Item 1.01. Entry into a Material Definitive Agreement.
On November 2, 2016, Brocade Communication Systems, Inc. (the Company) entered into an Agreement and Plan of Merger (the
Merger Agreement) with Broadcom Limited (Ultimate Parent), a limited liability company organized under the laws of the Republic of Singapore, Broadcom Corporation (Parent), a California corporation and an indirect
subsidiary of Ultimate Parent, and Bobcat Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (Merger Sub), providing for the merger of Merger Sub with and into the Company (the Merger),
with the Company surviving the Merger as a wholly owned subsidiary of Parent. Capitalized terms not otherwise defined have the meaning set forth in the Merger Agreement.
At the effective time of the Merger (the Effective Time), each share of common stock, par value $0.001 per share, of the Company
(the Company Common Stock) that is outstanding immediately prior to such time (other than shares of Company Common Stock (i) owned directly by Ultimate Parent, Parent, Merger Sub or any other direct or indirect subsidiary of Ultimate
Parent, (ii) held in treasury of the Company, (iii) held by any subsidiary of the Company or (iv) held by stockholders of the Company who are entitled to demand and properly demand appraisals of such shares pursuant to their statutory rights of
appraisal in accordance with the Delaware General Corporation Law) will be cancelled and extinguished and automatically converted into the right to receive cash in an amount equal to $12.75 per share, without interest (the Merger
Consideration).
At the Effective Time, subject to and upon the conditions set forth in the Merger Agreement, each stock option to
purchase Company Common Stock (an Option) with a per share exercise price less than the Merger Consideration (an In-the-Money Option) that is outstanding and vested (including that accelerate in connection with the Merger as
a result of non-assumption of the Option by Ultimate Parent) as of immediately prior to the Effective Time will be cancelled immediately prior to the Effective Time and converted into the right to receive a cash payment (cashed out), and
each restricted stock unit award covering Company Common Stock (an RSU Award) that is not assumed (as described below) also will be cashed out. The amount of the cash payment for each cashed out Option and cashed out RSU Award will equal
the number of shares of Company Common Stock subject to such award multiplied by (i) with respect to a cashed out Option, the excess of the Merger Consideration over the exercise price per share of such Option, or (ii) with respect to a
cashed out RSU Award, the Merger Consideration (the Cash Out Payment).
At the Effective Time, subject to and upon the
conditions set forth in the Merger Agreement, each outstanding and vested In-the-Money Option, each outstanding Option that is not an In-the-Money Option, and each outstanding RSU Award, as of immediately prior to the Effective Time, and, in each
case, held by an employee or other service provider of the Company or its subsidiaries who provides service to the Company or its subsidiaries as of immediately following the Effective Time (a Continuing Service Provider) will be assumed
by Ultimate Parent and converted automatically into a stock option (with respect to an assumed Option) or restricted stock unit award (with respect to an assumed RSU Award) covering ordinary shares in the capital of Ultimate Parent (Ultimate
Parent Ordinary Shares) having, subject to applicable law, the same terms and conditions as the assumed Option or RSU Award, as applicable (each, an Assumed Award), except that (i) each such Assumed Award will cover that number of
Ultimate Parent Ordinary Shares equal to the number of shares of Company Common Stock subject to such Assumed Award immediately prior to the Effective Time multiplied by the Exchange Ratio, which ratio is determined as the Merger
Consideration divided by the volume weighted average price for an Ultimate Parent Ordinary Share for the twenty trading days prior to the closing date of the Merger (the Closing Date), and (ii) with respect to an Option that is assumed,
the per share exercise price will equal the exercise price per share of such Option divided by the Exchange Ratio (the Assumption Treatment).
At the Effective Time, all other Options not assumed or cashed out pursuant to the Merger Agreement will be cancelled as of immediately prior
to the Effective Time in exchange for no consideration.
As of the Closing Date, subject to and upon the conditions set forth in the
Merger Agreement, each RSU Award that is subject to performance criteria immediately prior to the Closing Date (a PSU Award) will be treated in accordance with the terms of the applicable PSU Award agreement, including that (i) the PSU
Awards performance period will end on the Closing Date, (ii) the number of units that will be eligible to vest based on performance achievement over the shortened performance period under the PSU Award will be determined as of the Closing Date
(Eligible Units), (iii) 50% of the Eligible Units will become vested as of immediately prior to the Effective Time, and (iv) the Eligible Units under the PSU Award will be treated in the same manner as an RSU Award at the Effective Time,
provided that any such Eligible Units that will be subject to the Assumption Treatment will be scheduled to vest on the one (1) year anniversary of the Closing Date based on continued service through such date, subject to any accelerated vesting as
may be specified under any plan, agreement or other arrangement applicable to such PSU Award.
Consummation of the Merger is subject to
certain customary closing conditions, including, without limitation, the absence
of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, antitrust regulatory
approval in the Peoples Republic of China, the European Union and Japan, review and clearance by the Committee on Foreign Investment in the United States, and approval by the Companys stockholders. The transaction is not subject to a
financing condition.
The Company has made customary representations and warranties in the Merger Agreement and has agreed to customary
covenants regarding the operation of the business of the Company and its Subsidiaries. The Company is also subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide non-public
information to, and participate in discussions and engage in negotiations with, third parties regarding alternative acquisition proposals, with customary exceptions.
The Company has agreed to assist Parent with the potential sale of certain assets of the Company not to be completed until at or after the
Effective Time.
The Merger Agreement contains certain customary termination rights for the Company and Parent. Upon termination of the
Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee of $195 million. If the Merger Agreement is terminated in connection with the Company accepting a Superior Proposal or due to the Company
Boards change or withdrawal of its recommendation of the Merger, willful and material breach of its non-solicitation obligations, or similar actions, then the termination fee will become payable by the Company to Parent. This termination fee
will also be payable if the Merger Agreement is terminated because the Companys stockholders did not vote to adopt the Merger Agreement or because of the occurrence of the End Date (as defined below), and prior to such termination, a proposal
to acquire at least 50% of the Companys stock or assets is publicly announced or received and the Company enters into an agreement for, or completes, an alternative acquisition transaction within one year of termination.
In addition to the foregoing termination rights, and subject to certain limitations, the Company or Parent may terminate the Merger Agreement
if the Merger is not consummated by May 1, 2017, unless otherwise extended pursuant to the terms of the Merger Agreement (the End Date).
Concurrently with the execution of the Merger Agreement, the Companys directors and executive officers (each, a Supporting
Stockholder and collectively, the Supporting Stockholders) entered into a Support Agreement with Ultimate Parent and Parent (the Support Agreement), pursuant to which each of the Supporting Stockholders agreed,
among other things, to vote their respective shares of Company Common Stock (including those owned through the exercise or settlement of Options, RSU Awards, PSU Awards or other equity based awards denominated in Company Common Stock (Equity
Awards)) (the Subject Shares) in favor of adoption of the Merger Agreement and against any alternative Acquisition Proposals, during the period from the date of such Support Agreement through the earlier of (i) the date that the
Merger Agreement is terminated in accordance with its terms, (ii) the Effective Time and (iii) the date of any amendment to, or waiver or modification of, the Merger Agreement that reduces the amount or changes the form of consideration payable to
the Companys stockholders pursuant to the Merger Agreement (the Support Period). Subject Shares held by the Supporting Stockholders represent, in the aggregate, approximately 1% of the Company Common Stock outstanding on the date
of the Merger Agreement (excluding common stock issuable upon exercise or settlement of Equity Awards). Each of the Support Agreements will terminate upon the termination or expiration of the Support Period.
The foregoing description of the Merger Agreement and the transactions contemplated thereby do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the full text of the Merger Agreement, which is attached as Exhibit 2.1 and is incorporated herein by reference.
The Merger Agreement contains representations and warranties by each of Ultimate Parent, Parent, Merger Sub and the Company. These
representations and warranties were made solely for the benefit of the parties to the Merger Agreement and:
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should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
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may have been qualified in the Merger Agreement by disclosures that were made to the other party in connection with the negotiation of the Merger Agreement;
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may apply contractual standards of materiality that are different from materiality under applicable securities laws; and
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were made only as of the date of the Merger Agreement or such other date or dates as may be specified in the Agreement.
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