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Item 1.01.
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Entry
into a Material Definitive Agreement
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On November 8, 2018,
CommScope Holding Company, Inc. (“
CommScope
”) and ARRIS International plc, a public limited company organized
under the laws of England and Wales (the “
Company
” or “
ARRIS
”), entered into a bid conduct
agreement (the “
Bid Conduct Agreement
”), pursuant to which CommScope has agreed to acquire all of the issued
and to be issued ordinary shares, £0.01 nominal value per share (the “
Ordinary Shares
”), of ARRIS (the
“
Transaction
”) for $31.75 per Ordinary Share (the “
Per Share Consideration
”) pursuant to
the Scheme (as defined below).
Transaction
Overview
Upon the terms and
conditions set forth in the Bid Conduct Agreement, which has been unanimously approved by each of CommScope’s and the Company’s
respective board of directors, CommScope has agreed to acquire all of the issued and to be issued Ordinary Shares (other than
shares owned by (i) CommScope or any other direct or indirect wholly owned subsidiary of CommScope or (ii) the Company or any
direct or indirect wholly owned subsidiary of the Company) by means of a court-sanctioned scheme of arrangement (the “
Scheme
”)
under Part 26 of the U.K. Companies Act 2006 (provided that the parties reserve the right under the Bid Conduct Agreement to effect
the acquisition by means of a contractual takeover offer as defined in section 974 of the U.K. Companies Act 2006 in certain circumstances).
At the effective time of the Scheme (the “
Effective Time
”), each Ordinary Share then outstanding shall automatically
be transferred from the Company shareholders in accordance with the Scheme and the Bid Conduct Agreement to CommScope, and the
Company shareholders shall cease to have any rights with respect to their Ordinary Shares, except their right to receive the Per
Share Consideration, without interest.
Except as summarized
below and subject to certain exceptions, the Bid Conduct Agreement provides that, at the Effective Time, 50% of each unvested
time-based vesting restricted stock unit of the Company or similar award (“
RSU
”) will become vested and cancelled
and converted into the right to receive an amount in cash equal to the Per Share Consideration multiplied by the number of Ordinary
Shares so accelerated thereunder, and the remaining 50% of such RSU will be converted into CommScope restricted stock units (or,
in the case of cash awards of the Company, comparable cash awards of CommScope), but will otherwise remain subject to the original
terms and vesting schedule associated with such RSU;
provided
,
that
, CommScope may elect to increase the portion
of such RSUs that are accelerated and cashed-out at the closing. At the closing, all non-employee director RSUs and all remaining
RSUs (including all RSUs with performance-based vesting conditions and all RSUs that have previously vested prior to the Effective
Time, but which have not at such time otherwise been settled) will become fully vested and cancelled and converted into the right
to receive an amount in cash equal to the Per Share Consideration multiplied by the number of Ordinary Shares subject to such
RSUs, with performance for the “performance-based” RSUs deemed to be satisfied at target for all such RSUs other than
those granted in 2018, for which performance will be deemed satisfied at a level which results in performance vesting at 150%
of target.
In addition, with
respect to each outstanding warrant to purchase Ordinary Shares, the Bid Conduct Agreement provides that the Company will use
commercially reasonable efforts to cause such warrants to automatically, at the Effective Time, be converted into the right to
receive an amount in cash equal to the Per Share Consideration minus the exercise price per Ordinary Share under such warrant
multiplied by the number of Ordinary Shares exercisable for such exercise price thereunder.
Conditions
to the Transaction
The
consummation of the Transaction is subject to various closing conditions, including, among other things, (i) the receipt of
certain approvals of the Company shareholders, (ii) the sanction of the Scheme by the High Court of Justice of England and
Wales (the “
Court
”), (iii) the receipt of certain required regulatory approvals or lapse of certain review
periods with respect thereto, including those in the U.S. and European Union, Chile, Mexico, Russia and South Africa, (iv)
the absence of a Company Material Adverse Effect (as defined in the Bid Conduct Agreement), (v) the accuracy of
representations and warranties (subject, in certain cases, to certain materiality or Company Material Adverse Effect
qualifiers, as applicable) and (vi) the absence of legal restraints prohibiting or restraining the Transaction.
Termination
Rights
The Bid Conduct
Agreement contains certain termination rights for the Company and CommScope, including the right to terminate if
the Transaction has not been consummated by June 30, 2019 (provided that such date is subject to three, one-month extensions
in certain circumstances specified in the Bid Conduct Agreement, including to receive regulatory approvals) (such date,
the “
Long Stop Termination Date
”). Upon termination of the Bid Conduct Agreement under
specified circumstances, the Company will be required to pay CommScope a termination fee of $58 million, except that the
termination fee shall be $29 million in the case of (v) below unless an alternative proposal has been received prior to such
termination and ARRIS enters into a definitive agreement with respect to an alternative proposal within 12 months of such
termination that is subsequently consummated (the “
Termination Fee
”), including as a result of (i) the
Company breaching any of its representations, warranties, covenants, or agreements in the Bid Conduct Agreement and failing
to cure such breach in accordance with the terms of the Bid Conduct Agreement; (ii) a change of the Company’s board
of directors’ recommendation under circumstances described in the Bid Conduct Agreement; (iii) the Company breaching
the no-solicitation covenant in any material respect; or (iv) the Bid Conduct Agreement being terminated due to the
Transaction not having closed by the Long Stop Termination Date and an alternative proposal having been made and not
withdrawn at least 20 business days prior to such termination; (v) the Scheme not being sanctioned by the Court or the
requisite shareholder approvals not being obtained; or (vi) an alternative proposal being submitted to the Company and the
Company failing to publicly recommend against such alternative proposal or publicly affirm its recommendation of the
Transaction. The Bid Conduct Agreement also provides that CommScope will be required to pay the Company a reverse termination
fee of $250 million (the “
Reverse Termination Fee
”) if (i) CommScope breaches any of its representations,
warranties, covenants, or agreements in the Bid Conduct Agreement and failing to cure such breach in accordance with the
terms (as defined below) of the Bid Conduct Agreement; (ii) CommScope fails to close the Transaction as a result of the full
proceeds to be provided to CommScope by the Financing not being available on the date the closing would have occurred,
subject to the Company’s willingness to close and certain cure rights; or (iii) the Transaction not having closed by
the Long Stop Termination Date as a result of failure to obtain required antitrust approvals or a final, non-appealable order
is entered relating to antitrust laws prohibited the consummation of the Transaction.
In the event the
Transaction fails to close, the parties’ sole and exclusive remedy for any breach, loss or damage will be (i) the right
to terminate the Bid Conduct Agreement and receive the Termination Fee or Reverse Termination Fee, as applicable, to the extent
payable under the Bid Conduct Agreement as summarized above (and any expenses and interest in the event such fee becomes due and
is not paid) or (ii) to seek to enforce the obligations of the other party by a decree of specific performance, subject, in the
case that the Company seeks specific performance of CommScope’s obligations to effect the closing, to certain limitations
and qualifications set forth in the Bid Conduct Agreement, including availability of the proceeds from the Financing.
No Solicitation
The
Company is not permitted, among other things, to solicit, initiate or knowingly facilitate or encourage any inquiries regarding,
or the making or announcement of any proposal or offer that constitutes, or is reasonably likely to lead to, an acquisition proposal,
engage in or participate in any discussions or negotiations regarding any acquisition proposal or provide any non-public information
regarding the Company for purposes of facilitating any acquisition proposal. Notwithstanding this limitation, the Company may,
under certain circumstances, provide information to and participate in discussions or negotiations with third parties with respect
to certain unsolicited alternative acquisition proposals that its board of directors has determined in good faith, after consultation
with its outside financial advisors and legal counsel, (i) is reasonably likely to be consummated in accordance with its terms
and (ii) would result in a transaction more likely to promote the success of the Company for the benefit of its members as a whole
than the Transaction (a “
Superior Proposal
”). The Company’s board of directors may change its recommendation
to its shareholders (subject to CommScope’s right to terminate the Bid Conduct Agreement following such change of recommendation)
in response to an acquisition proposal that it has determined, after consultation with its outside financial advisors and legal
counsel, constitutes a Superior Proposal or in the event of an intervening event if, after providing certain “match”
rights with respect thereto, its board of directors determines in good faith that the failure to take such action would be inconsistent
with its statutory or fiduciary duties.
Efforts
to Consummate
Each of the parties
is required to use their respective reasonable best efforts to consummate the Transaction, including effecting certain regulatory
filings described in the Bid Conduct Agreement and obtaining all necessary consents and authorizations to consummate the Transaction,
subject to certain limitations.
Other
Terms of the Transaction
The
Bid Conduct Agreement contains customary representations, warranties and covenants for a transaction of this nature. The Bid Conduct
Agreement also contains customary mutual pre-closing covenants, including the obligation of the Company to conduct its business
in the ordinary course consistent with past practice and to refrain from taking certain specified actions without the consent
of CommScope.
In connection with
the execution and delivery of the Bid Conduct Agreement, each of the directors of the Company has entered into an Irrevocable
Undertaking in favor of CommScope agreeing, among other things, to support the transactions supported by the Bid Conduct Agreement.
The
representations, warranties and covenants of the Company contained in the Bid Conduct Agreement have been made solely for the
benefit of CommScope and the representations, warranties and covenants of CommScope have been made solely for the benefit of
the Company. In addition, such representations, warranties and covenants (a) have been made only for purposes of the Bid
Conduct Agreement, (b) have been qualified by (i) matters specifically disclosed in any reports filed by the Company with the
Securities and Exchange Commission prior to the date of the Bid Conduct Agreement and (ii) confidential disclosures made to
CommScope in the disclosure letter delivered in connection with the Bid Conduct Agreement, (c) are subject to materiality
qualifications contained in the Bid Conduct Agreement which may differ from what may be viewed as material by investors, (d)
were made only as of the date of the Bid Conduct Agreement or such other date as is specified in the Bid Conduct Agreement
and (e) have been included in the Bid Conduct Agreement for the purpose of allocating risk between the contracting parties
rather than establishing matters as fact. Accordingly, the Bid Conduct Agreement is included with this filing only to provide
investors with information regarding the terms of the Bid Conduct Agreement, and not to provide investors with any other
factual information regarding the Company and CommScope or their respective businesses. Investors should not rely on the
representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or
condition of the Company, CommScope or any of their respective subsidiaries or affiliates. Moreover, information
concerning the subject matter of the representations and warranties may change after the date of the Bid Conduct Agreement,
which subsequent information may or may not be fully reflected in the Company’s public disclosures. The Bid Conduct
Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the
Company and CommScope that is or will be contained in, or incorporated by reference into, the Forms 10-K, Forms 10-Q and
other documents that each party files with the Securities and Exchange Commission.
CommScope
intends to fund the Transaction and the related fees, commissions and expenses with a combination of cash on hand, the
issuance of equity and new financing. Concurrently with the signing of the Bid Conduct Agreement, CommScope entered into (i)
an investment agreement with Carlyle Partners VII S1 Holdings, L.P. (“
Carlyle
”) and (ii) a debt commitment
letter with the commitment parties named therein (such equity and debt
financing, the “
Financing
”). In the Bid Conduct Agreement, CommScope agrees to use its reasonable best
efforts to consummate the Financing and, if any portion of the Financing becomes unavailable, CommScope agrees to use its
reasonable best efforts to promptly arrange alternative sources of financing (on terms not materially less favorable to
CommScope). There is no financing condition to the Transaction. However, in the event CommScope is unable to obtain the
Financing and, as a result, the Company subsequently terminates the Bid Conduct Agreement, the Company shall be entitled to
the Reverse Termination Fee as described above as its sole and exclusive remedy.
The foregoing description
of the Bid Conduct Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and
is qualified in its entirety by, reference to the full text of the Bid Conduct Agreement, which is filed herewith as Exhibit 2.1
and is incorporated herein by reference.