Item 1.01
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Entry Into a Material Definitive Agreement.
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Merger Agreement
On November 11, 2019, KEMET Corporation (the “Company”)
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Yageo Corporation, a corporation
organized under the Laws of the Republic of China (“Parent”), and Sky Merger Sub Inc., a Delaware corporation
and a wholly owned subsidiary of Parent (“Acquisition Sub”). The Merger Agreement provides for, subject to the
satisfaction or waiver of specified conditions, the merger of Acquisition Sub with and into the Company, with the Company surviving
such merger as a wholly owned subsidiary of Parent.
Upon consummation of the transactions contemplated by the Merger
Agreement (the “Effective Time”), each share of common stock, par value $0.01 per share, of the Company (“Company
Common Stock”) issued and outstanding immediately prior to the Effective Time will be canceled and (other than shares
held by the Company or held, directly or indirectly, by Parent or Acquisition Sub and dissenting shares) automatically converted
into the right to receive $27.20 in cash, without interest and subject to any applicable withholding taxes (the “Per-Share
Amount”).
The Merger Agreement generally provides that, at
the Effective Time, (a) each then-outstanding option to purchase shares of Company Common Stock (a
“Company Option”), whether vested or unvested, will be canceled in exchange for the right to receive an
amount in cash equal to the product of (x) the total number of shares of Company Common Stock subject to such Company Option
and (y) the excess of the Per-Share Amount over the applicable per share exercise price, subject to any applicable
withholding or other taxes or other amounts required by applicable law to be withheld; provided, that if the per share
exercise price of Company Common Stock underlying a Company Option is equal to or greater than the Per-Share Amount, such
Company Option shall be canceled without any cash payment or other consideration being made in respect thereof, (b) each
then-outstanding restricted stock unit (a “Company RSU”), whether vested or unvested, will be canceled in
exchange for the right to receive an amount in cash equal to the product of (x) the total number of shares of Company Common
Stock subject to such Company RSU and (y) the Per-Share Amount, subject to any applicable withholding or other taxes or other
amounts required by applicable law to be withheld, and (c) each then-outstanding long-term incentive plan award (a
“Company LTIP Award”), whether vested or unvested, will be canceled in exchange for the right to receive
an amount in cash equal to: (i) with respect to the time-based vesting portion of such Company LTIP Award, the product of (x)
the total number of shares of Company Common Stock subject thereto and (y) the Per-Share Amount and (ii) with respect to the
performance-based vesting portion of such Company LTIP Award, the total value of the payout that would have been earned
assuming (x) the maximum level of performance for each Company LTIP Award relating to the two year performance period ending
on March 31, 2020 and (y) the greater of target and actual level of performance for each Company LTIP Award relating to the
two year performance period ending on March 31, 2021, subject, in each case, to any applicable withholding or other taxes or
other amounts required by applicable law to be withheld.
Notwithstanding the above, in the event the Company
grants Company RSUs or Company LTIP Awards, which have not been approved by the Company prior to the date of the Merger
Agreement, to officers or employees following the date of the Merger Agreement, any such awards that remain
outstanding immediately prior to the Effective Time will be subject to the same treatment upon the Effective Time as applies
to the corresponding type of award outstanding immediately prior to the Effective Time that was granted prior to the date of
the Merger Agreement, except that (a) payments with respect to such Company RSUs will be pro-rated based on the number of
days elapsed during the period commencing on the grant date and ending on the date on which the Effective Time occurs,
(b) payments with respect to the time-based vesting potions of such Company LTIP Awards will be pro-rated based on the
number of days elapsed during the period commencing on the grant date and ending on the date on which the Effective Time
occurs and (c) payments with respect to the performance-based vesting portions of such Company LTIP Awards will be
calculated based on the actual level of performance through the date on which the Effective Time occurs and pro-rated based
on the number of days elapsed during the period commencing on the first day of the applicable performance period and ending
on the date on which the Effective Time occurs.
Consummation of the Merger is subject to
customary conditions, including the approval by the Company’s stockholders. Certain further conditions include: (a)
obtaining antitrust and other regulatory approvals in the United States and certain other jurisdictions (including, among
others, China and Taiwan), (b) absence of any applicable restraining order or injunction prohibiting the Merger, (c) receipt of
approval from the Committee on Foreign Investment in the United States (“CFIUS”),
(d) obtaining foreign investment approval by the Investment Commission, Ministry of Economic Affairs, Taiwan, (e) the
approval of Parent’s stockholders, if required by applicable law and (f) in the case of Parent’s obligations
to complete the Merger, there not having been any “material adverse effect” (as customarily defined) on the
Company.
The Merger Agreement contains customary representations, warranties
and covenants, including, among others, covenants: (a) that each of the parties use its reasonable best efforts to cause the
Merger to be consummated, (b) that require Parent and the Company to take actions that may be required in order to obtain
required antitrust and CFIUS approvals and (c) that require the Company (i) subject to certain exceptions, to operate
its business in the ordinary course of business consistent with past practice and preserve material business relations during the
period between the execution of the Merger Agreement and the Effective Time, (ii) not to solicit, initiate, knowingly encourage
or knowingly facilitate, whether publicly or otherwise, the making of any inquiry, discussion, offer or request relating to a competing
proposal or, subject to certain exceptions, engage in any discussions or negotiations with respect thereto and (iii) to convene
a meeting of the Company’s stockholders and to solicit proxies from its stockholders in favor of the adoption of the Merger
Agreement.
Parent intends to fund the transaction with a combination of
cash on hand and cash proceeds from committed debt financing in an amount up to $1,295 million in the aggregate, consisting of
(a) a senior secured bridge loan facility in an aggregate principal amount of up to $1,100 million provided by Citigroup Global
Markets Asia Limited, Citibank Taiwan Limited and Citibank, N.A., Taipei Branch and (b) a subordinated shareholder loan facility
(the “Shareholder Loan”) in an aggregate principal amount of $195 million provided by Mr. Chen Tie-Min, Chairman
and Chief Executive Officer, and a significant shareholder, of Parent. Parent has also obtained a standby letter of credit issued
by Citibank, N.A., Hong Kong Branch, in the amount of $195 million which is available to Parent if Parent does not receive the
cash proceeds of the Shareholder Loan prior to closing.
Subject to certain exceptions and limitations,
either party may terminate the Merger Agreement if the Merger is not consummated by twelve (12) months after the date of the
Merger Agreement (the “Termination Date”), subject to an
automatic extension for a period of ninety (90) days after the Termination Date, for the purpose of obtaining certain
antitrust clearances. The Merger Agreement also contains certain other termination rights and provides that, upon termination
of the Merger Agreement under specified circumstances, including Parent’s decision to terminate if there is a change in
the Company Board Recommendation or a termination of the Merger Agreement by the Company to enter into an agreement for
a “superior proposal,” the Company will pay Parent a cash termination fee of $63,750,000. The Merger
Agreement additionally provides that, upon termination of the Merger Agreement when there has been a failure to obtain CFIUS
approval, Parent will pay the Company a cash termination fee of $65,400,000. If Parent fails to obtain approval by
Parent’s stockholders, if such approval is required by applicable law, Parent will pay the Company a cash termination
fee of $49,050,000. If Parent fails to consummate the closing upon the satisfaction of all conditions to closing as a result
of the failure of the debt financing to be funded, the Company may, within 30 days of termination, elect to receive a cash
termination fee of $63,750,000.
The foregoing summary of the Merger Agreement and the
transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the
full text of the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is
incorporated herein by reference.
Voting Agreement
In connection with the consummation of the transactions contemplated
by the Merger Agreement, certain stockholders of Parent have executed voting agreements (the “Voting Agreements”)
in favor of the Company concurrently with the execution of the Merger Agreement, pursuant to which such stockholders have agreed,
among other things, to vote all shares of common stock of Parent owned by them, collectively constituting approximately 10% of
Parent’s outstanding shares, in favor of the approval and adoption of the Merger Agreement, if a meeting of Parent’s
stockholders to approve the Merger Agreement is required to be held by applicable law.
The foregoing summary of the Voting Agreements does not
purport to be complete and is subject to, and qualified in its entirety by, the full text of the Voting Agreements, the form
of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The Merger Agreement and the form of Voting Agreement have been
included to provide stockholders with information regarding their terms. They are not intended to provide any other factual information
about the Company, Parent, Acquisition Sub or their respective subsidiaries and affiliates. The representations, warranties and
covenants contained in the Merger Agreement and the Voting Agreements were made only for purposes of the Merger Agreement and the
Voting Agreements as of the specific dates therein, were solely for the benefit of the parties to the Merger Agreement and the
Voting Agreements, may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures
made for the purposes of allocating contractual risk between the parties to the Merger Agreement and the Voting Agreements instead
of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that
differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement or the Voting
Agreements and 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 parties thereto or any of their respective subsidiaries or affiliates. Moreover,
information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger
Agreement and the Voting Agreements, which subsequent information may or may not be fully reflected in the Company’s public
disclosures.