NEOPHOTONICS CORPORATION Item 8.01 Other Events.
OnNovember 3, 2021 ,NeoPhotonics Corporation , aDelaware corporation ("NeoPhotonics" or the "Company"), Lumentum Holdings Inc., aDelaware corporation ("Lumentum" or "Parent"), andNeptune Merger Sub, Inc. , aDelaware corporation and a wholly owned subsidiary of Lumentum ("Merger Sub"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the terms of the Merger Agreement,NeoPhotonics will be acquired by Lumentum through a merger of Merger Sub with and intoNeoPhotonics (the "Merger"), withNeoPhotonics surviving the Merger as a wholly owned subsidiary of Lumentum. In connection with the proposed merger,NeoPhotonics filed a preliminary proxy statement with theSecurities and Exchange Commission (the "SEC") onDecember 1, 2021 (the "Preliminary Proxy Statement"), andNeoPhotonics filed a definitive proxy statement with theSEC onDecember 23, 2021 (the "Definitive Proxy Statement"). The Company commenced mailing the Definitive Proxy Statement on or aboutDecember 23, 2021 . BetweenDecember 3, 2021 andJanuary 5, 2022 , ten lawsuits (captionedElaine Wang v.NeoPhotonics Corporation , et al., No. 1:21-cv-10338 (S.D.N.Y. filedDec. 3, 2021 ),Mengsheng Ku v.NeoPhotonics Corporation , et al., No. 5:21-cv-09479 (N.D. Cal . filedDec. 8, 2021 ),Heather Smith v.NeoPhotonics Corporation , et al., No. 1:21-cv-10698 (S.D.N.Y. filedDec. 14, 2021 ),Matthew Hopkins v.NeoPhotonics Corporation , et al., No. 1:21-cv-10725 (S.D.N.Y. filedDec. 15, 2021 ),James Hendrickson v.NeoPhotonics Corporation , et al., No. 1:21-cv-06919 (E.D.N.Y. filedDec. 15, 2021 ),Stephen Bushansky v.NeoPhotonics Corporation et al., Case No. 5:21-cv-09825 (N.D. Cal . filedDec. 20, 2021 ),Alex Ciccotelli v.NeoPhotonics Corporation et al., Case No. 2:21-cv-05611 (E.D. Pa. filedDec. 23, 2021 ),Christopher Taylor v.NeoPhotonics Corporation et al., Case No. 1:22-cv-00002 (D. Del. filedJan. 3, 2022 ),John Ryan v.NeoPhotonics Corporation et al., Case No. 1:22-cv-00046 (S.D.N.Y. filedJan. 4, 2022 ), andJames Parshall v.NeoPhotonics Corporation et al., Case No. 5:22-cv-00055 (N.D. Cal . filedJan. 5, 2022 )), were filed in federal court by allegedNeoPhotonics stockholders challenging the Merger. The complaints nameNeoPhotonics andNeoPhotonics' board of directors as defendants. The complaints assert violations of Section 14(a) of the Exchange Act, Rule 14a-9 promulgated thereunder, and 17 C.F.R. § 244.100 againstNeoPhotonics and the individual defendants, as well as violations of Section 20(a) of the Exchange Act against the individual defendants. The plaintiffs contend that the Preliminary Proxy Statement filed with theSEC onDecember 1, 2021 , or the Definitive Proxy Statement filed with theSEC onDecember 23, 2021 , omitted or misrepresented material information regarding the Merger. The complaints seek injunctive relief, rescission, or rescissory damages, dissemination of a proxy statement that discloses certain information requested by the plaintiffs, and an award of plaintiffs' costs, including attorneys' fees and expenses.Between December 20 and December 22, 2021 , the Company also received two demand letters from purported stockholders of the Company challenging the Merger and asserting that the Preliminary Proxy Statement omitted or misrepresented material information regarding the Merger.NeoPhotonics believes that no further disclosure is required to supplement the Definitive Proxy Statement under applicable laws. However, to minimize the expense and distraction of responding to such actions and letters,NeoPhotonics is providing additional disclosures related to the Merger and transactions related thereto, which are set forth below, supplementing the disclosures in the Definitive Proxy Statement (the "Supplemental Disclosures"). Nothing in this Current Report on Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the Supplemental Disclosures set forth herein. To the contrary, the Company specifically denies all allegations in the complaints that any additional disclosure was or is required. These Supplemental Disclosures will not affect the merger consideration to be paid to the Company's stockholders in connection with the Merger or the timing of the Company's virtual special meeting of stockholders scheduled to be held online via live webcast onFebruary 1, 2022 at9:00 a.m., Pacific Time , at https://web.lumiagm.com/290418259. The Board of Directors unanimously recommends, on behalf ofNeoPhotonics that you vote: (1) "FOR" the adoption of the Merger Agreement; (2) "FOR" the approval, on an advisory (non-binding) basis, of the Compensation Proposal; and (3) "FOR" the Adjournment Proposal.
Supplemental Disclosures to the Definitive Proxy Statement/Prospectus
The following Supplemental Disclosures should be read in conjunction with the Definitive Proxy Statement, which should be read in its entirety. To the extent that information in the Supplemental Disclosures differs from or updates information contained in the Definitive Proxy Statement, the information in the supplemental disclosures shall supersede or supplement the information in the Proxy Statement. Defined terms used but not defined in the Supplemental Disclosures have the meanings set forth in the Definitive Proxy Statement. Paragraph and page references used herein refer to the Definitive Proxy Statement before any additions or deletions resulting from the Supplemental Disclosures.
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The following underlined language is added to the first paragraph that appears on page 28 in the section of the Definitive Proxy Statement entitled "The Merger-Background of the Merger."
In connection with such reviews, onJanuary 13, 2016 , the Board had formed a strategic committee (the "Strategic Committee") to assist with efficient and responsive oversight and management of such strategic matters. The Strategic Committee for the period of time referenced below consisted ofCharles J. Abbe ,Rajiv Ramaswami andMichael J. Sophie , and the Board determined it advisable to engage them to help oversee and manage the discussions with Lumentum and other potential strategic acquirors. Messrs. Abbe, Ramaswami, and Sophie were chosen because they are independent directors, have substantial experience in mergers & acquisitions, strategic planning, and corporate governance, and have years of related experience in the industry. The following underlined language is added to the second full paragraph that appears on page 29 in the section of the Definitive Proxy Statement entitled "The Merger-Background of the Merger." During the months of September andOctober 2020 ,Mr. Jenks and representatives ofUnion Square contacted and had conversations with certain additional potential counterparties as authorized by the Strategic Committee, including as detailed below. In connection with such solicitations, the Company entered into non-disclosure agreements with certain parties, including Parent, to provide additional due diligence information. Each of the non-disclosure agreements entered into with the counterparties had a standstill agreement, which did not contain a "don't ask, don't waive" clause. Except for the standstill agreement with Party A, each of the standstill agreements contained (i) a carveout that allowed the counterparty to make a confidential acquisition proposal to acquire the Company and (ii) a clause terminating the standstill in the event an unaffiliated third party commenced a tender offer or made a public proposal for a merger or other business combination.
The following underlined language is added to the last paragraph that appears on page 36 and continues onto page 37 in the section of the Definitive Proxy Statement entitled "The Merger-Background of the Merger."
OnDecember 14, 2020 , Party E and the Company executed a non-disclosure agreement, which included a standstill provision that would not prevent Party E from making a confidential acquisition proposal. Following execution of the non-disclosure agreement with Party E, representatives of the Company and Union Square conducted a number of due diligence meetings with Party E and its financial advisor betweenDecember 14, 2020 andDecember 31, 2020 .
The following underlined language is added to the last paragraph that appears on page 52 in the section of the Definitive Proxy Statement entitled "The Merger-Recommendation of the Board of Directors and Reasons for the Merger-Financial Projections."
Long Range Plan and Related Extrapolations
CYE December 31 | $ in millions Q42021E CY2022E(12) CY203E(12) CY2024E CY2025E CY2026E Revenue
$ 100 $ 416
$ 28 $ 122
$ 33 $ 58 $ 89 $ 120 Adjusted EBITDA(3)$ 10 $ 47$ 66 $ 95 $ 128 $ 162 Depreciation & Amortization ($ 6 ) ($ 29 ) ($ 34 ) ($ 37 ) ($ 39 ) ($ 42 ) Stock-Based Compensation ($ 3 ) ($ 18 ) ($ 21 ) ($ 22 ) ($ 23 ) ($ 24 ) Non-GAAP Operating Profit after SBC(4)$ 2 $ 0
$ 1 ($ 1
) $ 8
$ 1 ($ 0 ) $ 9$ 28 $ 52 $ 76 Depreciation and Amortization$ 6 $ 29$ 34 $ 37 $ 39 $ 42 Other Adjustments$ 2 $ 4 $ 3$ 3 $ 3 $ 3 Change in Working Capital(7) ($ 14 ) ($ 6 ) ($ 19 ) ($ 21 ) ($ 24 ) ($ 27 ) Change in Deferred Taxes(8) ($ 0 ) ($ 1 ) ($ 1 ) ($ 1 ) ($ 1 ) ($ 1 ) Capital Expenditures ($ 4 ) ($ 25 ) ($ 24 ) ($ 28 ) ($ 31 ) ($ 35 ) Unlevered Free Cash Flow(9) ($ 10 ) $ 1
$ 2
- $ 4 $ 16 $ 40 $ 69 $ 100
Tax Benefit of NOL(11) - $ 1 $ 3 $ 8 $ 15 $ 21 (1) Non-GAAP Gross Profit, a non-GAAP financial measure, is calculated as Revenue
less total non-GAAP cost of goods sold (adjusted for stock-based
compensation, amortization of intangibles, depreciation of
acquisition-related fixed asset step-ups, EOL inventory write-downs,
accelerated depreciation, and restructuring charges).
(2) Non-GAAP Operating Profit before SBC, a non-GAAP financial measure, is
calculated by starting with Non-GAAP Gross Profit and subtracting total
Non-GAAP Operating Expenses and excludes amortized integration, accelerated
depreciation, restructuring and other non-recurring charges.
(3) Adjusted EBITDA, a non-GAAP financial measure, is calculated by starting with
Non-GAAP Operating Profit before SBC and adding back depreciation and
amortization.
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(4) Non-GAAP Operating Profit after SBC, a non-GAAP financial measure, starts
with Non-GAAP Operating Profit before SBC and includes the impact of
stock-based compensation.
(5) Non-GAAP Net Income, a non-GAAP financial measure, is calculated by starting
with Non-GAAP Operating Profit after SBC and subtracting interest and other
expenses and tax expenses.
(6) Non-GAAP Unlevered Net Income, a non-GAAP financial measure, is calculated by
starting with Non-GAAP Net Income, adding back interest expense and
subtracting the impact of the tax shield on interest expense.
(7) Working Capital excludes Cash, Current Debt, Dividends Payable, and
Settlement.
(8) Estimated difference between cash tax and book tax, taking into account
estimated portion of tax deductible SBC expenses.
(9) Unlevered free cash flow, a non-GAAP financial measure, is calculated as
Non-GAAP Unlevered Net Income less capital expenditures and adding or
subtracting (as applicable) the net impact of depreciation, amortization and
other adjustments and changes in working capital and deferred taxes.
Stock-based compensation is treated as a cash expense to account for future
dilution impact and therefore is not added back.
(10) Pre-tax Profit for Cash Tax Provision is a non-GAAP financial measure that
adds back the impact of 33% of SBC in Q4 CY2021, trending down to 21% in
CY2026 based on Company management's view on the non-tax deductible portion
of current compensation plans for the purposes of calculating estimated
annual NOL usage.
(11) Tax benefits of NOLs calculated based on a statutory tax rate of 21% as
provided by management of the Company. Based on such rate and the amount of
NOLs of the Company as provided by the management of the Company, the tax
benefits of the NOLs were calculated for each calendar year through 2027
(the last year in which such NOLs would be utilized based on the pre-tax
profits), with a
reflected in the table above). With the approval of Company's management,
for purposes of a standalone company analysis, the calculations assumed that
the full amount of the Company's NOLs would be available to be utilized by
the Company and not subject to any limitations set forth under any
applicable tax law including Section 382 of the Internal Revenue Code.
(12) Management forecast for 2022E and 2023E revenue includes
revenue from product design engagement not yet won.
The following underlined language is added to the second full paragraph that appears on page 55 in the section of the Definitive Proxy Statement entitled "The Merger-Opinion of Union Square Advisors LLC-Summary of Financial Analysis." In performing the financial analysis summarized below and arriving at its opinion,Union Square used and relied upon certain financial projections provided by the management ofNeoPhotonics and referred to in this proxy statement as the "Management Forecast." Except as otherwise noted,Union Square utilized in each of its analyses described below the number of outstanding shares ofNeoPhotonics common stock on a fully diluted basis, based on the following inputs as prepared by the management ofNeoPhotonics as ofNovember 1, 2021 (applying the treasury stock method at the Unaffected Share Price of$11.52 per share), and provided by the management ofNeoPhotonics toUnion Square forUnion Square's use, which included (A) 52.7 million shares of common stock outstanding, (B) 0.7 million Company Options outstanding exercisable at a weighted-average exercise price of$5.10 per share, (C) 83,464 Company SAUs outstanding and (D) 3.6 million Company RSUs outstanding.Union Square also used and relied upon certainWall Street financial projections based on FactSet consensus estimates and referred to in this proxy statement as the "Consensus Estimates." The following underlined language is added to the fourth full paragraph that appears on page 55 in the section of the Definitive Proxy Statement entitled "The Merger-Opinion of Union Square Advisors LLC-Selected Publicly Traded Company Analysis."
For purposes of this analysis,
• The enterprise value (which is the market value as of November 3, 2021 ,plus short and long-term debt less cash and short-term investments)
divided by estimated revenue for calendar year 2021, which is referred to
below as Enterprise Value/CY2021E Revenue; and
• The enterprise value divided by estimated revenue for calendar year 2022,
which is referred to below as Enterprise Value/CY2022E Revenue.
• The enterprise value divided by estimated revenue for calendar year 2023,
which is referred to below as Enterprise Value/CY2023E Revenue.
• The enterprise value divided by Adjusted EBITDA ("Adjusted EBITDA" which
is estimated future earnings before interest, depreciation and
amortization and stock-based compensation and non-recurring items) for
calendar year 2022, which is referred to below as Enterprise
Value/CY2022E Adjusted EBITDA.
• The enterprise value divided by Adjusted EBITDA revenue for calendar year
2023, which is referred to below as Enterprise Value/CY2023E Adjusted
EBITDA.
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Such multiples for each of the selected comparable companies are summarized in
the table below:
EV/CY2022E EV/CY2023E
EV/CY2021E EV/CY2022E EV/CY2023E Adjusted Adjusted
Selected Public Traded Companies Revenue Revenue Revenue EBITDA EBITDA
II-VI Incorporated 2.2x 2.0x 1.8x 7.9x 7.2x
Applied Optoelectronics, Inc. 1.6x 1.4x 1.3x N.M. N.M.
Ciena Corporation 2.4x 2.2x 2.1x 11.8x 11.1x
EMCORE Corporation 1.6x 1.4x N/A * N/A * N/A *
Infinera Corporation 1.7x 1.5x 1.4x 11.7x 9.3x
IPG Photonics Corporation 5.5x 5.0x 4.6x 15.1x 13.4x
Lumentum Holdings Inc. 3.6x 3.4x 3.2x 9.5x 8.9x
* Not available.
The following underlined language is added to the first full paragraph that appears on page 58 in the section of the Definitive Proxy Statement entitled "The Merger-Opinion of Union Square Advisors LLC-Precedent Transactions Analysis."
Union Square performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms of selected transactions. In connection with its analysis,Union Square compared publicly available statistics for 27 selected transactions (which we refer to as the selected precedent transactions) announced sinceDecember 2007 , involving optical communication components, including tunable lasers, chip-based components, modules, wavelength management and switching. Utilizing its professional judgment and expertise,Union Square selected the precedent transactions because, based onUnion Square's professional judgement and expertise, they shared certain characteristics with the Merger. The following is a list of the selected precedent transactions reviewed, the month and year each transaction was announced, the multiples observed for each such transaction and the enterprise values for each such transaction: EV/LTM EV/NTM EV Date Announced Acquiror Target Revenue
Revenue (in Millions)
August 2021 Adtran, Inc. Adva Optical 1.3x 1.2x$930 Networking February 2021 II-VI Incorporated Coherent, Inc. 5.5x 4.7x$6,795 January 2021(1) Cisco Systems, Inc. Acacia 12.6x 9.4x$4,696 Communications, Inc. October 2020 Marvell Technology, Inphi Corporation 17.8x 13.7x$10,671 Inc. October 2019 Huber+Suhner Bktel 1.2x N.A. *$53 August 2019 Diodes Incorporated Lite-On 1.5x 0.9x$337 Semiconductor Corporation November 2018 II-VI Incorporated Finisar Corporation 2.2x 2.0x$2,887 March 2018 Lumentum Holdings Oclaro, Inc. 2.4x 2.6x$1,485 Inc. July 2017 ADVA Optical MRV Communications, 0.5x 0.4x$39 Networking SE Inc. November 2016 Inphi Corporation ClariPhy 7.6x 5.8x$275 Communications, Inc. May 2016 IPG Photonics Menara Networks, 2.2x N.A. *$47 Corporation Inc. April 2016 Corning Incorporated Alliance Fiber 3.6x 3.1x$260 Optic Products, Inc. March 2016 Coherent, Inc. Rofin-Sinar 1.5x 1.5x$789 Technologies, Inc. May 2015 Ciena Corporation Cyan, Inc. 2.5x 2.0x$296 November 2014 Molex Incorporated Oplink 1.5x 1.3x$313 Communications, Inc. October 2013 II-VI Incorporated Oclaro, Inc. (2) 0.9x N.A. *$89 September 2013 II-VI Incorporated Oclaro, Inc. (3) 1.3x 1.6x$114 April 2013 Avago Technologies CyOptics, Inc. 1.9x N.A. *$400 Limited January 2013 NeoPhotonics Lapis Semiconductor 0.6x 0.8x$35 Corporation Co, Ltd. (4) December 2012 Exotic Lightworks Optics 1.6x N.A. *$35 Electro-Optics March 2012 Oclaro, Inc. Opnext, Inc. 0.4x 0.4x$132 May 2011 IDEX Corporation CVI Melles Griot 2.2x N.A. *$400 March 2011 Finisar Corporation Ignis ASA 3.0x 1.5x$118 July 2010 Oclaro, Inc. Mintera Corporation 1.5x N.A. *$30
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July 2008 Opnext, Inc. StrataLight 2.3x N.A. *$172 Communications, Inc. May 2008 Finisar Corporation Optium Corporation 1.2x 0.8x$168 December 2007 Emcore Corporation Intel Corporation (5) 1.4x 1.3x$85 * Not available.
(1) Merger agreement amended from
(announced
(2) Oclaro's Fiber Amplifier and Micro-Optics Business
(3) Oclaro's
(4)
(5) Telecom Assets of Intel's Optical Platform Division
The following underlined language is added to the last paragraph that appears on page 59 in the section of the Definitive Proxy Statement entitled "The Merger-Opinion of Union Square Advisors LLC-Discounted Cash Flow Analysis."
Union Square calculated a range of prices per share forNeoPhotonics based on a discounted cash flow analysis to valueNeoPhotonics as a standalone entity.Union Square utilized for its analysis and withNeoPhotonics' consent, the Management Forecast which consisted of the Financial Projections. Unlevered free cash flow was derived as Non-GAAP Unlevered Net Income after stock-based compensation, excluding non-recurring items adding back depreciation, amortization and other items and subtracting for change in working capital, deferred taxes and capital expenditures. Stock-based compensation was subtracted in order to derive unlevered free cash flow and not added back in order to capture the dilutive impact of future share issuances.Union Square calculated the present value of unlevered free cash flows for the fourth quarter of calendar year 2021 and 2022 through 2026 and terminal values in the calendar year 2026, using discount rates, selected upon the application ofUnion Square's professional judgment and experience and taking into account macro-economic assumptions, estimates of risk and other appropriate factors, ranging from 9.3% to 11.3%, which were based on a weighted average cost of capital calculation. The terminal value was derived by applying perpetuity growth rates, selected upon the application ofUnion Square's professional judgment and experience and taking into account market expectations regarding long-term real growth rate of gross domestic product, inflation and other appropriate factors, ranging from 3.5% to 4.5% and applied to the terminal year (2026) estimate of the unlevered free cash flow. The resulting enterprise value ranges based on the present values of the unlevered free cash flows, and terminal value was adjusted to add net cash to derive a range of implied equity values. For the purposes of calculatingNeoPhotonics' use of its federal net operating loss carryforwards, a nominalU.S. corporate tax rate of 21% was assumed, at the consent of management ofNeoPhotonics , for calendar years 2021 through 2026 and included adjustment for any expiration of these net operating losses. The following underlined language is added to the first paragraph that appears on page 61 in the section of the Definitive Proxy Statement entitled "The Merger-Opinion ofUnion Square Advisors LLC-Other Information-Research Analyst Price Targets forNeoPhotonics Corporation ." Union Square reviewed publicly available research on per share price targets for our common stock obtained from 11 equity research brokers, which are publicly available. The equity research analysts' per share price targets ranged from$10.00 to$16.00 per share forNeoPhotonics . In addition, the mean undiscounted analyst per share price target for our common stock was$14.10 . The publicly available per share price targets published by equity research firms do not necessarily reflect the current market trading price of our common stock, and these estimates are subject to uncertainties, including future financial performance ofNeoPhotonics as well as future market conditions.
The following underlined language is added to the first full paragraph that appears on page 62 in the section of the Definitive Proxy Statement entitled "The Merger-Opinion of Union Square Advisors LLC-Other Information-General."
During the two-year period prior to the date of its opinion, Union Square has not been engaged to provide financial advisory or other services to Parent (or any of its affiliates) and has not received any compensation from Parent (or any of its affiliates). During the two-year period prior to the date of its opinion, Union Square had been engaged to provide financial advisory or other services toNeoPhotonics (or any of its affiliates) but has not received any compensation fromNeoPhotonics (or any of its affiliates), other than in connection with the Merger and the transactions related therewith. Union Square may provide financial advisory or other services toNeoPhotonics , Parent or any of their affiliates in the future, and in connection with any such services Union Square may receive compensation.
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The following underlined language is added to the fifth full paragraph that . . .
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