888) 557-7699.

 

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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, litigation 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 “believes,” “intends,” “anticipates,” “plans,” “estimates,” “expects” and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause actual events or our actual results to differ materially from those indicated by such forward-looking statements, including the occurrence of any event or proceeding that could give rise to the termination of the merger agreement; the inability to complete the merger due to the failure of the closing conditions to be satisfied; the outcome of any legal proceedings that may be instituted in connection with the merger; and the other factors described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and its most recent quarterly report filed with the SEC. In addition, any forward-looking statements represent our estimates only as of the date they were made and should not be relied upon as representing our estimates as of any subsequent date. 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 Friday, September 6, 2019, starting at 10:00 a.m., Eastern time, at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, or at any adjournment thereof. At the special meeting, holders of Company common stock will be asked to approve the proposal to adopt the 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 merger agreement.

Our stockholders must approve the proposal to adopt the merger agreement in order for the merger to be consummated. If our stockholders fail to approve the proposal to adopt the merger agreement, the merger will not be consummated. A copy of the 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 August 6, 2019 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 owned shares of Company common stock at the close of business on the record date. On the record date, there were 41,079,815 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 in person 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 to adopt the 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. 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.

Attendance

Only stockholders of record or their duly authorized proxies or beneficial owners with proof of ownership have the right to attend the special meeting. If your shares of Company common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of Company common stock. If you are the representative of a corporate or institutional stockholder, you must present proof that you are the representative of such stockholder.

Vote Required

Approval of the proposal to adopt the 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

 

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adopt the 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 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 in person at the special meeting, or if you vote “ABSTAIN”, it will have the same effect as a vote “AGAINST” the proposal to adopt the 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 in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at the special meeting.

Under the rules of the Nasdaq Stock Market, 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 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 in person 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 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 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 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 in person at 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.

 

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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:

 

   

in person — you may attend the special meeting and cast your vote there; 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 in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

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, your proxy card submission must be made 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 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.

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, toll-free at (888) 557-7699.

IT IS IMPORTANT THAT YOU SUBMIT A PROXY FOR YOUR SHARES OF COMPANY COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO 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 WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

 

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Our Board’s Recommendation

The board of directors has unanimously determined that the terms and conditions of the merger and the 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 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 48. The board of directors recommends that you vote FOR approval of the proposal to adopt the 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, 3,284,204 shares of Company common stock, representing approximately 8.0% 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 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 July 8, 2019 between Parent and each of such stockholders, to vote such shares, representing approximately 6.7% of the issued and outstanding shares of Company common stock on the record date, in favor of the adoption of the 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 in person at the special meeting. If your shares of Company common stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Company common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at 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 merger agreement, which will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

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 by the time the special meeting begins, or by attending the special meeting and voting in person. Attending the special meeting will not, in itself, revoke a previously submitted proxy.

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

 

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approve the proposal to adopt the 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 our stockholders entitled to vote at the special meeting will be available for examination by any of our stockholders at the special meeting. For 10 days prior to the special meeting, this stockholder list will be available for inspection by any stockholder for any purpose germane to the special meeting during ordinary business hours at our corporate offices located at Three Mill and Main Place, Suite 400, Maynard, Massachusetts 01754.

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 merger agreement, we currently anticipate that the merger will be consummated during the second half of Parent’s 2020 fiscal year, or between January 26, 2020 and July 25, 2020.

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 merger agreement, do not vote in favor of the adoption of the 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 $70.00 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 121. An executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the adoption of the 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.

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 $20,000 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

 

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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, toll-free at (888) 557-7699.

 

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PARTIES TO THE MERGER

THE COMPANY

Acacia Communications, Inc.

Acacia Communications, Inc. 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 129.

PARENT

Cisco Systems, Inc.

Cisco Systems, Inc., which we refer to as Parent, is a California corporation that designs and sells a broad range of technologies that have been powering the Internet since 1984. Across networking, security, collaboration and the cloud, Parent’s evolving intent-based technologies are constantly learning and adapting to provide customers with a highly secure, intelligent platform for their digital business. 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 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 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 merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

The 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.

Overview of the Merger

The Company, Parent and Merger Sub have entered into the merger agreement, which 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 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;

 

   

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 certain 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 at 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 received from Parent.

 

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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

The directors of Merger Sub immediately prior to the effective time of the merger will be the initial directors of the surviving corporation. The officers of Merger Sub immediately prior to the effective time of the merger will be the initial officers of the surviving corporation.

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 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

 

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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.

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.

 

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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 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.

 

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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 a new product development program that had been launched internally in late December 2018.

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.

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

 

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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.

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.

 

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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 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

 

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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.

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,

 

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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. 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, 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 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 preliminary

 

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illustrative 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 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, the board of directors established the Transaction Committee, consisting of directors David Aldrich, Peter Chung, Stan Reiss and John Ritchie, by unanimous written consent.

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

 

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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 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.

 

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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 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 merger agreement to WilmerHale. From June 21 to July 8, 2019, Fenwick and WilmerHale negotiated the terms of the definitive 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 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

 

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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 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.

 

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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 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 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 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

 

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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 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,

 

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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 preliminary illustrative 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.

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 merger agreement and presented a summary of the principal terms of the definitive 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 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. (See “The Merger—Opinions of the Company’s Financial Advisors.”) After discussion, the board of directors unanimously voted to approve the merger agreement and the transactions contemplated thereby, including the merger, to recommend the 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 merger agreement and issued a joint press release on July 9, 2019 announcing the transaction.

Reasons for the Merger; Recommendation of the Board of Directors

At a meeting held on July 8, 2019, the board of directors, by a unanimous vote of all of its directors, (a) determined and declared that the merger agreement, the merger and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth therein, are advisable, fair to and in the

 

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best interests of the Company and its stockholders, (b) adopted and approved the merger agreement, the merger and the other transactions contemplated by the 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 merger agreement to the Company’s stockholders for adoption and directed that the 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 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 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 $70.00 per share in cash was more favorable to the Company stockholders than the likely value that would result from other potential transactions or remaining 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 second largest customer by revenue, accounting for approximately 14% and 18.1% of the Company’s revenue during fiscal year 2018 and the first quarter of 2019, respectively, might acquire one of the Company’s competitors, 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 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 resulting volatility in the Company’s stock price;

 

     

the advantages of entering into the merger agreement in comparison with the risks of remaining independent, including risks 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 board of directors’ belief that its negotiations had resulted in the highest price per share for the Company common stock that Parent was willing to pay; and

 

     

the board of directors’ belief that its evaluation of potentially interested parties and the process conducted by the Company had resulted in the highest price reasonably available to the stockholders of the Company.

 

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Attractive Value. The board of directors concluded that the consideration of $70.00 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. The board of directors reviewed the historical market prices, volatility and trading information with respect to the Company common stock, and the sale process undertaken by the Company, including:

 

     

the fact that the proposed consideration of $70.00 per share represents a premium of (i) 45.4% compared to the closing price of the Company common stock of $48.14 per share on July 5, 2019, the last trading date prior to the date of the board of directors meeting, (ii) 47.9% compared to $47.32, the volume weighted average price of the Company common stock for the 30-day period ended July 5, 2019, (iii) 37.0% compared to $51.09, the volume weighted average price of the Company common stock for the 90-day period ended July 5, 2019, (iv) 36.6% compared to $51.25, the volume weighted average price of the Company common stock for the 180-day period ended July 5, 2019, (v) 52.1% compared to $46.03, the volume weighted average price of the Company common stock for the one-year period ended July 5, 2019, (vi) 14.7% compared to $61.04, the highest closing price per share of the Company common stock for the 52-week period ended July 5, 2019 and (vii) 120.3% compared to $31.78, the lowest closing price per share of the Company common stock for the 52-week period ended July 5, 2019;

 

     

the unlikelihood of an executable transaction at a higher value than the cash price to be paid by Parent, in light of (i) Party C’s unwillingness to negotiate a definitive agreement or commit to a specific timeline to execute a definitive agreement, (ii) the lack of conviction of Party C’s senior management in discussions regarding a strategic transaction, including prior discussions in 2018, (iii) management and Goldman Sachs’ assessment of potential candidates for further outreach and their ability to transact on competitive terms and (iv) the fact that the Company actively solicited increases in the offer made by Parent and Parent indicated that the merger consideration was its best and final offer; and

 

     

the risk that prolonging or expanding the sale process further could have (i) resulted in the loss of an opportunity to consummate a transaction with Parent, (ii) increased the risk of leaks regarding the discussions with Parent or Party C, which could have negatively impacted the Company’s business and its relationships with customers and suppliers and (iii) distracted senior management from implementing the Company’s business plan.

 

   

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 risk of the continued execution of the Company’s business on a standalone basis.

 

   

Likelihood of Completion. The likelihood that the merger will be consummated, particularly in view of the terms of the 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;

 

     

the fact that the addendum to the Master Purchase Agreements with Parent provides that, in the event the merger agreement is terminated under certain circumstances, Parent will pay the Company a $120,000,000 special payment, without the Company having to establish any damages;

 

     

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

 

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Parent’s obligation to undertake certain specified remedies to obtain antitrust clearance.

 

   

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 Company’s second largest customer by revenue in the first quarter of 2019. 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, Parent and Party C, 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 July 8, 2019, 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 $70.00 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 53 and the full text of such opinion is attached to this proxy statement as Annex B.

 

   

Terms of Merger Agreement. The terms and conditions of the merger agreement, including the Company’s ability to consider and respond to, under certain circumstances specified in the merger agreement, an unsolicited written acquisition proposal (as more fully described under the heading “The Merger Agreement — Restrictions on Solicitation of Other Offers”), and the board of directors’ right, after complying with the terms of the Merger Agreement, to terminate the merger agreement in order to enter into an agreement with respect to a superior proposal (as more fully described under the heading “The 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 $120,000,000, which is approximately 3.9% of the equity value of the Company, as described under “The Merger Agreement — Termination Fee” beginning on page 108.

 

   

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

 

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

 

   

Closing Conditions. The fact that completion of the merger would require antitrust clearance in the United States, Austria, Germany and the People’s Republic of China and the satisfaction of certain other closing conditions, including that no Company material adverse effect has occurred, which conditions 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 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 merger agreement or the transactions contemplated by the 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 stockholder 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 merger agreement prohibit the Company and its representatives from soliciting third-party bids, including soliciting additional proposals from Party C, 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 merger agreement and the transactions contemplated thereby and, under certain circumstances, to pay Parent a termination fee of $120,000,000 in connection with the termination of the merger agreement.

In considering the recommendation of the board of directors with respect to the proposal to adopt the 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 merger agreement and the merger, and in their recommendations with respect to the merger agreement. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 65.

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.

 

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The board of directors recommends that you vote “FOR” approval of the proposal to adopt the 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

Goldman Sachs rendered its opinion to the board of directors that, as of July 8, 2019 and based upon and subject to the factors and assumptions set forth therein, the $70.00 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 Merger Agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated July 8, 2019, 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 merger agreement;

 

   

Annual Reports to stockholders and Annual Reports on Form 10-K of the Company for the three years ended December 31, 2018;

 

   

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 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”.

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

 

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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 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 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 $70.00 in cash per share to be paid to such holders pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the 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 $70.00 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 merger agreement or otherwise. Goldman Sachs did not express any opinion as to 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 July 5, 2019, the 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 July 5, 2019 the last completed trading day before the date of Goldman Sachs’ opinion. In addition, Goldman Sachs analyzed the $70.00 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 merger agreement in relation to (i) the highest closing price per share of Company common stock for the 52-week period ended July 5, 2019; and (ii) the lowest closing price per share of Company common stock for the 52-week period ended July 5, 2019.

 

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

 

   

a premium of 14.7% to the highest closing trading price per share of Company common stock of $61.04 for the 52- week period ended July 5, 2019; and

 

   

a premium of 120.3% to the lowest closing trading price per share of Company common stock of $31.78 for the 52- week period ended July 5, 2019.

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

 

   

Applied Optoelectronics, Inc.

 

   

Ciena Corporation

 

   

II-VI Incorporated

 

   

Lumentum Holdings Inc.

Semiconductor Industry

 

   

MACOM Technology Solutions Holdings, Inc.

 

   

Inphi Corporation

 

   

IPG Photonics Corporation

 

   

Mellanox Technologies, Ltd.

 

   

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 July 5, 2019, information it obtained from SEC filings, the Institutional Brokers’ Estimate System consensus estimates, and, for the Company, also the Forecasts. With respect to the Company and 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 July 5, 2019. The results of these analyses are summarized as follows:

 

Average NTM EV/ EBITDA Multiples

   One Month      Three Months      Six Months      One year      2 years  

Company

     17.0x        20.1x        20.6x        20.6x        17.6x  

Optical Peers

     9.2x        8.9x        8.4x        8.0x        8.0x  

Semiconductor Peers

     15.8x        15.2x        14.2x        13.2x        12.9x  

 

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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 July 5, 2019 for the Company and the selected companies. The results of these analyses are summarized as follows:

 

Average NTM P/E Multiples

   One Month      Three Months      Six Months      One year      2 years  

Company

     25.7x        30.1x        31.8x        34.1x        28.6x  

Optical Peers

     14.1x        14.6x        14.3x        15.3x        15.3x  

Semiconductor Peers

     22.6x        22.6x        20.9x        19.1x        18.7x  

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 2019 through 2022 to calculate a range of implied present values per share of Company common stock as of March 31, 2019. Goldman Sachs first calculated illustrative implied future equity values per share of Company common stock as of March 31, 2019 by applying NTM EV/EBITDA multiples ranging from 14.0x to 18.0x 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 2020 to 2022. 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 July 5, 2019 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 2019 to 2021, 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 2019 to 2021. Goldman Sachs then divided the results by the projected year-end fully diluted shares outstanding for the Company’s common stock, as reflected in the Forecasts, to derive a range of implied future share prices. These implied per share values were then discounted back to March 31, 2019, using an illustrative discount rate of 9.5%, 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 $44.99 to $76.30.

Goldman Sachs also calculated illustrative implied future equity values per share of Company common stock as of March 31, 2019 by applying NTM P/E multiples ranging from 20.0x to 25.0x 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 2020 to 2022, 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 July 5, 2019 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 March 31, 2019, using an illustrative discount rate of 9.5%, 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 $45.23 to $80.21.

 

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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 9.0% to 10.0%, reflecting estimates of the Company’s weighted average cost of capital, Goldman Sachs discounted to present value as of March 31, 2019 (i) estimates of unlevered free cash flow for the Company for April 1, 2019 through December 31, 2024 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 terminal year estimate of the free cash flow to be generated by the Company, as reflected in the Forecasts. 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 March 31, 2019, 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 $56.39 to $73.74.

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 implied EV/NTM EBITDA multiple of the applicable target company based on the total consideration paid in the transaction as a multiple of the target company’s NTM EBITDA 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.

 

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The following table presents the results of this analysis

 

Date Announced

  Target     Acquiror     NTM
Transaction
EBITDA
Multiple
 

Optical1

     

November 2018

    Finisar Corporation       II-VI Incorporated       12.4x  

March 2018

    Oclaro Japan, Inc.       Lumentum Holdings Inc.       11.6x  

April 2016

    Alliance Fiber Optic Products, Inc.       Corning Incorporated       11.1x  

March 2016

    Rofin-Sinar Technologies, Inc.       Coherent, Inc.       11.2x  

November 2014

    Oplink Communications, Inc.       Koch Industries, Inc.       9.2x  

High Growth Semiconductor

     

March 2019

    Mellanox Technologies, Ltd.       Nvidia Corp.       14.8x  

March 2019

    Quantenna Communications Inc.       ON Semiconductor Corporation       22.7x  

November 2017

    Cavium, Inc.       Marvell Technology Group Ltd.       15.3x  

September 2011

    NetLogic Microsystems, Inc.       Broadcom Corporation       24.4x  

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 EV/NTM EBITDA multiples of 11.0x (the approximate median of the selected transactions involving optical companies) to 19.0x (the approximate median of the selected transactions involving high growth semiconductor companies) to the Company’s NTM Adjusted EBITDA as of March 31, 2019, as reflected in the Forecasts, to derive a range of implied enterprise values for the Company. Goldman Sachs then subtracted the net debt of the Company as of March 31, 2019, 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 $31.97 to $48.00.

Premia Analysis

Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for all-cash acquisition transactions announced during the five-year period preceding July 5, 2019 involving a public company in the technology sector based in the United States as the target where the disclosed enterprise values for the transaction were greater than $1 billion, which transactions were identified by Thomson SDC. For the entire period, using publicly available information, Goldman Sachs calculated the median, 25th percentile and 75th percentile premia of the prices paid in the transactions relative to the target companies’ stock prices as of certain dates and certain time periods as described below.

Goldman Sachs calculated the median, 25th and 75th percentile premia to the target companies’ last undisturbed closing share price prior to the announcement of the transaction of 30%, 20% and 46% respectively. Using this analysis, Goldman Sachs then applied an illustrative range of acquisition premia of 20% to 46% to the $48.14 closing price per share of the Company common stock as of July 5, 2019, the last completed trading day prior to the date of Goldman Sachs’ opinion. This analysis resulted in a range of illustrative values per share of Company common stock of $57.86 to $70.24.

Goldman Sachs also calculated the median, 25th and 75th percentile premia to the target companies’ highest closing stock prices in the 52 weeks prior to the announcement of the transaction, of 4.7%, (1.5)% and 13.8%,

 

1 

Opnext, Inc.’s acquisition by Oclaro, Inc. in 2012 also fell within the transaction criteria utilized by Goldman Sachs, but because the NTM EBITDA Multiple in that transaction was negative, in Goldman Sachs’ view such transaction was not meaningful for purpose of this analysis.

 

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respectively. Using this analysis, Goldman Sachs then applied an illustrative range of acquisition premia of (1.5)% to 13.8% to the $61.04 closing price per share of Company common stock as of April 15, 2019, representing the highest closing trading price per share of Company common stock for the 52-week period ended July 5, 2019. This analysis resulted in a range of illustrative values per share of Company common stock of $60.14 to $69.49.

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 $70.00 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 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 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, 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 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 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 financial advisor to Parent in connection with its acquisition of Duo Security, Inc. in October 2018 and as a commercial paper dealer for Parent since 2015. During the two year period ended July 8, 2019, Goldman Sachs has received compensation for financial advisory and/or underwriting services provided by its Investment

 

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Banking Division to Parent and/or its affiliates of approximately $2,700,000. 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 expected to be approximately $33,600,000, $3,000,000 of which became payable upon 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, and the remainder of which is contingent upon consummation of the transaction. 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 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.

 

   

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, 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.

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

A summary of the financial forecasts included in the Long-Range Plan and the June LRP has been 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 merger agreement, but is being included because these financial forecasts

 

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were made available to the Company’s directors and their advisors as well as to Parent and Party C. 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 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, 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 25 and “—Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 48 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 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 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%

 

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of 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 and 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.

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 their advisors as well as to Parent and, in the case of the June LRP, to Party C, as described in the notes below:

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  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

 

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(2)

Adjusted EBITDA is calculated as net income (loss) 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 (loss) 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 (loss) 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, certain valuation allowance adjustments against deferred tax assets and the effects of tax reform legislation in the fourth quarter of 2017.

 

(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  

 

(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 (loss) 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.

 

(3)

Non-GAAP operating income is calculated as income (loss) 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 (loss) as reported on the Company’s consolidated statements of operations, excluding the impact of stock-based compensation which is a non-cash charge, as

 

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  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, certain valuation allowance adjustments against deferred tax assets and the effects of tax reform legislation in the fourth quarter of 2017.

 

(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.

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 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 and amortization, less changes in working capital, less capital expenditures.

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 merger agreement (described in the section entitled “The Merger Agreement — Conditions to the Merger” beginning on page 105); provided that if such business day would otherwise occur anytime during the final 14 calendar days of a fiscal quarter of Parent or during the final 21 calendar days of a fiscal year of Parent, then Parent may, in its discretion, delay the closing until the first business day following such period so long as each party has delivered to the other party its required closing certifications, irrevocably confirmed in writing to the other party that its conditions to closing have been satisfied or are waived and that it is ready, willing and able to close, with such delayed closing to be subject only to the further condition that the Company shall not have intentionally and materially breached any of its covenants in the merger agreement regarding the operation of the Company’s business between the signing of the merger agreement and the closing during the period in which the closing is delayed. 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 merger agreement, we currently anticipate that the merger will be consummated during the second half of Parent’s 2020 fiscal year, or between January 26, 2020 and July 25, 2020. 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 Merger Agreement — Payment Procedures” beginning on page 86) 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

 

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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 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 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 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 merger agreement as described in the section entitled “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page 48.

Please see the section of this proxy statement entitled “The Merger —Compensation Payable to our Named Executive Officers” beginning on page 78 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

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 received from Parent; provided that,

 

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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 certain 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 at 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 received from Parent.

As soon as practicable following the date of the merger agreement, the Company will take all actions with respect to the Company ESPP that are required to provide that, (i) with respect to any offering period in effect as of the date of the merger agreement, no employee who is not a participant in the Company ESPP as of the date of the merger agreement may become a participant in the Company ESPP and no participant may increase the percentage amount of his or her payroll deduction election from that in effect on the date of the 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; (iii) if the offering period in effect as of the date of the merger agreement terminates prior to the effective time of the merger, then the Company ESPP will be suspended and no new offering period will be commenced under the Company ESPP prior to the termination of the merger agreement; and (iv) if any offering period in effect as of the date of the merger agreement is still in effect at the effective time of the merger, then the last day of such offering period will be accelerated to the business day prior to the closing date of the merger, and each participant will be entitled to a cash payment to equal to (A) (1) the per share merger consideration times (2) the number of shares of Company common stock that the participant’s accumulated payroll deductions as of such date could purchase at the “Option Price” (as defined in the Company ESPP), where the per share merger consideration is treated as the fair market value of the Company common stock on the last day of the applicable offering period for purposes of determining the Option Price, and where the number of shares that could be purchased is subject to the limitations set forth in the Company ESPP, minus (B) the result of multiplying such number of shares by such Option Price.

 

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Outstanding Shares of Company Common Stock Beneficially Owned by Certain Persons

Current and former Company 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 August 6, 2019, 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 or forfeitures that may occur following August 6, 2019 and prior to the closing of the merger.

 

Director or Officer

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

Murugesan “Raj” Shanmugaraj

     856,792      $ 59,975,440  

John F. Gavin

     14,888      $ 1,042,160  

Eric L. Fisher

     10,949      $ 766,430  

Benny P. Mikkelsen

     875,909      $ 61,313,630  

Mehrdad Givehchi

     512,291      $ 35,860,370  

Christian J. Rasmussen

     488,533      $ 34,197,310  

Bhupendra C. Shah

     191,686      $ 13,418,020  

Vincent T. Roche

     17,052      $ 1,193,640  

David J. Aldrich

     8,299      $ 580,930  

Peter Y. Chung

     16,734      $ 1,171,380  

Stan J. Reiss

     269,761      $ 18,883,270  

John Ritchie

     21,310      $ 1,491,700  

Eric A. Swanson (1)

     23,950      $ 1,676,500  

Laurinda Y. Pang

     0      $ 0  

 

(1)

The number of shares reported as beneficially owned by Mr. Swanson is based upon disclosure in a Form 4 filed by Mr. Swanson on May 20, 2019 and includes 6,144 shares issued upon the vesting of RSUs on May 17, 2019. Mr. Swanson resigned from the board of directors effective June 1, 2019.

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 (which includes certain 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 at the closing 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.

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 August 6, 2019 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 April 25, 2020 and, in the case of certain PRSUs with a total stockholder return

 

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(TSR) performance metric, reflecting performance-based vesting of such awards based on the merger consideration of $70.00 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 August 6, 2019, based on that $70.00 per share price, remains unchanged through the assumed closing date of the merger). RSUs granted to Messrs. Shanmugaraj, Gavin, Mikkelsen, Givehchi, Rasmussen and Shah on April 28, 2016, which we refer to as the 2016 RSUs, would, absent a change in control, become vested in full as of May 12, 2020, subject to the executive officer’s continued employment with the Company through such date. Pursuant to the terms of the 2016 RSUs, upon a “change in control” of the Company (as defined in the applicable RSU agreement and including the merger), the vesting of the 2016 RSUs will be accelerated by a period of six months. The 2016 RSUs that remain unvested at the closing of the merger will accelerate at the closing of the merger and are included in the table below. As noted above, all unvested RSUs held by 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 August 6, 2019 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
August 6,
2019 and
April 25,
2020
    Cash
Payment on
Shares
Underlying
RSUs
Scheduled to
Vest
Between
August 6,
2019 and
April 25,
2020
    Number
of
Vested
RSUs
    Cash
Payment on
Vested RSUs
    Number
of
Vested
PRSUs
    Cash
Payment on
Vested
PRSUs
    Aggregate
Cash Payment
on Vested
Equity
Awards at
Closing
 

Murugesan “Raj” Shanmugaraj

    0     $ 0       30,540     $ 2,137,800       15,000     $ 1,050,000       38,821     $ 2,717,470     $ 5,905,270  

John F. Gavin

    166,500     $ 11,586,735       17,632     $ 1,234,240       12,500     $ 875,000       25,005     $ 1,750,350     $ 15,446,325  

Eric L. Fisher

    0     $ 0       9,596     $ 671,720       0     $ 0       31,171     $ 2,181,970     $ 2,853,690  

Benny P. Mikkelsen

    0     $ 0       21,375     $ 1,496,250       12,500     $ 875,000       24,261     $ 1,698,270     $ 4,069,520  

Mehrdad Givehchi

    0     $ 0       21,375     $ 1,496,250       12,500     $ 875,000       24,261     $ 1,698,270     $ 4,069,520  

Christian J. Rasmussen

    39,535     $ 2,751,241       21,375     $ 1,496,250       12,500     $ 875,000       24,261     $ 1,698,270     $ 6,820,761  

Bhupendra C. Shah

    18,546     $ 1,290,616       17,864     $ 1,250,480       12,500     $ 875,000       24,261     $ 1,698,270     $ 5,114,366  

Vincent T. Roche

    0     $ 0       0     $ 0       4,010     $ 280,700       0     $ 0     $ 280,700  

David J. Aldrich

    0     $ 0       2,156     $ 150,920       6,232     $ 436,240       0     $ 0     $ 587,160  

Peter Y. Chung

    0     $ 0       0     $ 0       4,010     $ 280,700       0     $ 0     $ 280,700  

Stan J. Reiss

    0     $ 0       0     $ 0       4,010     $ 280,700       0     $ 0     $ 280,700  

John Ritchie

    0     $ 0       0     $ 0       4,010     $ 280,700       0     $ 0     $ 280,700  

Eric A. Swanson

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

Laurinda Y. Pang

    0     $ 0       0     $ 0       6,451     $ 451,570       0     $ 0     $ 451,570  

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 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, without any consideration being payable in respect thereof and have no further force or effect and

 

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(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 received from 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 August 6, 2019 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 April 25, 2020. Based on holdings as of August 6, 2019, none of the following individuals will hold unvested stock options or unvested PRSUs following the assumed closing date of the merger of April 25, 2020. The amounts shown in the following table do not reflect any future grants, dividends, deferrals or forfeitures that may occur following August 6, 2019 and prior to the closing of the merger.

 

Director or Officer

   Number of
Unvested
RSUs
     Potential Cash
Payment on
Unvested
RSUs
 

Murugesan “Raj” Shanmugaraj

     46,131      $ 3,229,170  

John F. Gavin

     30,038      $ 2,102,660  

Eric L. Fisher

     41,725      $ 2,920,750  

Benny P. Mikkelsen

     28,831      $ 2,018,170  

Mehrdad Givehchi

     28,831      $ 2,018,170  

Christian J. Rasmussen

     28,831      $ 2,018,170  

Bhupendra C. Shah

     28,831      $ 2,018,170  

Vincent T. Roche

     0      $ 0  

David J. Aldrich

     0      $ 0  

Peter Y. Chung

     0      $ 0  

Stan J. Reiss

     0      $ 0  

John Ritchie

     0      $ 0  

Eric A. Swanson

     0      $ 0  

Laurinda Y. Pang

     0      $ 0  

Severance/ Change in Control Benefits and Employment 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 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. Messrs. Gavin, Fisher and Shah currently remain participants under the CIC plan. Additionally, as described above, (i) the 2016 RSUs granted to Messrs. Shanmugaraj, Gavin, Mikkelsen, Givehchi, Rasmussen and Shah will accelerate by a period of six months upon the closing of the merger and (ii) certain PRSUs with a total stockholder return performance metric held by each of the executive officers will become vested based on actual results as of the closing of the merger.

 

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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, 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

 

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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.

Parent Employment Agreement 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

 

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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 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.

Parent Employment Agreement 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

 

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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 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

 

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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.

Parent Employment Agreement 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 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

 

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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 (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.

Parent Employment Agreement 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.

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

 

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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.

Change in Control Benefits Under Performance-Based Restricted Stock Units

In each of 2018 and 2019 as part of the annual equity grant process, the Company granted PRSUs to the Company’s executive officers under the Company’s 2016 Equity Incentive Plan. The number of PRSUs that vest is measured based on the Company’s percentile achievement of relative total stockholder return, or TSR, against a peer group over a three-year performance period running from January 1, 2018 to December 31, 2020 in the case of the 2018 awards, which we refer to as the 2018 PRSUs, and from January 1, 2019 to December 31, 2021 in the case of the 2019 awards, which we refer to as the 2019 PRSUs. We refer to the 2018 PRSUs and 2019

 

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PRSUs together as the TSR PRSUs. The number of shares that may be earned under the TSR PRSUs ranges from 0% to 200% of the target numbers of shares subject to the awards depending on the level of achievement of the TSR performance metric.

Pursuant to the PRSU agreements with respect to the 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 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 Company’s compensation committee.

For purposes of the 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 TSR PRSUs and the number of TSR PRSUs that will vest immediately prior to the merger. Any such TSR 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.

Change in Control Benefits under the 2016 RSUs

On April 28, 2016, the Company granted certain RSUs to Messrs. Shanmugaraj, Gavin, Mikkelsen, Givehchi, Rasmussen and Shah, which 2016 RSUs would, absent a change in control, become vested in full as of May 12, 2020, subject to the executive officer’s continued employment with the Company through such date. Pursuant to the terms of the 2016 RSUs, upon a “change in control” of the Company (as defined in the applicable RSU agreement and including the merger), the vesting of unvested 2016 RSUs will be accelerated by a period of six months.

Employee Benefits

Pursuant to the 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, 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 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 merger agreement, please see the section of the proxy statement entitled “The Merger Agreement — Additional Agreements of the Parties to the Merger Agreement — Employee Benefits Matters” on page 102.

Indemnification of Directors and Officers

The 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

 

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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 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 merger agreement, please see the section of this proxy statement entitled “The Merger Agreement — Additional Agreements of the Parties to the Merger Agreement —Indemnification and Insurance” on page 104.

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, 3,284,204 shares of Company common stock, representing approximately 8.0% 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 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 July 8, 2019 between Parent and each of such stockholders, to vote such shares, representing approximately 6.7% of the issued and outstanding shares of Company common stock on the record date, in favor of the adoption of the 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 describes the estimated potential payments to each of our named executive officers pursuant to the terms of their 2016 RSUs, their 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 or the value of payments or benefits that are not based on or otherwise related to the merger.

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, April 25, 2020; (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 $70.00 per share, which is the per share merger consideration; (iv) for purposes of calculating the number of TSR PRSUs that will vest, the Company’s percentile TSR achievement against the applicable peer groups as of August 6, 2019 (based on an ending price for the Company common stock of $70.00 per share) 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

 

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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.

 

Name

   Cash($)(1)      Equity($)(2)      Perquisites/
Benefits($)(3)
     Tax
Reimbursement
($)(4)
     Total($)  

Murugesan “Raj” Shanmugaraj

     1,190,875        6,996,640        30,000        33,358        8,250,873  

John F. Gavin

     614,625        4,728,010        16,818        0        5,359,453  

Eric Fisher

     585,420        5,102,720        16,818        0        5,704,958  

Benny P. Mikkelsen

     550,620        4,591,440        30,000        33,358        5,205,418  

Mehrdad Givehchi

     515,020        4,591,440        30,000        33,358        5,169,818  

 

1)

The amounts listed in this column represent, for Messrs. Shanmugaraj, Mikkelsen, and Givehchi, 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 Messrs. Mikkelsen and Givehchi, 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 and Fisher, 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 and Fisher 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 that the annual base salary and target annual bonus 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 April 25, 2020 are equal to, for Messrs. Shanmugaraj, Mikkelsen and Givehchi, the amounts provided for under their respective employment agreements entered into with Parent in connection with the merger, and for Messrs. Gavin and Fisher, the amounts pursuant to their current employment arrangements with the Company, which amounts are set forth in the table below.

 

Name

   Base
Salary($)
     Target
Annual
Bonus($)
 

Murugesan “Raj” Shanmugaraj

     350,000        327,250  

John F. Gavin

     372,500        242,125  

Eric Fisher

     354,800        230,620  

Benny P. Mikkelsen

     320,000        230,620  

Mehrdad Givehchi

     300,000        215,020  

 

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2)

The amounts listed in this column represent, in accordance with the terms of the TSR PRSU award agreements, the 2016 RSU agreements, and the CIC plan or the named executive officers’ employment agreements with Parent, as applicable, the cash payments in respect of (a) the cash payment for cancellation of unvested 2016 RSUs, which RSUs accelerate upon the merger, calculated as the product of (i) the per share merger consideration of $70.00 multiplied by (ii) the number of accelerated 2016 RSUs with respect to which such cash payments are being made, which amounts are “single trigger” benefits payable upon the closing of the merger; (b) 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 $70.00 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 (c) the settlement of the TSR PRSUs pursuant to their terms, calculated as the product of (i) the per share merger consideration of $70.00 multiplied by (ii) the number of TSR PRSUs that vest immediately prior to the effective time pursuant to the terms of the applicable 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 (other than the accelerated vesting of the 2016 RSUs) are “double-trigger” benefits and (i) for each of Messrs. Shanmugaraj, Mikkelsen and Givehchi 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 and Fisher 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 2016 RSUs that accelerate upon the merger, unvested RSUs and 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 TSR PRSUs are as follows:

 

Name

  Vested
2016
RSUs
(Single
Trigger)
    Value of
Vested 2016
RSUs (Single
Trigger)
    Unvested
RSUs at
Closing
(Double
Trigger)
    Value of
Unvested
RSUs at
Closing
(Double
Trigger)
    Vested
TSR
PRSUs
(Single
Trigger)
    Value of
Vested TSR
PRSUs
(Single
Trigger)
 

Murugesan “Raj” Shanmugaraj

    15,000     $ 1,050,000       46,131     $ 3,229,170       38,821     $ 2,717,470  

John F. Gavin

    12,500     $ 875,000       30,038     $ 2,102,660       25,005     $ 1,750,350  

Eric Fisher

    0     $ 0       41,725     $ 2,920,750       31,171     $ 2,181,970  

Benny P. Mikkelsen

    12,500     $ 875,000       28,831     $ 2,018,170       24,261     $ 1,698,270  

Mehrdad Givehchi

    12,500     $ 875,000       28,831     $ 2,018,170       24,261     $ 1,698,270  

 

3)

The amounts in this column represent, for Messrs. Shanmugaraj, Mikkelsen and Givehchi, the total COBRA premiums required to continue the executive’s group health care coverage for him and his eligible dependents for a period of 12 months. For Messrs. Gavin and Fisher, 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, Mikkelsen and Givehchi, within the first 12 months following the closing of the merger, if 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 for Messrs. Gavin and Fisher upon a change in control termination under the CIC plan.

 

4)

The amounts in this column represent, for Messrs. Shanmugaraj, Mikkelsen and Givehchi, the tax gross up payments that each would be entitled to receive from the Company with respect to the payments of COBRA premiums described in note 3 above. These amounts are “double trigger” in nature for Messrs.

 

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  Shanmugaraj, Mikkelsen and Givehchi, 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 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.

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

 

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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;

 

   

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

 

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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 recently 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.

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 and obtaining antitrust approval in specified foreign jurisdictions, including Austria, China and Germany. Under the terms of the merger

 

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agreement, the merger cannot be consummated if any governmental entity 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), or has enacted any law, statute, constitution, resolution, ordinance, code, permit, rule, regulation, ruling or requirement that prohibits, makes illegal or enjoins the consummation of the merger.

Litigation Relating to the Merger

On August 5, 2019, a complaint was filed against us and each of our directors in the United States District Court for the Southern District of New York. The lawsuit, captioned Jiang v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-07267, alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a materially incomplete and misleading preliminary proxy statement in connection with the proposed merger of the Company with Parent and Merger Sub. The plaintiff seeks to enjoin the defendants from proceeding with the stockholder vote to approve the proposed merger, or from consummating the proposed merger, unless and until the Company discloses to Acacia’s public common stockholders the allegedly material information discussed in the complaint; or, in the event the proposed merger is consummated, the plaintiff seeks to recover damages. The plaintiff also seeks an award of costs, expert fees and attorneys’ fees.

On August 5, 2019, a putative class action complaint was filed against us and each of our directors in the United States District Court for the District of Delaware. The lawsuit, captioned O’Brien v. Acacia Communications, Inc., et al., Civil Action No. 1:19-cv-01463 and purportedly brought on behalf of a class of stockholders, alleges that our directors breached their fiduciary duties by, among other things, agreeing to the proposed merger without taking steps to obtain adequate, fair and maximum consideration under the circumstances and engineering the proposed merger to improperly benefit themselves, Company management and/or Parent without regard for the Company’s public stockholders, and that we and our directors violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 by disseminating a materially incomplete and misleading preliminary proxy statement in connection with the proposed merger. The plaintiff has asked the court to, among other things, (i) enjoin the stockholder vote to approve the proposed merger and the consummation of the proposed merger; (ii) in the event the merger is consummated, rescind the merger and award rescissory damages; (iii) declare that the merger agreement was agreed to in breach of our directors’ fiduciary duties and is therefore unlawful and unenforceable; (iv) direct our directors to conduct a sale process in accordance with their fiduciary duties; and (v) award damages, costs, expert fees and attorneys’ fees.

On August 6, 2019, a putative class action complaint was filed against us and each of our directors in the United States District Court for the District of Delaware. The lawsuit, captioned Rosenblatt v. Acacia Communications, Inc., et al., Civil Action No. 1:99-mc-09999 and purportedly brought on behalf of a class of stockholders, alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder against the defendants for allegedly disseminating a false and misleading preliminary proxy statement in connection with the proposed merger of the Company with Parent and Merger Sub. The plaintiff has asked the court to, among other things, (i) enjoin the defendants from proceeding, consummating or closing the proposed merger; (ii) in the event the proposed merger is consummated, rescind and set aside the merger or award rescissory damages; (iii) declare that the defendants have violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder; and (iv) award costs, attorneys’ fees and experts’ fees.

We believe that the claims asserted in these suits are without merit.

 

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THE MERGER AGREEMENT (PROPOSAL ONE)

The following is a summary of the material terms and conditions of the 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 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 merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety because it is the legal document that governs the merger.

Explanatory Note Regarding the Merger Agreement

The 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 merger agreement. The representations, warranties and covenants made in the 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 merger agreement. In particular, in your review of the representations and warranties contained in the 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 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 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 a disclosure schedule that the Company delivered to Parent in connection with the merger agreement, which we refer to as the Company disclosure schedule. 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 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 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 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 merger agreement. The directors of Merger Sub immediately prior to the effective time of the merger will be the initial directors of the surviving corporation. The officers of Merger Sub immediately prior to the effective time of the merger will be the initial officers of the surviving corporation.

Effective Time of the Merger

Unless the 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

 

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to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions). However, if the closing would otherwise occur anytime during the final 14 calendar days of a fiscal quarter of Parent or during the final 21 calendar days of a fiscal year of Parent, Parent may, in its discretion, delay the closing until the first business day following such period so long as each party has delivered to the other party its required closing certifications, irrevocably confirmed in writing to the other party that its conditions to closing have been satisfied or are waived and that it is ready, willing and able to close, with such delayed closing to be subject only to the further condition that the Company shall not have intentionally and materially breached any of its covenants in the merger agreement regarding the operation of the Company’s business between the signing of the merger agreement and the closing during the period in which the closing is delayed.

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 $70.00 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 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 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. Each

 

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holder of book-entry shares will not be required to deliver a letter of transmittal and instead may provide such evidence, if any, as the exchange agent may reasonably request with respect to its book-entry shares. 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 such other documents as may be reasonably required by the exchange agent, or in the case of book-entry shares, an appropriate agent’s message, the holder of such certificates or book-entry shares will be entitled to receive in exchange therefor the merger consideration for each share of Company common stock evidenced by such certificates or book-entry shares. 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. 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 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 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 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 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 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.

 

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These rights are discussed more fully under the section of this proxy statement entitled “Appraisal Rights” beginning on page 121. 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 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 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.

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 certain 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 at 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 received from Parent.

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

As soon as practicable following the date of the merger agreement, the Company will take all actions with respect to the Company ESPP that are required to provide that, (i) with respect to any offering period in effect as of the date of the merger agreement, no employee who is not a participant in the Company ESPP as of the date of

 

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the merger agreement may become a participant in the Company ESPP and no participant may increase the percentage amount of his or her payroll deduction election from that in effect on the date of the 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; (iii) if the offering period in effect as of the date of the merger agreement terminates prior to the effective time of the merger, then the Company ESPP will be suspended and no new offering period will be commenced under the Company ESPP prior to the termination of the merger agreement; and (iv) if any offering period in effect as of the date of the merger agreement is still in effect at the effective time of the merger, then the last day of such offering period will be accelerated to the business day prior to the closing date of the merger, and each participant will be entitled to a cash payment to equal to (A) (1) the per share merger consideration times (2) the number of shares of Company common stock that the participant’s accumulated payroll deductions as of such date could purchase at the “Option Price” (as defined in the Company ESPP), where the per share merger consideration is treated as the fair market value of the Company common stock on the last day of the applicable offering period for purposes of determining the Option Price, and where the number of shares that could be purchased is subject to the limitations set forth in the Company ESPP, minus (B) the result of multiplying such number of shares by such Option Price.

Representations and Warranties

In the 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 merger agreement;

 

   

the due execution and delivery by the Company of the merger agreement and the enforceability of the merger agreement against the Company;

 

   

the resolutions of the board of directors approving the merger agreement, the merger and the other transactions contemplated by the merger agreement;

 

   

the vote required of the stockholders of the Company to adopt the merger agreement, the merger and the other transactions contemplated by the 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 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) since March 31, 2019;

 

   

the absence of material legal proceedings involving the Company and its subsidiaries;

 

   

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;

 

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compliance by the Company and is subsidiaries with applicable privacy laws;

 

   

environmental matters;

 

   

tax matters;

 

   

employee benefits and other employee matters, including benefit plans;

 

   

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 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 merger agreement;

 

   

the due execution and delivery by Parent and Merger Sub of the merger agreement and the enforceability of the 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 merger agreement;

 

   

the absence of material legal proceedings involving Parent or Merger Sub;

 

   

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 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

 

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merger agreement are qualified by reference to whether the item in question would have a material adverse effect. For purposes of the merger agreement, “knowledge” means the knowledge of certain specified employees of the Company after reasonable inquiry. For purposes of the 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 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 merger agreement and applicable laws. 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 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 merger agreement or the anticipated consummation of the merger and the other transactions contemplated by the 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 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 merger agreement are qualified by reference to whether the item in question would have a Parent material adverse effect. For purposes of the 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 merger agreement and applicable laws. 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 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 merger agreement that, until the effective time of the merger, except (a) to the extent expressly provided otherwise in the 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 schedule that the Company delivered to Parent in connection with the execution of the 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 merger agreement and made available to Parent, 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 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 merger agreement.

The Company also agreed that, until the effective time of the merger, except to the extent expressly provided otherwise in the 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 schedule that the Company delivered to Parent in connection with the execution of the 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 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);

 

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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 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 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;

 

   

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 that contains certain restrictions on the Company’s business as specified in the merger agreement, or amend any contract that would, after

 

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giving effect to such amendment, constitute a material contract (if so amended prior to the date of the 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 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 merger agreement;

 

   

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

 

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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;

 

   

materially change accounting methods, except as required by changes in GAAP;

 

   

enter into any contract for (a) the purchase or sale of any real property or (b) the lease of any real property involving an aggregate amount in excess of $1,500,000 per annum for any such lease;

 

   

enter into any contract that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K;

 

   

enter into or materially modify any currency exchange, interest rate, commodities or other hedging or derivative transactions or arrangements, or other investment or cash management transactions or arrangements other than in the ordinary course of business as otherwise permitted under the Company’s corporate investment policy;

 

   

enter into or materially modify any contract for the joint development with any other person of any material product, system, software, content, technology or intellectual property by or for the Company or any of its subsidiaries;

 

   

enter into any contract relating to the membership of, or participation by, the Company or any of its subsidiaries in, or the affiliation of the Company or any of its subsidiaries with, any industry standards group or association in which the Company or any of its subsidiaries contributes and/or shares in pooled patent rights;

 

   

agree in writing or otherwise to take, any of the actions described in the clauses above.

However, the Company and Parent agreed that nothing contained in the merger agreement will give Parent, directly or indirectly, rights to control or direct the Company’s operations prior to the effective time of the merger.

 

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A “material contract” means any of the following contracts to which the Company or one of its subsidiaries is a party or by which any of them is bound:

 

   

any contract (a) with any customer, distributor or reseller that, during the period from January 1, 2018 to March 31, 2019, was one of the 10 largest sources of revenue for the Company or (b) with any other customer involving the sale of provision of products of the Company, services or other assets that has generated, during the period from January 1, 2018 to March 31, 2019, more than $2,500,000 in revenues for the Company and its subsidiaries;

 

   

any contract (a) with any supplier or vendor that, during the period from January 1, 2018 to March 31, 2019, was one of the five largest supplier of goods and/or services for the Company, based on amounts payable during such period, (b) is one of the supplier or vendors set forth in the disclosure schedule that the Company delivered to Parent in connection with the execution of the merger agreement or (c) for the purchase, manufacture or license by the Company or any of its subsidiaries of components, materials, supplies, equipment, parts, subassemblies, software, intellectual property or other assets that are included in or used in connection with the provision of products of Acacia and that required the Company or such subsidiary to either recognize expense in accordance with GAAP, or make cash payments, in excess of $2,500,000 during the period from January 1, 2018 to March 31, 2019;

 

   

other than for any intercompany loans and capital contributions and accounts payable to trade creditors and accrued expenses in the ordinary course of business, any trust indenture, mortgage, promissory note, loan agreement, credit agreement or other contract for the borrowing of money, in an amount in excess of $1,000,000, or any currency exchange, interest rate, commodities or other hedging or derivative transaction or arrangement with a notational amount in excess of $1,000,000 or any leasing transaction of the type required to be capitalized in accordance with GAAP that required the Company to make payments in excess of $1,000,000 during the period from January 1, 2018 to March 31, 2019;

 

   

any executory contract for capital expenditures in excess of $1,500,000 in the aggregate;

 

   

any contract containing exclusivity, “most favored nation” or certain other restrictive covenants;

 

   

any contract pursuant to which the Company or any of its subsidiaries (a) has purchased any real property or (b) is a lessor or lessee of any real property or of any machinery, equipment, motor vehicles, office furniture, fixtures or other personal property, in any such case involving in excess of $1,500,000 per annum;

 

   

any contract with any of the Company’s officers, directors, employees or stockholders (in each case in such capacity) (subject to certain exceptions);

 

   

all licenses, sublicenses and other contracts pursuant to which (a) any third party is authorized to use or is granted any material right in or to any products of the Company or intellectual property owned by the Company or its subsidiaries other than in the ordinary course of business (subject to certain exceptions), (b) the Company or any of its subsidiaries has agreed to any material restriction on the right to enforce any of its intellectual property rights (subject to certain exceptions) or (c) the Company or any of its subsidiaries has agreed to encumber (other than non-exclusive licenses previously granted by the Company or any of its subsidiaries), transfer or sell rights in or with respect to any intellectual property owned by the Company or its subsidiaries;

 

   

all licenses, sublicenses and other contracts that are material to the conduct of the Company and its subsidiaries’ business and pursuant to which the Company or any of its subsidiaries acquired or is granted any right in or to any intellectual property owned by a third party or is authorized to market, distribute or resell any product, service or intellectual property owned by a third party (subject to certain exceptions);

 

   

any contract under which the Company or any of its subsidiaries has any ongoing relationship to develop any intellectual property (independently or jointly) for any third party;

 

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any contract providing for the development of any intellectual property for the Company or any of its subsidiaries that is material to the Company’s products (subject to certain exceptions);

 

   

any joint venture contract or other contract that involves a sharing of revenues or profits with any other person;

 

   

any contract that involves the payment of royalties to any other person (subject to certain exceptions);

 

   

any contract authorizing any other person to manufacture or reproduce any company products of the Company (subject to certain exceptions);

 

   

any contract or plan providing for the future sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of any stock or other securities of the Company or any of its subsidiaries or any outstanding options, restricted stock units (including performance stock units) or other rights to purchase or otherwise acquire any such shares of stock, other securities or options, restricted stock units (including performance stock units), warrants or other rights therefor, except for the Company’s equity incentive plans;

 

   

any contract entered into since January 1, 2017, pursuant to which (a) the Company has acquired a material business or entity, or assets constituting a material business, or any contract pursuant to which the Company has any material ownership interest in any other person (other than the Company’s subsidiaries) or (b) any other person has the right to acquire any business of the Company or any of its subsidiaries (or, after giving effect to the consummation of the merger, Parent or any of its affiliates) or any interests therein after the date of the merger agreement (subject to certain exceptions);

 

   

any material contract with any governmental entity or any governmental license or permit of the Company or its subsidiaries;

 

   

any litigation settlement that would require payments by the Company or any of its subsidiaries in excess of $1,000,000 or would otherwise limit or adversely affect the operation of the business conducted by the Company and its subsidiaries in any material respect after the merger or currently effective litigation standstill agreement;

 

   

any contract with any labor union or any collective bargaining agreement or similar contract with its employees;

 

   

any other contract which is not disclosed in the Company’s reports filed or furnished with the SEC since January 1, 2017 that is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K); or

 

   

any other contract not described in the foregoing list that individually provides for payments to or by the Company or any of its subsidiaries in excess of $3,000,000 during the fiscal year ending December  31, 2019.

Restrictions on Solicitation of Other Offers

Under the merger agreement, during the period beginning on the date of the merger agreement until the earlier of the effective time of the merger or the termination of the 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) 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;

 

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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 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 merger agreement.

Notwithstanding these restrictions, if, at any time prior to the time that the Company’s stockholders approve the adoption of the 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 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 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.

An “acquisition proposal” means any agreement, offer, proposal or indication of interest, or any public announcement of intention to enter into any such agreement or of (or intention to make) any offer, proposal or indication of interest, relating to, or involving:

 

   

any acquisition or purchase by any person, directly or indirectly, of more than 20% of the outstanding voting securities of the Company or any securities of any of its subsidiaries or any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of the outstanding voting securities of the Company;

 

   

any merger, consolidation, business combination or similar transaction involving the Company or any of its subsidiaries pursuant to which the stockholders of the Company immediately preceding such transaction hold securities representing less than 80% of the outstanding voting power of the surviving or resulting entity of such transaction (or parent entity of such surviving or resulting entity);

 

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any sale, acquisition, disposition, mortgage, pledge or other transfer of more than 20% of the assets of the Company and its subsidiaries other than in the ordinary course of business; or

 

   

any liquidation or dissolution of the Company, or any extraordinary dividend, whether of cash or other property;

in each case, in any single transaction or series of related transactions and other than the transactions contemplated by the merger agreement or any offer or proposal by Parent or any subsidiary of Parent.

A “superior proposal” means an unsolicited, bona fide written offer submitted after the date of the merger agreement by a person to acquire, directly or indirectly, (i) pursuant to a tender offer, exchange offer, merger, consolidation or other business combination (including by means of a tender offer followed by a back-end merger) beneficial ownership of 50% or more of the outstanding voting securities of the Company or (ii) 50% or more of the assets of the Company, that the board of directors has concluded in its good faith judgment (following consultation with its outside legal counsel and a financial advisor of national standing), taking into account, among other things, all legal, financial, regulatory, timing and other aspects of the offer, including conditions to consummation and the person making the offer, in each case deemed relevant by the board of directors (x) would be, if consummated, more favorable, from a financial point of view, to the Company’s stockholders (in their capacities as stockholders) than the terms of the merger agreement and (y) is reasonably likely to be consummated on the terms proposed (as determined in the good faith judgment of the board of directors).

The Company must as promptly as practicable (and in any event within one business day) notify Parent in writing after actual receipt by the Company and/or any subsidiary (and/or to the knowledge of the Company, by any representative) (excluding employees who are not directors or officers) of any acquisition proposal, any inquiry, indication of interest, proposal or other offer that constitutes, or could reasonably be expected to lead to, an acquisition proposal, or any request for non-public information (including access to any of the properties, books or records of the Company or any of its subsidiaries) that could reasonably be expected to lead to an acquisition proposal. Such notice is required to describe the material terms and conditions of the acquisition proposal, inquiry, indication of interest, proposal offer or request and the identity of the person submitting such acquisition proposal, inquiry, indication of interest, proposal, offer or request. The Company must keep Parent informed on a reasonably prompt basis (but in no event more than one business day after actual receipt) of the status and material terms of, and material amendments or modifications to, any such acquisition proposal, inquiry, indication of interest, proposal, offer or request and any related material correspondence or communications. The Company must provide Parent as promptly as practicable (and in any event within one business day) with a copy of all written requests, proposals or offers received in connection with any such acquisition proposal. The Company agreed to notify Parent promptly following any meeting of the board of directors at which it has determined to provide non-public information to any person in connection with any such acquisition proposal, inquiry, indication of interest, proposal, offer or request.

The Company must, and must cause its subsidiaries and representatives to, immediately cease any and all existing activities, discussions or negotiations with any persons conducted prior to or on the date of the merger agreement with respect to any acquisition proposal and must direct any person (and such person’s representatives) with which the Company has engaged in any such activities within the 12-month period preceding the date of the merger agreement to promptly return or destroy all confidential information previously provided to such person (and such person’s representatives) in accordance with the applicable confidentiality agreement.

Restrictions on Changes of Recommendation to Company Stockholders

Under the merger agreement, the board of directors must submit the merger agreement to the Company’s stockholders for adoption and must recommend that the Company’s stockholders vote in favor of adopting the

 

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merger agreement. The 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 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 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 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 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 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 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 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 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 merger agreement proposed by Parent, the failure to effect a change of recommendation and terminate the merger agreement would be inconsistent with its fiduciary obligations to the Company’s stockholders under applicable law.

In addition, nothing in the 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 merger agreement has not yet been obtained;

 

   

the Company has not breach 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 merger agreement;

 

   

the board of directors has concluded in good faith (after consultation with its outside legal counsel) that, in light of material facts, events and/or circumstances that as of the date of the merger agreement

 

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were unknown by the board of directors and were not reasonably foreseeable by the board of directors as of the date of the merger agreement (referred to as an intervening event) and taking into account the results of any discussions with Parent and any proposed modifications of the merger agreement, as contemplated by the 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 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 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 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 merger agreement with Parent following receipt of a superior proposal upon the terms summarized above or Parent terminates the merger agreement following a change of recommendation under certain scenarios, the Company must pay the applicable termination fee as described beginning on page 108 under “— Termination Fee.”

Additional Agreements of the Parties to the Merger Agreement

Proxy Statement, Stockholders Meeting; Board Recommendation

The Company has agreed to, as promptly as reasonably practicable following the date of the merger agreement, establish a record date for, duly call, give notice of, convene and hold the stockholders’ meeting, which is the special meeting of the Company’s stockholders that is the subject of this proxy statement, to consider and vote upon the adoption of the merger agreement, obtain advisory approval of the compensation that the named executive officers of the Company may receive in the merger and such other matters as agreed to by Parent. The Company will use its reasonable best efforts to solicit from its stockholders proxies in favor of the adoption of the merger agreement and will take all other reasonable action necessary or advisable to obtain such proxies and the required stockholder vote to adopt the merger agreement and to secure the vote of or consent of its stockholders required by and in compliance with the rules and regulations of the Nasdaq Global Select Market, the DGCL and its organizational documents.

The Company may not adjourn or postpone the special meeting of the Company’s stockholders without Parent’s prior written consent, however, the Company may adjourn or postpone the special meeting of the Company’s

 

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stockholders (a) to the extent necessary to ensure that any supplement or amendment to this proxy statement that the Company reasonably determines (after consultation with Parent, except with respect to any acquisition proposal or other permitted circumstances) is necessary to comply with applicable laws, is provided to its stockholders in advance of the special meeting of the Company’s stockholders, (b) if, as of the time that the special meeting of the Company’s stockholders is originally scheduled, there are insufficient shares of the Company common stock represented at such meeting to constitute a quorum necessary to conduct the business of the special meeting of the Company’s stockholders, (c) if, as of the time that the special meeting of the Company’s stockholders is originally scheduled, adjournment or postponement of the special meeting of the Company’s stockholders is necessary to enable the Company to solicit additional proxies required to obtain the required stockholder vote to adopt the merger agreement or (d) as necessary to provide for the expiration of any time period required to allow the board of directors to make a change of recommendation in compliance with the merger agreement.

The merger agreement further provides that, prior to the termination of the merger agreement, the Company’s obligations to call, give notice of, or convene the special meeting of the Company’s stockholders, will not be limited by the occurrence of any acquisition proposal, superior proposal or change of recommendation.

Agreements to Use Reasonable Best Efforts

Subject to the terms and conditions of the merger agreement, including with respect to antitrust laws, which are discussed further below, the Company and Parent have agreed to apply for or otherwise seek, and use their respective reasonable best efforts to obtain, all consents and approvals required to be obtained by them for the consummation of the merger and the other transactions contemplated by the merger agreement.

With regard to antitrust laws, subject to the terms and conditions set forth in the merger agreement, the Company and Parent have agreed to make any initial filings required under the HSR Act and any other additional filings required by applicable antitrust laws, including all applicable foreign antitrust approvals set forth in the disclosure schedule that the Company delivered to Parent in connection with the execution of the merger agreement.

Notwithstanding these covenants, Parent and its affiliates are not obligated to:

 

   

litigate or contest any legal proceeding instituted or threatened to be instituted challenging the merger or the other transactions contemplated by the merger agreement as violative of any antitrust law; or

 

   

make proposals, execute or carry out agreements or submit to government orders providing for (a) the sale, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any assets or categories of assets of Parent or the Company or any of their respective affiliates, (b) other than as set forth in the disclosure schedule that the Company delivered to Parent in connection with the execution of the merger agreement, the imposition of any limitation or restriction on the ability of Parent or any of its affiliates to freely conduct their business or, following the closing, the Company’s business or own such assets or (c) the holding separate of the shares of the Company’s capital stock or any limitation or regulation on the ability of Parent or any of its affiliates to exercise full rights of ownership of the shares of the Company’s capital stock, each of which is referred to as an antitrust restraint.

Employee Benefits Matters

Pursuant to the 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, 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

 

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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 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).

Except to the extent necessary to avoid the duplication of benefits, Parent will, and will cause the surviving corporation and its other affiliates to, recognize the service of each continuing employee with the Company or its affiliates before the effective time of the merger (to the same extent recognized by the Company or its affiliates immediately prior to the effective time of the merger) as if such service had been performed with Parent or its affiliates under the terms of plans of Parent or any of its affiliates. This recognition of service will apply to eligibility and vesting and level of benefit and benefit accrual under all employee benefit plans or arrangements maintained by Parent or its affiliates (including vacation and severance plans) that such employees may be eligible to participate in after the effective time of the merger, but will not apply for purposes of benefit accrual under a defined benefit plan.

With respect to any welfare plan maintained by Parent or its affiliates in which continuing employees are eligible to participate after the effective time of the merger, Parent will, and will cause the surviving corporation and its other affiliates, to the extent permitted by the relevant welfare plan, and consistent with such plans’ application to similarly situated employees of Parent or its affiliates who are not continuing employees, to waive all limitations as to waiting periods, actively-at-work requirements, evidence of insurability requirements, preexisting conditions and other exclusions with respect to participation and coverage requirements applicable to such employees (and their spouses, domestic partners and dependents) to the extent such conditions and exclusions were satisfied or did not apply to such employees (or their spouses, domestic partners or dependents) under the welfare plans maintained by the Company or its affiliates prior to the effective time of the merger.

The employee benefits matters described in this section apply only with respect to continuing employees (and their dependents and beneficiaries) who are covered under Company employee plans that are maintained primarily for the benefit of employees employed in the United States (including continuing employees regularly employed outside the United States to the extent they participate in such Company employee plans). With respect to continuing employees not described in the preceding sentence, Parent will, and will cause the surviving corporation and its subsidiaries to, comply with all applicable laws, directives and regulations relating to employees and employee benefits matters applicable to such employees.

During the period from the date of the merger agreement and continuing until the earlier of the termination of the merger agreement and the effective time of the merger, the Company will not (i) sponsor or maintain any new Company employee plan or new benefit under existing Company employee plans which was not in effect as of the date of the merger agreement except for non-material changes made in the ordinary course of business to ERISA- covered health and welfare plans as part of an annual renewal process, (ii) increase its matching contribution formula under the Company 401(k) plan or (iii) increase its percentage of employer cost sharing contribution to Company employee plans in excess of the percentage of cost sharing in effect as of the date of the merger agreement except for non-material changes to copays and deductibles (but not premiums) for any ERISA-covered health plan as part of an annual renewal process.

The employee benefits provisions contained in the merger agreement and described in this section will be binding upon and inure solely to the benefit of each party to the merger agreement (that is, Parent, Merger Sub and the Company), and nothing in the merger agreement is intended to or will confer upon any other person any right, benefit or remedy of any nature whatsoever. The terms of the merger agreement will not be deemed to (i) establish, amend, or modify any Company benefit plan or any other benefit plan, program, agreement or arrangement maintained or sponsored by Parent, the Company or any subsidiary or any of their respective affiliates, (ii) alter or limit the ability of Parent or any of its subsidiaries (including, after the effective time of the

 

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merger, the surviving corporation or any subsidiary of the surviving corporation) to amend, modify or terminate any of the Company employee plans or any other benefit or employment plan, program, agreement or arrangement after the effective time of the merger or (iii) confer upon any current or former employee or other service provider of the Company or its subsidiaries, any right to employment or continued employment or continued service with Parent or any of its subsidiaries (including, following the effective time of the merger, the surviving corporation or any subsidiary of the surviving corporation), or constitute or create an employment or agreement with, or modify the at-will status of any, employee or other service provider.

Indemnification and Insurance

The 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 and its subsidiaries 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 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, in each case, subject to applicable law.

From the effective time of the merger and ending on the sixth anniversary of the effective time of the merger, the surviving corporation will maintain in effect, and Parent will cause the surviving corporation to maintain in effect, for the benefit of the present and former directors and officers of the Company and its subsidiaries, with respect to their acts and omissions as directors and officers of the Company or any of its subsidiaries occurring prior to the effective time of the merger, the existing policy of directors’ and officers’ liability insurance maintained by the Company or any subsidiary as of the date of the merger agreement in the form made available by the Company to Parent prior to the date of the merger agreement, to the extent that directors’ and officers’ liability insurance coverage is commercially available. However, (a) the surviving corporation may substitute for the existing policy a policy or policies of comparable coverage, including a “tail” or “runoff” insurance policy, (b) the surviving corporation will not be required to pay annual premiums for the existing policy (or for any substitute or “tail” policies) in excess of an amount equal to 300% of the most recently paid annual premium for the existing policy and (c) if requested by Parent, the Company will issue a broker of record letter acceptable to Parent permitting its insurance broker to negotiate and place such “tail” or “runoff” insurance of comparable coverage, Parent will have the right to negotiate such coverage and the Company will reasonably cooperate therewith.

Notwithstanding the foregoing, by giving written notice to Parent at least two business days prior to the effective time of the merger, in lieu of the foregoing insurance, the Company may, at its sole discretion, purchase a comparable “tail” or “runoff” extension to the existing policy for a period of six years after the effective time of the merger for a premium not to exceed an amount equal to 300% of the most recently paid annual premium for the existing policy.

Other Agreements

The merger agreement contains additional agreements of the Company and Parent relating to, among other things:

 

   

Parent’s access to the properties, books, contracts and records of the Company and each of its subsidiaries, data reasonably requested by Parent regarding the Company’s equity incentive awards and related tax compliance information and all other information concerning the business, results of operations, accounting methods, product development efforts, properties (tangible and intangible, including intellectual property) and personnel of the Company or any of its subsidiaries as Parent may

 

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reasonably request between the date of the merger agreement and the earlier of the effective time of the merger and the termination of the merger agreement (subject to applicable legal obligations and restrictions);

 

   

stock exchange delisting by the Company;

 

   

Parent participation in legal proceedings brought by current or former stockholders of the Company, the legal proceedings set forth in the disclosure schedule that the Company delivered to Parent in connection with the execution of the merger agreement and legal proceedings by or before any governmental entity that is or is reasonably likely to be material to the Company and its subsidiaries taken as a whole, including any legal proceedings related to anti-corruption laws, export control laws or sanctions;

 

   

confidentiality;

 

   

press releases and other public announcements relating to the merger, the merger agreement, or any of the other transactions contemplated by the merger agreement;

 

   

actions necessary if state takeover laws are or become applicable to the transactions contemplated by the merger agreement to ensure that the transactions contemplated by the merger agreement may be consummated as promptly as practicable;

 

   

notification of certain matters;

 

   

termination of benefit plans;

 

   

delivery of certain tax certificates and documents;

 

   

Parent review of the Company’s tax returns prior to being filed;

 

   

resignation of directors and officers of the Company; and

 

   

the actions necessary to cause the dispositions of certain common stock and equity-based securities by directors and officers of the Company pursuant to the merger agreement to be exempt under Rule 16b-3 promulgated under the Exchange Act.

Further, the Company has agreed to use its commercially reasonable efforts (not to require a concession or expenditure other than immaterial processing or consent fees, or material undertaking) to obtain, prior to the closing, all consents, waivers and approvals required under contracts of the Company or one of its subsidiaries to the extent reasonably requested by Parent. However, any failure to obtain such consents, waivers or approvals will not be considered a breach of covenant for all purposes of the merger agreement.

Conditions to the Merger

The obligations of each of the Company, Parent and Merger Sub to effect the merger is subject to the satisfaction, at or prior to the closing of the merger, of each of the following conditions:

 

   

the adoption of the merger agreement by the Company’s stockholders;

 

   

no order issued by any governmental authority preventing the consummation of the merger will be in effect, and no law will have been enacted that prohibits, makes illegal or enjoins the consummation of the merger;

 

   

all applicable waiting periods (and any extensions thereof) applicable to the merger under the HSR Act will have expired or early termination of such waiting periods will have been granted; and

 

   

the receipt of certain applicable foreign antitrust approvals set forth in the disclosure schedule that the Company delivered to Parent in connection with the execution of the merger agreement, including in Austria, China and Germany.

 

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We refer to the last three conditions in the list above as the joint antitrust conditions. The obligations of Parent and Merger Sub to consummate the transactions contemplated by the merger agreement are subject to the satisfaction at or prior to the closing of each of the following conditions, any of which may be waived, in writing, by Parent (with the merger agreement providing that each such condition is solely for the benefit of Parent and may be waived by Parent in its sole discretion without notice, liability or obligation to any person):

 

   

the representations and warranties of the Company regarding certain matters relating to the Company’s capitalization must be accurate in all respects as of the date of the merger agreement and at and as of the closing as if made on and as of the closing (except for representations and warranties that address matters only as to a specified date, which representations and warranties must be true and correct with respect to such specified date), except where the failure to be so accurate in all respects is not in excess of 1.0% of the fully diluted capitalization of the Company;

 

   

the representations and warranties of the Company regarding certain matters relating to due organization and subsidiaries of the Company, the Company’s corporate authority to enter into the merger agreement, the due execution, delivery and enforceability of the merger agreement, the required stockholder vote and the fees payable by the Company to financial advisors must be accurate in all material respects as of date of the merger agreement and at and as of the closing as if made on and as of the closing (except for representations and warranties that address matters only as to a specified date, which representations and warranties must be true and correct with respect to such specified date);

 

   

the representations and warranties of the Company regarding certain matters relating to the absence of any material adverse effect on the Company since March 31, 2019, must be accurate in all respects as of the date of the merger agreement and at and as of the closing as if made on and as of the closing (except for representations and warranties that address matters only as to a specified date, which representations and warranties must be true and correct with respect to such specified date);

 

   

the representations and warranties of the Company set forth in the merger agreement other than those listed above, disregarding all qualifications and exceptions contained in the merger agreement relating to materiality or material adverse effect or any similar standard or qualification, must be true and correct as of the date of the merger agreement and at and as of the closing as if made on and as of the closing (except for representations and warranties that address matters only as to a specified date, which representations and warranties must be true and correct with respect to such specified date), except where the circumstances causing the failure of such representations or warranties to be true and correct have not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect;

 

   

the Company must have performed and complied in all material respects with all covenants and other obligations in the merger agreement required to be performed and complied with by it at or prior to the closing;

 

   

since the date of the merger agreement, there must not have been any material adverse effect that is then continuing;

 

   

(a) no order will have been issued by any court, and no other applicable law will have been enacted, entered, enforced or deemed applicable to the transactions contemplated by the merger agreement by a governmental authority that is in effect and that provides for an antitrust restraint and that would prevent or condition the consummation of the merger (provided that Parent is not permitted to assert this condition if such antitrust restraint is principally caused by a material breach by Parent of its covenants under the merger agreement related to obtaining antitrust approvals) and (b) there will not be pending any legal proceeding brought by any governmental authority seeking any of the foregoing, which conditions we refer to together as the parent antitrust condition, and together with the joint antitrust conditions as the antitrust conditions; and

 

   

Parent must have received a certificate signed on behalf of the Company by its Chief Executive Officer and Chief Financial Officer, to the effect that certain of the closing conditions have been satisfied.

 

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The obligations of the Company to consummate the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction at or prior to the closing of each of the following conditions, any of which may be waived, in writing, by the Company (it being understood that each such condition is solely for the benefit of the Company and may be waived in writing by the Company in its sole discretion without notice, liability or obligation to any person):

 

   

the representations and warranties of Parent and Merger Sub regarding certain matters relating to due organization of Parent and Merger Sub, Parent’s and Merger Sub’s corporate authority to enter into the merger agreement, the due execution, delivery and enforceability of the merger agreement, the ownership of the Company’s stock by Parent and Merger Sub as of the date of the merger agreement and the fees payable by Parent to financial advisors must be accurate in all material respects as of date of the merger agreement and at and as of the closing as if made on and as of the closing (except for representations and warranties that address matters only as to a specified date, which representations and warranties must be true and correct with respect to such specified date);

 

   

the representations and warranties of Parent and Merger Sub set forth in the merger agreement other than those listed above, disregarding all qualifications and exceptions contained therein relating to materiality or Parent material adverse effect or any similar standard or qualification, must be true and correct as of the date of the merger agreement and at and as of the closing as if made on and as of the closing (except for representations and warranties that address matters only as to a specified date, which representations and warranties must be true and correct with respect to such specified date), except where the circumstances causing the failure of such representations or warranties to be true and correct have not had and would not reasonably be expected to have, individually or in the aggregate, a Parent material adverse effect;

 

   

Parent must have performed and complied in all material respects with all covenants and other obligations in the merger agreement required to be performed and complied with by it at or prior to the closing; and

 

   

the Company must have received a certificate signed on behalf of Parent by a duly authorized officer, to the effect that certain of the closing conditions have been satisfied.

Termination

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

 

   

by mutual written consent of the Company and Parent;

 

   

by either Parent or the Company, if (a) the closing has not occurred on or before July 8, 2020, or such other date that Parent and the Company may agree upon in writing; provided that if the closing has not occurred by such date, but on such date, all of the conditions to the closing other than with respect to obtaining regulatory approval in China (and other than conditions that by their nature are only to be satisfied at the closing) have been satisfied or waived in writing, then neither party will be permitted to terminate the merger agreement on account of the nonoccurrence of the closing until October 8, 2020; provided, further that if the closing has not occurred by such date, but on such date, all of the conditions to the closing other than with respect to obtaining regulatory approval in China (and other than conditions that by their nature are only to be satisfied at the closing) have been satisfied or waived in writing, then neither party will be permitted to terminate the merger agreement on account of the nonoccurrence of the closing until January 8, 2021 (we refer to each such date, as applicable, as the end date); provided, further, that in no event will a party be permitted to terminate the 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 merger agreement; (b) a governmental entity 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 merger

 

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agreement will not be available to any party that has materially breached its obligations under the 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 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 merger agreement, or if any representation or warranty of the other party has become inaccurate, in each case such that the closing condition to the obligations of the terminating party regarding the accuracy of representations and warranties or compliance with covenants and other obligations of the other party would not be satisfied;

 

   

by Parent if (a) the board of directors effects a change of recommendation for any reason; (b) the Company materially breaches its obligations with respect to calling and conducting the special meeting of the Company’s stockholders or the non-solicitation and related provisions of the merger agreement; (c) the board of directors fails to reaffirm its recommendation of the merger agreement within ten business days after Parent requests in writing that such recommendation be reaffirmed in response to an acquisition proposal or material modification to an acquisition proposal that has been publicly announced (or if such request is delivered less than ten business days, but more than three business days, prior to the special meeting of the Company’s stockholders, then the board of directors will be required to reaffirm such recommendation no later than one business day prior to the special meeting of the Company’s stockholders); (d) the Company, the board of directors or any Company representative resolves, proposes or agrees to do any of the foregoing; or (e) a tender or exchange offer relating to securities of the Company has been commenced by a person unaffiliated with Parent and the Company fails to send to its stockholders, within ten business days after such tender or exchange offer is first published, sent or given, a statement disclosing that the Company unconditionally recommends rejection of such tender or exchange offer or fails to reaffirm such recommendation in any press release published by the Company or in any Schedule 14D-9 filed by the Company with the SEC, in each case relating to such tender or exchange offer, at any time after the foregoing ten business day period (each of (a) through (e) we refer to as a triggering event); 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 merger agreement and makes a payment to Parent of a termination fee of $120 million.

Termination Fee

Subject to certain limitations, the Company will be required to pay Parent a termination fee equal to $120 million if the 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 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 before the end date, in each case at a time that Parent would have been entitled to terminate the 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 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 before the end date and such termination of the merger agreement occurred prior to obtaining approval of the adoption of the merger agreement at the special meeting of the Company’s stockholders or (c) the Company breached a representation or warranty contained in the merger agreement or failed to perform any of its covenants

 

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or other obligations contained in the 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).

An “acquisition” means any of the following transactions (other than the transactions contemplated under the merger agreement):

 

   

a merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction or series of transactions involving the Company pursuant to which the stockholders of the Company immediately preceding such transaction or series of transactions hold less than 50% of the aggregate equity interests in the surviving or resulting entity of such transaction or series of transactions or any direct or indirect parent thereto;

 

   

a sale or other disposition in a transaction or series of transactions by the Company or any of its subsidiaries of assets representing in excess of 50% of the aggregate fair market value of the assets of the Company and its subsidiaries immediately prior to such transaction or series of transactions; or

 

   

the acquisition by any person, directly or indirectly, including by way of a tender offer or exchange offer or issuance by the Company, in a transaction or series of transactions, of beneficial ownership or a right to acquire beneficial ownership of shares representing in excess of 50% of the voting power of the shares of Company common stock outstanding immediately prior to such transaction or series of transactions.

In no event will the Company be required to pay a termination fee on more than one occasion.

If the Company fails to timely pay the termination fee and, in order to obtain the payment, Parent makes a claim that results in a judgment for the amount of the termination fee, the Company will pay to Parent its reasonable costs and expenses (including reasonable attorneys’ fees and expenses) in connection with such suit, together with interest on the amount of the termination fee at the prime rate of Bank of America, N.A. in effect from time to time from the date such payment was required to be made.

Payment of the termination fee (and any additional amounts required pursuant to the preceding paragraph) to Parent by the Company will be the sole and exclusive remedy of Parent and will be deemed to be liquidated damages for any actual or purported breach of the merger agreement and for any and all losses or damages suffered or incurred by Parent or any of its affiliates in connection with the merger agreement (and the termination thereof), the transactions contemplated by the merger agreement (and the abandonment thereof) or any matter forming the basis for such termination and, after such payment has been made, the Company and its affiliates will have no further liability for any such actual or purported breach or for any and all losses or damages suffered or incurred by Parent or any of its affiliates in connection with the merger agreement (and the termination thereof), the transactions contemplated by the merger agreement (and the abandonment thereof) or any matter forming the basis for such termination.

In addition, under the addendum, Parent may be required to pay to the Company a special payment with respect to the termination of the merger agreement under specified circumstances, as described in the section entitled “Other Agreements — Addendum to Master Purchase Agreements” beginning on page 111.

Amendment; Extension; Waiver

Amendment

Subject to applicable law, the parties may amend the merger agreement by executed written agreement, prior to obtaining the approval of the adoption of the merger agreement by holders of Company common stock at the

 

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special meeting of the Company’s stockholders, with the approval of the respective boards of directors of the Company and Parent.

Extension; Waiver

At any time prior to the effective time of the merger, each party to the merger agreement may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of any other party to the merger agreement, (ii) waive any inaccuracies in the representations and warranties made to such party contained in the merger agreement or in any document delivered pursuant to the merger agreement or (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained in the merger agreement.

Governing Law; Submission to Jurisdiction

The merger agreement is governed by and construed in accordance with the laws of the State of Delaware without giving effect to any choice or conflict of laws, provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdictions other than those of the State of Delaware. The parties to the merger agreement irrevocably consented to submit to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, New Castle County, or, if that court does not have jurisdiction, a federal court sitting in Wilmington, Delaware, in respect of the interpretation and enforcement of the provisions of the merger agreement and of the documents referred to in the merger agreement, and in respect of the transactions contemplated by the merger agreement.

Required Vote; Recommendation of the Board of Directors

The approval of this proposal to adopt the 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.

The board of directors recommends that you vote “FOR” approval of the proposal to adopt of the merger agreement.

 

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OTHER AGREEMENTS

Voting Agreements

On July 8, 2019, concurrently with the execution of the merger agreement, Parent entered into voting agreements with each of Murugesan Shanmugaraj, Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi (including certain entities holding shares of Company common stock on their behalf). As of the record date, these stockholders beneficially owned approximately 6.7% of the issued and outstanding shares of Company common stock. In connection with the execution and delivery of the voting agreements, Parent did not pay these stockholders any consideration in addition to the consideration they may receive pursuant to the merger agreement in respect of their shares and equity awards. A copy of the form of voting agreement is attached as Annex C to this proxy statement.

The voting agreements require each of the stockholders, among others things, to vote the subject shares in favor of:

 

   

adoption of the merger agreement; and

 

   

any matter that could reasonably be expected to facilitate the merger (including any adjournment of the special meeting of the stockholders of the Company in order to solicit additional proxies in favor of the adoption of the merger agreement);

and against any acquisition proposal.

In addition, each stockholder subject to a voting agreement granted representatives of Parent an irrevocable proxy to vote the stockholder’s shares of Company common stock in favor of adoption of the merger agreement and against any acquisition proposal.

Each stockholder subject to a voting agreement also agreed not to, directly or indirectly,

 

   

transfer, grant an option with respect to, sell, exchange, pledge or otherwise dispose of, or encumber, its shares of Company common stock;

 

   

enter into a swap or similar transaction that transfers the economic consequences of ownership of its shares of Company common stock; or

 

   

make any offer or enter into any agreement providing for any of the foregoing, other than transfers (a) to any immediate family member, (b) to a trust for the benefit of such stockholder or any immediate family member for estate planning purposes, (c) to a charitable entity; or (d) in connection with or for the purpose of personal tax-planning; provided that in each of the foregoing cases, the transferee agrees to be bound by the voting agreement.

Each stockholder agreed to waive and not to seek any appraisal rights in connection with the merger.

Each voting agreement and all obligations of the stockholders and Parent under each voting agreement will automatically terminate upon the earlier to occur of:

 

   

the first business day following stockholder adoption of the merger agreement; and

 

   

the date and time of the termination of the merger agreement in compliance with its terms.

Addendum to Master Purchase Agreements

In connection with the execution of the merger agreement, on July 8, 2019 the Company, Parent and Cisco International B.V., a wholly owned subsidiary of Parent, also entered into an Addendum to the Master Purchase Agreements by and between such parties, which we refer to as the addendum, pursuant to which Parent and

 

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Cisco International B.V. agreed to purchase certain percentages, ranging from 70% to 100% depending on product and date, of Parent’s and Cisco International B.V.’s requirements for certain of the Company’s existing products at agreed upon prices and to negotiate in good faith with respect to Parent’s and Cisco International B.V.’s future purchase of a majority of its requirements for certain of the Company’s future products, subject to certain additional requirements. Parent and Cisco International B.V. may elect to terminate the addendum upon any change in control of the Company or the termination of the merger agreement by (a) the Company in order to accept a superior proposal, (b) Parent because a triggering event has occurred or because the Company breached a representation or warranty contained in the merger agreement or failed to perform any of its covenants or other obligations contained in the merger agreement, which breach or failure to perform or comply would give rise to the failure to satisfy certain conditions to the completion of the merger, or (c) by the Company or Parent because the closing did not occur on or before the end date, in each case at a time that the merger agreement was terminable for the reasons set forth in clauses (a) and (b) above.

In addition, the addendum provides that, subject to certain limitations, Parent will be required to pay the Company a special payment equal to $120 million if the merger agreement is terminated by either Parent or the Company because of any of the following, which we refer to collectively as the special termination conditions:

 

   

the closing did not occur on or before the end date, as it may be extended in accordance with the merger agreement; or

 

   

a governmental entity has issued an order related to antitrust laws having the effect of permanently restraining, enjoining or otherwise prohibiting the merger, which order is final and non-appealable;

and at the time of such termination, (a) any of the antitrust conditions have not been satisfied or waived by Parent and (b) each of the other conditions to the obligations of Parent and Merger Sub to effect the merger have been satisfied or waived (other than conditions that by their nature are only to be satisfied at the closing of the merger; provided that such conditions were then capable of being satisfied).

However, Parent will not be obligated to pay the special payment if:

 

   

a Company breach of any of its representations, warranties, covenants or agreements under the merger agreement principally caused the failure to satisfy the antitrust conditions; or

 

   

at the time of any termination of the merger agreement in connection with one of the special termination conditions, Parent was entitled to terminate the merger agreement due to the occurrence of a triggering event or due to the Company having breached any of its covenants or other obligations set forth in the merger agreement, or if any representation or warranty of the Company has become inaccurate, in each case such that the closing conditions to the obligations of Parent and Merger Sub regarding the accuracy of representations and warranties and compliance with covenants and other obligations of the Company would not be satisfied.

In no event will Parent be required to pay the special payment on more than one occasion.

If Parent fails to pay the special payment in a timely manner and, in order to obtain such payment, the Company makes a claim that results in a judgment for the amount of the special payment, Parent will pay the Company its reasonable costs and expenses (including reasonable attorneys’ fees and expenses) in connection with such suit, together with interest on the amount of the special payment at the prime rate of Bank of America, N.A. in effect from time to time from the date such payment was required to be made.

Payment of the special payment (and any additional amounts required pursuant to the preceding paragraph) to the Company by Parent will be the sole and exclusive remedy of the Company and will be deemed to be liquidated damages for any actual or purported breach of the merger agreement by Parent or any of its affiliates (including Merger Sub) and for any and all losses or damages suffered or incurred by the Company or any of its affiliates in connection with the addendum and the merger agreement (and the termination thereof), the transactions

 

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contemplated by the addendum and the merger agreement (and the abandonment thereof) or any matter forming the basis for such termination and, after such payment has been made, Parent and its affiliates will have no further liability for any such actual or purported breach or for any and all losses or damages suffered or incurred by the Company or any of its affiliates in connection with the addendum or the merger agreement (and the termination thereof), the transactions contemplated by the addendum and the merger agreement (and the abandonment thereof) or any matter forming the basis for such termination.

 

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AMENDMENT TO COMPANY BY-LAWS

On July 8, 2019, the board of directors adopted an amendment, which we refer to as the By-law amendment, to the Company’s Amended and Restated By-laws. The By-law amendment, which was effective upon adoption by the board of directors, among other things, designates the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United States District Court for the District of Delaware) as the sole and exclusive forum for any action by a stockholder of the Company (in their capacity as such) that is (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee, agent or stockholder of the Company to the Company or the Company’s stockholders, including, without limitation, a claim alleging the aiding and abetting of such a breach of fiduciary duty, (c) any action asserting a claim arising pursuant to any provision of the DGCL, the certificate of incorporation or the by-laws of the Company (as each may be amended from time to time), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, (d) any action against the Company or any director or officer or other employee of the Company to interpret, apply, enforce or determine the validity of the certificate of incorporation or the by-laws of the Company (as each may be amended from time to time) or (e) any action asserting a claim governed by the internal affairs doctrine or other “internal corporate claim” as that term is defined in Section 115 of the DGCL.

 

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

In accordance with Section 14A of 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 79, including the associated narrative discussion.

Accordingly, we are seeking approval of the following resolution at the special meeting:

“RESOLVED, that the compensation that may be paid or become payable to the Company’s named executive officers in connection with the merger, as disclosed in the table in the section of the proxy statement entitled ‘The Merger — Compensation Payable to Named Executive Officers,’ including the associated narrative discussion, is hereby approved.”

The vote on this proposal is a vote separate and apart from the vote on the proposal to adopt the merger agreement and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies. Accordingly, you may vote “FOR” either or both of the proposal to adopt the merger agreement and the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies and vote “AGAINST” or “ABSTAIN” for this nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger (and vice versa).

Because your vote is advisory, it will not be binding upon the Company, the board of directors, the board of directors’ compensation committee, Parent or any affiliate of Parent. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the 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.

The approval of this proposal requires 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 proposal.

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.

 

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AUTHORITY TO ADJOURN THE SPECIAL MEETING (PROPOSAL THREE)

If at the special meeting, the board of directors determines it is necessary or appropriate to adjourn the special meeting, to solicit additional proxies to approve the proposal to adopt the merger agreement, then we intend to move to vote on this proposal. If the board of directors determines that it is necessary or appropriate, we will ask our stockholders to vote only on this Proposal Three and not on the proposal to adopt the merger agreement or the nonbinding advisory proposal regarding compensation that may be payable to our named executive officers in connection with the merger.

In this proposal, we are asking our stockholders to approve a proposal to authorize the board of directors, in its discretion, to adjourn the special