UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

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 Pursuant to §240.14a-12

 

 

INTERMOLECULAR, INC.

(Name of Registrant as Specified In Its Charter)

N/A

(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:
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☐		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:

 

 

 

The accompanying proxy statement is dated June 12, 2019 and, together with the enclosed form of proxy card, is first being mailed to stockholders on or about June 12, 2019.

 

 

Intermolecular, Inc.

3011 N. First Street

San Jose, California 95134

June 12, 2019

To the Stockholders of Intermolecular, Inc.:

You are cordially invited to attend a special meeting of stockholders (the “Special Meeting”) of Intermolecular, Inc., a Delaware corporation (“Intermolecular,” the “Company,” “we,” “us,” or “our”), to be held on July 17, 2019, at 9:30 a.m., Pacific time, at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025.

At the Special Meeting, you will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”). The Merger Agreement was originally entered into by and among EMD Group Holding II, Inc., a Delaware corporation (“Parent”) and an indirect wholly owned subsidiary of Merck KGaA, Darmstadt, Germany (“MKDG”), EMD Performance Materials Semiconductor Services Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”) and the Company on May 6, 2019. Upon the satisfaction or waiver of the conditions to the closing set forth in the Merger Agreement, Merger Sub will, at the closing, merge with and into the Company (the “Merger”), and the Company will become a wholly-owned subsidiary of Parent.

At the Special Meeting you will also be asked to consider and vote on a proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting.

At the Special Meeting, you will also be asked to consider and vote on a non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

If the Merger is completed, you will be entitled to receive $1.20 in cash, without interest, for each share of the Company’s common stock that you own (unless you have properly exercised your appraisal rights), which represents a premium of: (1) approximately 8.6% to the average closing price of the Company’s common stock over the 1-month trading period ending on the date the Company entered into the Merger Agreement and (2) approximately 11.2% to the average closing price of the Company’s common stock over the 3-month trading period, in each case ending on May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement.

The Board of Directors of the Company (the “Board”), after considering the factors more fully described in the enclosed proxy statement, has unanimously (A) determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are fair to, and in the best interests of the Company and its stockholders, (B) approved and declared advisable the Merger Agreement, the performance by the Company of its covenants and agreements contained therein and the consummation of the Merger and the other transactions contemplated thereby, in each case, upon the terms and subject to the conditions contained therein, and (C) resolved, upon the terms and subject to the conditions contained in the Merger Agreement, to recommend that the Company’s stockholders vote their shares of the Company’s common stock in favor of adopting the Merger Agreement and approving the transactions contemplated therein, subject to the conditions contained therein. The Board recommends that you vote: (1) “FOR” the adoption of the Merger Agreement and approval of the transactions contemplated therein;

(2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (3) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

The enclosed proxy statement provides 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 proxy statement. The proxy statement also describes the actions and determinations of the Board in connection with its evaluation of the Merger Agreement and the Merger. We encourage you to read the proxy statement and its annexes, including the Merger Agreement, carefully and in their entirety, as they contain important information.

Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted.

If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.

Your vote is very important, regardless of the number of shares that you own. We cannot complete the Merger unless the proposal to adopt the Merger Agreement and approve the transactions contemplated therein is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of the Company’s common stock.

If you have any questions or need assistance voting your shares, please contact our Proxy Solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

+1 (800) 322-2885

proxy@mackenziepartners.com

On behalf of the Board, I thank you for your support and appreciate your consideration of this matter.

Sincerely,

 

 

Christian F. Kramer

President and Chief Executive Officer

San Jose, California

June 12, 2019

Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the transactions described in this document or the accompanying proxy statement, including the Merger, passed upon the merits or fairness of such transactions or passed upon the adequacy or accuracy of the disclosure in the accompanying proxy statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated June 12, 2019 and, together with the enclosed form of proxy card, is first being mailed to stockholders on or about June 12, 2019.

 

Intermolecular, Inc.

3011 N. First Street

San Jose, California 95134

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JULY 17, 2019

Notice is hereby given that a special meeting of stockholders (the “Special Meeting”) of Intermolecular, Inc., a Delaware corporation (“Intermolecular,” the “Company,” “we,” “us,” or “our”), will be held on July 17, 2019, at 9:30 a.m., Pacific time, at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025:

1. To consider and vote on the proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”) by and among EMD Group Holding II, Inc., a Delaware corporation (“Parent”) and an indirect wholly owned subsidiary of Merck KGaA, Darmstadt, Germany (“MKDG”), EMD Performance Materials Semiconductor Services Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”) and the Company, dated May 6, 2019, and approve the transactions contemplated therein. Upon the satisfaction or waiver of the conditions to the closing set forth in the Merger Agreement, Merger Sub will, at the closing, merge with and into the Company (the “Merger”), and the Company will become a wholly owned subsidiary of Parent.

2. To consider and vote on any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting;

3. To consider and vote on the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger; and

4. To transact any other business that may properly come before the Special Meeting or any adjournment, postponement or other delay of the Special Meeting.

Only stockholders of record as of the close of business on June 4, 2019, are entitled to notice of the Special Meeting and to vote at the Special Meeting or any adjournment, postponement or other delay thereof.

The Board of Directors of Intermolecular (the “Board”) unanimously recommends that you vote: (1) “FOR” the adoption of the Merger Agreement and approval of the transactions contemplated therein; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (3) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.

By the Order of the Board,

 

 

Bill Roeschlein

Chief Financial Officer

San Jose, California

June 12, 2019

Dated: June 12, 2019

YOUR VOTE IS IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE: (1) ELECTRONICALLY OVER THE INTERNET OR BY TELEPHONE; OR (2) BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY REVOKE YOUR PROXY OR CHANGE YOUR VOTE AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.

If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.

If you are a stockholder of record, voting in person by ballot at the Special Meeting will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other nominee, you must obtain a “legal proxy” in order to vote in person at the Special Meeting.

If you fail to: (1) return your proxy card; (2) grant your proxy electronically over the Internet or by telephone; or (3) attend the Special Meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and, if a quorum is present, will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.

We encourage you to read the accompanying proxy statement and its annexes, including all documents incorporated by reference into the accompanying proxy statement, carefully and in their entirety. If you have any questions concerning the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact our Proxy Solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

+1 (800) 322-2885

proxy@mackenziepartners.com

TABLE OF CONTENTS

 

SUMMARY			1
Parties Involved in the Merger			1
The Merger			2
Treatment of Company Equity Awards			2
The Special Meeting			3
Interests of the Company’s Directors and Executive Officers in the Merger			4
Market Price Information			5
Recommendation of the Board			5
Opinion of Cowen and Company, LLC			5
Merger Agreement			6
Financing of the Merger			8
Guarantee			8
Material U.S. Federal Income Tax Consequences of the Merger			8
Regulatory Approvals Required for the Merger			9
Appraisal Rights			9
QUESTIONS AND ANSWERS			10
FORWARD-LOOKING STATEMENTS			19
THE SPECIAL MEETING			20
Date, Time and Place			20
Purpose of the Special Meeting			20
Board Recommendation			20
Record Date; Shares Entitled to Vote; Quorum			20
Vote Required; Abstentions and Broker Non-Votes			21
Shares Held by the Company’s Directors and Executive Officers			21
Support Agreements			21
Voting of Proxies			22
Revocability of Proxies			22
Solicitation of Proxies			23
Adjournments or Postponements			23
Appraisal Rights			23
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on July 17, 2019			24
Householding of Special Meeting Materials			24
Questions and Additional Information			24
PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT			25
PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING			26
PROPOSAL 3: ADVISORY, NON-BINDING VOTE ON MERGER-RELATED EXECUTIVE COMPENSATION ARRANGEMENTS			27
THE MERGER			28
Parties Involved in the Merger			28
Effect of the Merger			29
Effect on the Company if the Merger is Not Completed			29
Merger Consideration			30
Background of the Merger			30
Reasons for the Merger and Recommendation of the Board			43
Management Projections			47
Opinion of Cowen and Company, LLC			52
Interests of the Company’s Directors and Executive Officers in the Merger			59
Financing of the Merger			63
Guarantee			64
Support Agreements			64
Closing and Effective Time			65

Appraisal Rights			65
Material U.S. Federal Income Tax Consequences of the Merger			70
Regulatory Approvals Required for the Merger			73
Legal Proceedings			74
THE MERGER AGREEMENT			75
Explanatory Note Regarding the Merger Agreement			75
Effects of the Merger; Directors and Officers; Articles of Organization; Bylaws			75
Closing and Effective Time			76
Merger Consideration			76
Treatment of Equity-Based Awards			76
Exchange and Payment Procedures			76
Representations and Warranties			77
Conduct of Business Pending the Merger			80
The Board’s Recommendation; Company Board Recommendation Change			84
Employee Benefits			85
Efforts to Close the Merger			86
Indemnification and Insurance			87
Other Covenants			88
Conditions to the Closing of the Merger			88
Termination of the Merger Agreement			89
Termination Fees			91
Liquidated Damages			92
Specific Performance			92
Fees and Expenses			92
Amendment			92
Governing Law			92
Dispute Resolution			92
MARKET PRICES AND DIVIDEND DATA			93
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			94
FUTURE STOCKHOLDER PROPOSALS			96
WHERE YOU CAN FIND MORE INFORMATION			97
MISCELLANEOUS			98
ANNEX A: THE MERGER AGREEMENT			A-1
ANNEX B: OPINION OF COWEN AND COMPANY, LLC			B-1
ANNEX C: SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE			C-1
ANNEX D: FORM OF SUPPORT AGREEMENT			D-1

 

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QUESTIONS AND ANSWERS

The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that are important to you. We encourage you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption “Where You Can Find More Information.”

 

Q:	Why am I receiving these materials?

 

A:	The Board is furnishing this proxy statement and form of proxy card to the holders of shares of the Company’s common stock in connection with the solicitation of proxies to be voted at the Special Meeting.

 

Q:	What am I being asked to vote on at the Special Meeting?

 

A:	You are being asked to vote on the following proposals:

 

1)

To adopt the Merger Agreement and approve the transactions contemplated therein pursuant to which Merger Sub will merge with and into the Company, and the Company will become a wholly owned subsidiary of Parent;

 

2)

To approve the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and

 

3)

To approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

 

Q:	When and where is the Special Meeting?

 

A:	The Special Meeting will take place on July 17, 2019, at 9:30 a.m., Pacific time, at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025.

 

Q:	Who is entitled to vote at the Special Meeting?

 

A:

Stockholders as of the Record Date of June 4, 2019, are entitled to notice of the Special Meeting and to vote at the Special Meeting. Each holder of shares of the Company’s common stock is entitled to cast one vote on each matter properly brought before the Special Meeting for each share of common stock owned as of the Record Date.

 

Q:	May I attend the Special Meeting and vote in person?

 

A:

Yes. All stockholders as of the Record Date may attend the Special Meeting and vote in person. Seating will be limited. Stockholders will need to present proof of ownership of shares of the Company’s common stock, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the Special Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting.

Even if you plan to attend the Special Meeting in person, to ensure that your shares will be represented at the Special Meeting, we encourage you to sign, date and return the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy previously submitted.

 

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If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement and approve the transactions contemplated therein, without your instructions. If you hold your shares in “street name,” you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your bank, broker or other nominee.

 

Q:	What is the proposed Merger and what effects will it have on the Company?

 

A:

The proposed Merger is the acquisition of the Company by Parent. If the proposal to adopt the Merger Agreement is approved by stockholders and the other closing conditions under the Merger Agreement have been satisfied or waived (where permissible under applicable law), Merger Sub will merge with and into the Company, with the Company continuing as the Surviving Corporation. As a result of the Merger, the Company will become a wholly owned subsidiary of Parent, and the Company’s common stock will no longer be publicly traded and will be delisted from Nasdaq. In addition, the Company’s common stock will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company will no longer file periodic reports with the U.S. Securities and Exchange Commission (the “SEC”).

 

Q:	What will I receive if the Merger is completed?

 

A:

Upon completion of the Merger, you will be entitled to receive the Per Share Merger Consideration for each share of common stock that you own, unless you have properly exercised and not withdrawn your appraisal rights under the DGCL. For example, if you own 10 shares of common stock, you will receive $12.00 in cash in exchange for your shares of the Company’s common stock, without interest and less any applicable withholding taxes.

 

Q:	How does the Per Share Merger Consideration compare to the unaffected market price of the common stock?

 

A:

The $1.20 Per Share Merger Consideration constitutes a premium of (1) approximately 5.3% to the closing price of the Company’s common stock on May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement, (2) approximately 8.6% to the average closing price of the Company’s common stock in the 1-month trading period ending on the May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement, and (3) approximately 11.2% to the average closing price of the Company’s common stock over the 3-month trading period, in each case ending on May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement.

 

Q:	What do I need to do now?

 

A:

We encourage you to read this proxy statement, the annexes to this proxy statement and the documents that we refer to in this proxy statement carefully and consider how the Merger affects you. Then sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or grant your proxy electronically over the Internet or by telephone, so that your shares of the Company’s common stock can be voted at the Special Meeting, unless you wish to seek appraisal. If you hold your shares in “street name,” please refer to the voting instruction forms provided by your bank, broker or other nominee to vote your shares. Please do not send your stock certificates with your proxy card.

 

Q:	Should I send in my stock certificates now?

 

A:	No. After the Merger is completed, you will receive a letter of transmittal containing instructions for how to send your stock certificates to the payment agent in order to receive the appropriate cash payment for the

 

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shares of the Company’s common stock represented by your stock certificates. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled. Please do not send your stock certificates with your proxy card.

 

Q:	What happens if I sell or otherwise transfer my shares of the Company’s common stock after the Record Date but before the Special Meeting?

 

A:

The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the date the Merger is expected to be completed. If you sell or transfer your shares of the Company’s 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 sell or otherwise transfer your shares and each of you notifies the Company in writing of such special arrangements, you will transfer the right to receive the Per Share Merger Consideration, if the Merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote those shares at the Special Meeting. Even if you sell or otherwise transfer your shares of the Company’s common stock after the Record Date, we encourage you to sign, date and return the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the Internet or by telephone.

 

Q:	How does the Board recommend that I vote?

 

A:

The Board, after considering the various factors described under the caption “The Merger — Reasons for the Merger and Recommendation of the Board,” has unanimously (1) determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are fair to, and in the best interests of the Company’s stockholders, (2) approved and declared advisable the Merger Agreement, the performance by the Company of its covenants and agreements contained therein and the consummation of the Merger and the other transactions contemplated thereby, in each case upon the terms and subject to the conditions contained in the Merger Agreement and (3) resolved, upon the terms and subject to the conditions contained in the Merger Agreement, to recommend that the Company’s stockholders vote their shares of the Company’s common stock in favor of adopting the Merger Agreement and approving the transactions contemplated therein, including the Merger. The Board recommends that you vote: (A) “FOR” the adoption of the Merger Agreement and approval of the transactions contemplated therein; (B) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (C) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

 

Q:	What happens if the Merger is not completed?

 

A:

If the Merger Agreement is not adopted by the Company’s stockholders or if the Merger is not completed for any other reason, the Company’s stockholders will not receive any payment for their shares of the Company’s common stock. Instead, the Company will remain an independent public company, the Company’s common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act, and the Company will continue to file periodic reports with the SEC.

Under specified circumstances that are specified in the Merger Agreement, the Company will be required to pay Parent a termination fee upon the termination of the Merger Agreement. For more details see the section of this proxy statement captioned “The Merger Agreement — Termination Fees.”

 

Q:	What vote is required to adopt the Merger Agreement?

 

A:	The affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock as of the Record Date is required to adopt the Merger Agreement and approve the transactions contemplated therein.

 

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If a quorum is present at the Special Meeting, the failure of any stockholder of record to (1) submit a signed proxy card, (2) grant a proxy electronically over the Internet or by telephone or (3) vote in person by ballot at the Special Meeting will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein. If you hold your shares in “street name” and a quorum is present at the Special Meeting, the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein. If a quorum is present at the Special Meeting, abstentions will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein.

 

Q:

What vote is required to approve any proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting and to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger?

 

A:

Approval of the proposal to adjourn the Special Meeting, if a quorum is present, requires the affirmative vote of a majority of the shares of the Company’s common stock having voting power present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter. Approval of the proposal to adjourn the Special Meeting, if a quorum is not present, requires the affirmative vote of a majority of the votes cast on the subject matter. Approval, by non-binding, advisory vote, of compensation that will or may become payable to the Company’s named executive officers in connection with the Merger requires the affirmative vote of a majority of the votes cast on the subject matter.

The failure of any stockholder of record to (1) submit a signed proxy card, (2) grant a proxy electronically over the Internet or by telephone or (3) vote in person by ballot at the Special Meeting will not have any effect on the adjournment proposal or the compensation proposal. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee how to vote your shares will not have any effect on the adjournment proposal and the compensation proposal.

Abstentions will have no effect on the outcome of the adjournment proposal and the compensation proposal if a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the adjournment proposal if a quorum is not present.

Regardless of the outcome of the proposal to adjourn the Special Meeting, the chairman of the Special Meeting may adjourn the meeting until a quorum is present or represented.

 

Q:	What is a quorum?

 

A:

A quorum will be present if holders of a majority of the shares of the Company’s common stock outstanding and entitled to vote are present in person or represented by proxy at the Special Meeting. If a quorum is not present at the Special Meeting, the Special Meeting may be adjourned until a quorum is obtained.

If you mark, sign, date and return a proxy card (or otherwise properly submit a proxy over the Internet or by telephone) but abstain or fail to provide voting instructions on any of the proposals listed on the proxy card, your shares of the Company’s common stock will be counted for purpose of determining whether a quorum is present at the Special Meeting.

 

Q:	Why am I being asked to cast a non-binding, advisory vote regarding compensation that will or may become payable to the Company’s named executive officers in connection with the Merger?

 

A:	SEC rules require the Company to seek a non-binding, advisory vote regarding compensation that will or may become payable by the Company to its named executive officers in connection with the Merger.

 

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Q:	What is the compensation that will or may become payable to the Company’s named executive officers in connection with the Merger for purposes of this advisory vote?

 

A:

The compensation that will or may become payable by the Company to its named executive officers in connection with the Merger is certain compensation that is tied to or based on the Merger and payable to certain of the Company’s named executive officers. For further detail, see the section of this proxy statement captioned “Proposal 3: Advisory, Non-Binding Vote on Merger-Related Executive Compensation Arrangements.”

 

Q:	What will happen if stockholders do not approve the compensation that will or may become payable by the Company to its named executive officers in connection with the Merger at the Special Meeting?

 

A:

Approval of Proposal 3: Advisory, Non-Binding Vote on Merger-Related Executive Compensation Arrangements is not a condition to completion of the Merger. The vote with respect to such proposal is an advisory vote and will not be binding on the Company or Parent. If the Merger Agreement is adopted by the stockholders and the Merger is completed, the compensation that will or may become payable by the Company to its named executive officers in connection with the Merger may be paid to the Company’s named executive officers even if the Company’s stockholders fail to approve Proposal 3: Advisory, Non-Binding Vote on Merger-Related Executive Compensation Arrangements.

 

Q:	What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A:

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), you are considered, with respect to those shares, to be the “stockholder of record.” In this case, this proxy statement and your proxy card have been sent directly to you by the Company.

If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of shares of the Company’s common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting. 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 obtain a “legal proxy” from your bank, broker or other nominee.

 

Q:	How may I vote?

 

A:	If you are a stockholder of record (that is, if your shares of the Company’s common stock are registered in your name with AST, our transfer agent), there are four ways to vote:

 

•

by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;

 

•

by visiting the Internet address on your proxy card;

 

•

by calling toll-free (within the U.S. or Canada) the phone number on your proxy card; or

 

•

by attending the Special Meeting and voting in person by ballot.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of the Company’s common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the Internet or by telephone. Please be aware that, although there is no charge for voting your shares, if you vote electronically over the Internet or by telephone, you may incur costs such as Internet access and telephone charges for which you will be responsible.

Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares of the Company’s common stock by proxy. If you are a record holder or if you obtain a “legal proxy” to vote shares that you beneficially own, you may still vote your shares of the Company’s common stock in person

 

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by ballot at the Special Meeting even if you have previously voted by proxy. If you are present at the Special Meeting and vote in person by ballot, your previous vote by proxy will not be counted.

If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee, or, if such a service is provided by your bank, broker or other nominee, electronically over the Internet or by telephone. To vote over the Internet or by telephone through your bank, broker or other nominee, you should follow the instructions on the voting form provided by your bank, broker or nominee.

 

Q:	If my broker holds my shares in “street name,” will my broker vote my shares for me?

 

A:

No. Your bank, broker or other nominee is permitted to vote your shares on any proposal currently scheduled to be considered at the Special Meeting only if you instruct your bank, broker or other nominee how to vote. You should follow the procedures provided by your bank, broker or other nominee to vote your shares. Without instructions, your shares will not be voted on such proposals, which will have the same effect as if you voted against adoption of the Merger Agreement and approval of the transactions contemplated therein, but will have no effect on the adjournment proposal or the compensation proposal.

 

Q:	May I change my vote after I have mailed my signed proxy card?

 

A:	Yes. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by:

 

•

signing another proxy card with a later date and returning it to us prior to the Special Meeting;

 

•

submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;

 

•

delivering a written notice of revocation to the Corporate Secretary; or

 

•

attending the Special Meeting and voting in person by ballot.

If you hold your shares of the Company’s common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.

 

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 the Company’s 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 common stock is called a “proxy card.” Christian F. Kramer, our President and Chief Executive Officer and Bill Roeschlein, our Chief Financial Officer, with full power of substitution, are the proxy holders for the Special Meeting.

 

Q:	If a stockholder gives a proxy, how are the shares voted?

 

A:

Regardless of the method you choose to vote, the proxy holders will vote your shares in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares 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 should be voted on a matter, the shares represented by your properly signed proxy will be voted: (1) “FOR” the adoption of the

 

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Merger Agreement and approval of the transactions contemplated therein; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (3) “FOR” the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

 

Q:	What should I do if I receive more than one set of voting materials?

 

A:	Please sign, date and return (or grant your proxy electronically over the Internet or by telephone) each proxy card and voting instruction card that you receive.

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card.

 

Q:	Are there any stockholders who have already committed to vote in favor of the Merger?

 

A:

Yes. In connection with the Merger Agreement, the Supporting Stockholders, holding approximately 31.0% of the outstanding shares of the Company’s common stock as of the date of the Merger Agreement, entered into Support Agreements with Parent in which they agreed to, among other things, vote all of their beneficially owned shares of the Company’s common stock in favor of the adoption of the Merger Agreement and approval of the transactions contemplated therein. The Support Agreements include covenants with respect to the voting of such shares of the Company’s common stock in favor of adopting the Merger Agreement and approving the transactions contemplated therein and against any competing acquisition proposals and place certain restrictions on the transfer of the shares of the Company’s common stock held by the restrictive signatories thereto.

 

Q:	Where can I find the voting results of the Special Meeting?

 

A:

If available, the Company may announce preliminary voting results at the conclusion of the Special Meeting. The Company intends to publish final voting results in a Current Report on Form 8-K to be filed with the SEC following the Special Meeting. All reports that the Company files with the SEC are publicly available when filed. See the section of this proxy statement captioned “Where You Can Find More Information.”

 

Q:	Will I be subject to U.S. federal income tax upon the exchange of common stock for cash pursuant to the Merger?

 

A:

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined under the caption “The Merger — Material U.S. Federal Income Tax Consequences of the Merger”) in exchange for such U.S. Holder’s shares of common stock in the Merger generally will result in the recognition of gain or loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of common stock surrendered in the Merger.

A Non-U.S. Holder (as defined under the caption “The Merger — Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States.

You should consult your own tax advisor to determine the U.S. federal income tax consequences relating to the Merger in light of your particular circumstances and any consequences arising under other federal tax

 

16

laws or the laws of any state, local or non-U.S. taxing jurisdiction. For more information, see the section of this proxy statement captioned “The Merger — Material U.S. Federal Income Tax Consequences of the Merger.”

 

Q:	What will the holders of Company Options receive in the Merger?

 

A:

Each Company Option that remains outstanding as of immediately prior to the Effective Time will fully vest (to the extent unvested) and be canceled as of the Effective Time, and the holder will be paid an amount in cash equal to the product obtained by multiplying (x) the aggregate number of shares of the Company’s common stock underlying such Company Option, by (y) the amount, if any, by which $1.20 exceeds the per share exercise price of such Company Option.

For more details on the treatment of Company Options in the Merger please refer the section of this proxy statement captioned “The Merger — Treatment of Company Equity Awards.”

 

Q:	What will the holders of Company RSU Awards receive in the Merger?

 

A:

Each Company RSU Award that remains outstanding as of immediately prior to the Effective Time will fully vest (to the extent unvested, and with any applicable performance criteria being deemed achieved at the maximum possible level of achievement for such performance criteria) and be canceled as of the Effective Time, and each holder will be paid an amount in cash equal to the product obtained by multiplying (x) the aggregate number of shares of the Company’s common stock underlying such Company RSU Award, by (y) $1.20.

For more details on the treatment of Company RSU Awards in the Merger please refer the section of this proxy statement captioned “The Merger — Treatment of Company Equity Awards.”

 

Q:	When do you expect the Merger to be completed?

 

A:

We are working toward completing the Merger as quickly as possible and currently expect to complete the Merger by the second half of calendar year 2019. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of our control.

 

Q:	Am I entitled to appraisal rights under the DGCL?

 

A:

If the Merger is completed, stockholders who do not vote in favor of the adoption of the Merger Agreement and who properly demand and petition for appraisal of their shares will be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL. This means that holders of shares of the Company’s common stock are entitled, subject to the requirements set forth in the DGCL, to have their shares appraised by the Delaware Court of Chancery and to receive (i) payment in cash of the “fair value” of the shares of the Company’s common stock (unless to the extent that the Company has made, at its sole discretion and before the entry of judgment, cash payments to one or more stockholders that are entitled to appraisal), exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with (ii) interest to be paid on the amount determined by the court to be fair value, if any, less any payments that the Company has made before the entry of judgment to one or more stockholder that are entitled to appraisal, which payments can be made, and the amount of which can be determined at the Company’s sole discretion. Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. The DGCL requirements for exercising appraisal rights are described in additional detail in this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced in Annex C to this proxy statement. For more information, see the section of this proxy statement captioned “The Merger — Appraisal Rights.”

 

17

Q:	Do any of the Company’s directors or officers have interests in the Merger that may differ from those of the Company’s stockholders generally?

 

A:

Yes. In considering the recommendation of the Board with respect to the proposal to adopt the Merger Agreement and approve the transactions contemplated therein, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of stockholders generally. In (i) evaluating and negotiating the Merger Agreement; (ii) approving the Merger Agreement and the Merger; and (iii) recommending that the Merger Agreement be adopted by stockholders, the Board was aware of and considered these interests to the extent that they existed at the time, among other matters. For more information, see the section of this proxy statement captioned “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger.”

Our directors and executive officers have informed us that they currently intend to vote: (1) “FOR” the adoption of the Merger Agreement and approval of the transactions contemplated therein; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (3) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

 

Q:	Who can help answer my questions?

 

A:	If you have any questions concerning the Merger, the Special Meeting or this statement, would like additional copies of this proxy statement or need help voting your shares of the Company’s common stock, please contact our Proxy Solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

+1 (800) 322-2885

proxy@mackenziepartners.com

 

18

FORWARD-LOOKING STATEMENTS

This communication may contain statements that do not relate solely to historical or present facts and circumstances and which are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, including statements regarding the Merger involving the Company, Parent and MKDG and the ability of the Company, Parent and MKDG to consummate the Merger. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, or are based on current expectations, estimates, forecasts and projections. Forward-looking statements can usually be identified by the use of terminology such as “anticipate,” “believe,” “could,” “continue,” “estimate,” “expect,” “goals,” “intend,” “likely,” “may,” “might,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and variations of such words and similar expressions. Such forward-looking statements include, among others, the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. Actual performance or results may differ materially from those expressed in or suggested by forward-looking statements as a result of various risks, uncertainties, assumptions and other factors, including, without limitation: (i) the risk that any of the conditions to the consummation of the Merger are not satisfied, including the failure to timely or at all obtain the approval of the Company’s stockholders or required regulatory approvals; (ii) the risk that the occurrence of any event, change or other circumstance could give rise to the termination of the Merger Agreement; (iii) the effect of the announcement or pendency of the Merger on the Company’s business relationships, operating results and business generally and the Company’s ability to hire and retain key personnel; (iv) risks related to diverting management’s attention from the Company’s ongoing business operations; (v) the outcome of any legal proceeding related to the Merger; (vi) unexpected costs, charges or expenses resulting from the Merger; (vii) certain restrictions on the Company’s conduct during the pendency of the Merger that may adversely affect the Company’s ability to pursue certain business opportunities or strategic transactions; (viii) legislative, regulatory and economic developments and market conditions; (ix) unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors; (x) other risks to the consummation of the Merger, including the risk that the Merger will not be consummated within the expected time period or at all and (xi) other risks described in the Company’s filings with the SEC, including but not limited to (A) those described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as amended, (B) those described under the heading “Risk Factors” in the Company’s Quarterly Report on From 10-Q for the fiscal quarter ended March 31, 2019 and (C) the other filings made by Intermolecular with the SEC from time to time, which are available via the SEC’s website at http://www.sec.gov. Any forward-looking statement made in this communication speaks only as of the date on which it is made. You should not put undue reliance on any forward-looking statements. The Company undertakes no obligation, and expressly disclaims any obligation, to update, alter or otherwise revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.

 

19

THE SPECIAL MEETING

The enclosed proxy is solicited on behalf of the Board for use at the Special Meeting.

Date, Time and Place

We will hold the Special Meeting on July 17, 2019, at 9:30 a.m., Pacific time, at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025.

Purpose of the Special Meeting

At the Special Meeting, we will ask stockholders to vote on proposals to (i) adopt the Merger Agreement and approve the transactions contemplated therein, (ii) adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting and (iii) approve, by a non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

Board Recommendation

The Board, after considering the various factors described under the caption “The Merger — Reasons for the Merger and Recommendation of the Board,” has unanimously (1) determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are fair to, and in the best interests of the Company’s stockholders, (2) approved and declared advisable the Merger Agreement, the performance by the Company of its covenants and agreements contained therein and the consummation of the Merger and the other transactions contemplated thereby, in each case upon the terms and subject to the conditions contained in the Merger Agreement and (3) resolved, upon the terms and subject to the conditions contained in the Merger Agreement, to recommend that the Company’s stockholders vote their shares of the Company’s common stock in favor of adopting the Merger Agreement and approving the transactions contemplated therein, including the Merger. The Board recommends that you vote: (A) “FOR” the adoption of the Merger Agreement and approve the transactions contemplated therein; (B) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (C) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

Record Date; Shares Entitled to Vote; Quorum

Only stockholders of record as of the Record Date are entitled to notice of the Special Meeting and to vote at the Special Meeting. A list of stockholders entitled to vote at the special meeting will be available at our principal executive offices, located at 3011 N. First Street, San Jose, California 95134, during regular business hours for a period of no less than 10 days before the Special Meeting and at the place of the Special Meeting during the meeting.

As of the Record Date of June 4, 2019, there were 49,758,224 shares of our common stock outstanding and entitled to vote at the Special Meeting. You will have one vote at the Special Meeting for each share of the Company’s common stock that you owned at the close of business on the Record Date.

The holders of a majority in voting power of the common stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, will constitute a quorum at the Special Meeting. In the event that a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned to solicit additional proxies.

 

20

Vote Required; Abstentions and Broker Non-Votes

The affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock on the Record Date is required to adopt the Merger Agreement and approve the transactions contemplated therein. Adoption of the Merger Agreement by the Company’s stockholders is a condition to the closing of the Merger.

Approval of the proposal to adjourn the Special Meeting, if a quorum is present, requires the affirmative vote of a majority of the shares of stock having voting power present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter. Approval of the proposal to adjourn the Special Meeting, if a quorum is not present, requires the affirmative vote of a majority of the votes cast on the subject matter. Approval, by non-binding, advisory vote, of compensation that will or may become payable to the Company’s named executive officers in connection with the Merger requires the affirmative vote of a majority of the votes cast on the subject matter.

If a stockholder abstains from voting, that abstention will have the same effect as if the stockholder voted “AGAINST” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein. If a quorum is present, for stockholders who abstain from voting, the abstention will have no effect on the outcome of the proposal to adjourn the Special Meeting to a later date to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting. If no quorum is present, for stockholders who abstain from voting, the abstention will have will have the same effect as if the stockholder voted “AGAINST” the proposal to adjourn the Special Meeting to a later date to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein. For stockholders who abstain from voting, the abstention will have no effect on the outcome of the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger. An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting.

Each “broker non-vote” will also count as a vote “AGAINST” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein, but will have no effect on (i) the proposal to adjourn the Special Meeting to a later date to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting or (ii) the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger. A “broker non-vote” generally occurs when a bank, broker or other nominee holding shares on your behalf does not vote on a proposal because the bank, broker or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. “Broker non-votes,” if any, will be counted for the purpose of determining whether a quorum is present.

Shares Held by the Company’s Directors and Executive Officers

As of June 7, 2019, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 698,267 shares of our common stock, representing approximately 1.4% of the shares of our common stock outstanding on June 7, 2019. Our directors and executive officers have informed us that they currently intend to vote: (1) “FOR” the adoption of the Merger Agreement and the approval of the transactions contemplated therein; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (3) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

Support Agreements

Concurrently with the execution of the Merger Agreement, Parent and the Supporting Stockholders, solely in their respective capacities as stockholders of the Company, entered into Support Agreements. Each Supporting

 

21

Stockholder has agreed, among other things, to vote all of their beneficially owned shares of the Company’s common stock in favor of (i) the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated by the Merger Agreement; (ii) the approval of any proposal to adjourn or postpone the Special Meeting to a later date if there are not sufficient votes to approve the Merger on the date on which the Special Meeting is held. As of the close of business on the Record Date, the Supporting Stockholders owned in the aggregate 15,429,618 shares of the Company’s common stock, all of which are subject to the Support Agreements, representing approximately 31.0% of the shares of the Company’s common stock outstanding as of the close of business on the Record Date.

The form of Support Agreement is attached to this proxy statement as Annex D. For further details, see the section of this proxy statement captioned “The Merger — Support Agreements.”

Voting of Proxies

If your shares are registered in your name with our transfer agent, AST, you may cause your shares of the Company’s common stock to be voted by returning a signed and dated proxy card in the accompanying prepaid envelope, or you may vote in person at the Special Meeting. Additionally, you may grant a proxy electronically over the Internet or by telephone by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to grant a proxy electronically over the Internet or by telephone. Based on your proxy cards or Internet and telephone proxies, the proxy holders will vote your shares of the Company’s common stock according to your directions.

If you plan to attend the Special Meeting and wish to vote in person, you will be given a ballot at the Special Meeting. If your shares of the Company’s common stock are registered in your name, you are encouraged to vote by proxy even if you plan to attend the Special Meeting in person. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any previously submitted proxy.

Voting instructions are included on your proxy card. All shares of the Company’s common stock represented by properly signed and dated proxies received in time for the Special Meeting will be voted at the Special Meeting in accordance with the instructions of the stockholder. Properly signed and dated proxies that do not contain voting instructions will be voted: (1) “FOR” adoption of the Merger Agreement and approval of the transactions contemplated therein; (2) “FOR” the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting; and (3) “FOR” the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee or attending the Special Meeting and voting in person with a “legal proxy” from your bank, broker or other nominee. If such a service is provided, you may vote over the Internet or by telephone through your bank, broker or other nominee by following the instructions on the voting form provided by your bank, broker or other nominee. If you do not return your bank’s, broker’s or other nominee’s voting form, do not vote via the Internet or telephone through your bank, broker or other nominee, if possible, or do not attend the Special Meeting and vote in person with a “legal proxy” from your bank, broker or other nominee, it will have the same effect as if you voted “AGAINST” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein but will not have any effect on the adjournment proposal or the compensation proposal.

Revocability of Proxies

If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the Special Meeting by:

 

•

signing another proxy card with a later date and returning it to us prior to the Special Meeting;

 

22

•

submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;

 

•

delivering a written notice of revocation to our Corporate Secretary; or

 

•

attending the Special Meeting and voting in person by ballot.

If you have submitted a proxy, your appearance at the Special Meeting, in the absence of voting in person or submitting an additional proxy or revocation, will not have the effect of revoking your prior proxy.

If you hold your shares of the Company’s common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.

Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.

Solicitation of Proxies

The expense of soliciting proxies will be borne by the Company. The Company has engaged MacKenzie Partners, Inc., a proxy solicitation firm (the “Proxy Solicitor”), to assist in the solicitation of proxies and provide related advice and informational support, for a services fee, plus customary disbursements, which are not expected to exceed $15,000 in total. We will also indemnify the Proxy Solicitor against losses arising out of its provision of these services on our behalf. In addition, we may reimburse banks, brokers and other nominees representing beneficial owners of shares of the Company’s common stock for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by our directors, officers and employees, personally or by telephone, email, fax, over the Internet or other means of communication. No additional compensation will be paid for such services.

Adjournments or Postponements

Although it is not currently expected, the Special Meeting may be adjourned for the purpose of, among other things, soliciting additional proxies, by the vote of a majority of the shares of the Company’s common stock represented at the Special Meeting, whether or not a quorum is present. Any signed proxies received by us for which no voting instructions are provided on such matter will be voted “FOR” the proposal to adjourn the Special Meeting.

Appraisal Rights

If the Merger is completed, stockholders who do not vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated therein and who properly demand and petition for appraisal of their shares of the Company’s common stock will be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL. This means that stockholders are entitled, subject to the requirements set forth in the DGCL, to have their shares of the Company’s common stock appraised by the Delaware Court of Chancery and to receive (i) payment in cash of the “fair value” of their shares of the Company’s common stock (unless to the extent that the Company has made, at its sole discretion and before the entry of judgment, cash payments to one or more stockholders that are entitled to appraisal), exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with (ii) interest to be paid on the amount determined by the court to be fair value, if any, less any payments that the Company has made before the entry of judgment to one or more stockholders that are entitled to appraisal, which payments can be made, and the amount of which can be determined at the Company’s sole discretion. Due to the complexity of the appraisal process, stockholders who wish to seek appraisal of their shares of the Company’s common stock are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights.

 

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Stockholders considering seeking appraisal should be aware that the fair value of their shares of the Company’s common stock as determined pursuant to Section 262 of the DGCL could be more than, the same as or less than the value of the Per Share Merger Consideration.

To exercise your appraisal rights, you must (i) deliver a written demand for appraisal to the Company before the vote is taken on the proposal to adopt the Merger Agreement and approve the transactions contemplated therein; (ii) not submit a proxy or otherwise vote in favor of the proposal to adopt the Merger Agreement and approve the transactions contemplated therein; (iii) continue to hold your shares of the Company’s common stock of record through the Effective Time; and (iv) file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the Effective Time. The Surviving Corporation is under no obligation to file any petition and has no intention of doing so. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. The requirements set forth in the DGCL for exercising appraisal rights are described in further detail in this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced in Annex C to this proxy statement. If you hold your shares of the Company’s common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal on your behalf by your bank, broker or other nominee.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting to be Held on July 17, 2019

The proxy statement is available at www.proxyvote.com.

Householding of Special Meeting Materials

Unless we have received contrary instructions, we may send a single copy of this proxy statement to any household at which two or more stockholders reside if we believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at your household and helps to reduce our expenses.

If you would like to receive your own set of our disclosure documents in connection with the Special Meeting or this year’s or any future year’s annual meeting (if any), follow the instructions described below. Similarly, if you share an address with another stockholder and together both of you would like to receive only a single set of our disclosure documents, follow these instructions.

If you are a stockholder of record, you may contact us by writing to Intermolecular, Inc., 3011 N. First Street, San Jose, California 95134, Attention: Corporate Secretary or calling our Corporate Secretary at +1 (408) 582-5415. Eligible stockholders of record receiving multiple copies of this proxy statement can request householding by contacting us in the same manner. If a bank, broker or other nominee holds your shares, please contact your bank, broker or other nominee directly.

Questions and Additional Information

If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock, please contact our Proxy Solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

+1 (800) 322-2885

proxy@mackenziepartners.com

 

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PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT

We are asking you to adopt the Merger Agreement and approve the transactions contemplated therein.

For a summary of and detailed information regarding this proposal, see the information about the Merger Agreement and the Merger throughout this proxy statement, including the information set forth in the sections captioned “The Merger” beginning on page 28 of this proxy statement and “The Merger Agreement” beginning on page 75 of this proxy statement. A copy of the Merger Agreement is attached to this proxy statement as Annex A. You are urged to read the Merger Agreement carefully in its entirety.

Under applicable law and the terms of our articles of organization, we cannot complete the Merger without the affirmative vote of a majority of the outstanding shares of the Company’s common stock voting in favor of the proposal to adopt the Merger Agreement and approve the transactions contemplated therein. If you abstain from voting, fail to cast your vote, in person or by proxy, or fail to give voting instructions to your brokerage firm, bank, trust or other nominee, it will have the same effect as a vote against the proposal to adopt the Merger Agreement and approve the transactions contemplated therein.

The Board unanimously recommends that you vote “FOR” this proposal.

 

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PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING

We are asking you to approve a proposal to adjourn the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting. If stockholders approve the adjournment proposal, we could adjourn the Special Meeting and any adjourned session of the Special Meeting and use the additional time to solicit additional proxies, including proxies from stockholders that have previously returned properly executed proxies voting against adoption of the Merger Agreement and approval of the transactions contemplated therein. Among other things, approval of the adjournment proposal could mean that, even if we had received proxies representing a sufficient number of votes against adoption of the Merger Agreement and approval of the transactions contemplated therein such that the proposal to adopt the Merger Agreement and approve the transactions contemplated therein would be defeated, we could adjourn the Special Meeting without a vote on the adoption of the Merger Agreement and approval of the transactions contemplated therein and seek to convince the holders of those shares to change their votes to votes in favor of adoption of the Merger Agreement and approval of the transactions contemplated therein. Additionally, we may seek to adjourn the Special Meeting if a quorum is not present or otherwise at the discretion of the chairman of the Special Meeting.

The Board unanimously recommends that you vote “FOR” this proposal.

 

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PROPOSAL 3: ADVISORY, NON-BINDING VOTE ON MERGER-RELATED EXECUTIVE COMPENSATION ARRANGEMENTS

Section 14A of the Exchange Act requires that we provide stockholders with the opportunity to vote to approve, on an advisory, non-binding basis, the payment of certain compensation that will or may become payable to the Company’s named executive officers in connection with the Merger, as disclosed in the section of this proxy statement captioned “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger — Golden Parachute Compensation.”

We are asking stockholders to indicate their approval, on an advisory basis, of the compensation that will or may become payable to the Company’s named executive officers in connection with the Merger. These payments are set forth in the section of this proxy statement captioned “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger — Golden Parachute Compensation.”

The plans and arrangements pursuant to which these compensatory payments will be made were adopted and approved by the Compensation Committee of the Board, which is composed solely of non-management directors, and are believed to be reasonable and in line with marketplace norms.

As required by Section 14A of the Exchange Act, Intermolecular is asking its stockholders to vote on the adoption of the following resolution:

“RESOLVED, that the compensation that may be paid or become payable to Intermolecular’s named executive officers in connection with the Merger, as disclosed in the above table entitled ‘Golden Parachute Compensation,’ including the associated narrative discussion, is hereby APPROVED.”

The vote on executive compensation payable in connection with the Merger is a vote separate and apart from the vote to adopt the Merger Agreement. Accordingly, you may vote to approve the executive compensation and vote against adoption of the Merger Agreement, or vice versa. Because the vote is advisory in nature only, it will not be binding on Intermolecular. Accordingly, because Intermolecular is contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the Merger is approved and consummated and regardless of the outcome of the advisory vote.

Approval of the advisory resolution on executive compensation payable to Intermolecular’s named executive officers in connection with the Merger requires the affirmative vote of a majority of the votes cast on the subject matter. Proxies received but marked as abstentions will have no effect on the outcome of this proposal.

The Board unanimously recommends that you vote “FOR” this proposal.

 

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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 and incorporated into this proxy statement by reference. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

Parties Involved in the Merger

Intermolecular, Inc.

3011 N. First Street

San Jose, California 95134

+1 (408) 582-5415

The Company is a corporation organized under the laws of Delaware and headquartered in San Jose, California, that provides materials innovation research services using high throughput experimentation on a contract basis. Advanced materials are at the core of innovation in the 21st century for a wide range of industries, including semiconductors, consumer electronics, automotive, and aerospace. Using client specifications and its proprietary HPC techniques, which allows it to evaluate many combinations of material types and thickness, the Company performs experiments designed to identify promising materials and material components for client use. The Company targets large markets that rely on advanced materials for differentiation and specifically targets customers within these markets that have track records of technological innovation, have significant materials-based research and development, and are pursuing technical advancements that are critical to their success and strategy. While the Company does not design, develop, produce or test end products or devices, the Company’s customers use its services to select improved materials for a variety of products, including memory, display LED, logic, architectural glass coating and solar panels.

The Company’s common stock is listed on Nasdaq under the symbol “IMI.”

EMD Group Holding II, Inc.

c/o Merck KGaA, Darmstadt, Germany

Frankfurter Str. 250

64293 Darmstadt

Germany

+49 (0) 6151-720

Parent is a corporation organized under the laws of Delaware and was formed on April 30, 2019, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. It has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement.

EMD Performance Materials Semiconductor Services Corp.

c/o Merck KGaA, Darmstadt, Germany

Frankfurter Str. 250

64293 Darmstadt

Germany

+49 (0) 6151-720

Merger Sub is a corporation organized under the laws of Delaware, is a controlled subsidiary of Parent and was formed on April 26, 2019, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. It has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement.

 

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Merck KGaA, Darmstadt, Germany

Frankfurter Str. 250

64293 Darmstadt

Germany

+49 (0) 6151-720

MKDG is a publicly-traded leading science and technology company, which operates across healthcare, life sciences and performance materials.

Effect of the Merger

Upon the terms and subject to the conditions of the Merger Agreement, if the Merger is completed, Merger Sub will merge with and into the Company, and the Company will continue as the Surviving Corporation and as a wholly owned subsidiary of Parent. As a result of the Merger, the Company’s common stock will no longer be publicly traded and will be delisted from Nasdaq. In addition, the Company’s common stock will be deregistered under the Exchange Act, and the Company will no longer file periodic reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation.

The Effective Time will occur upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).

Effect on the Company if the Merger is Not Completed

If the Merger Agreement is not adopted and the transactions contemplated therein are not approved by stockholders or if the Merger is not completed for any other reason, stockholders will not receive any payment for their shares of the Company’s common stock. Instead, the Company will remain an independent public company, the Company’s common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act and the Company will continue to file periodic reports with the SEC. In addition, if the Merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that stockholders will continue to be subject to the same risks and opportunities to which they are currently subject, including risks related to the highly competitive industry in which the Company operates and risks related to adverse economic or industry conditions.

Furthermore, if the Merger is not completed, and depending on the circumstances that caused the Merger not to be completed, the price of the Company’s common stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of the Company’s common stock would return to the price at which it trades as of the date of this proxy statement.

Accordingly, if the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities or the future value of your shares of the Company’s common stock. If the Merger is not completed, the Board will continue to evaluate and review the Company’s business operations, strategic direction and capitalization, among other things, and will make such changes as are deemed appropriate. If the Merger Agreement is not adopted and the transactions contemplated therein are not approved by stockholders or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Board will be offered or that the Company’s business, prospects or results of operation will not be adversely impacted.

In addition, the Company will be required to pay to Parent a termination fee of $2,338,109 if the Merger Agreement is terminated under specified circumstances. For more information please see the section of this proxy statement captioned “The Merger Agreement — Termination Fees.”

 

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Merger Consideration

In the Merger, each outstanding share of the Company’s common stock (other than Excluded Shares) will be converted into the right to receive the Per Share Merger Consideration of $1.20 per share of the Company’s common stock.

After the Merger is completed, you will have the right to receive the Per Share Merger Consideration, but you will no longer have any rights as a stockholder (except that stockholders who properly exercise their appraisal rights will have the right to receive a payment for the “fair value” of their shares as determined pursuant to Delaware law, as described below under the caption “The Merger — Appraisal Rights”).

Background of the Merger

As a result of the regular review and assessment of the Company’s business strategies and objectives by the Board and management, commencing in 2015, the Company modified its business model to transition from multi-year collaborative development programs (“CDPs”) with its customers, which typically required the customer to pay a fixed annual fee during the engagement and an ongoing royalty stream upon our customer’s commercialization of technology the Company developed under the program, to umbrella service agreements that provide the Company’s customers with the flexibility to selectively engage in multiple projects, each typically having a duration of six to 12 months and each subject to its own payment obligations. Although the new business model reduced the typical sales cycles for new customer engagements, the lack of repeating multi-year projects increased the need for the Company to build a robust sales pipeline of customers to ensure that new projects begin as current projects end and resulted in the Company’s operating results often fluctuating materially from quarter to quarter.

Prior to and following transition to the new business model, revenue from a small number of customers has accounted for a high percentage of the Company’s revenue. For each of the fiscal years ended December 31, 2018, 2017 and 2016, the Company’s largest customer during such year accounted for 57%, 57% and 38% of its revenue, respectively. The Company’s concentration of customers is in part a reflection of the concentrated nature of manufacturers in the DRAM, flash memory and complex logic markets, and the loss of any of these customers or their failure to renew, extend or maintain their existing relationships with the Company has the potential to materially and adversely affect the Company’s business, financial condition and results of operations. For example, in June 2016, after transitioning to the Company’s new business model, Micron opted not to renew further development work related to dynamic RAM (DRAM) and non-volatile memory (NVM) under its CDP with the Company, and this resulted in a reduction in the scope of research and development activities and associated revenue, which adversely affected the Company’s business, financial condition and results of operations for fiscal year 2016.

A substantial majority of the Company’s revenue has also historically come from customers in the semiconductor industry, which is highly cyclical and has been subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity. Industry consolidation (including but not limited to the transition of semiconductor manufacturing to foundries and large-scale manufacturers, and the subsequent concentration of research and innovation in manufacturing process development) has increased in recent years. Consolidation has resulted in fewer small companies, and more large companies with greater financial resources—companies that may be less likely to become customers of the Company than smaller companies with more limited research and development resources.

Against the backdrop of these challenges and in light of the market and business dynamics described above, the Board and management regularly review and assess the Company’s business strategies, objectives and prospects, and regularly review and discuss the Company’s business plan, performance, risks and opportunities, all with the goal of enhancing stockholder value. The Board and management regularly consider various strategic alternatives

 

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as part of these efforts, taking into account current and anticipated future economic, competitive and other market conditions. Following Ken Traub’s appointment to the Board in May of 2016, the Board and management began to evaluate whether the continued execution of the Company’s strategy as a standalone company or the sale of the Company, a joint venture, or other combination of the Company with a third party offers the best avenue to maximize stockholder value.

On July 27, 2016, the closing price of the Company’s common stock was $1.42, which was the lowest closing price since trading of the Company’s common stock commenced in November of 2011.

On July 29, 2016, the Board held a regularly scheduled meeting with a representative of Latham & Watkins LLP, outside legal counsel to the Company (“Latham & Watkins”), also in attendance. During the meeting, the Board discussed the annual operating plan of the Company, the long-term strategy and new business model of the Company and the challenges associated therewith, a restructuring of the Company’s executive management team and the desirability of pursuing a process to explore potential strategic transactions and of engaging a strategic advisor to assist in any such process. At the invitation of the Board, representatives of Cowen were also in attendance for a portion of the meeting and made a presentation to the Board on the background, capabilities and experience of Cowen and potential strategic alternatives available to the Company, including the continued execution of the Company’s strategy as a standalone company, a combination of the Company with a third party or a sale of the Company. Representatives of Latham & Watkins reviewed with the members of the Board their fiduciary duties under applicable law in the context of strategic transactions. During the meeting, the Board established a new Executive Chairman position and appointed Dr. Bruce McWilliams to serve in such position and also appointed Christian F. Kramer to serve in the positions of Chief Executive Officer and President of the Company. The Board also established a strategic alternatives committee (the “Strategic Committee”), the purpose of which was to pursue and assist with the consideration, evaluation and negotiation of potential strategic transactions and agreements relating thereto. The Committee was delegated the authority, among other things, to exercise general oversight with respect to activities of the Company related to any strategic transaction proposals, including recommendations to the Board with respect thereto, and to retain one or more financial or other advisors to assist with the exploration and evaluation of opportunities for potential strategic transactions. The Strategic Committee was not delegated the power or authority to make any final determination with respect to, or to determine the definitive terms or structure of, any proposed transaction, which such power and authority was in all cases reserved for exercise by the full Board. The Board appointed Kenneth H. Traub, Marvin D. Burkett, Irwin Federman and George M. Scalise as members of the Strategic Committee, with Mr. Traub serving as chairman of the Strategic Committee. The members of the Strategic Committee were selected by the Board based primarily on the members’ knowledge of and experience with strategic alternatives, operational and executive experience and willingness to serve in such role.

On August 26, 2016, the Strategic Committee held a telephonic meeting with a representative of Latham & Watkins in attendance. During the meeting, the Strategic Committee discussed the prospect of engaging Cowen as a financial advisor to assist the Company in exploring and evaluating opportunities for potential strategic transactions, noting Cowen’s experience and capabilities, including Cowen’s experience in the semiconductor and electronics industries and the Chinese market, and the potential strategic benefits to the Company resulting from Cowen’s proposed engagement. The Strategic Committee also reviewed and discussed the material terms of Cowen’s proposed engagement letter relating thereto (the “Cowen Engagement Letter”). Following discussion, the Strategic Committee determined that it would be in the best interests of the Company and its stockholders to engage Cowen to assist the Company in exploring and evaluating opportunities for potential strategic transactions and approved the terms of the Cowen Engagement Letter.

On August 30, 2016, pursuant to the Strategic Committee’s authorization, the Company executed and delivered the Cowen Engagement Letter, pursuant to which Cowen was engaged as the Company’s exclusive financial advisor in connection with the Company’s exploration and consideration of potential strategic transactions.

On September 27, 2016, the Board held a regularly scheduled meeting with Mr. Kramer, in his capacity as Chief Executive Officer of the Company and prior to his appointment to the Board, and a representative of Latham &

 

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Watkins in attendance. During the meeting, the members of the Strategic Committee provided the Board with an update regarding the engagement of Cowen as the Company’s exclusive financial advisor in connection with the Company’s exploration and consideration of potential strategic transactions and the Board reviewed and discussed a preliminary timeline and potential process for the exploration of potential strategic transactions which had been prepared by Cowen.

On October 6, 2016, the Strategic Committee held a telephonic meeting with Dr. McWilliams, Patrick Neely (the then-current Chief Financial Officer of the Company) and a representative of Latham & Watkins in attendance. During the meeting, the Strategic Committee discussed the process by which the Company would explore potential strategic transactions, potential strategic partners (including joint venture candidates, potential acquirers and potential counterparties to a business combination involving the Company and including potential transaction counterparties based in the United States, Asia and Europe), and a plan to obtain assessments with respect to the Company’s intellectual property portfolio and market opportunities.

On November 4, 2016, the Strategic Committee held a telephonic meeting with board members Dr. McWilliams, Thomas R. Baruch and Wilbert van den Hoek, Messrs. Kramer and Neely, and a representative of Latham & Watkins in attendance. During the meeting, the Strategic Committee discussed the terms of a proposed amendment to the Cowen Engagement Letter (the “Cowen Amendment”) which contemplated that a transaction fee be payable to Cowen in the event that the Company consummated a joint venture transaction during the applicable term of the Cowen Engagement Letter. Such amendment was considered necessary by the Strategic Committee as a result of the Strategic Committee’s prior direction to explore potential joint venture candidates in addition to potential acquirers or other parties to a business combination involving the Company. Following discussion, the Strategic Committee determined that the Cowen Amendment be recommended to the Board for approval.

On November 4, 2016, the Board held a regularly scheduled meeting with Messrs. Kramer and Neely, Dr. Tony Chiang (the then-current Chief Technology Officer of the Company) and a representative of Latham & Watkins in attendance. During the meeting, the Board discussed the annual operating plan of the Company, the long-term strategy and new business model of the Company and the Cowen Amendment. Following discussion, the Board approved the execution and delivery of the Cowen Amendment.

On December 17, 2016, Mr. Baruch notified the Company that he would resign from the Board, effective immediately. Mr. Baruch’s decision to resign from the Board did not involve any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On December 21, 2016, the Board held a regularly scheduled meeting with Messrs. Kramer and Neely and a representative of Latham & Watkins in attendance. During the meeting, the Board discussed the annual operating plan and budget, long-term strategy and new business model of the Company. The Board also appointed Mr. Kramer, the Company’s President and Chief Executive Officer, to serve on the Board filling the vacancy on the Board arising as a result of Mr. Baruch’s resignation.

Also on December 21, 2016, the Strategic Committee held a telephonic meeting with Dr. McWilliams and Messrs. Baruch, van den Hoek, Kramer and Neely, and representatives of Latham & Watkins and Cowen in attendance. During the meeting, the Strategic Committee discussed the Company’s exploration of potential strategic transactions, an outreach plan for potential counterparties (including strategic companies and financial sponsors) to be contacted by each of management and Cowen as part of an initial outreach phase and a management presentation to be used in connection with such outreach efforts. The Strategic Committee directed Cowen and management to focus initial outreach efforts primarily on a potential joint venture transaction with potential counterparties in China and also to explore interest in potential strategic transactions from two large strategic companies.

In accordance with the Strategic Committee’s direction, during the period between December 21, 2016 and February 7, 2017, representatives of Cowen and management contacted 25 potential strategic transaction

 

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counterparties in China and two potential strategic transaction counterparties outside of China, including a major customer of the Company based in Asia (“Party A”), to gauge their interest in a potential strategic transaction with the Company. Eleven of the counterparties in China expressed potential interest in a strategic transaction and were provided form confidentiality agreements. Nine of such parties executed a confidentiality agreement with the Company (none of which contained “standstill” provisions which were effective as of the execution of the Merger Agreement) and held one or more initial meetings with management and representatives of Cowen. Six of the nine parties who participated in initial meetings declined to further pursue a strategic transaction with the Company. During this period, management also held three meetings with representatives of Party A to discuss Party A’s potential interest in acquiring the Company. Following these meetings, a representative of Party A informed Mr. Kramer that Party A was pursuing further internal review and evaluation of a potential strategic transaction involving the Company.

On February 8, 2017, the Board held a regularly scheduled meeting with Mr. Neely and Dr. Chiang, and representatives of Latham & Watkins and Cowen in attendance. During the meeting, the Board discussed the annual operating plan of the Company and long-term business challenges and strategic options. Representatives of Cowen also provided an update on the status of the Company’s exploration of potential strategic transactions. Following review of the status and results of outreach efforts, the Board and Cowen discussed an expanded list of potential counterparties to a strategic transaction, which included both strategic companies and financial sponsors in the United States, Asia and Europe (including MKDG). Following discussion, the Board directed Cowen and management to continue outreach efforts to the expanded list of potential counterparties.

During the period between February 9, 2017 and March 8, 2017, representatives of Cowen and management initiated outreach to 18 additional potential counterparties from the expanded list discussed at the prior meeting of the Board, including MKDG and Party B, a partner of the Company, and continued to solicit interest from the three parties based in China who previously participated in meetings with the Company and had expressed continuing interest in exploring a strategic transaction with the Company.

On February 23, 2017, Mr. van den Hoek notified the Company that he would resign from the Board, effective immediately. Mr. van den Hoek’s decision to resign from the Board did not involve any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Following Mr. van den Hoek’s resignation, the Board decreased the number of authorized directors from seven to six.

On March 8, 2017, Mr. Kramer and Dr. Chiang met with representatives of management of Party B at the Company’s offices in San Jose, California to discuss the Company’s strategic fit with Party B, materials innovation services and the acceleration of research and development in China.

On March 9, 2017, the Board held a telephonic meeting with Mr. Bill Roeschlein (the then-current Vice President, Finance of the Company) and representatives of Latham & Watkins and Cowen in attendance. Representatives of Cowen provided an update on the status of recent outreach efforts, noting that there was limited follow up from the 18 additional parties who had been contacted (including MKDG), but that two of such parties had declined to pursue a strategic transaction with the Company. Representatives of Cowen also noted that the three parties based in China who previously participated in meetings with the Company had declined interest in pursuing an acquisition of the Company. Mr. Kramer also noted that Party A had informed the Company that it was not interested in pursuing an acquisition of the Company at the then-current time, due primarily to concerns with acquiring a publicly-traded entity and with the increased expenses that Party A would incur on a go-forward basis as a result of the transition of the Company from a supplier to a subsidiary. The Board then discussed potential strategic alternatives other than an acquisition or business combination involving the Company, including the potential divestiture of certain technology and assets of the Company and a restructuring plan designed to reduce costs and preserve cash.

On March 15, 2017, the Board held a meeting with Mr. Roeschlein and representatives of Latham & Watkins and Cowen in attendance. Representatives of Latham & Watkins reviewed with the members of the Board their

 

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fiduciary duties under applicable law in the context of strategic transactions. Representatives of Cowen provided an update on the status of the Company’s exploration of potential strategic transactions. Management also presented a proposal for the Company to engage in a restructuring and the Board discussed desired outcomes and proposed actions to be taken in connection therewith. The Board further discussed the potential benefits a restructuring might provide to the Company and its stockholders, noting in particular that it would make the organization more sustainable, as well as more attractive to potential strategic partners. After such discussion, the Board authorized management to pursue a restructuring and further directed management to continue to focus on building the Company’s pipeline as an equal priority to its exploration of strategic alternatives.

On March 27, 2017, the Board held a meeting with a representative of Latham & Watkins in attendance. During the meeting, Management presented an update on the terms of the restructuring previously authorized by the Board. In connection with the restructuring, the Board determined to appoint Dr. McWilliams as non-executive Chairman of the Board and to appoint Mr. Roeschlein as the Company’s Chief Financial Officer and principal financial and accounting officer. The Board also increased the size of the Board from six directors to seven directors and appointed Matthew S. Furnas to fill the vacancy created by such increase. Mr. Kramer provided an update on the status of the Company’s exploration of potential strategic transactions, noting that eight parties remained interested in potentially exploring such a transaction, six additional parties had declined to pursue such a transaction (including MKDG) and three parties had not responded to initial contact requests from representatives of Cowen.

On March 27, 2017, following the meeting of the Board and at the Board’s direction, the Company commenced a workforce reduction plan of approximately 29 employees, or approximately 20% of the Company’s workforce, in order to reduce non-core activities and operating costs and to improve profitability.

On April 5, 2017, Mr. Kramer and Mr. Sean Lee (Vice President, Customer Enablement of the Company) met with representatives of management of Party A at Party A’s offices in Asia to discuss ongoing commercial activities between the companies and the potential merits of a more strategic relationship between the Company and Party A or its affiliates.

On April 5, 2017, Mr. Kramer and Mr. Samuel Li (the then-current Vice President, Customer Enablement of the Company) met by telephone with representatives of management of Party B to discuss possible strategic opportunities, including the merits of an acquisition of the Company by Party B or a joint venture involving the two companies.

On April 17, 2017, Mr. Kramer, Dr. Chiang, and Mr. Joe Montano (Senior Vice President, Customer Enablement of the Company) met with representatives of management of Party B at the Company’s offices in San Jose, California to discuss possible strategic opportunities, including the merits of an acquisition of the Company by Party B or a joint venture involving the two companies.

On April 18, 2017, the Board held a regularly scheduled meeting with Mr. Roeschlein and a representative of Latham & Watkins in attendance. During the meeting, the Board discussed the Company’s financial position, the Company’s ongoing efforts to increase its sales pipeline and the Company’s 2017 operations and objectives. Mr. Kramer provided an update on the progress and current status of the Company’s exploration of potential strategic transactions.

On May 18, 2017, Mr. Montano met by telephone with Dr. Geoff Irvine (the then-current Head of Commercial Marketing, Packaging Solutions Business Field, Integrated Circuit Materials, MKDG) to discuss potential strategic collaborations between the Company and MKDG. Mr. Montano informed Dr. Irvine that the Company was soliciting bids from interested parties to acquire the Company. Dr. Irvine indicated to Mr. Montano that he would discuss these matters further with MKDG executive management.

On May 24, 2017, the Company entered into a confidentiality agreement (which included a standstill provision, the term of which had expired by the date of the Merger Agreement) with Party B.

 

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On June 7, 2017, the Company entered into a confidentiality agreement (which included a standstill provision, the term of which had expired by the date of the Merger Agreement) with Party C, a strategic company located in Asia.

On June 14, 2017, representatives of Cowen delivered a process letter to Party C. The process letter invited Party C to submit a non-binding indication of interest to engage in a strategic transaction with the Company.

On June 26, 2017, representatives of Cowen delivered a process letter to Party B. The process letter invited Party B to submit a non-binding indication of interest to engage in a strategic transaction with the Company.

On June 28, 2017, Messrs. Kramer and Lee met with representatives of management of Party A at Party A’s offices in Asia to discuss ongoing commercial activities between the companies and the potential merits of a more strategic relationship between the Company and Party A or its affiliates.

On June 29, 2017, Party B submitted a non-binding indication of interest for a potential acquisition of the Company by Party B or its affiliates. The indication of interest set forth an estimated purchase price of $57.5 million and was subject to the completion of due diligence.

Also on June 29, 2017, representatives of Cowen met telephonically with representatives of management of Party C to further discuss a potential strategic transaction involving the Company.

On July 7, 2017, the Company entered into a confidentiality agreement with MKDG (which did not contain a standstill provision).

On July 12, 2017, Party C submitted a non-binding indication of interest for a potential acquisition transaction with the Company. The indication of interest set forth an estimated purchase price of $57 million and was subject to a comprehensive due diligence review by Party C and its advisors that was anticipated to take six to eight weeks to complete. During a follow up discussion between Party C and representatives of Cowen following receipt of the indication of interest, Party C expressed a desire to continue diligence and a need to better understand the business model of the Company prior to proceeding further.

On July 13, 2017, members of management of MKDG, including Dr. Rico Wiedenbruch (the then-current Global Head of Integrated Circuit Materials, MKDG), Mr. Benedikt Ernst (the then-current Head of Packaging Solutions Business Field, Integrated Circuit Materials, MKDG), Mr. Wookyu Kim (Head of Leading Edge Accounts, Integrated Circuit Materials, MKDG) and members of management of the Company, including Messrs. Kramer and Roeschlein, held an introductory meeting at the offices of the Company in San Jose, California to discuss a potential collaboration between the parties.

On July 19, 2017, the Strategic Committee held a telephonic meeting with Dr. McWilliams, Messrs. Kramer and Roeschlein, and representatives of Latham & Watkins and Cowen in attendance. During the meeting, management and representatives of Cowen provided the Strategic Committee with an update on the status of discussions with various parties relating to the Company’s exploration of potential strategic transactions. As of the date of such meeting, Cowen and management had contacted 55 potential transaction counterparties and were in ongoing discussions with five such parties, including Party A, Party B and Party C.

On July 25, 2017, Mr. Kramer met by telephone with Dr. Wiedenbruch. During the discussion, Dr. Wiedenbruch informed Mr. Kramer that MKDG was declining to pursue a strategic transaction with the Company.

On July 26, 2017, Mr. Kramer and other members of the Company’s senior management team met with representatives of management of Party B, including the chairman of Party B, at the Company’s offices in San Jose, California to discuss the status of Party B’s review of the Company and next steps with respect to Party B’s interest in pursuing a strategic transaction with the Company. During such meeting, the chairman of Party B informed management of the Company that Party B and its affiliates needed further time to determine next steps and that Party B may require funding from one of its affiliates in order to consummate an acquisition of the Company.

 

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On August 1, 2017, the Board held a regularly scheduled meeting with Mr. Roeschlein and representatives of Latham & Watkins and Cowen in attendance. The Board discussed the Company’s quarterly results for the second quarter of 2017 and the status of the Company’s exploration of potential strategic transactions. Management and representatives of Cowen noted the further time for diligence and internal discussions requested by each of Party B and Party C and the lack of receipt of an indication of interest from Party A or any other party. Management recommended that the Company allow up to two months for each of Party B and Party C to develop more certain terms for a proposed transaction with the Company. Following discussion, the Board directed management and Cowen to proceed with management’s recommendations.

On August 8, 2017, members of management of the Company met with representatives of management of Party B at Party B’s office in Santa Clara, California to discuss the status of Party B’s review of the Company and next steps with respect to Party B’s interest in pursuing a strategic transaction with the Company. During this meeting, management of Party B informed management of the Company that Party B was no longer interested in, and would be unable to proceed with, an acquisition of the Company as a result of the failure to secure necessary funds for the transaction.

On August 16, 2017, Messrs. Kramer and Lee met with representatives of management of Party A at Party A’s offices in Asia to discuss ongoing commercial activities between the parties as well as potential strategic opportunities between the Company and Party A or its affiliates.

On October 30, 2017, the Board held a meeting with Messrs. Roeschlein and Montano, Milind Weling (Senior Vice President of Programs and Operations of the Company) and representatives of Latham & Watkins and Cowen in attendance. The Board discussed the progress and results of the Company’s exploration of potential strategic transactions, including Party B’s inability to continue in the process due to a lack of funding, Party C’s failure to actively pursue the transactions contemplated by the indication of interest previously submitted by Party C, MKDG’s decision not to pursue a strategic transaction with the Company at such time, challenges associated with identifying an internal champion at Party A to lead a pursuit of a strategic transaction with the Company and the absence of remaining interest from other parties who had been contacted during the process.

During the fourth quarter of 2017 and throughout 2018, representatives of Cowen and management continued to participate in discussions with, and to solicit interest in a strategic transaction with the Company from, multiple parties, including Party A, Party B, and Party C. However, no such discussions resulted in the submission of an indication of interest or any other offer from any party (other than MKDG).

On March 21, 2018, Messrs. Kramer and Lee met with representatives of management of Party A at Party A’s offices in Asia to discuss commercial activities between the parties.

On March 29, 2018, Messrs. Kramer and Lee met with representatives of management of Party C at Party C’s offices in Asia to discuss the Company’s strategic fit with Company C and the potential benefits to Party C of an acquisition of the Company.

On April 18, 2018, Messrs. Kramer and Lee met with representatives of management of Party A at Party A’s offices in Asia to discuss commercial activities between the parties.

On April 20, 2018, Messrs. Kramer and Lee, and Mr. Richard Hong (Executive Advisor to the Chief Executive Officer of the Company) met with representatives of management of Party C at Party C’s offices in Asia to discuss the potential strategic fit between the parties.

On May 9, 2018, Dr. McWilliams resigned from the Board. Dr. McWilliams’ decision to resign from the Board did not involve any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

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On May 11, 2018, the Board appointed Mr. Traub as chairman of the Board.

On May 24, 2018, the Board held a meeting with multiple members of senior management, including Messrs. Roeschlein, Littau, Weling and Montano, and representatives of Latham & Watkins and Cowen in attendance. During the meeting, Mr. Kramer and representatives of Cowen provided an update on the progress and current status of the Company’s exploration of potential strategic transactions, including a summary of the recent discussions with Party A and Party C, and a review of potential counterparties. The Board directed management and representatives of Cowen to continue to pursue a potential strategic transaction while also focusing on the business and building the Company’s pipeline. Following discussion, the Board approved the dissolution of the Strategic Committee for administrative convenience.

On June 14, 2018, Messrs. Kramer, Lee and Hong met with representatives of management of Party C at Party C’s offices in Asia to discuss the potential merits of an acquisition of the Company by Party C.

On July 11, 2018, Mr. Kramer and other members of senior management of the Company met with representatives of senior management of Party C at the Company’s offices in San Jose, California to discuss the Company’s strategic fit with Party C, the Company’s technical capabilities and the potential merits of an acquisition of the Company by Party C.

On August 16, 2018, Messrs. Kramer, Lee and Hong met with representatives of management of Party C at Party C’s offices in Asia to discuss strategic opportunities between the parties.

On August 23, 2018, Mr. Kramer and other members of senior management of the Company met with the Chief Executive Officer of Party C’s materials subsidiary at the Company’s offices in San Jose, California to discuss the strategic fit between the parties, possible commercial programs and the potential merits of an acquisition of the Company by Party C.

On September 19, 2018, Messrs. Montano and Weling met with Dr. Irvine, and Mr. Anand Nambiar (Executive Vice President and Global Head of Semiconductor Solutions, MKDG), at the Company’s offices in San Jose, California for a facility tour and to discuss MKDG’s potential interest in exploring a strategic transaction with the Company.

On November 12, 2018, members of management of the Company, including Messrs. Kramer, Roeschlein, Montano, Weling and Littau, met with members of management of MKDG’s Performance Materials division, including Messrs. Nambiar, Irvine and Ernst and Dr. Mansour Moinpour (Merck Fellow, Head of Innovation Pipeline & Technology Scouting, Semiconductor Solutions, MKDG), at the Company’s offices in San Jose, California to further discuss MKDG’s potential interest in exploring a strategic transaction with the Company, including the strategic rationale and potential timing of such a transaction.

On November 21, 2018, Mr. Kramer met by telephone with Mr. Nambiar to discuss MKDG’s potential interest in exploring a strategic transaction with the Company and to prepare for an upcoming meeting scheduled to take place at MKDG’s offices in Darmstadt, Germany.

On December 7, 2018, Mr. Kramer met with members of management of MKDG, including Mr. Nambiar and Mr. Kai Beckmann (Chief Executive Officer of Performance Materials Division, MKDG), and Mr. Roman Werth (Senior Vice President, Global Head of Mergers & Acquisitions, MKDG), Mr. Benjamin Hein (Head of Strategy & Business Transformation, Performance Materials Division, MKDG), and Dr. Irvine at MKDG’s offices in Darmstadt, Germany, to discuss MKDG’s potential interest in exploring a strategic transaction with the Company, including the strategic rationale and potential approval of such a transaction by the executive board of MKDG.

On December 13, 2018, Mr. Nambiar emailed Mr. Kramer to inform him that a potential strategic transaction with the Company had been discussed with the executive board of MKDG and that Mr. Nambiar expected to

 

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follow up with the executive board in early January after year-end holidays. Mr. Nambiar noted that he and Mr. Beckmann also intended to visit the Company’s offices in early January and that he hoped that MKDG would be in a position to submit a formal indication of interest at that time following discussion with the executive board.

Also on December 13, 2018, the Board held a regularly scheduled meeting with Mr. Roeschlein and a representative of Latham & Watkins in attendance. During the meeting, the Board discussed the annual operating plan and budget of the Company and the Board approved the 2019 Budget (as described further in the section of this proxy statement captioned “The Merger — Management Projections).

On December 26, 2018, the Company received a letter from the listing qualifications department of the Nasdaq Stock Market indicating that for 30 consecutive business days the Company’s common stock did not maintain a minimum closing bid price of $1.00 per share as required by Nasdaq Listing Rule 5450(a)(1) and that if the Company did not regain compliance with such rule, Nasdaq could provide notice that the Company’s common stock would become subject to delisting.

On January 10 and 11, 2019, members of management of the Company, including Messrs. Kramer, Roeschlein, Montano, Littau and Weling, met with members of management of MKDG, including Messrs. Beckmann, Nambiar, Werth, Irvine and Dr. Moinpour at the Company’s offices in San Jose, California to tour the Company’s facilities and to discuss the business of the Company and MKDG’s potential interest in a strategic transaction with the Company. During these meetings, representatives of MKDG indicated that they expected to potentially deliver a non-binding indication of interest for an acquisition of the Company in the near future.

In anticipation of potentially receiving an indication of interest from MKDG, beginning on January 14, 2019 and continuing through February 2019, and at the direction of the Board and management of the Company, representatives of Cowen contacted nine strategic companies and financial sponsors, including Party C, that had previously been contacted in connection with the solicitation of a strategic transaction and two strategic companies that had not previously been contacted, to indicate that the Company expected to potentially proceed with a strategic transaction in the near term and to assess such parties level of interest in engaging in a strategic transaction with the Company. All such parties ultimately responded to expressly confirm that they did not have any current interest in engaging in a strategic transaction with the Company, as described further below.

On January 14, 2019, Messrs. Kramer and Roeschlein met by telephone with Mr. Werth, Mr. Steffen Keinath (Sr. Director, Mergers & Acquisitions, MKDG) and Mr. Sven Lickfeld (Director, Mergers & Acquisitions, MKDG), to discuss diligence information regarding the Company.

On January 18, 2019, Mr. Lickfeld delivered a non-binding proposal for the acquisition by MKDG of all of the outstanding shares of capital stock of the Company for $1.20 per share. The non-binding proposal was subject to the satisfactory completion of due diligence and stated MKDG’s intention to fund the purchase price with cash on hand. On January 18, 2019, the closing price of the Company’s common stock was $1.12.

On January 21, 2019, the Board held a telephonic meeting with Mr. Roeschlein and representatives of Latham & Watkins and Cowen in attendance. During the meeting, Mr. Kramer provided a summary of the non-binding proposal submitted by MKDG, a copy of which had been distributed to all members of the Board prior to the meeting. Representatives of Cowen then provided an overview of the financial aspects of the MKDG proposal and noted the recent outreach to the 11 parties previously contacted in connection with the strategic transaction process and the express confirmation by six of such parties (as of the date of the Board meeting) that they had no interest in engaging in a strategic transaction with the Company. Representatives of Cowen also provided a summary of the strategic transaction process to date since August of 2016, noting that 64 total parties had been contacted, one or more meetings had been held with 18 of such parties and the non-binding indications of interest from each of Party B and Party C, neither of which were still pending. Following discussion, the Board authorized and directed Mr. Traub, management of the Company and representatives of Cowen to negotiate the terms of the transactions contemplated by the non-binding proposal with MKDG, to request that MKDG

 

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submit a revised proposal with an increased purchase price in the range of $1.30 to $1.80 and to seek further information from MKDG regarding its remaining due diligence requirements and expected process and timing. The Board also authorized and directed management and Cowen to continue to solicit feedback from the five parties (including Party C) who had not yet responded to recent requests for confirmation of their interest in engaging in a strategic transaction with the Company.

On January 23, 2019, representatives of Cowen met by telephone with members of management of MKDG, including Messrs. Nambiar, Werth, Keinath and Lickfeld to discuss MKDG’s non-binding proposal. In accordance with the direction of the Board, representatives of Cowen expressed appreciation for the submission of the proposal, but requested that MKDG submit a revised proposal with an increased purchase price in consideration of the potential strategic value of the Company to MKDG. Representatives of Cowen also requested that MKDG provide further information regarding its remaining due diligence requirements and expected process and timing. Mr. Nambiar and Mr. Werth clarified that MKDG expected to require six to eight weeks to complete due diligence. Mr. Nambiar stated that he would discuss the request for a revised proposal with MKDG’s management. The parties agreed to arrange a subsequent call with representatives of the Company and MKDG to further discuss MKDG’s proposal and the Company’s request for an increased purchase price.

On January 30, 2019, Messrs. Kramer and Traub and representatives of Cowen met by telephone with members of management of MKDG, including Messrs. Nambiar, Werth, Keinath and Lickfeld, to discuss MKDG’s non-binding proposal. Mr. Traub reiterated the Company’s request for MKDG to submit a revised proposal and also made arguments to support a higher purchase price in the range of $1.30 to $1.80 per share. Messrs. Kramer and Traub and representatives of Cowen reviewed the financial and strategic rationale supporting the counter-proposed price range. Mr. Nambiar and Mr. Werth acknowledged the counter-proposal, but stated that MKDG would need access to additional diligence information to assess whether the counter-proposed price range was feasible. Mr. Nambiar and Mr. Werth also stated that any potential change to the $1.20 purchase price proposed by MKDG would be dependent upon, among other things, the receipt of additional diligence information and the results of MKDG’s diligence review.

On January 31, 2019, the Board held a regularly scheduled meeting with Mr. Roeschlein and representatives of Latham & Watkins and Cowen in attendance. During the meeting, the Board discussed the annual and quarterly financial results of the Company and the status of the strategic transaction process, including the recent discussions with representatives of MKDG and MKDG’s request for further diligence information in order to evaluate the Company’s request for an increased purchase price. Representatives of Cowen noted the recent outreach to the 11 parties previously contacted in connection with the strategic transaction process and the express confirmation from eight of such parties (as of the date of the Board meeting) that they had no interest in engaging in a strategic transaction with the Company. Following discussion, the Board authorized management of the Company to provide further diligence information to MKDG and to engage in diligence discussions with MKDG on a non-exclusive basis. The Board also authorized and directed management and Cowen to continue to solicit feedback from the three parties (including Party C) who had not yet responded to recent requests for confirmation of their interest in engaging in a strategic transaction with the Company.

On February 4, 2019, Mr. Roeschlein met by telephone with members of management of MKDG, including Mr. Lickfeld and Mr. Keinath, to discuss diligence matters.

On February 6, 2019, a representative of Party C sent an email to representatives of Cowen stating that Party C was no longer interested in pursuing an acquisition of the Company due primarily to Party C’s belief that there would be a conflict of interest between Party C’s affiliates and customers of the Company. During February 2019, representatives of Cowen also followed up with the other two remaining parties who had been contacted regarding their interest in engaging in a strategic transaction with the Company. Both such remaining parties also expressly confirmed that they did not have any interest in engaging in a strategic transaction with the Company.

On February 12, 2019, Mr. Roeschlein met by telephone with Messrs. Lickfeld and Keinath to discuss diligence matters.

 

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On February 20, 2019, members of management of the Company, including Messrs. Kramer, Roeschlein, Littau and Weling, met by telephone with multiple members of management of MKDG, including Messrs. Lickfeld and Dr. Moinpour to discuss diligence matters.

On February 24, 2019, Latham & Watkins delivered an initial draft of the Merger Agreement to Nixon Peabody LLP (“Nixon Peabody”), counsel to MKDG. The initial draft of the Merger Agreement contemplated, among other things, (i) a termination fee of 3.0% of the equity value of the Company in the event of the Company’s entry into a superior proposal, which such fee would constitute liquidated damages and the sole and exclusively remedy of Parent in circumstances in which a termination fee would be payable and (ii) an obligation for Parent to take any and all actions necessary to obtain applicable regulatory approvals (including any divestiture or any limitation on Parent’s freedom to operate the business of the Company after closing of the Merger).

On February 26 and 27, 2019, multiple members of management of the Company, including Messrs. Kramer, Roeschlein, Littau and Weling, met with multiple members of management of MKDG, including Messrs. Nambiar, Lickfeld, Irvine and Dr. Moinpour, at the offices of the Company in San Jose, California to discuss diligence matters.

On February 27, 2019, MKDG delivered a letter to the board of directors of Versum Materials, Inc. (“Versum”), outlining the terms of a proposal to acquire Versum for $48 per share in cash. At the time of such proposal, Versum was party to a definitive agreement to combine with Entegris, Inc.

On March 1, 2019, Mr. Roeschlein met by telephone with multiple members of management of MKDG, including Mr. Lickfeld to discuss diligence matters.

On March 4, 2019, Mr. Roeschlein met by telephone with multiple members of management of MKDG, including Mr. Lickfeld to discuss diligence matters.

On March 5, 2019, Mr. Kramer met by telephone with Mr. Nambiar to discuss the status of MKDG’s diligence review of the Company and the potential impact of the Versum announcement on a potential transaction with the Company.

On March 15, 2019, Messrs. Kramer and Traub and representatives of Cowen met by telephone with members of management of MKDG, including Messrs. Beckmann, Nambiar, Werth, Lickfeld and Hein, to discuss the status and timing of the potential transaction between MKDG and the Company. Mr. Traub requested that representatives of MKDG affirm their interest in pursuing the potential transaction with the Company as a condition to MKDG continuing due diligence. Representatives of MKDG confirmed continued interest in the potential transaction with the Company, but acknowledged that the Versum transaction placed significant competing demands on the attention of the MKDG management team. The parties agreed to works towards completing due diligence and finalizing the terms of a transaction by April 2019.

On March 19, 2019, Nixon Peabody delivered a revised draft of the Merger Agreement to Latham & Watkins. The revised draft of the Merger Agreement contemplated, among other things, (i) a termination fee of 3.5% of the equity value of the Company in the event of the Company’s entry into a superior proposal, (ii) an obligation for the Company to reimburse Parent for its fees and expenses, subject to an unspecified cap, in the event of a termination of the Merger Agreement in circumstances in which a termination fee would be payable, (iii) an exception to the provisions of the Merger Agreement providing that the termination fee contemplated thereunder constituted liquidated damages and the sole and exclusive remedy of Parent in circumstances in which such fee would be payable for fraud or any willful and material breach of the Merger Agreement by the Company and (iv) deletion of Parent’s obligation to take any and all actions necessary to obtain applicable regulatory approvals.

On March 21, 2019, Nixon Peabody delivered an initial draft of the form of Support Agreement to Latham & Watkins.

 

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On March 25, 2019, Latham & Watkins delivered a revised draft of the Merger Agreement and form of Support Agreement to Nixon Peabody. The revised draft of the Merger Agreement contemplated, among other things, (i) a termination fee of 3.2% of the equity value of the Company in the event of the Company’s entry into a superior proposal, (ii) deletion of the Company’s obligation to reimburse Parent for fees and expenses incurred in connection with payment of the termination fee, (iii) deletion of the exception to the liquidated damages and sole and exclusive remedy provisions for fraud or any willful and material breach of the Merger Agreement by the Company and (iv) reinstatement of Parent’s obligation to take any and all actions necessary to obtain applicable regulatory approvals, subject to a material adverse effect standard.

On March 26, 2019, MKDG commenced a cash tender offer to acquire all outstanding shares of Versum.

On March 29, 2019, the Versum board of directors recommended that Versum stockholders not tender their shares into the MKDG tender offer.

On April 2, 2019, Mr. Kramer met by telephone with Mr. Nambiar to discuss the status and timing of the potential transaction between MKDG and the Company. Mr. Nambiar confirmed MKDG’s continued interest in a potential transaction with the Company, but acknowledged that the Versum transaction continued to place significant competing demands on the attention of the MKDG management team. Mr. Nambiar stated that he would keep Mr. Kramer updated with respect to progress.

Between April 2, 2019 and April 4, 2019, representatives from Latham & Watkins and Nixon Peabody participated in telephone discussions to negotiate the terms of the Merger Agreement and Support Agreement.

On April 8, 2019, Versum announced that it had received a revised proposal from MKDG to acquire Versum for $53 per share.

On April 10, 2019, Nixon Peabody delivered a revised draft of the Merger Agreement and form of Support Agreement to Latham & Watkins. The revised draft of the Merger Agreement contemplated, among other things, (i) a termination fee of 3.75% of the equity value of the Company in the event of the Company’s entry into a superior proposal, (ii) acceptance of the deletion of the obligation for the Company to reimburse Parent for its fees and expenses incurred circumstances in which the termination fee is payable, (iii) Parent’s right to refund any termination fee payable by the Company and, in the event of such refund, to pursue damages arising out of the Company’s fraud or its willful and material breach of the Merger Agreement and (iv) a disclaimer of any obligation of Parent to take any action in connection with obtaining applicable regulatory approvals that would have a material impact on Parent or any adverse effect upon any transaction between Parent or its affiliates, on the one hand, and Versum or its affiliates, on the other.

On April 12, 2019, MKDG announced that it had signed a definitive agreement to acquire Versum for $53 per share in cash.

On April 12, 2019, representatives from Latham & Watkins and Nixon Peabody participated in a telephone discussion to negotiate the terms of the Merger Agreement.

On April 14, 2019, Mr. Kramer met by telephone with Mr. Nambiar to discuss the status and timing of the potential transaction between MKDG and the Company in light of the recent announcement regarding the Versum transaction. Mr. Nambiar confirmed that MKDG was still interested in pursuing an acquisition of the Company and that approval for the transaction would be sought from MKDG’s executive board on April 25, 2019.

On April 15, 2019, representatives from Latham & Watkins and Nixon Peabody participated in a telephone discussion to negotiate the terms of the Merger Agreement.

 

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On April 16, 2019, Latham & Watkins delivered a revised draft of the Merger Agreement and other deal documents to Nixon Peabody. The revised draft of the Merger Agreement contemplated modifications to the thresholds applicable to the limitations on Parent’s obligations with respect to obtaining applicable regulatory approvals.

On April 18, 2019, representatives from Latham & Watkins and Nixon Peabody participated in a telephone discussion to negotiate the terms of the Merger Agreement.

On April 24, 2019, Nixon Peabody delivered a revised draft of the Merger Agreement and other deal documents to Latham & Watkins. The revised draft of the Merger Agreement contemplated modifications to the thresholds applicable to the limitations on Parent’s obligations with respect to obtaining applicable regulatory approvals.

On April 26, 2019, MKDG delivered a revised non-binding proposal to acquire all of the outstanding shares of the Company for $1.20 per share. The revised non-binding proposal requested that exclusivity be granted to MKDG during the period of negotiation of the definitive agreements.

On April 29, 2019, Messrs. Kramer and Traub and representatives of Cowen met by telephone with members of management of MKDG, including Messrs. Werth, Lickfeld and Keinath, to discuss the revised non-binding proposal. During the meeting, Mr. Traub urged MKDG to make a higher offer and reiterated the potential strategic value of the Company to MKDG. Representatives of MKDG responded that the $1.20 per share reflected the results of MKDG’s due diligence findings, was the top end of MKDG’s valuation range for the Company and was MKDG’s best and final offer.

Between April 26, 2019 and May 1, 2019, representatives of Latham & Watkins and Nixon Peabody negotiated the remaining open issues in the Merger Agreement and other definitive deal documents. During this time period, Latham & Watkins and Nixon Peabody exchanged multiple drafts of the deal documents.

On May 1, 2019, the Board held a telephonic meeting with Mr. Roeschlein and representatives of Latham & Watkins and Cowen in attendance to discuss the proposal from MKDG. Representatives of Latham & Watkins reviewed with the members of the Board their fiduciary duties under applicable law in the context of the transactions contemplated by the revised proposal and provided a summary of the terms of the Merger Agreement, including the terms thereof relating to deal protection and the obligations of the parties in connection with obtaining applicable regulatory approvals. The Board discussed and considered the terms of MKDG’s revised proposal and the Merger Agreement and other deal documents with management and representatives of Latham & Watkins and Cowen. The Board then discussed and considered the Extended Projections (as described further in the section of this proxy statement captioned “The Merger — Management Projections), along with their associated assumptions, risks and opportunities. Mr. Kramer noted that while the Extended Projections reflected the best available estimates and expected future financial performance of the Company on a stand-alone basis, there were significant risks and uncertainties associated with the Company remaining an independent company, including as a result of the Company’s dependence on a highly concentrated customer base. Representatives of Cowen then reviewed with the Board Cowen’s preliminary financial analysis of MKDG’s revised proposal. Following such discussion, the Board determined that it was in the best interests of the Company and its stockholders to pursue a transaction with MKDG under the terms outlined in the revised proposal, without executing an exclusivity agreement and directed members of management and Latham & Watkins to finalize the Merger Agreement and other definitive deal documents on the terms outlined in the revised proposal.

Between May 1, 2019 and May 3, 2019, representatives of Latham & Watkins and Nixon Peabody finalized the terms of the Merger Agreement and other definitive deal documents.

On May 3, 2019, the Board held a telephonic meeting, with Mr. Roeschlein and representatives of Latham & Watkins and Cowen in attendance to discuss the final terms of the Merger Agreement and other definitive deal documents. A representative of Latham & Watkins reviewed with the members of the Board the changes to the

 

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Merger Agreement and other definitive deal documents, including the guarantee, since the last meeting of the Board. Representatives of Cowen then reviewed with the Board Cowen’s financial analysis of the potential transaction with MKDG. Following further discussion, representatives of Cowen delivered to the Board Cowen’s oral opinion, subsequently confirmed in writing by delivery of Cowen’s opinion dated as of the same date, to the effect that, as of such date and based upon and subject to the various assumptions and limitations set forth in Cowen’s written opinion, the merger consideration of $1.20 per share to be received by the Company’s stockholders in the merger was fair, from a financial point of view, to the Company’s stockholders (other than Parent and its direct or indirect wholly owned subsidiaries). A representative of Latham & Watkins reviewed with the members of the Board their fiduciary duties under applicable law in the context of the transactions contemplated by the Merger Agreement. After discussion, the Board unanimously determined that Merger Agreement and the transactions contemplated therein were fair to, and in the best interests of the Company and its stockholders, approved and declared advisable the Merger Agreement, directed that the Merger Agreement be submitted for adoption at a meeting of the Company’s stockholders and resolved to recommend that the Company’s stockholders vote their shares of Company common stock in favor of adopting the Merger Agreement and approving the transactions contemplated therein.

On May 6, 2019, the Company and Parent executed the Merger Agreement and related agreements in connection with the transactions contemplated by the Merger Agreement and each of the parties issued a press release announcing the execution of the Merger Agreement.

Reasons for the Merger and Recommendation of the Board

At a meeting on May 3, 2019, the Board unanimously:

 

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determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are fair to, and in the best interests of the Company’s stockholders;

 

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approved and declared advisable the Merger Agreement, the performance by the Company of its covenants and agreements contained therein and the consummation of the Merger and the other transactions contemplated thereby, in each case upon the terms and subject to the conditions contained in the Merger Agreement; and

 

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resolved, upon the terms and subject to the conditions contained in the Merger Agreement, to recommend that the Company’s stockholders vote their shares of the Company’s common stock in favor of adopting the Merger Agreement and approving the transactions contemplated therein, including the Merger.

In the course of reaching its determination, the Board held numerous meetings and consulted with the Company’s senior management, financial advisor and outside legal counsel, and reviewed, evaluated and considered numerous factors and a significant amount of information and data, including the following material factors, each of which the Board believes supported its decision, but which are not listed in any relative order of importance:

 

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information concerning the Company’s business, financial performance (both historical and projected) and the Company’s financial condition, results of operations (both historical and projected), and business strategic objectives, as well as the risks of accomplishing those objectives;

 

•

the risks and uncertainties associated with the Company remaining an independent company compared to the opportunities presented by the Merger, including the risks and uncertainties with respect to:

 

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the Company achieving its growth plans in light of the current and future market conditions, including the risks and uncertainties in the U.S. and global economies in general;

 

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the Company’s dependence on a highly concentrated customer base;

 

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the cyclical nature of the semiconductor industry and the corresponding fluctuations in the Company’s financial results and the market price of the Company’s common stock;

 

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•

the fluctuations in the Company’s sales and operating results in recent periods and its prospect for future growth, and the general risks associated with the Company’s ability to execute on a business plan that would create stockholder value in excess of the Per Share Merger Consideration;

 

•

the dependence of the Company on international sales for a significant portion of the Company’s revenue in recent periods and the business risks associated with such a dependency;

 

•

the general risks and market conditions that could affect the price of the Company’s common stock; and

 

•

the other “risk factors” set forth in the Company’s Form 10-Q for the fiscal quarter ended March 31, 2019, and the Company’s Form 10-K for the fiscal year ended December 31, 2018, as amended;

 

•

the fact that the Per Share Merger Consideration of $1.20 per share represents a premium to the then current historical and market prices of the Company’s common stock as follows:

 

•

an approximately 5.3% premium to the closing price of the Company’s common stock on May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement;

 

•

an approximately 8.6% premium to the average closing price of the Company’s common stock in the 1-month trading period ending on May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement; and

 

•

an approximately 11.2% premium to the average closing price of the Company’s common stock in the 3-month trading period ending on May 3, 2019, the last trading day prior to the date on which the parties entered into the Merger Agreement;

 

•

the Board’s belief that the process that it conducted, with the assistance of the Company’s management team and advisors, to evaluate opportunities for a potential sale of the Company and the fact that neither any of the other parties with whom the Company or its advisors had communications about a potential acquisition of the Company nor any other party that would have become aware of the evaluation of such opportunities determined to make an offer to acquire the Company over the past two and a half years;

 

•

the Board’s and management’s efforts to negotiate a higher price and Parent’s insistence that the most recent proposal was its “best and final” offer;

 

•

the risk that prolonging the process for evaluating alternatives available to the Company in an effort to obtain additional proposals at a higher prices prior to executing a definitive merger agreement could have resulted in the loss of the opportunity to successfully consummate the Merger and was unlikely to yield a proposal that would be a material improvement to Parent’s proposal;

 

•

the ability of other potential acquirers to make, and the likelihood that other potential acquirers would make, a proposal to acquire the Company at a higher price per share than the Per Share Merger Consideration and the Board’s ability to hear and respond to alternative proposals;

 

•

the Board’s belief, based upon the results of the process conducted and prior processes to evaluate a potential sale of the Company and its historical operating and financial performance and future prospects, that the Per Share Merger Consideration represented the highest price per share of the Company’s common stock that was reasonably attainable;

 

•

the Board’s review and consideration of the terms and conditions of the Merger Agreement and the transactions contemplated thereby, including the Merger, which included the respective representations, warranties, covenants, conditions and termination rights of the parties;

 

•

the Board’s belief that the all-cash Per Share Merger Consideration will allow the Company’s stockholders to realize in the near term a fair value, in cash, for their shares, while avoiding medium-

 

44

and long-term market and business risks and the risks associated with seeking to realize current expectations for the Company’s future financial performance;

 

•

estimated projections of the Company’s future financial performance prepared by the Company’s management, together with management’s view of the Company’s financial condition, results of operations, business, prospects and competitive position and the ability to achieve the performance set forth in such projections;

 

•

the financial analyses presented to the Board by Cowen with respect to the Merger and the written opinion of Cowen to the Board to the effect that, as of May 3, 2019, and subject to the various assumptions and limitations set forth therein, the Per Share Merger Consideration to be received by the Company’s in the Merger was fair, from a financial point of view, to the Company’s stockholders (other than Parent and its direct or indirect wholly owned subsidiaries). The full text of Cowen’s opinion is attached hereto as Annex B and is incorporated into this proxy statement by reference and in its entirety. Cowen’s opinion is more fully described below in the section of this proxy statement captioned “The Merger — Opinion of Cowen and Company, LLC;”

 

•

the ability of the Company’s management to furnish information to, and conduct negotiations with, third parties in certain circumstances prior to vote of the Company’s stockholders, and to terminate the Merger Agreement to accept a superior proposal upon payment of a $2,338,109 termination fee (which the Board believed was reasonable under the circumstances);

 

•

the Board’s belief that the terms of the Merger Agreement, including the representations, warranties, covenants and the closing conditions, were reasonable and in the best interests of the Company’s stockholders;

 

•

the likelihood that the Merger would be completed based on, among other things, the conditions to closing set forth in the Merger Agreement and the absence of a financing condition in the Merger Agreement;

 

•

the fact that the Company’s financial and legal advisors were involved during the process and negotiations and updated the Board directly and regularly, which provided the Board with additional perspectives on the process and negotiations;

 

•

the Company’s ability, subject to compliance with the terms and conditions of the Merger Agreement (including the payment of a termination fee as further explained in the section of this proxy statement captioned “The Merger Agreement — Termination Fees”), to make a change in its recommendation to the Company’s stockholders with respect to the adoption of the Merger Agreement and approval of the transactions contemplated therein or to terminate the Merger Agreement during certain periods prior to the completion of the Merger to accept an acquisition proposal from a third party that is a superior proposal (as defined in and further explained in the section of this proxy statement captioned “The Merger Agreement — The Board’s Recommendation; Company Board Recommendation Change”);

 

•

the ability of the Board to make a change in its recommendation to the Company’s stockholders with respect to the adoption of the Merger Agreement and approval of the transactions contemplated therein due to an intervening event (as defined in and further explained in the section of this proxy statement captioned “The Merger Agreement — The Board’s Recommendation; Company Board Recommendation Change”);

 

•

the availability of statutory appraisal rights under the DGCL to holders of the Company’s common stock who do not vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated therein and comply with all of the required procedures under the DGCL, which provides those stockholders with an opportunity to accept the “fair value” of their shares of the Company’s common stock (as determined pursuant to the laws of the State of Delaware), which may be more than, less than or the same as the amount such stockholders would have received under the Merger Agreement;

 

45

•

the commitment of MKDG to provide a guarantee in favor of and for the benefit of the Company, sufficient to absolutely, unconditionally and irrevocably guarantee, as primary obligor and not merely as surety, the due and prompt payment and performance of all covenants, agreements, obligations, expenses and liabilities of Parent and Merger Sub under the Merger Agreement;

 

•

representations by Parent and Merger Sub in the Merger Agreement that Parent and Merger Sub have and will have, respectively, sufficient funds for the satisfaction of all of Parent’s and Merger Sub’s obligations under the Merger Agreement, including the payment of the Per Share Merger Consideration;

 

•

the entitlement to specific performance under certain circumstances, to enforce the terms of the Merger Agreement;

 

•

that the members of the Board were unanimous in their determination to recommend the Merger Agreement for adoption and the transaction contemplated therein for approval by the Company’s stockholders; and

 

•

the fact that the Merger is not subject to approval by Parent’s stockholders.

The Board also considered a variety of potentially negative factors concerning the Merger Agreement and the Merger, which are listed below in no relative order of importance:

 

•

the fact that the Company’s stockholders will have no ongoing equity participation in the Company following the Merger, and that they will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the Company’s common stock, and will not participate in any potential future sale of the Company to a third party or any potential recapitalization of the Company;

 

•

the fact that completion of the Merger will require CFIUS approval;

 

•

the risk that the parties may incur significant costs and delays resulting from seeking CFIUS approval;

 

•

the risk that the conditions to the parties’ obligations to complete the Merger will not be satisfied, and as a result, the possibility that the Merger may not be completed even if the Merger Agreement is adopted and the transactions contemplated therein are approved by the Company’s stockholders;

 

•

the potential negative effects of the public announcement of the Merger on the Company’s operating results and stock price, its ability to retain key management, sales and marketing, technical and other personnel, and its relationships with customers, suppliers and regulators;

 

•

the risks and substantial costs to the Company if the Merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on the Company’s business and customer relationships;

 

•

the possibility that the Company may be obligated to pay Parent a termination fee of $2,338,109 in certain circumstances in which the Merger Agreement is terminated (as further explained in the section of this proxy statement captioned “The Merger Agreement — Termination Fees”);

 

•

the right afforded to Parent under the Merger Agreement to match acquisition proposals that the Board determines in good faith are superior proposals may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, the Company;

 

•

the fact that the Company’s stockholders may not approve the Merger;

 

•

the conditions to the obligations of Parent and Merger Sub to complete the Merger and the right of Parent to terminate the Merger Agreement under certain circumstances;

 

•

the restrictions on the conduct of the Company’s business prior to the consummation of the Merger, requiring the Company to conduct its business in the ordinary course and preventing the Company from taking certain specified actions, subject to specific limitations, all of which may delay or even prevent it from undertaking business opportunities pending completion of the Merger;

 

46

•

the risk that the Merger may not be consummated or at the closing of the Merger may be unduly delayed, even if the requisite approval is obtained from the Company’s stockholders, including the possibility that certain closing conditions in the Merger Agreement may not be satisfied;

 

•

the fact that the Company’s executive officers and directors may have interests in the Merger that are different from, or in addition to, the interests of the Company’s stockholders, including the accelerated vesting of equity-based awards held by executive officers and directors, the payment of cash severance to certain executives of the Company if a termination of employment were to occur under specified circumstances in connection with the Merger, and the interests of the Company’s executive officers and directors in indemnification by Parent and the Surviving Corporation and insurance coverage from the Surviving Corporation under the terms of the Merger Agreement (as further explained in the section of this proxy statement captioned “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger”); and

 

•

the fact that the receipt of cash by the Company’s stockholders in exchange for their shares of the Company’s common stock will be a taxable transaction for U.S. federal income tax purposes as described further below in the section of this proxy statement captioned “The Merger — Material U.S. Federal Income Tax Consequences of the Merger.”

After taking into account all of the factors set forth above, as well as others, the Board concluded the uncertainties, risks and potentially negative factors relevant to the Merger were outweighed by the benefits that the Board expects the Company’s stockholders would achieve as a result of the Merger.

The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board. 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 did not find it practicable to and did not attempt to quantify, rank or otherwise assign relative weights to these factors. In addition, the Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but, rather, the Board conducted an overall analysis of the factors described above, including discussions with the Company’s management and its financial and legal advisors. In considering the factors described above, individual members of the Board may have given different weights to different factors.

The explanation of the Board’s reasons for the Merger and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section of this proxy statement captioned “Forward-Looking Statements.”

The Board unanimously recommends that you vote “FOR” the adoption of the Merger Agreement and approval of the transactions contemplated therein, “FOR” the adjournment of the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and approve the transactions contemplated therein at the time of the Special Meeting and “FOR” the proposal to approve, by non-binding, advisory vote, compensation that will or may become payable to the Company’s named executive officers in connection with the Merger.

Management Projections

The Company’s management has historically prepared and provided public guidance as to certain projected financial and operational results, including revenue, GAAP net loss, non-GAAP net loss (excluding stock-based compensation expense) and Adjusted EBITDA for the then-present quarter in its press releases announcing its financial results for the immediately preceding quarter. Specifically, the Company provided public guidance as to (i) certain projected financial and operational results, including revenues, GAAP net loss, non-GAAP net loss and Adjusted EBITDA for the then-current quarter in November 2017, February 2018, May 2018, August 2018, November 2018 and February 2019 and (ii) certain projected financial and operational results, including

 

47

revenues, GAAP net loss, non-GAAP net loss and Adjusted EBITDA for the second half of the year 2017 in August 2017. Other than the publicly disclosed financial guidance discussed above, the Company has not in the ordinary course made public disclosures regarding prospective financial projections for periods beyond the current quarter due to the unpredictability of the underlying assumptions and estimates.

2019 Budget

In December of each year, for the purpose of normal course business planning, the Company’s management prepares, for internal use, certain unaudited financial projections with respect to the Company’s business plans for the upcoming fiscal year (the “Budget”). The Budget is based on a “bottom-up” methodology whereby the Company’s results are forecasted on a customer-by-customer and project-by-project basis. The Budget is the basis of the Company’s annual internal planning and performance goal setting processes and is discussed, reviewed and approved by the Board annually. Additionally, the Company’s management reviews an updated version of the Budget with the Board each quarter during the then-current year. The Company’s management periodically updates the Budget on a rolling basis by incorporating actual results from the then-current year in order to better reflect, and potentially adjust, the outlook with respect to the then-current year.

The annual Budget for 2019 (the “2019 Budget”) was presented to and reviewed and approved by the Board during a meeting of the Board on December 13, 2018. On December 18, 2018, the 2019 Budget was uploaded to an electronic dataroom to which Cowen and MKDG and its advisors had access (the “Dataroom”). Between December 13, 2018 and March 1, 2019, the Company’s management updated the 2019 Budget to reflect the incorporation of actual results and uploaded these periodic updates (each, an “Update”) to the Dataroom on each of February 3, 2019, February 15, 2019 and March 1, 2019, the last of which such Update (the “March Update”) included the Company’s actual performance through January 31, 2019. Projected revenue for fiscal year 2019 remained constant at $34.0 million across both the 2019 Budget and all Updates. As compared to the 2019 Budget, the March Update reflected (i) a de minimis increase in cost of goods sold of $8,000, (ii) an aggregate reduction in operating expenses of $242,000 and (iii) an aggregate increase in Adjusted EBITDA of $244,000.

The following table sets forth selected metrics reflected in the 2019 Budget and the Updates referenced above:

 

						Updates
		2019 Budget				2/3/19				2/15/19				3/1/19
($ in thousands)		2019E				2019E				2019E				2019E
Revenue		$	34,000			$	34,000			$	34,000			$	34,000
Cost of Goods Sold		$	9,801			$	9,816			$	9,807			$	9,809
Operating Expenses		$	24,353			$	24,138			$	24,124			$	24,111
Adjusted EBITDA (1)		$	2,334			$	2,553			$	2,566			$	2,578

 

(1)	Excludes stock-based compensation expense and non-recurring items.

Revenue Projections

Throughout the year, the Company’s management also prepares, for internal use only, certain unaudited prospective revenue projections for the upcoming years (the “Revenue Projections”). Unlike the Budget, the Revenue Projections are not based on a “bottom-up” review but instead reflect high-level revenue scenarios based on a “top-down” review of the Company’s customers and program pipeline. Similar to a sensitivity analysis, the Company’s management establishes a desired revenue target and determines the customer pipeline needed to support that target based upon an analysis of the market’s need for the Company’s services and the Company’s availability to service both its current customers as well as the additional pipeline of anticipated projects with new and existing customers. Additionally, unlike the Budget, the Company does not use a standard template for the Revenue Projections, but instead often shows a “base case” as well as an “upside case” in order to reflect the possible increase in revenue that could be realized if certain growth opportunities are achieved.

 

48

Internally, the Company only uses the Revenue Projections as a tool to direct the operating team toward new opportunities and not as a basis for valuing the Company or establishing operating budgets. While the Company’s management did provide both Cowen and MKDG with access to the Revenue Projections for the purpose of demonstrating possible upside scenarios, given the highly speculative nature of such opportunities and projections in conjunction with the “top-down” development of this information, the Company’s management did not and would not reasonably expect the Revenue Projections to be relied upon for purposes of valuing the Company or evaluating the Merger.

In the normal course of its strategic planning process, the Company’s management developed Revenue Projections for the fiscal years 2019, 2020 and 2023 (the “Initial Revenue Projections”) in December 2018, which are summarized below. The Company’s management provided a “base case” scenario and an “upside” scenario in the Initial Revenue Projections in order to demonstrate the potential growth opportunities of the Company for both 2019 and 2020 (the “Base Revenue Projections”), based on certain underlying assumptions of the marketplace for the Company’s services. The Company’s management also provided a second revenue forecast, which assumed an even larger “base case” revenue scenario and a corresponding “upside” revenue scenario (the “Initial Stretch Revenue Projections”). The underlying assumptions under the Initial Stretch Revenue Projections are more speculative than the Base Revenue Projections as they highlight a more aggressive growth strategy, which is inconsistent with the Company’s historical performance. Finally, the Initial Revenue Projections include an estimate of 2023 revenue (the “Best Case Revenue Projection”), which was developed by Company’s management in order to determine a growth scenario that would be necessary for the Company to generate $100 million in revenue by the end of fiscal year 2023. Additionally, the Company’s management generated an update to the Initial Stretch Revenue Projections for 2019 (the “Revised Stretch Revenue Forecast”) on February 26, 2019, summarized in the table below. The Revised Stretch Revenue Projection reflects updates to the underlying growth assumptions based on actual performance to date and the Company’s efforts to materialize the project pipeline through calls with existing customers related to potential growth opportunities, as well as discussions with new target customers, in each case, that did not result in the generation of new business in the near term. Although the Initial Revenue Projections and the Revised Stretch Revenue Projection were made available to Cowen and MKDG in the Dataroom during the process of discussing the Merger Agreement, the Company did not engage in discussions regarding, and neither Cowen nor MKDG requested, any explanation of the variation in these projections from the 2019 Budget. Given the highly speculative nature of such projections in conjunction with the “top-down” approach to developing these projections, the Company’s management, the Board and Cowen did not, and would not reasonably expect any party to, consider or rely upon the Revenue Projections when valuing the Company or evaluating the Merger.

The following table sets forth the Revenue Projections:

 

		Fiscal Year Ending December 31,
($ in thousands)		2019E				2020E				2021E				2022E				2023E
Base Revenue Projections
Base Revenue		$	34,000			$	40,143				—				—				—
Upside Revenue		$	46,015			$	59,843				—				—				—
Initial Stretch Revenue Projections
Base Revenue		$	40,215			$	47,733				—				—				—
Upside Revenue		$	52,530			$	67,433				—				—				—
Best Case Revenue Projection
Revenue			—				—				—				—			$	101,560
Revised Stretch Revenue Projections
Base Revenue		$	36,695				—				—				—				—
Upside Revenue		$	48,125				—				—				—				—

 

49

Extended Projections

In connection with discussions regarding the Merger, the Company’s management prepared certain unaudited prospective financial projections for fiscal years 2019 through 2024 (the “Extended Projections,” and together with the Budget and the Revenue Projections, the “Projections”), which are summarized below. Similar to the Budget, the Extended Projections were prepared on a “bottom-up” basis, treating the Company as a standalone entity, without giving effect to the Merger, including the impact of negotiating or consummating the Merger, the expenses that may be incurred in connection with the consummating the Merger, the potential synergies that may be achieved as a result of the Merger, the effect of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed or the effect of any business or strategic decisions or actions which would likely have been taken if the Merger Agreement had not been executed but which were instead altered, accelerated, postponed or not taken in anticipation of the Merger. The Extended Projections were only shared with the Board and Cowen for the purpose of evaluating the Merger.

The Extended Projections, along with their associated assumptions, risks and opportunities were reviewed and discussed with the Board during a meeting of the Board on May 1, 2019.

The following table sets forth the Extended Projections:

 

($ in thousands)		2019E				2020E				2021E				2022E				2023E				2024E
Revenue		$	34,000			$	36,294			$	38,566			$	40,703			$	42,958			$	45,338
Cost of Goods Sold		$	9,809			$	10,201			$	10,957			$	11,713			$	12,362			$	13,047
Operating Expenses		$	24,111			$	24,325			$	24,956			$	26,114			$	27,171			$	28,052
Adjusted EBITDA (1)		$	2,579			$	3,741			$	4,413			$	4,911			$	5,599			$	6,345
Depreciation / Amortization		$	2,223			$	1,574			$	1,361			$	1,636			$	1,774			$	1,706
Capital Expenditures		$	1,599			$	1,500			$	1,500			$	1,500			$	1,500			$	1,500
Increase in Net Working Capital		$	270			$	(50	)		$	(35	)		$	(7	)		$	(4	)		$	(0	)
Stock-Based Compensation Expense		$	1,600			$	1,600			$	1,600			$	1,600			$	1,600			$	1,600

 

(1)	Excludes stock-based compensation expense and non-recurring items.

The Projections

The Projections were not prepared with a view toward public disclosure or with a view toward compliance with the published guidelines established by the SEC or the American Institute of Certified Public Accountants for preparation or presentation of prospective financial projections, or GAAP. In the view of the Company’s management, the Budget and Extended Projections were prepared on a reasonable basis, reflected the best available estimates and judgments at the time of preparation and presented as of the time of preparation, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company on a stand-alone basis as described above and subject to the assumptions and limitations described in this section. In contrast, given the upside nature of the Revenue Projections, the Company’s management considers the Revenue Projections to be subject to significant uncertainty and even greater variability than the rest of the Projections. This information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the Projections. Although the Company’s management believes there is a reasonable basis for each of the Projections, the Company cautions stockholders that future results could be materially different from the Projections. This summary of the Projections is not being included in this proxy statement to influence any stockholder’s decision whether to vote for the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, but because these Projections were shared with the Board, Cowen and, in a more limited fashion MKDG, for the purposes of considering and evaluating the Merger and the Merger Agreement. Cowen was instructed to use and rely upon the Extended Projections and the 2019 Budget and all Updates as the basis for its analysis in rendering its opinion described in the section of this proxy statement under

 

50

the section captioned “The Merger — Opinion of Cowen and Company, LLC.” The Company’s independent registered public accounting firm has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the Projections and, accordingly, does not express an opinion or any other form of assurance with respect hereto.

The Projections are subject to estimates and assumptions in many respects and, as a result, subject to interpretations. While presented with numerical specificity, the Projections are based upon a variety of estimates and assumptions that are inherently uncertain, though considered reasonable by the Company as of the date of their preparation. These estimates and assumptions may prove to be inaccurate for any number of reasons, including general economic conditions, competition and the risks discussed in this proxy statement in the sections captioned “Forward-Looking Statements” and “Where You Can Find More Information.” The Projections also reflect assumptions as to certain business decisions that are subject to change. Because the Projections were developed for the Company on a standalone basis without giving effect to the Merger, they do not reflect any requirements or restrictions that may be imposed in connection with the receipt of CFIUS approval, any synergies that may be realized as a result of the Merger or any changes to the Company’s operations or strategy that may be implemented after completion of the Merger. There can be no assurance that the Projections will be realized, and actual results may differ dramatically from those shown. Generally, the further out the period by which the Projections relate, the less predictable and more unreliable the information becomes.

The Projections contain certain non-GAAP financial measures that the Company believes are helpful in understanding its past financial performance and future results. The Company’s management regularly uses a variety of financial measures that are not prepared in accordance with GAAP, including Adjusted EBITDA (as defined in the section captioned “The Merger — Opinion of Cowen and Company, LLC”) for forecasting, budgeting and measuring operating performance. The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. While the Company believes that these non-GAAP financial measures provide meaningful information to help investors understand the Company’s operating results and to analyze the Company’s financial and business trends on a period-to-period basis, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company’s competitors and may not be directly comparable to similarly titled measures of the Company’s competitors due to potential differences in the exact method of calculation.

The Company has not provided reconciliation of the non-GAAP financial measures included in these Projections to the comparable GAAP measures due to the lack of reasonably accessible or reliable comparable GAAP measures for these measures and the inherent difficulty in forecasting and quantifying the measures that are necessary for such reconciliation.

None of the Company or any of its affiliates, advisors, officers, directors or other representatives can provide any assurance that actual results will not differ meaningfully from the Projections, and none of them undertake any obligation to update, or otherwise revise or reconcile, the Projections to reflect circumstances existing after the date the Projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Projections, as applicable, are shown to be in error. Except as required by applicable securities laws, the Company does not intend to make publicly available any update or other revision to the Projections, even in the event that any or all assumptions are shown to be in error. The Company has made publicly available its actual results of operations for the year ended December 31, 2018 in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2019, as amended on April 29, 2019, and for the quarterly period ended March 31, 2019 in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 14, 2019. None of the Company or its affiliates, advisors, officers, directors or other representatives has made or makes any representation to any of stockholder of the Company or other person regarding the Company’s ultimate performance compared to the information contained in the Projections or that forecasted results will be achieved. The Company has made no representation to MKDG, Parent or Merger Sub, in the Merger Agreement or otherwise, concerning the Projections.

 

51

Opinion of Cowen and Company, LLC

The Company retained Cowen to act as its exclusive financial advisor in connection with the exploration, consideration and consummation of a possible sale of or other business combination involving the Company, and to render an opinion to the Board as to the fairness, from a financial point of view, of the Per Share Merger Consideration of $1.20 per share of the Company’s common stock to be received by the Company’s stockholders in the Merger.

On May 3, 2019, Cowen delivered its opinion to the Board to the effect that, as of that date and based upon and subject to the various assumptions and limitations set forth therein, the Per Share Merger Consideration of $1.20 per share of the Company’s common stock to be received by the Company’s stockholders in the Merger was fair, from a financial point of view, to the Company’s stockholders (other than Parent and its direct or indirect wholly owned subsidiaries). The full text of the written opinion of Cowen, dated May 3, 2019, is attached as Annex B hereto and is incorporated by reference. The Company encourages stockholders to read the opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review by Cowen. The summary of the written opinion of Cowen set forth herein is qualified in its entirety by reference to the full text of such opinion. Cowen’s analyses and opinion were prepared for and addressed to the Board and are directed only to the fairness, from a financial point of view, of the Per Share Merger Consideration of $1.20 per share of the Company’s common stock to be received by the Company’s stockholders in the Merger, to the Company’s stockholders (other than Parent and its direct or indirect wholly owned subsidiaries). Cowen’s opinion is not a recommendation to any stockholder or any other person as to how to vote with respect to the Merger or to take any other action in connection with the Merger or otherwise.

In arriving at its opinion, Cowen reviewed and considered such financial and other matters as it deemed relevant, including, among other things:

 

•

a draft of the Merger Agreement dated May 2, 2019;

 

•

certain publicly available financial and other information for Intermolecular and certain other relevant financial and operating data furnished to Cowen by the management of Intermolecular;

 

•

certain internal financial analyses, financial forecasts, reports and other information concerning Intermolecular prepared by the management of Intermolecular, as described further in the section of this proxy statement captioned “The Merger — Management Projections.” (referred to in this section as the “Intermolecular Projections”);

 

•

estimates and financial projections in research analyst reports (referred to in this section as the “Research Analyst Projections”) for the Company;

 

•

discussions Cowen had with certain members of the Company’s management concerning the historical and current business operations, financial condition and prospects of the Company and such other matters Cowen deemed relevant;

 

•

certain operating results of the Company as compared to the operating results of certain publicly traded companies Cowen deemed relevant;

 

•

certain financial and stock market information for the Company as compared with similar information for certain publicly traded companies Cowen deemed relevant;

 

•

certain financial terms of the Merger as compared to the financial terms of certain selected business combinations Cowen deemed relevant; and

 

•

such other information, financial studies, analyses and investigations and such other factors that Cowen deemed relevant for the purposes of its opinion.

In conducting its review and arriving at its opinion, Cowen, with the consent of the Board, assumed and relied, without independent investigation, upon the accuracy and completeness of all financial and other information

 

52

provided to Cowen by the Company or which was publicly available or was otherwise reviewed by Cowen. Cowen did not undertake any responsibility for the accuracy, completeness or reasonableness of, or independent verification of, such information. Cowen relied upon, without independent verifications, the assessment of the Company’s management as to the existing products and services of the Company and the viability of, and risks associated with, the future products and services of the Company. In addition, Cowen did not conduct or assume any obligation to conduct any physical inspection of the properties or facilities of the Company or Parent. Cowen further relied upon the Company’s representation that all information provided to Cowen by the Company was accurate and complete in all material respects. Cowen, with the consent of the Board, assumed that the Intermolecular Projections were reasonably prepared by the Company’s management on bases reflecting the best currently available estimates and good faith judgments of such management as to the future performance of the Company, and such Intermolecular Projections, and the Research Analyst Projections utilized in Cowen’s analyses, provide a reasonable basis for its opinion. Cowen expressed no opinion as to the Intermolecular Projections, the Research Analyst Projections or the assumptions on which they were made. Cowen expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which it became aware after the date of its opinion.

Cowen assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of the Company since the date of the last financial statements made available to Cowen. Cowen did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities of the Company, nor was Cowen furnished with such materials. In addition, Cowen did not evaluate the solvency or fair value of the Company, Parent or Merger Sub under any state or federal laws relating to bankruptcy, insolvency or similar matters. Cowen’s opinion did not address any legal, tax or accounting matters related to the Merger Agreement or the Merger, as to which Cowen assumed that the Company and the Board had received such advice from legal, tax and accounting advisors as each had determined appropriate. Cowen’s opinion addressed only the fairness of the Per Share Merger Consideration, from a financial point of view to the Company’s stockholders, other than Parent and its direct or indirect wholly owned subsidiaries. Cowen expressed no view as to any other aspect or implication of the Merger or any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise. Cowen’s opinion was necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated by Cowen on the date of its opinion. It should be understood that although subsequent developments may affect Cowen’s opinion, Cowen does not have any obligation to update, revise or reaffirm its opinion and Cowen expressly disclaims any responsibility to do so.

Cowen did not consider any potential legislative or regulatory changes then considered or recently enacted by the United States or any foreign government, or any domestic or foreign regulatory body, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC, the Financial Accounting Standards Board or any similar foreign regulatory body or board.

For purposes of rendering Cowen’s opinion, Cowen assumed in all respects material to Cowen’s analysis, that the representations and warranties of each party contained in the Merger Agreement were true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the Merger would be satisfied without waiver thereof. Cowen assumed that the final form of the Merger Agreement will be substantially similar to the last draft reviewed by Cowen. Cowen also assumed that all governmental, regulatory and other consents and approvals contemplated by the Merger Agreement will be obtained and that in the course of obtaining any of those consents no restrictions will be imposed or waivers made that would have an adverse effect on the contemplated benefits of the Merger. Cowen assumed that the Merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as amended, the Exchange Act and all other applicable state or federal statutes, rules and regulations.

Cowen’s opinion was intended for the benefit and use of the Board in its consideration of the financial terms of the Merger. Cowen’s opinion should not be disclosed, referred to, or communicated (in whole or in part) to any

 

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third party for any purpose whatsoever except with Cowen’s prior written approval. However, Cowen’s opinion may be reproduced in full in disclosure documents relating to the Merger which the Company is required to file under the Exchange Act, including this proxy statement. Cowen’s opinion does not constitute a recommendation to any stockholder of the Company or any other person as to how to vote with respect to the Merger, or to take any other action in connection with the Merger or otherwise. Cowen was not requested to opine as to, and Cowen’s opinion did not in any manner address, the Company’s underlying business decision to effect the Merger or the relative merits of the Merger as compared to other business strategies or transactions that might be available to the Company. In addition, Cowen was not requested to opine as to, and Cowen’s opinion did not in any manner address, (i) the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or class of such persons, relative to the compensation to the Company’s public stockholders or (ii) whether Parent has sufficient cash, available lines of credit or other sources of funds to enable it to pay the Per Share Merger Consideration at the closing of the Merger.

Summary of Material Financial Analyses

The following is a summary of the material financial analyses performed by Cowen to arrive at its opinion. Some of the summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses. Cowen performed certain procedures, including each of the financial analyses described below, and reviewed with the Board and the Company’s management the assumptions on which such analyses were based and other factors, including the historical and projected financial results of the Company.

Transaction Overview

For informational purposes only, Cowen reviewed the closing prices of the shares of the Company’s common stock on various days and over various periods. The table below illustrates the stock prices for those days and periods and the premium implied by the Per Share Merger Consideration of $1.20 per share of the Company’s common stock to the Company’s historical stock prices.

 

Closing Price Date		Historical Share Price				Premium / (Discount) Implied by Per Share Merger Consideration
May 2, 2019		$	1.18				1.7	%
1 day prior to May 2, 2019 (Spot)		$	1.10				9.1	%
2 days prior to May 2, 2019 (Spot)		$	1.09				10.6	%
1 month prior to May 2, 2019 (Spot)		$	1.14				5.3	%
3 months prior to May 2, 2019 (Spot)		$	1.20				0.0	%
6 months prior to May 2, 2019 (Spot)		$	0.93				29.0	%
12 months prior to May 2, 2019 (Spot)		$	1.22				(1.6	%)
2 years prior to May 2, 2019 (Spot)		$	0.80				50.0	%
High during 12 months ending on May 2, 2019 (July 6, 2018) (Spot)		$	1.95				(38.5	%)
Low during 12 months ending on May 2, 2019 (December 21, 2018) (Spot)		$	0.90				33.2	%
High during 2 years ending on May 2, 2019 (July 6, 2018) (Spot)		$	1.95				(38.5	%)
Low during 2 years ending on May 2, 2019 (May 2, 2017) (Spot)		$	0.80				50.0	%
1 month ending on May 2, 2019 (Average)		$	1.11				8.6	%
3 months ending on May 2, 2019 (Average)		$	1.08				11.3	%
6 months ending on May 2, 2019 (Average)		$	1.05				14.0	%
12 months ending on May 2, 2019 (Average)		$	1.21				(1.0	%)
2 years ending on May 2, 2019 (Average)		$	1.18				2.0	%

 

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Cowen also noted that the aggregate Per Share Merger Consideration to be received by all of the Company’s stockholders in the Merger based upon the Company’s Implied Enterprise Value (as defined below) of $34.9 million, derived from the Per Share Merger Consideration of $1.20 per share of the Company’s common stock, implied a premium of 3.2% to the Company’s Implied Enterprise Value of $33.8 million derived from the Company’s per share of the Company’s common stock closing price of $1.18 on May 2, 2019, and implied a premium of 21.2% to the Company’s Implied Enterprise Value of $28.8 million derived from the closing price of $1.09 per share of the Company’s common stock on April 30, 2019. Cowen noted that the premium to the Company’s Implied Enterprise Value was larger than the premium to the Company’s historical stock prices due to the Company’s cash, cash equivalents and short-term investments of $27.4 million, with no outstanding debt, as of March 31, 2019, as provided by the Company’s management.

For informational purposes only, Cowen also reviewed one recently published, publicly available research analyst report. This research analyst report set a 12-month undiscounted price target for the Company of $3.00 per share of the Company’s common stock.

Analysis of Selected Publicly Traded Companies

To provide contextual data and comparative market information, Cowen compared selected operating and financial data and multiples for the Company to the corresponding data and multiples of certain other companies in the semiconductor services industry (referred to in this section as the “Selected Companies”) whose securities are publicly traded and that Cowen believes in the exercise of its professional judgment to have one or more business or operating characteristics, market valuations and trading valuations similar to what might be expected of the Company. These companies were:

Selected Companies

 

•

Amkor Technology, Inc.

 

•

ASE Technology Holding Co., Ltd.

 

•

ChipMOS TECHNOLOGIES INC.

 

•

DB Hitek Co., Ltd.

 

•

Frontken Corporation Berhad

 

•

Hua Hong Semiconductor Limited

 

•

PDF Solutions, Inc.

 

•

Powertech Technology Inc.

 

•

Semiconductor Manufacturing International Corp.

 

•

Tower Semiconductor Ltd.

 

•

Ultra Clean Holdings, Inc.

 

•

United Microelectronics Corporation

 

•

X-FAB Silicon Foundries SE

The data and multiples reviewed by Cowen included the market capitalization of equity, based on fully-diluted shares outstanding, plus debt and debt-like instruments less cash (referred to in this section as “Implied Enterprise Value”) of each of the Selected Companies, as a multiple of revenue and as a multiple of earnings before interest expense, income taxes, depreciation and amortization and excluding the effects of stock-based compensation and non-recurring items (referred to in this section as “Adjusted EBITDA”), in each case, calculated on a historical basis for calendar year 2018 (referred to in this section as “CY2018A”) and on a forecasted basis for calendar year 2019 (referred to in this section as “CY2019E”) from Capital IQ where available, otherwise from research analyst reports.

 

55

The following table presents the multiple of Implied Enterprise Value to revenue and Adjusted EBITDA, in each case, for the Selected Companies and for CY2018A and CY2019E. The information in the table is based on the closing stock prices of the Selected Companies per Capital IQ on May 2, 2019.

 

Low

Mean

Median

High

Implied Enterprise Value as a multiple of:

CY2018A Revenue

0.6x

1.7x

1.2x

4.4x

CY2019E Revenue

0.7x

1.6x

1.3x

4.3x

CY2018A Adjusted EBITDA (1)

2.7x

5.7x

4.7x

14.0x

CY2019E Adjusted EBITDA (1)(2)

3.0x

6.1x

5.1x

11.7x

 

(1)	The multiple for the following company was excluded because it was greater than 25.0x and was considered not meaningful: PDF Solutions, Inc.

(2)	The multiple for the following company was excluded because it was not available: Amkor Technology, Inc.

Based upon the information presented above, Cowen’s experience in the semiconductor services industry and its professional judgment, Cowen selected implied reference multiple ranges. The following table presents the implied value per share of the Company’s common stock based on the selected multiple ranges and using the Company’s historical revenue and Adjusted EBITDA for CY2018A and the Company’s forecasted revenue and Adjusted EBITDA for CY2019E, in each case compared to the Per Share Merger Consideration of $1.20 per share of the Company’s common stock.

 

		Reference Multiple Range				Implied Value per Fully-diluted Share
Implied Enterprise Value as a multiple of:
CY2018A Revenue			0.8x – 1.3x				$1.05 – $1.37
CY2019E Revenue			0.8x – 1.3x				$1.05 – $1.38
CY2018A Adjusted EBITDA			4.0x – 6.0x				$0.66 – $0.73
CY2019E Adjusted EBITDA			4.0x – 6.0x				$0.73 – $0.83

Although the Selected Companies were used for comparison purposes, none of those companies is directly comparable to the Company. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the Selected Companies and other factors that could affect the public trading value of the Selected Companies and the Company to which they are being compared.

 

56

Analysis of Selected Transactions

Cowen reviewed the financial terms, to the extent publicly available based on company filings, press releases and research analyst reports, of 10 completed transactions (referred to in this section as the “Selected Transactions”) involving the acquisition of companies or businesses in the semiconductor services industry and that Cowen believes in the exercise of its professional judgment to have one or more business or operating characteristics, market valuations and trading valuations that Cowen deemed relevant, and that were announced since November 2009. These transactions and the dates announced were:

 

Month and Year Announced		Target		Buyer
September 2018		Graphene Semiconductor Services Pvt. Ltd.		L&T Technology Services Limited
July 2018		Quantum Global Technologies, LLC		Ultra Clean Holdings, Inc.
December 2017		EAG Laboratories		Eurofins
June 2016		LFoundry S.r.l.		Semiconductor Manufacturing International Corporation
May 2016		Siliconware Precision Industries Co., Ltd.		ASE Technology Holding Co., Ltd.
January 2016		ChipMOS Technologies (Bermuda) Ltd.		ChipMOS Technologies Inc.
November 2014		ThaiLin Semiconductor Corp.		ChipMOS Technologies Inc.
November 2014		STATS ChipPAC		Jiangsu Changjiang Electronics Technology Co Ltd (JCET)
December 2009		ASAT Holdings Ltd.		United Test and Assembly Center, Ltd. (UTAC)
November 2009		Universal Scientific Industrial Co. Ltd.		ASE Technology Holding Co., Ltd.; ASE Test Ltd.; J&R Holding Ltd.

The data and multiples reviewed by Cowen included the Implied Enterprise Value paid in each of the Selected Transactions as a multiple of revenue and Adjusted EBITDA in each case, for the latest 12 months (referred to in this section as “LTM”) prior to the announcement of the Selected Transactions.

The following table presents the multiple of Implied Enterprise Value to revenue and Adjusted EBITDA for the periods indicated.

 

Low

Mean

Median

High

Implied Enterprise Value as a multiple of:

LTM Revenue

0.3x

1.2x

1.1x

3.5x

LTM Adjusted EBITDA(1)

2.6x

5.3x

5.7x

7.1x

 

(1)	The multiple for the transactions involving Graphene Semiconductor Services Pvt. Ltd., EAG Laboratories and LFoundry S.r.l. as the target companies were excluded because they were not available.

 

57

Based upon the information presented above, Cowen’s experience in the semiconductor services industry and its professional judgment, Cowen selected implied reference multiple ranges. The following table presents the implied value per share of the Company’s common stock based on the selected multiple ranges using the Company’s historical LTM revenue and Adjusted EBITDA (LTM period ending March 31, 2019), in each case compared to the Per Share Merger Consideration of $1.20 per share of the Company’s common stock.

 

		Reference Multiple Range				Implied Value per Fully-diluted Share
Implied Enterprise Value as a multiple of:
LTM Revenue			0.8x – 1.3x			$	1.00 - $1.30
LTM Adjusted EBITDA (1)			4.5x – 6.5x			$	0.48 - $0.46

 

(1)	Cowen noted that because the Company’s LTM Adjusted EBITDA for the LTM period ending March 31, 2019 was negative, this analysis was considered not meaningful.

Although the Selected Transactions were used for comparison purposes, none of those transactions is directly comparable to the Merger, and none of the target companies in those transactions is directly comparable to the Company. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the target companies involved and other factors that could affect the acquisition value of such companies or the Company to which they are being compared.

Discounted Cash Flow Analysis

Cowen estimated a range of values for the shares of the Company’s common stock based upon the discounted present value of the Company’s projected unlevered free cash flow for the six-month period ending on December 31, 2019 and the full fiscal years ending in 2020 through 2023 and the terminal value of the Company based on multiples of the Company’s forecasted Adjusted EBITDA for the Company’s fiscal year ending in 2024, and assuming a Merger closing date of June 30, 2019. Cowen calculated unlevered free cash flow based on financial forecast information provided by the Company’s management as (i) Adjusted EBITDA, less (ii) stock based compensation expense, less (iii) cash taxes, less (iv) capital expenditures, less (v) change in net working capital (in each case as set forth in the section of this proxy statement captioned “The Merger — Management Projections”). This analysis was based upon certain assumptions described by, projections supplied on April 26, 2019 by and discussions held with the Company’s management. In performing this analysis, Cowen utilized discount rates ranging from 16.5% to 18.5%, which were selected based on the estimated weighted average cost of capital of the Company. Cowen utilized terminal multiples of Adjusted EBITDA ranging from 4.0x to 6.0x, which range was selected by Cowen in its professional judgment and based on the multiples for the Selected Companies. In performing this analysis, Cowen also calculated the present value of the Company’s estimated United States federal and state net operating loss carry forwards, as estimated and provided by the Company’s management, discounted to present value at a discount rate of 17.8%, which was selected based on the Company’s estimated cost of equity. Cowen utilized a marginal tax rate of 26.0% which was selected based on discussions held with the Company’s management.

Utilizing this methodology, the implied value per share of the Company’s common stock, excluding the present value of the Company’s estimated United States federal and state net operating loss carry forwards, ranged from $0.82 to $0.96, and the implied value per share of the Company’s common stock, including the present value of the Company’s estimated United States federal and state net operating loss carry forwards, ranged from $0.82 to $1.02, compared to the Per Share Merger Consideration of $1.20 per share of the Company’s common stock. The range of discount ranges and terminal multiples described above implied a range of perpetuity growth rates based on the Company’s estimated unlevered free cash flow in the terminal year of 8.3% to 12.8%.

 

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General

The summary set forth above does not purport to be a complete description of all the analyses performed by Cowen. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Cowen did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Cowen believes, and has advised the Board, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying its opinion. In performing its analyses, Cowen made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of the Company or Parent, as applicable. These analyses performed by Cowen are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and estimates 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, Cowen or any other person assumes responsibility if future results are materially different from those projected. The analyses supplied by Cowen and its opinion were among several factors taken into consideration by the Board in making its decision to approve the Merger Agreement and should not be considered as determinative of such decision.

Cowen was selected by the Company to render an opinion to the Board because of Cowen’s familiarity with the Company, because Cowen is a nationally recognized investment banking firm, because of Cowen’s experience and capabilities, including Cowen’s experience in the semiconductor and electronics industries, the Chinese market and because, as part of its investment banking business, Cowen is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In addition, in the ordinary course of its business, Cowen and its affiliates may actively trade or hold the securities of the Company, Parent and/or their respective affiliates for their own account and for the accounts of their customers, and, accordingly, may at any time hold a long or short position in such securities. In the two years preceding the date of its opinion, Cowen has not had a material relationship with the Company, Parent or any other party to the Merger Agreement and has not received any fees from the Company, Parent or any other party to the Merger Agreement. Cowen and its affiliates may in the future provide investment banking services to the Company and Parent and may receive fees for the rendering of such services. The issuance of Cowen’s opinion was approved by Cowen’s Fairness Opinion Review Committee.

Pursuant to the engagement letter between Cowen and the Company, Cowen will be entitled to receive a transaction fee estimated to be approximately $1.56 million, $500,000 of which became payable upon Cowen informing the Board that it was prepared to render its opinion, which is creditable against such transaction fee, and the balance of which is contingent upon the consummation of the Merger. Additionally, the Company has agreed to reimburse Cowen for certain of its out-of-pocket expenses, including attorneys’ fees, and has agreed to indemnify Cowen against certain liabilities, including liabilities under the federal securities laws. The terms of the fee arrangement with Cowen were negotiated at arm’s length between the Company and Cowen, and the Board was aware of the arrangement, including the fact that a significant portion of the fee payable to Cowen is contingent upon the consummation of the Merger.

Interests of the Company’s Directors and Executive Officers in the Merger

When considering the recommendation of the Board that you vote to approve the proposal to adopt the Merger Agreement and approve the transactions contemplated therein, you should be aware that the directors and

 

59

executive officers of the Company have interests in the Merger that are different from, or in addition to, the interests of stockholders generally, as more fully described below. The Board was aware of and considered these interests to the extent that they existed at the time, among other matters, in approving the Merger Agreement and the Merger and recommending that the Merger Agreement be adopted and the transactions contemplated therein be approved by stockholders.

Arrangements with Parent

As of the date of this proxy statement, none of our executive officers has entered into any agreement with Parent or any of its affiliates regarding employment with, or the right to purchase or participate in the equity of, the Surviving Corporation or one or more of its affiliates. Prior to or following the closing of the Merger, certain of our executive officers may have discussions with, or may enter into agreements with, Parent or Merger Sub or their respective affiliates regarding employment with, or the right to purchase or participate in the equity of, the Surviving Corporation or one or more of its affiliates.

Treatment of Company Equity Awards

The equity awards held by the Company’s non-employee directors and executive officers will be treated as described below in the section of this proxy statement captioned “The Merger Agreement — Treatment of Equity-Based Awards.” As described in that section, all outstanding Company equity awards will fully vest at the Effective Time.

For details regarding the number and value of Company equity awards held by the Company’s non-employee directors and executive officers, see the section below captioned “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger — Equity Interests of the Company’s Executive Officers and Non-Employee Directors.”

Change in Control Severance Benefits

The Company has entered into change in control severance agreements (the “CIC Severance Agreements”) with each of Christian F. Kramer and Bill Roeschlein. Under the terms of these agreements, if either Messrs. Kramer’s or Roeschlein’s employment is terminated by us other than for “cause” or by them for “good reason” (each as defined in the CIC Severance Agreement) on or within the one-month period preceding, or the one-year period following, a “change in control” (as defined in the CIC Severance Agreements), then they will be entitled to: (i) accelerated vesting of all equity compensation then held by them (to the extent then unvested); (ii) a lump sum payment equal to 18 months (for Mr. Kramer) or 12 months (for Mr. Roeschlein) of base salary and the executive’s target annual bonus for the year of termination; and (iii) company-paid premiums for COBRA continuation coverage for up to 18 months (for Mr. Kramer) or up to 12 months (for Mr. Roeschlein) after the date of termination. The Merger would constitute a “change in control” under the CIC Severance Agreements.

Messrs. Kramer’s and Roeschlein’s rights to receive the severance payments described above is subject to their signing and not revoking a general release of claims in favor of the Company.

Additionally, the CIC Severance Agreements generally provide that benefits may be limited to a lesser amount so that no portion of the benefits is subject to the imposition of excise taxes under the “golden parachute” provisions of Sections 280G and 4999 of the Code, if such limitation results in the receipt by the executive officer, on an after-tax basis, of a greater amount of benefits than without such limitation.

Transaction Bonuses

The Board has approved transaction bonuses for each of Messrs. Kramer and Roeschlein, such that if the Company is sold on or before December 31, 2019, and Messrs. Kramer and Roeschlein remain employed with

 

60

the Company through the date of such sale, each will be entitled to a lump sum transaction bonus in the amounts of $500,000 and $187,500, respectively. The Merger would constitute a sale of the Company for purposes of the transaction bonuses.

Insurance and Indemnification of Directors and Executive Officers

The Merger Agreement provides that the Surviving Corporation and its subsidiaries will (and Parent will cause the Surviving Corporation and its subsidiaries to) honor and fulfill in all respects the obligations of the Company and its subsidiaries under (i) the indemnification agreements between the Company or any of its subsidiaries and any of their respective current or former directors, officers and employees, and any person who becomes a director, officer or employee of the Company or any of its subsidiaries prior to the Effective Time and (ii) indemnification, expense advancement and exculpation provisions in the certificate of incorporation and bylaws or comparable organizational documents of the Company or any of its subsidiaries in effect on the date of the Merger Agreement.

The Merger Agreement also provides that, for a period of six years from the Effective Time, the Surviving Corporation and its subsidiaries will (and Parent will cause the Surviving Corporation and its subsidiaries to) cause the certificates of incorporation, bylaws or other organizational documents of the Surviving Corporation and its subsidiaries to contain provisions with respect to indemnification, exculpation, advancement of expenses and limitation of director and officer liability that are at least as favorable to the current provisions with respect to indemnification, exculpation and advancement of expenses contained in the Company’s and its subsidiaries’ organizational documents as of the date of the Merger Agreement. The Merger Agreement further provides that the Surviving Corporation and its subsidiaries will not, for a period of six years from the Effective Time, amend, repeal or otherwise modify such provisions in the organizational documents in any manner that would adversely affect the rights of the current or former directors and officers of the Company and its subsidiaries, except as required by applicable law.

From and for the six years following the Effective Time, the Company and the Surviving Corporation shall maintain in effect the directors’ and officers’ liability insurance in respect of acts or omissions occurring at or prior to the Effective Time, covering each person covered by the Company’s directors’ and officers’ liability insurance in force as of the date of the Merger Agreement, on terms with respect to the coverage and amounts that are no less favorable than those under the liability insurance in force as of the date of the Merger Agreement, provided that Parent and the Surviving Corporation shall not be obligated to pay premiums in excess of 300% of the amount paid by the Company for such coverage during its current coverage period, provided further, that if the premiums do exceed that amount, Parent and the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage possible for the cost of 300% of the amount paid by the Company for such coverage during its current coverage period.

Further, the Merger Agreement provides that, prior to the Effective Time, the Company will purchase a six year prepaid “tail” policy on the Company’s current officers and directors liability insurance and the Surviving Corporation will maintain the “tail” policy in full force and effect and continue to honor all obligations thereunder, in lieu of all other obligations of Parent and the Surviving Corporation to cover the obligations related to acts or omissions occurring at or prior to the Effective Time so long as such “tail” policy is maintained in full force and effect.

Golden Parachute Compensation

The Company has entered into CIC Severance Agreements with each of Christian F. Kramer and Bill Roeschlein. Under the terms of these agreements, if either Messrs. Kramer’s or Roeschlein’s employment is terminated by us other than for “cause” or by them for “good reason” (each as defined in the CIC Severance Agreement) on or within the one-month period preceding, or the one-year period following, a “change in control” (as defined in the CIC Severance Agreements), then they will be entitled to: (i) accelerated vesting of all equity compensation then

 

61

held by them (to the extent then unvested); (ii) a lump sum payment equal to 18 months (for Mr. Kramer) or 12 months (for Mr. Roeschlein) of base salary and the executive’s target annual bonus for the year of termination; and (iii) company-paid premiums for COBRA continuation coverage for up to 18 months (for Mr. Kramer) or up to 12 months (for Mr. Roeschlein) after the date of termination. The Merger would constitute a “change in control” under the CIC Severance Agreements.

Messrs. Kramer’s and Roeschlein’s rights to receive the severance payments described above is subject to their signing and not revoking a general release of claims in favor of the Company.

Additionally, the CIC Severance Agreements generally provide that benefits may be limited to a lesser amount so that no portion of the benefits is subject to the imposition of excise taxes under the “golden parachute” provisions of Sections 280G and 4999 of the Code, if such limitation results in the receipt by the executive officer, on an after-tax basis, of a greater amount of benefits than without such limitation.

Transaction Bonuses

The Board has approved transaction bonuses for each of Messrs. Kramer and Roeschlein, such that if the Company is sold on or before December 31, 2019, and Messrs. Kramer and Roeschlein remain employed with the Company through the date of such sale, each will be entitled to a lump sum transaction bonus in the amounts of $500,000 and $187,500, respectively. The Merger would constitute a sale of the Company for purposes of the transaction bonuses.

Golden Parachute Compensation

 

Name		Cash ($) (1)				Equity ($) (2)				Perquisites/ Benefits ($) (3)				Other ($)				Total ($)
Christian F. Kramer			1,615,625				1,055,459				42,678				—				2,713,762
Bill Roeschlein			612,750				354,843				16,368				—				983,961

 

(1)

For Mr. Kramer, the amount represents (i) a lump sum payment equal to 18 months of base salary plus his fiscal year 2019 target bonus, and (ii) a $500,000 transaction bonus. For Mr. Roeschlein, the amounts represent a lump sum payment equal to (i) 12 months of base salary plus his fiscal year 2019 target bonus, and (ii) a $187,500 transaction bonus.

The following table quantifies the separate forms of cash compensation included in the aggregate total reported in the column. Amounts in the “Salary and Bonus Severance” column below are double trigger benefits, and amounts in the “Transaction Bonus” column are single trigger benefits that are triggered solely by a change in control of the Company.

 

Name		Salary and Bonus Severance ($)				Transaction Bonus ($)
Christian F. Kramer			1,115,625				500,000
Bill Roeschlein			425,250				187,500

 

(2)	This column quantifies the value of each named executive officer’s unvested Company Options and Company RSU Awards that would accelerate in the Merger.

Under the Merger Agreement, at the Effective Time:

 

•

each outstanding Company Option will fully vest and be canceled in exchange for a cash payment equal to (x) the aggregate number of shares of the Company’s common stock underlying such Company Option, multiplied by (y) the amount by which $1.20 exceeds the per share exercise price of such Company Option; and

 

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•

each outstanding Company RSU Award will fully vest and be canceled in exchange for a cash payment equal to (x) the aggregate number of shares of the Company’s common stock underlying such Company RSU Award, multiplied by (y) $1.20.

The foregoing are single trigger benefits that are triggered solely by a change in control of the Company pursuant to the Merger Agreement.

Under the CIC Severance Agreements, each named executive officer is also eligible to receive double trigger equity acceleration benefits, as described above in the section of this proxy statement captioned “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger — Change in Control Severance Benefits.”

The following table quantifies the value of the acceleration of each unvested Company Option and Company RSU Award included in the aggregate total reported in the column:

 

Name		Unvested Company Options ($)				Unvested Company RSU Awards ($)
Christian F. Kramer			35,459				1,020,000
Bill Roeschlein			42,843				312,000

 

(3)	Represents the value of Company-paid premiums for COBRA continuation coverage for up to 18 months (for Mr. Kramer) or up to 12 months (for Mr. Roeschlein) after the date of termination. The foregoing are double trigger benefits.

Equity Interests of the Company’s Executive Officers and Non-Employee Directors

The following table sets forth the number of shares of common stock and the number of shares of common stock underlying Company RSU Awards and “in-the-money” Company Options currently held by each of the Company’s executive officers and non-employee directors, in each case that either are currently vested or that will vest in connection with the Merger, as of June 7, 2019. The table also sets forth the values of these shares and equity awards based on the Per Share Merger Consideration. No new shares of common stock or equity awards were granted to any executive officer or non-employee director in contemplation of the Merger.

 

Name		Shares Held (#)				Shares Held ($)				Company RSU Awards (#)				Company RSU Awards ($)				Company Options (#)				Company Options ($)				Total ($)
Christian F. Kramer			—				—				850,000				1,020,000				200,000				74,000				1,094,000
Bill Roeschlein			—				—				260,000				312,000				304,000				86,340				398,340
Marvin D. Burkett			—				—				—				—				25,000				8,750				8,750
Irwin Federman			538,267				645,920				—				—				25,000				8,750				645,920
Matthew S. Furnas			—				—				—				—				75,000				18,000				18,000
George M. Scalise			160,000				192,000				—				—				25,000				8,750				200,750
Adam Scheer			—				—				—				—				—				—				—
Jonathan B. Schultz			—				—				—				—				—				—				—
Kenneth H. Traub			—				—				—				—				25,000				8,750				8,750

Financing of the Merger

The Merger is not conditioned on Parent obtaining the proceeds of any financing. We anticipate that the total funds necessary to complete the Merger and the other transactions contemplated by the Merger Agreement will be approximately $62.3 million. We understand that Parent expects to use cash on hand and/or funds available to it. These funds include the funds needed to:

 

•

pay the Company’s stockholders the amounts due under the Merger Agreement; and

 

•

make payments in respect of certain of the Company’s outstanding equity-based awards pursuant to the Merger Agreement.

 

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Guarantee

As a material inducement for the Company to enter into the Merger Agreement, MKDG executed the guarantee, dated as of May 6, 2019, in favor of the Company. Under the guarantee, subject to the limitations described therein, MKDG has (a) absolutely, unconditionally and irrevocably guaranteed, as primary obligor and not merely as surety, to the Company the due and prompt payment and performance of all covenants, agreements, obligations, expenses and liabilities of Parent and Merger Sub under the Merger Agreement; and (b) subject to the provisions of the guarantee, including the limitations contained therein, unconditionally and irrevocably waived (i) any right to revoke the guarantee, in whole or in part (including, without limitation, in respect of any waiver, amendment, assignment or modification of the Merger Agreement authorized by Parent or Merger Sub) and (ii) promptness, diligence, notice of acceptance, presentment, demand for performance, notice of non-performance, default, acceleration, protest or dishonor and any other notice with respect thereto. The guarantee is one of performance and payment, not merely collection, and a separate action or actions may be brought and prosecuted against MKDG to enforce the guarantee, irrespective of whether any action is brought against Parent or Merger Sub or whether Parent or Merger Sub is joined in any such action or actions.

Subject to the other provisions of the guarantee, including the limitations contained therein, the guarantee is a continuing one and remains in full force and effect until the indefeasible payment and satisfaction in full of Parent’s and Merger Sub’s obligations under the Merger Agreement, shall be binding upon MKDG, its successors and assigns, and shall inure to the benefit of, and be enforceable by, the Company but shall immediately terminate (and MKDG will have no further obligations under the guarantee) on the earliest to occur of: (i) such time as all of the payment obligations of the Parent or Merger Sub under the Merger Agreement shall have been satisfied; (ii) the termination of the Merger Agreement in accordance with its terms under circumstances in which none of the Guaranteed Obligations are payable; (iii) the time at which the Guaranteed Obligations have been paid in full; (iv) the date that is six months from the date of termination of the Merger Agreement under circumstances in which any of the Guaranteed Obligations are payable (unless the Company has made a claim under the guarantee prior to such date, in which case the relevant date shall be the date that such claim is finally settled or otherwise resolved either in a final non-appealable judicial determination by a court of competent jurisdiction or by the mutual written agreement of the Company and MKDG (or its permitted assignee) and the Guaranteed Obligations thereby finally determined or agreed to be owed by MKDG are satisfied in full); and (v) the closing of the Merger and the payment of all amounts due from Parent or Merger Sub pursuant to certain terms of the Merger Agreement.

Support Agreements

Concurrently with the execution of the Merger Agreement, Parent and the Supporting Stockholders, solely in their respective capacities as stockholders of the Company, entered into Support Agreements. As of the Record Date, the Supporting Stockholders collectively held approximately 31.0% of the outstanding shares of the Company’s common stock. The form of Support Agreement is attached to this proxy statement as Annex D.

Pursuant to the terms of their respective Support Agreements, the Supporting Stockholders agreed, among other things, to vote certain of their shares of the Company’s common stock (i) in favor of (A) the adoption of the Merger Agreement and approval of the Merger and the other transactions contemplated by the Merger Agreement and (B) the approval of any proposal to adjourn or postpone the Special Meeting to a later date if there are not sufficient votes to approve the Merger on the date on which the Special Meeting is held, (ii) against any acquisition proposal from a third party, without regard to any recommendation to the holders of the Company’s common stock by the Board concerning such acquisition proposal, and without regard to the terms of such acquisition proposal, or any other proposal made in opposition to or that is otherwise in competition or inconsistent with the transactions contemplated by the Merger Agreement, (iii) against any agreement, amendment of any agreement (including the organizational documents of the Company), or any other action that is intended or would reasonably be expected to prevent, impede, or, in any material respect, interfere with, delay, postpone, or discourage the transactions contemplated by the Merger Agreement or (iv) against any action,

 

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agreement, transaction or proposal that would reasonably be expected to result in a breach of any representation, warranty, covenant, agreement or other obligation of the Company in the Merger Agreement.

Subject to certain exceptions, the Support Agreements prohibit transfers by the Supporting Stockholders of any of the Company’s common stock prior to the termination of their respective Support Agreements and certain other actions that would impair the ability of the Supporting Stockholders to fulfill their obligations under their respective Support Agreements.

The Support Agreements will terminate upon the earliest to occur of (i) the Merger Agreement being adopted and the transactions contemplated therein being approved by Company stockholders, (ii) the date of termination of the Merger Agreement in accordance with its terms, (iii) subject to the terms of their respective Support Agreements, the date on which the Supporting Stockholders cease to beneficially own any shares of the Company’s common stock and (iv) subject to certain conditions, the effectiveness of certain modifications to the Merger Agreement or any provision therein.

Closing and Effective Time

The closing of the Merger will take place as soon as practicable, but no later than five business days following the satisfaction or waiver in accordance with the Merger Agreement of all of the conditions to closing of the Merger (as described in the section of this proxy statement captioned “The Merger Agreement — Conditions to the Closing of the Merger”), other than conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of such conditions.

Appraisal Rights

If the Merger is completed, stockholders who do not vote in favor of the adoption of the Merger Agreement and who properly demand and petition for appraisal of their shares will be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL (“Section 262”).

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this proxy statement as Annex C and incorporated herein by reference. The following summary does not constitute any legal or other advice and does not constitute a recommendation that the Company’s stockholders exercise their appraisal rights under Section 262. Only a holder of record of shares of the Company’s common stock is entitled to demand appraisal rights for the shares registered in that holder’s name. A person having a beneficial interest in shares of the Company’s common stock held of record in the name of another person, such as a bank, broker or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights. If you hold your shares of the Company’s common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee.

Under Section 262, holders of shares of the Company’s common stock who (i) do not vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby; (ii) continuously are the record holders of such shares through the Effective Time; (iii) file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the Effective Time; and (iv) otherwise follow the procedures set forth in Section 262 will be entitled, subject to the satisfaction of all other requirements set forth in Section 262, including, without limitation, the “de minimis” requirement set forth in Section 262(g), to have their shares appraised by the Delaware Court of Chancery and to receive (A) payment in cash of the “fair value” of the shares of the Company’s common stock (unless to the extent that the Company has made, at its sole discretion and before the entry of judgment, cash prepayments to one or more of the Company’s stockholders that are entitled to appraisal), exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with (B) interest to be paid on the amount determined by the court to be fair value, if any.

 

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Unless the Delaware Court of Chancery, in its discretion, determines otherwise for good cause shown, interest on an appraisal award will accrue and compound quarterly from the Effective Time through the date the judgment is paid at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during such period. Under Section 262, the Company may make, at any time before the entry of judgment, prepayments in cash to one or more of the Company’s stockholders that are entitled to appraisal, in which case interest will accrue thereafter (at the rate described in the immediately preceding sentence) only upon the sum of (i) the difference, if any, between the amount prepaid by the Company and the fair value of the shares determined by the court, and (ii) interest already accrued before such prepayment and not paid at that time.

Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in the notice a copy of Section 262. This proxy statement constitutes the Company’s notice to stockholders that appraisal rights are available in connection with the Merger, and the full text of Section 262 is attached to this proxy statement as Annex C. In connection with the Merger, any holder of shares of the Company’s common stock who wishes to exercise appraisal rights or who wishes to preserve such holder’s right to do so should review Annex C carefully. Failure to strictly comply with the requirements of Section 262 in a timely and proper manner will result in the loss of appraisal rights under the DGCL. A stockholder who loses his, her or its appraisal rights will be entitled to receive the Per Share Merger Consideration described in the Merger Agreement. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of the Company’s common stock, the Company believes that if a stockholder considers exercising such rights, that stockholder should seek the advice of legal counsel.

Any of the Company’s stockholder wishing to exercise the right to seek an appraisal of its shares of the Company’s common stock must do ALL of the following:

 

•

the stockholder must not vote in favor of the proposal to adopt the Merger Agreement and approve the transactions contemplated therein;

 

•

the stockholder must deliver to the Company a written demand for appraisal before the vote on the Merger Agreement at the Special Meeting;

 

•

the stockholder must continuously hold the shares of the Company’s common stock from the date of making the demand through the Effective Time (a stockholder will lose appraisal rights if the stockholder transfers the shares of the Company’s common stock before the Effective Time); and

 

•

the stockholder or the Surviving Corporation must file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the Effective Time. The Surviving Corporation is under no obligation to file any petition and has no intention of doing so.

Because a proxy that does not contain voting instructions will, unless revoked, be voted in favor of the Merger Agreement, a stockholder who votes by proxy and who wishes to exercise appraisal rights must vote against the adoption of the Merger Agreement and the approval of the transactions contemplated therein, abstain or not vote its shares.

Filing a Written Demand

Any holder of shares of the Company’s common stock wishing to exercise appraisal rights must deliver to the Company, before the vote on the adoption of the Merger Agreement at the Special Meeting at which the proposal to adopt the Merger Agreement will be submitted to the stockholders, a written demand for the appraisal of the stockholder’s shares of the Company’s common stock, and that stockholder must not vote or submit a proxy in favor of the adoption of the Merger Agreement. A holder of shares of the Company’s common stock exercising appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold the shares of record through the Effective Time. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, and it will

 

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constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the adoption of the Merger Agreement or abstain from voting on the adoption of the Merger Agreement. Neither voting against the adoption of the Merger Agreement nor abstaining from voting or failing to vote on the proposal to adopt the Merger Agreement will, in and of itself, constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the adoption of the Merger Agreement. A proxy or vote against the adoption of the Merger Agreement will not constitute a demand. A stockholder’s failure to make the written demand prior to the taking of the vote on the adoption of the Merger Agreement at the Special Meeting of the Company’s stockholders will constitute a waiver of appraisal rights.

Only a holder of record of shares of the Company’s common stock is entitled to demand appraisal rights for the shares registered in that holder’s name. A demand for appraisal in respect of shares of the Company’s common stock should be executed by or on behalf of the holder of record and must reasonably inform the Company of the identity of the holder and state that the person intends thereby to demand appraisal of the holder’s shares in connection with the Merger. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, such demand must be executed by or on behalf of the record owner, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners.

STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE OR BANK ACCOUNTS OR OTHER NOMINEE FORMS AND WHO WISH TO EXERCISE APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR BANK, BROKER OR OTHER NOMINEES, AS APPLICABLE, TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE BANK, BROKER OR OTHER NOMINEE TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BANK, BROKER OR OTHER NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS.

All written demands for appraisal pursuant to Section 262 should be mailed or delivered to:

Intermolecular, Inc.

3011 N. First Street

San Jose, CA 95134

Attention: Corporate Secretary

Any holder of shares of the Company’s common stock may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the Merger Agreement by delivering to the Company a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the Effective Time will require written approval of the Surviving Corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just.

Notice by the Surviving Corporation

If the Merger is completed, within 10 days after the Effective Time, the Surviving Corporation will notify each holder of shares of the Company’s common stock who has made a written demand for appraisal pursuant to Section 262 and who has not voted in favor of the adoption of the Merger Agreement that the Merger has become effective and the effective date thereof.

 

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Filing a Petition for Appraisal

Within 120 days after the Effective Time, but not thereafter, the Surviving Corporation or any holder of shares of the Company’s common stock who has complied with Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the Surviving Corporation in the case of a petition filed by a stockholder, demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. The Surviving Corporation is under no obligation, and has no present intention, to file a petition, and holders should not assume that the Surviving Corporation will file a petition or initiate any negotiations with respect to the fair value of the shares of the Company’s common stock. Accordingly, any holders of shares of the Company’s common stock who desire to have their shares appraised should initiate all necessary action to perfect their appraisal rights in respect of their shares of the Company’s common stock within the time and in the manner prescribed in Section 262. The failure of a holder of the Company’s common stock to file such a petition within the period specified in Section 262 could nullify the stockholder’s previous written demand for appraisal.

Within 120 days after the Effective Time, any holder of shares of the Company’s common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the Surviving Corporation a statement setting forth the aggregate number of shares not voted in favor of the adoption of the Merger Agreement and with respect to which the Company has received demands for appraisal, and the aggregate number of holders of such shares. The Surviving Corporation must mail this statement to the requesting stockholder within 10 days after receipt of the written request for such a statement or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later. A beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition seeking appraisal or request from the Surviving Corporation the foregoing statements. As noted above, however, the demand for appraisal can only be made by a stockholder of record.

If a petition for an appraisal is duly filed by a holder of shares of the Company’s common stock and a copy thereof is served upon the Surviving Corporation, the Surviving Corporation will then be obligated within 20 days after such service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the stockholders who demanded appraisal of their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings, and if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss that stockholder from the proceedings.

De Minimis Exception Not Satisfied

Given that immediately before the Merger the shares of the Company’s common stock as to which appraisal rights are available were listed on a national securities exchange and the Merger is not approved under Sections 253 or 267 of the DGCL, the Delaware Court of Chancery will dismiss the appraisal proceedings as to all holders of shares of the Company’s common stock who are otherwise entitled to appraisal rights unless (i) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the Company’s common stock eligible for appraisal, or (ii) the value of the consideration provided in the merger for such total number of shares exceeds $1 million.

Determination of Fair Value

After determining the holders of the Company’s common stock entitled to appraisal, the Delaware Court of Chancery will appraise the “fair value” of the shares of the Company’s common stock, exclusive of any element

 

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of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Unless the court in its discretion determines otherwise for good cause shown, interest from the Effective Time through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time and the date of payment of the judgment. Under Section 262, the Company may make, at any time before the entry of judgment, prepayments in cash to one or more stockholders that are entitled to appraisal, in which case interest will accrue thereafter (at the rate described in the immediately preceding sentence) only upon the sum of (i) the difference, if any, between the amount prepaid by the Company and the fair value of the shares determined by the court, and (ii) interest already accrued before such prepayment and not paid at that time.

In determining fair value, the Delaware Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Supreme Court of Delaware stated that, in making this determination of fair value, the court must consider relevant factors such as: market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Supreme Court of Delaware stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined by the Delaware Court of Chancery could be more than, the same as or less than the consideration they would receive pursuant to the Merger if they did not seek appraisal of their shares and that an opinion of an investment banking firm as to the fairness from a financial point of view of the consideration payable in a Merger is not an opinion as to, and does not in any manner address, fair value under Section 262 of the DGCL. Although the Company believes that the Per Share Merger Consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and the Company’s stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the Per Share Merger Consideration. Neither the Company nor Parent anticipates offering more than the Per Share Merger Consideration to any stockholder exercising appraisal rights, and each of the Company and Parent reserves the right to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of common stock is less than the Per Share Merger Consideration. If a petition for appraisal is not timely filed, then the right to an appraisal will cease. The costs of the appraisal proceedings (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and taxed upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. Upon application of a stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by a stockholder in connection with an appraisal, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all the shares entitled to be appraised.

If any stockholder who demands appraisal of his, her or its shares of the Company’s common stock under Section 262 fails to perfect, or loses or successfully withdraws, such holder’s right to appraisal, the stockholder’s shares of the Company’s common stock will be deemed to have been converted at the Effective Time into the right to receive the Per Share Merger Consideration. A stockholder will fail to perfect, or effectively lose or withdraw, the holder’s right to appraisal if no petition for appraisal is filed within 120 days after the Effective

 

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Time or if the stockholder delivers to the Surviving Corporation a written withdrawal of the holder’s demand for appraisal and an acceptance of the Per Share Merger Consideration in accordance with Section 262.

From and after the Effective Time, no stockholder who has demanded appraisal rights will be entitled to vote such shares of the Company’s common stock for any purpose or to receive payment of dividends or other distributions on the stock, except dividends or other distributions on the holder’s shares of the Company’s common stock, if any, payable to stockholders as of a time prior to the Effective Time. If no petition for an appraisal is filed, or if the stockholder delivers to the Surviving Corporation a written withdrawal of the demand for an appraisal and an acceptance of the Merger, either within 60 days after the Effective Time or thereafter with the written approval of the Surviving Corporation, then the right of such stockholder to an appraisal will cease. Once a petition for appraisal is filed with the Delaware Court of Chancery, however, the appraisal proceedings may not be dismissed as to any stockholder who commenced the proceedings or joined these proceedings as a named party without the approval of the court and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just.

Failure to comply strictly with all of the procedures set forth in Section 262 may result in the loss of a stockholder’s statutory appraisal rights.

Consequently, any stockholder wishing to exercise appraisal rights is encouraged to consult legal counsel before attempting to exercise those rights.

Material U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of the material U.S. federal income tax consequences of the Merger to U.S. Holders and Non-U.S. Holders (each as defined below) of our common stock whose shares are converted into the right to receive cash pursuant to the Merger, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a U.S. Holder or Non-U.S. Holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding tax consequences of the Merger.

This discussion is limited to holders who hold our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to holders subject to special rules, including, without limitation:

 

•

tax-exempt organizations or governmental organizations;

 

•

persons subject to the alternative minimum tax;

 

•

S-corporations, partnerships or any other entities or arrangements treated as partnerships or pass-through entities for U.S. federal income tax purposes (and investors therein);

 

•

banks, insurance companies and other financial institutions;

 

•

brokers, dealers or traders in securities;

 

•

regulated investment companies or real estate investment trusts;

 

•

U.S. expatriates and former citizens or long-term residents of the United States;

 

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•

persons holding our common stock as part of a hedge, straddle or other risk reduction transaction or as part of a conversion transaction or other integrated investment;

 

•

persons deemed to sell our common stock under the constructive sale provisions of the Code;

 

•

persons who received our common stock in a compensatory transaction or pursuant to the exercise of options or warrants or pursuant to restricted stock units;

 

•

persons who own an equity interest, actually or constructively, in Parent or the Surviving Corporation following the Merger;

 

•

U.S. Holders whose “functional currency” is not the U.S. dollar;

 

•

“controlled foreign corporations,” “passive foreign investment companies” or corporations that accumulate earnings to avoid U.S. federal income tax;

 

•

tax-qualified retirement plans; and

 

•

persons who do not vote in favor of the Merger and who properly demand appraisal of their shares under Section 262 of the DGCL.

If a partnership (including an entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our common stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships holding our common stock and partners therein should consult their tax advisors regarding the U.S. federal income tax consequences of the Merger.

This discussion does not address the tax consequences pertaining to Company Options or Company RSU Awards that are converted into the right to receive cash in connection with the Merger.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER OTHER U.S. FEDERAL TAX LAWS OR THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION.

U.S. Holders

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common stock that, for U.S. federal income tax purposes, is or is treated as any of the following:

 

•

an individual who is a citizen or resident of the United States;

 

•

a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

•

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

•

a trust (i) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in Section 7701(a)(30) of the Code; or (ii) that has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

The receipt of cash by a U.S. Holder in exchange for our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares surrendered pursuant to the Merger. A U.S. Holder’s adjusted tax basis will generally equal the price the U.S. Holder paid for such shares. Such gain or loss will be a capital gain or loss, and will be a long-term capital gain

 

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or loss if such U.S. Holder’s holding period in such shares is more than one year at the time of the Merger. A preferential tax rate generally will apply to long-term capital gains recognized by certain non-corporate U.S. Holders. The deductibility of capital losses is subject to limitations. If a U.S. Holder acquired different blocks of common stock at different times or different prices, such U.S. Holder must determine its tax basis, holding period and gain or loss separately with respect to each block of common stock.

Non-U.S. Holders

For purposes of this discussion, the term “Non-U.S. Holder” means a beneficial owner of our common stock that is neither a U.S. Holder nor an entity that is treated as a partnership for U.S. federal income tax purposes.

Any gain realized by a Non-U.S. Holder resulting from the Merger generally will not be subject to U.S. federal income tax unless:

 

•

the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States);

 

•

the Non-U.S. Holder is an individual present in the United States for 183 days or more during the taxable year of the Merger, and certain other requirements are met; or

 

•

the Company is or has been a “United States real property holding corporation” as such term is defined in Section 897(c) of the Code (“USRPHC”) at any time within the shorter of the five-year period preceding the Merger or such Non-U.S. Holder’s holding period with respect to the applicable shares of common stock and, if our common stock is regularly traded on an established securities market (within the meaning of Section 897(c)(3) of the Code), such Non-U.S. Holder owned, actually or constructively, more than 5% of the Company’s common stock at any time during such period.

Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates applicable to U.S. persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.

Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by certain U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.

With respect to the third bullet point above, we believe we have not been and are not currently a USRPHC, and we do not anticipate becoming a USRPHC before the Merger.

Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.

Information Reporting and Backup Withholding

Information reporting and backup withholding may apply to the proceeds received by a holder pursuant to the Merger. Backup withholding generally will not apply to (i) a U.S. Holder who furnishes a correct taxpayer identification number and certifies that such holder is not subject to backup withholding on IRS Form W-9, or otherwise establishes a basis for exemption from backup withholding, or (ii) a Non-U.S. Holder who provides a certification of such holder’s non-U.S. status on the applicable IRS Form W-8, or otherwise establishes a basis for exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against the holder’s U.S. federal

 

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income tax liability, provided that the required information is timely furnished to the IRS. Copies of information returns that are filed with the IRS may be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which a Non-U.S. Holder resides or is established.

Regulatory Approvals Required for the Merger

The Company, Parent and Merger Sub have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with each other in doing, all things reasonably necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and each of the transactions contemplated by the Merger Agreement, including using reasonable best efforts to (i) cause all of the conditions to the closing of the merger set forth in the Merger Agreement to be satisfied as promptly as practicable, (ii) obtain, as promptly as practicable, and maintain all necessary actions or non-actions and consents from any governmental bodies, including CFIUS Approval (as defined below), and make all necessary registrations, declarations and filings with any governmental bodies that are necessary to consummate the Merger and (iii) resist, contest, appeal and remove any legal proceeding and to have vacated, lifted, reversed or overturned any order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, retrains the consummation of the transactions contemplated by the Merger Agreement.

CFIUS

Section 721 of the Defense Production Act of 1950 (as amended and codified at 50 U.S.C. Section 4565, “Section 721”), as well as related Executive Orders and regulations, authorize the President of the United States or CFIUS, to review transactions that could result in control of a U.S. business by a foreign person. Under Section 721 and Executive Order 13456, the Secretary of the Treasury acts through CFIUS to coordinate review of certain covered transactions that are submitted voluntarily to CFIUS or that are reviewed unilaterally by CFIUS. In general, CFIUS review of a covered transaction occurs in an initial 45-day review period that may be extended by CFIUS for an additional 45-day investigation period which investigation period may be extended by CFIUS for an additional 15 days in extraordinary circumstances. At the close of its review or investigation of a covered transaction, CFIUS may determine that there are no unresolved national security concerns with respect to the transaction, may impose mitigation terms to resolve any national security concerns with respect to the transaction, or may send a report to the President recommending that the transaction be suspended or prohibited, or providing notice to the President that CFIUS cannot reach consensus on a recommendation relative to the covered transaction. The President has 15 days after the date on which an investigation is completed under Section 721 to act on CFIUS’ report.

The Merger is conditioned upon (i) the receipt by parent and the Company of written notice from CFIUS stating that (A) CFIUS has concluded that the transactions contemplated by the Merger Agreement are not a “covered transaction” and not subject to review under applicable laws or (B) the review of the transaction contemplated by the Merger Agreement under Section 721 has been concluded, and there are no unresolved national security concerns with respect to the transactions contemplated by the Merger Agreement, or (ii) if CFIUS has sent a report to the President of the United States requesting the President’s decision on the CFIUS notice submitted by Parent and the Company, (X) the period under Section 721 which the President may announce the President’s decision to take action to suspend, prohibit or place any limitations on the transactions contemplated by the Merger Agreement having been expired without any such action being threatened, announced or taken or (Y) the President having announced a decision not to take any action to suspend, prohibit or place any limitations on the transactions contemplated by the Merger Agreement (“CFIUS Approval”).

Under the Merger Agreement, Parent, Merger Sub and the Company have agreed to file jointly with CFIUS, as soon as practicable after the date of the Merger Agreement, and in any event within 30 days after the date thereof, a draft voluntary notice contemplated under 31 C.F.R. § 800.401(f) and, as soon as practicable after CFIUS provides notification that the draft filing meets all requirements of 31 C.F.R. § 800.402, jointly file with

 

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CFIUS a formal voluntary notice as contemplated by 31 C.F.R. § 800.401(a). Parent, Merger Sub and the Company jointly filed the draft voluntary notice on May 25, 2019. As soon as practicable upon the receipt of notice from CFIUS that the draft filing meets all of the requirements under the CFIUS regulations, the parties will jointly file the formal voluntary notice with CFIUS.

There can be no assurance that CFIUS will conclude that the Merger will not impair the national security of the United States. There can be no assurance regarding the ultimate outcome of CFIUS’ review or investigation of the Merger.

Other Regulatory Approvals

One or more governmental agencies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents to the consummation of the Merger. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, any of which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained and there may be a substantial period of time between the approval by stockholders and the completion of the Merger.

Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the Merger, including the requirement to divest assets, or require changes to the terms of the Merger Agreement. These conditions or changes could result in the conditions to the Merger not being satisfied.

Legal Proceedings

On June 6, 2019, a putative shareholder class action complaint was filed in the United States District Court for the District of Delaware against the Company and each member of the Board, captioned Adam Franchi v. Intermolecular, Inc. et al., C.A. No. 1:19-cv-01054-UNA. On June 11, 2019, two putative shareholder complaints were filed in the United States District Court for the Southern District of New York and the Northern District of California, respectively, against the Company and each member of the Board, captioned Najafi v. Intermolecular, Inc. et al., C.A. No. 1:19-cv-05438 and Stein v. Intermolecular, Inc. et al., C.A. No. 519-cv-03307. Each of the complaints alleges, among other things, that the Company and each member of the Board violated certain provisions of the federal securities laws and regulations by soliciting stockholder votes in connection with the Merger through a proxy statement that purportedly omits material information necessary to make the statements therein not false or misleading. The complaints seek, among other things, to require the Company to disseminate a proxy statement that does not contain any untrue statements of material fact and that states all material facts required to make the statements contained therein not misleading, damages, and certain other equitable and injunctive relief.

The Company is reviewing the complaints and has not yet formally responded, but believes that the allegations therein are without merit and intends to defend against them vigorously. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that the Company’s defense of the actions will be successful. Additional complaints containing substantially similar allegations may be filed in the future.

 

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THE MERGER AGREEMENT

Explanatory Note Regarding the Merger Agreement

The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. We encourage you to read the Merger Agreement carefully and in its entirety because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement. Capitalized terms used in this section but not defined in this proxy statement have the meaning ascribed to them in the Merger Agreement.

The representations, warranties, covenants and agreements described below and included in the Merger Agreement (i) were made only for purposes of the Merger Agreement and as of specific dates; (ii) were made solely for the benefit of the parties to the Merger Agreement; and (iii) may be subject to important qualifications, limitations and supplemental information agreed to by the Company and Parent in connection with negotiating the terms of the Merger Agreement. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to reports and documents filed with the SEC and in some cases were qualified by confidential matters disclosed to Parent and Merger Sub by the Company in connection with the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating contractual risk between the Company, Parent and Merger Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Stockholders are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement. In addition, you should not rely on the covenants in the Merger Agreement as actual limitations on the respective businesses of the Company, Parent and Merger Sub, because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding the Company, Parent, Merger Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this document and in our filings with the SEC regarding the Company and our business.

Effects of the Merger; Directors and Officers; Articles of Organization; Bylaws

The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement, and in accordance with the applicable provisions of the DGCL, at the Effective Time, (i) Merger Sub will be merged with and into the Company, (ii) the separate corporate existence of Merger Sub will cease and (iii) the Company will continue as the Surviving Corporation in the Merger. From and after the Effective Time, all of the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all of the debts, liabilities and duties of the Company and Merger Sub will become the debts, liabilities and duties of the Surviving Corporation.

The parties will take all further actions necessary to ensure that the board of directors of Merger Sub immediately prior to the Effective Time shall become the board of directors of the Surviving Corporation from and after the Effective Time, until their successors have been duly elected or appointed and qualified or until their earlier

 

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death, resignation or removal in accordance with the organizational documents of the Surviving Corporation. The parties will also take all further actions necessary to ensure that the officers of Merger Sub immediately prior to the Effective Time become the officers of the Surviving Corporation from and after the Effective Time until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the organizational documents of the Surviving Corporation. At the Effective Time, the certificate of incorporation of the Company will be amended and restated in the form attached as Exhibit A to the Merger Agreement, and the bylaws of Merger Sub will become the bylaws of the Surviving Corporation, until thereafter amended, except that all references therein to Merger Sub will automatically be amended and will become references to the Surviving Corporation.

Closing and Effective Time

The consummation of the Merger will take place no later than the fifth business day following the satisfaction or waiver, if permitted by applicable law, of all conditions to closing of the Merger (described below under the caption “The Merger Agreement — Conditions to the Closing of the Merger”) (other than those conditions to be satisfied at the closing of the Merger, but subject to satisfaction or waiver, if permitted by applicable law, of those conditions) or such other time agreed to in writing by Parent, the Company and Merger Sub.

Merger Consideration

Common Stock

At the Effective Time, each outstanding share of the Company’s common stock (other than Excluded Shares) will be converted into the right to receive the Per Share Merger Consideration of $1.20 per share of the Company’s common stock, without interest and less any applicable withholding taxes. All shares of the Company’s common stock converted into the right to receive the Per Share Merger Consideration will automatically be cancelled at the Effective Time.

Treatment of Equity-Based Awards

The treatment of the Company’s equity awards that are outstanding immediately prior to the Effective Time will be as follows:

Company Options

Each Company Option that remains outstanding as of immediately prior to the Effective Time will fully vest (to the extent unvested) and be canceled as of the Effective Time, and the holder will be paid an amount in cash equal to the product obtained by multiplying (x) the aggregate number of shares of the Company’s common stock underlying such Company Option, by (y) the amount, if any, by which $1.20 exceeds the per share exercise price of such Company Option.

Company RSU Awards

Each Company RSU Award that remains outstanding as of immediately prior to the Effective Time will fully vest (to the extent unvested, and with any applicable performance criteria being deemed achieved at the maximum possible level of achievement for such performance criteria) and be canceled as of the Effective Time, and each holder will be paid an amount in cash equal to the product obtained by multiplying (x) the aggregate number of shares of the Company’s common stock underlying such Company RSU Award, by (y) $1.20.

All amounts described in this section will be subject to any applicable withholding taxes and deductions.

Exchange and Payment Procedures

Prior to the Effective Time, Parent will select a bank or trust company, which we refer to as the “payment agent,” to make payments of the aggregate consideration to which each of the Company’s stockholders is entitled. At or

 

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prior to the closing of the Merger, Parent will deposit or cause to be deposited with the payment agent an amount of cash equal to the aggregate Per Share Merger Consideration to all of the Company’s stockholders.

Promptly following the Effective Time, and in any event within five business days thereafter, Parent and the Surviving Corporation will cause the the payment agent to mail to each holder of record of shares of the Company’s common stock (i) a customary letter of transmittal in a form reasonably satisfactory to both Parent and the Company and (ii) instructions advising stockholders how to surrender stock certificates and book-entry shares in exchange for their portion of the Per Share Merger Consideration. Upon receipt of (1) surrendered certificates (or affidavits of loss in lieu thereof) or book-entry shares representing shares of the Company’s common stock; and (2) a duly completed and validly executed letter of transmittal, the holder of such shares will be entitled to receive their portion of the Per Share Merger Consideration in exchange therefor. The amount of any Per Share Merger Consideration paid to the stockholders may be reduced by any applicable withholding taxes.

Any cash deposited with the payment agent that remains undistributed on the date that is 12 months after the Effective Time will be delivered to the Parent, upon demand, and any holders of the Company’s common stock who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to Parent or the Surviving Corporation, as general creditor thereof, for payment of the Per Share Merger Consideration in respect of the shares of the Company’s common stock to which such holders may be entitled to pursuant to the Merger Agreement.

The letter of transmittal will include instructions if a stockholder has lost a share certificate or if such certificate has been lost, stolen or destroyed. In the event any certificates have been lost, stolen or destroyed, the holder of such lost, stolen or destroyed certificates will have to make an affidavit in the form and substance reasonably requested by the payment agent, and if required by the payment agent, deliver a customary indemnity against any claim that may be made against Parent, the Surviving Corporation or the payment agent with respect to such allegedly lost, stolen or destroyed certificate.

Representations and Warranties

The Merger Agreement contains representations and warranties of the Company, Parent and Merger Sub.

Some of the representations and warranties in the Merger Agreement made by the Company are qualified as to “materiality,” “Material Adverse Effect” or “Material Impact.” For purposes of the Merger Agreement, “Material Adverse Effect” means, with respect to the Company, any effect that has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets or results of operations of the Company and its subsidiaries, taken as a whole; provided, however, that no effects resulting or arising from the following shall be deemed to constitute a “Material Adverse Effect” or shall be taken into account when determining whether a “Material Adverse Effect” exists or has occurred or is reasonably likely to exist or occur:

 

•

general economic conditions (or changes in such conditions) in the United States or any other country or region in the world, or conditions in the global economy generally;

 

•

conditions (or changes in such conditions) in the securities markets, capital markets, credit markets, currency markets or other financial markets in the United States or any other country or region in the world, including (i) changes in interest rates in the United States or any other country or region in the world and changes in exchange rates for the currencies of any countries and (ii) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world;

 

•

conditions (or changes in such conditions) in the industries in which the Company and its subsidiaries conduct business;

 

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•

political conditions (or changes in such conditions) in the United States (including any shutdown of the United States Federal Government) or any other country or region in the world or acts of war (whether or not declared), sabotage, military action, terrorism or cyberterrorism (including any escalation or general worsening of any such acts of war (whether or not declared), sabotage military action, terrorism or cyberterrorism) in the United States or any other country or region in the world;

 

•

earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other force majeure events in the United States or any other country or region in the world;

 

•

changes in law or other legal or regulatory conditions (or the interpretation thereof) or changes in GAAP or other accounting standards (or the interpretation thereof);

 

•

the announcement of the Merger Agreement or the pendency or consummation of the transactions contemplated thereby, including (i) the identity of, or the effect of any fact or circumstance relating to, Parent or any of its or their affiliates, (ii) the loss or departure of officers or other employees of the Company or any of its subsidiaries, (iii) the termination or potential termination of (or the failure or potential failure to renew or enter into) any contracts with customers, suppliers, distributors or other business partners of the Company, and (iv) any other negative development (or potential negative development) in the Company’s or any of its subsidiaries’ relationships with any of its customers, suppliers, distributors or other business partners, in each case of subclauses (i) through (iv), to the extent resulting from such announcement or pendency (except that this clause will not apply with respect to any of the representations and warranties regarding consents and approvals and no violation contained in the Merger Agreement to the extent the purpose of such representation or warranty is to address the consequences resulting from the announcement of the Merger Agreement or the pendency or consummation of the transactions contemplated thereby);

 

•

any actions taken or failure to take action, in each case, by the Company or its subsidiaries at Parent’s written request or otherwise as required in order to comply with the Merger Agreement;

 

•

changes in the Company’s stock price or the trading volume of the Company’s stock, in and of itself, or any failure by the Company to meet any public estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period, in and of itself, or any failure by the Company to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations, in and of itself (but not, in each case, the underlying cause of such changes or failures, unless such changes or failures are otherwise excepted from this definition); and

 

•

any legal proceedings made or brought by any of the Company’s current or former stockholders (on their own behalf or on behalf of the Company) against the Company or its directors for breaches of fiduciary duties or as class action claims arising out of the Merger or in connection with any other transactions contemplated by the Merger Agreement.

Notwithstanding the foregoing, to the extent that any such effect resulting from the condition or situation described in any of the first six items described in the above bullet points has a disproportionately adverse effect on the Company and its subsidiaries, taken as a whole, in comparison to other companies or entities operating in the industries in which the Company and its subsidiaries operate that is affected by such condition or situation, they will not be excluded from a determination of whether a Material Adverse Effect has occurred and, in such case, the incremental disproportionate impact or impacts may be taken into account in determining whether a Material Adverse Effect has occurred.

For purposes of the Merger Agreement, “Material Impact” means, with respect to the Company, (i) any Material Adverse Effect or (ii) any other effect that, individually or in the aggregate, has created, imposed or caused, or would reasonably be expected to create or impose or cause, the Company and its subsidiaries to incur any individual or collective liability or obligation in excess of $1,000,000. Notwithstanding the foregoing, no effects

 

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resulting from the 10 matters listed as exceptions to the definition of Material Adverse Effect shall constitute a Material Impact, except to the extent that any such effect resulting from the condition or situation described in any of the first six matters listed as exceptions to the definition of Material Adverse Effect has a disproportionately adverse effect on the Company and its subsidiaries, taken as a whole, in comparison to other companies or entities operating in the industries in which the Company and its subsidiaries operate that is affected by such condition or situation, they will not be excluded from a determination of whether a Material Impact has occurred and, in such case, the incremental disproportionate impact or impacts may be taken into account in determining whether a Material Impact has occurred.

In the Merger Agreement, the Company has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

 

•

due organization and existence and good standing (to the extent such concept is recognized), with all requisite power and authority to conduct business with respect to the Company and its subsidiaries;

 

•

the Company’s corporate power and authority to enter into and perform the Merger Agreement, and the enforceability of the Merger Agreement;

 

•

the Board’s approval of the Merger Agreement and the transactions contemplated thereby and the Board’s recommendation to the Company’s stockholders;

 

•

the absence of any conflict, violation or breach of any organizational documents, existing contracts, applicable laws to the Company or its subsidiaries or the resulting creation of any lien upon the Company’s assets due to the performance of the Merger Agreement;

 

•

required consents, approvals and regulatory filings in connection with the Merger Agreement and performance thereof;

 

•

the capital structure of the Company and its subsidiaries;

 

•

the absence of any contract or obligation relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive rights or rights of first refusal or other similar rights with respect to any of the Company’s securities;

 

•

the accuracy and required filings of the Company’s and its subsidiaries’ SEC filings and financial statements;

 

•

the Company’s disclosure controls and procedures;

 

•

the Company’s internal accounting controls and procedures;

 

•

the absence of specified undisclosed liabilities;

 

•

the conduct of the business of the Company and its subsidiaries in the ordinary course consistent with past practice and the absence of a Material Adverse Effect, in each case since December 31, 2018;

 

•

legal proceedings and orders;

 

•

the Company’s and its subsidiaries’ compliance with laws and possession of necessary permits;

 

•

tax matters;

 

•

environmental matters;

 

•

real property owned, leased or subleased by the Company and its subsidiaries;

 

•

personal property of the Company;

 

•

trademarks, patents, copyrights and other intellectual property matters;

 

•

material contracts;

 

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•

the existence and enforceability of specified categories of the Company’s and its subsidiaries’ material contracts, and any notices with respect to violation or breach of or default thereunder or intention to terminate or modify those material contracts;

 

•

employee benefit plans;

 

•

labor matters;

 

•

insurance matters;

 

•

compliance with the anti-bribery laws;

 

•

absence of any transactions, relations or understandings between the Company or any of its subsidiaries and any affiliate or related person;

 

•

payment of fees to brokers in connection with the Merger Agreement;

 

•

the rendering of Cowen’s fairness opinion to the Board;

 

•

the necessary vote of stockholders in connection with the Merger Agreement;

 

•

the inapplicability of anti-takeover statutes to the Merger;

 

•

the absence of a shareholder rights plan;

 

•

the accuracy of information to be provided in the proxy statement; and

 

•

the Company and its subsidiaries’ compliance with certain export control laws and customs laws and regulations.

In the Merger Agreement, Parent and Merger Sub have made customary representations and warranties to the Company that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

 

•

due organization and existence and good standing (to the extent such concept is recognized), with all requisite power and authority to conduct business with respect to Parent and Merger Sub;

 

•

Parent’s and Merger Sub’s corporate power and authority to enter into and perform the Merger Agreement, and the enforceability of the Merger Agreement;

 

•

the absence of any conflict, violation or breach of any organizational documents, or applicable laws due to the performance of the Merger Agreement;

 

•

required consents, approvals and regulatory filings in connection with the Merger Agreement and performance thereof;

 

•

the absence of litigation;

 

•

ownership of the Company’s capital stock by Parent and Merger Sub;

 

•

matters with respect to Parent’s and Merger Sub’s sufficiency of funds;

 

•

the operations of Merger Sub;

 

•

payment of fees to brokers in connection with the Merger Agreement; and

 

•

the accuracy of information supplied by Parent and Merger Sub for inclusion in this proxy statement.

The representations and warranties contained in the Merger Agreement will not survive the consummation of the Merger.

Conduct of Business Pending the Merger

The Merger Agreement provides that, except as: (i) disclosed in the confidential disclosure letter to the Merger Agreement; (ii) required by law; (iii) contemplated or required by the Merger Agreement; or (iv) consented to by

 

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Parent (which consent will not be unreasonably withheld, conditioned or delayed), during the period of time between the date of the signing of the Merger Agreement and the earlier to occur of the termination of the Merger Agreement or the Effective Time, the Company will use its reasonable best efforts to, and to cause each of its subsidiaries to, subject to the restrictions and exceptions in the Merger Agreement, conduct its operations in all material respects according to its ordinary course of business and to preserve intact its business organization and present relationships with those persons having significant business relationships with the Company or any such subsidiaries.

In addition, the Company has also agreed that, except as (i) disclosed in the confidential disclosure letter to the Merger Agreement; (ii) required by law; (iii) contemplated, required or permitted by the Merger Agreement; or (iv) consented to by Parent (which consent will not be unreasonably withheld, conditioned or delayed), and subject to certain qualifications and exceptions as set forth in the Merger Agreement, during the period of time between the date of the signing of the Merger Agreement and the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company will not, and will cause each of its subsidiaries not to, among other things:

 

•

adopt any amendments to its certificate of incorporation or bylaws (or other similar governing documents);

 

•

issue, sell, grant options or rights to purchase, pledge, or authorize or propose the issuance, sale, grant of options or rights to purchase or pledge, any Company securities or securities of any subsidiary of the Company, other than the Company’s common stock issuable upon the vesting, settlement or exercise of Company Options or Company RSU Awards in accordance with their terms;

 

•

acquire or redeem, directly or indirectly, or amend any company securities, other than (i) as provided by the Company’s 2004 Equity Incentive Plan and 2011 Incentive Award Plan, (ii) the acquisition by the Company of shares of the Company’s common stock in connection with the surrender of shares of the Company’s common stock by holders of Company Options in order to pay the exercise price of such Company Options, (iii) the withholding of shares of the Company’s common stock to satisfy tax withholding obligations with respect to Company Options or Company RSU Awards or (iv) the acquisition by the Company of Company Options or Company RSU Awards in connection with the forfeiture of such awards or (v) the acquisition by the Company of Company Restricted Shares pursuant to the terms thereof or in satisfaction of any tax withholding obligations in respect thereof;

 

•

split, combine or reclassify its capital stock or declare, set aside, make or pay any dividend or distribution (whether in cash, stock or property) on any shares of its capital stock (other than dividends paid to the Company or one of its wholly owned subsidiaries by a wholly owned subsidiary of the Company);

 

•

(i) acquire, by means of a merger, consolidation, recapitalization or otherwise, any business, assets or securities (other than any acquisition of assets in the ordinary course of business), (ii) sell, lease or otherwise dispose of any material assets of the Company or any of its subsidiaries, except (A) pursuant to contracts or commitments existing as of the date of the Merger Agreement, or (B) de minimis dispositions or abandonments, in each case in the ordinary course of business, or (iii) adopt a plan of complete or partial liquidation, dissolution, recapitalization or restructuring;

 

•

make any loans, advances or capital contributions to, or investments in, any other person (other than wholly owned subsidiaries of the Company), except for advances to employees for travel and other business expenses in the ordinary course of business consistent with past practice;

 

•

(i) terminate any material contract, (ii) amend any material contract in any material respect, (iii) grant any release or relinquishment of any material rights under any material contract, (iv) enter into any contract that would be a material contract if entered into prior to the date of the Merger Agreement or (v) enter into any contract with any 5% shareholder or affiliate of the Company or any of its subsidiaries, in each case, except in the ordinary course of business and except for renewals, expirations or terminations in accordance with the terms of any material contract;

 

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•

incur, assume or otherwise become liable or responsible for any indebtedness for borrowed money, except for borrowings in an amount not to exceed $500,000 in the aggregate;

 

•

assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other individual or entity except wholly owned subsidiaries of the Company;

 

•

change, in any material respect, any financial accounting methods, principles or practices used by it, except in order to comply with GAAP or applicable law;

 

•

make or change any material tax election, or amend any material tax return, in each ease, other than as required by applicable law or in the ordinary course of business;

 

•

except pursuant to a plan in effect on the date hereof or as required by applicable law: (i) grant any severance or termination pay which will become due and payable on or after the Effective Time, (ii) adopt, enter into, materially amend or terminate any plan (other than to reflect changes in plan administration or in the ordinary course of business) or (iii) grant any increases in the compensation or benefits payable to its executive officers or directors;

 

•

negotiate or enter into any collective bargaining or similar labor agreement;

 

•

make or authorize any capital expenditure in excess of $250,000 or incur any obligations, liabilities or indebtedness in respect thereof, except for those contemplated by the capital expenditure budget for the relevant fiscal year, which capital expenditure budget has been provided or made available to Parent prior to the date of the Merger Agreement;

 

•

settle any legal proceeding other than a settlement solely for monetary damages (net of insurance proceeds received) not in excess of $500,000 individually or $1,000,000 in the aggregate;

 

•

establish any person that would constitute a subsidiary of the Company;

 

•

terminate the employment of executive officers or other employee with an annual base salary in excess of $120,000;

 

•

hire any executive officer or other employee with an annual base salary in excess of $120,000 other than to replace an employee whose employment has been terminated after the date of the Merger Agreement;

 

•

enter into or amend any employment agreement with any employee who has an annual stated base salary in excess of $120,000; or

 

•

offer, agree or commit, in writing or otherwise, to take any of the foregoing actions.

Acquisition Proposals

From the date of the Merger Agreement until the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company and its subsidiaries shall not, nor shall they authorize or knowingly permit any of their respective representatives, and shall instruct such representatives not to, directly or indirectly:

 

•

solicit, initiate, knowingly encourage or knowingly facilitate (including by way of providing non-public information regarding the Company or its subsidiaries), any inquiry, proposal or offer that constitutes or would reasonably be expected to lead to an acquisition proposal;

 

•

solicit, initiate, knowingly encourage or participate or engage in any discussions or negotiations regarding, or furnish to any person (other than Parent, Merger Sub and their representatives) any non-public information with respect to or in connection with, or take any other action to facilitate or encourage the making of any proposal or offer that constitutes or would reasonably be expected to lead to an acquisition proposal; or

 

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•

enter into any merger agreement, purchase agreement, letter of intent, memorandum of understanding, agreement in principle, option agreement, joint venture agreement, partnership agreement or similar agreement (whether or not binding) with respect to an acquisition transaction.

Additionally, from the date of the Merger Agreement until the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company and its subsidiaries shall, and shall instruct their respective representatives to, immediately cease all negotiations with any person conducted prior to the date of the Merger Agreement with respect to any inquiry or proposal that constitutes or would reasonably be expected to lead to any acquisition proposal. With respect to any such person that has executed a confidentiality agreement in the 12 month period preceding the date of the Merger Agreement relating to a potential acquisition proposal, the Company will immediately request that such person promptly return to the Company or destroy all non-public documentation and materials furnished by the Company or any of its representatives.

Finally, the Company shall not, and shall cause each of its affiliates not to, and shall instruct its and their respective representatives not to, release any person from, or waive, amend or modify any provision of, or grant any permission under any “standstill” provision or similar provision with respect to any capital stock of the Company in any agreement to which the Company or any of its affiliates is a party.

Notwithstanding the restrictions described above, if at any time prior to the Effective Time (i) the Company or any of its affiliates or representatives has received a bona fide acquisition proposal from any person that did not result from a material breach of Section 4.3 of the Merger Agreement, and (ii) the Board determines in good faith, after consultation with its financial advisor and outside legal counsel, that such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal, and that after consultation with the Company’s outside legal counsel, that the failure to take any action would be reasonably likely to be inconsistent with the Board’s fiduciary duties under applicable law, then the Company may furnish certain information to the person making such acquisition proposal and engage in discussions or negotiations with such person, provided that the Company shall provide written notice of the Board’s determination, the Company shall promptly provide to Parent any non-public information shared with such person and the Company shall have entered into a confidentiality agreement with such person.

For purposes of this proxy statement and the Merger Agreement:

An “acquisition proposal” means any offer or proposal or indication of interest in making a proposal or offer (other than an offer or proposal by Parent or Merger Sub) to engage in an acquisition transaction.

An “acquisition transaction” means any transaction or series of related transactions (other than the Merger) resulting in:

 

(1)

any direct or indirect acquisition by any person or “group” (as defined in or under Section 13(d) of the Exchange Act) of more than 15% of the outstanding voting securities of the Company or any tender offer or exchange offer that if consummated would result in such person or “group” (as defined in or under Section 13(d) of the Exchange Act) beneficially owning more than 15% of the outstanding voting securities of the Company;

 

(2)

any merger, consolidation, share exchange, business combination, recapitalization, liquidation, reorganization or other similar transaction involving the Company pursuant to which any person or “group” (as defined in or under Section 13(d) of the Exchange Act), would hold shares of the Company’s common stock, directly or indirectly, representing more than 15% of the outstanding voting securities of the Company or voting power of the surviving entity after giving effect to the consummation of such transaction; or

 

(3)

any direct or indirect sale, lease (other than in the ordinary course of business), exchange, transfer, exclusive license, or other acquisition of more than 15% of the consolidated assets of the Company.

 

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A “superior proposal” means a bona fide written acquisition proposal made by a third party or group that is not solicited in violation of Section 4.3 of the Merger Agreement and that the Board determines in good faith, after consultation with outside legal counsel and its financial advisor, to be more favorable to the Company’s stockholders, from a financial point of view, than the terms of the Merger and is reasonably capable of being completed within 12 months of the date of such bona fide written acquisition proposal on the terms proposed, taking into account all terms and conditions of such acquisition proposal (including all legal, regulatory, financial, timing and other aspects of such offer); provided, however, that for purposes of the reference to an “acquisition proposal” in this definition of a “superior proposal,” all references to “more than 15%” in the definition of “acquisition transaction” will be deemed to be references to “more than 50%.”

The Board’s Recommendation; Company Board Recommendation Change

As described above, and subject to the provisions described below, the Board has made the recommendation that the holders of shares of common stock vote “FOR” the proposal to adopt the Merger Agreement and approve the transactions contemplated therein. The Merger Agreement provides that the Board will not effect a company board recommendation change except as described below.

Prior to the adoption of the Merger Agreement by the holders of shares of common stock, neither the Board nor any committee thereof shall (with any action described in the following being referred to as a “company board recommendation change”):

 

•

withdraw, withhold or rescind (or modify or qualify in a manner adverse to Parent or Merger Sub), or publicly propose to withdraw, withhold or rescind (or modify or qualify in a manner adverse to parent or Merger Sub), the company board recommendation;

 

•

adopt, endorse, approve or recommend, or propose publicly to adopt, endorse, approve or recommend, or submit to the vote of any securityholders of the Company, any acquisition proposal, or approve any transaction under, or any transaction resulting in any third party becoming an “interested stockholder” under Section 203 of the DGCL;

 

•

fail to include the company board recommendation in the proxy statement or to recommend against any acquisition proposal that is a tender offer or exchange offer within 10 business days after the commencement thereof; or

 

•

resolve or agree to take any of the foregoing actions.

The Board may only effect a board recommendation change in connection with an intervening event if:

 

•

the Board determines in good faith (after consultation with its outside legal counsel) that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law;

 

•

the Company provides written notice to Parent at least four business days prior to effecting a board recommendation change of its intent to take such action, specifying the reasons therefor and a reasonably detailed description of the interning event; and

 

•

prior to effecting such board recommendation change, the Company shall, and shall cause its representatives to, negotiate with Parent in good faith (to the extent Parent desires to negotiate) during such four business day period to make such adjustments in the terms and conditions of the Merger Agreement as would obviate the basis for a board recommendation change.

In addition, the Board may only effect a company board recommendation change in connection with a superior proposal if:

 

•

the Board determines in good faith (after consultation with its outside legal counsel) that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law;

 

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•

the Board has determines in good faith (after consultation with its outside legal counsel) that the applicable acquisition proposal constitutes a superior proposal;

 

•

the Company provides written notice to Parent at least four business days prior to effecting a board recommendation change of its intent to take such action, specifying the material terms and conditions of the superior proposal and identifying the person or group making such superior proposal and including copy of the most current version of the agreement or proposal and all material related documentation with respect to such superior proposal;

 

•

prior to effecting such board recommendation change, the Company shall, and shall cause its representatives to, negotiate with Parent in good faith (to the extent Parent desires to negotiate) during such four business day period to make such adjustments in the terms and conditions of the Merger Agreement as would obviate the basis for a board recommendation change; and

 

•

taking into account any changes to the terms of the Merger Agreement proposed by Parent in any binding proposal, the Board or any committee thereof has determined in good faith (i) after consultation with the Company’s outside counsel that it would continue to be inconsistent with the Board’s fiduciary duties under applicable law not to effect the board recommendation change and (ii) after consultation with the Company’s outside legal counsel and financial advisor that the acquisition proposal received by the Company continues to constitute a superior proposal, in each case, if such changes offered by Parent in such binding proposal were given effect.

For purposes of this proxy statement and the Merger Agreement, an “intervening event” means an effect that was not known to the Board prior to the date of the Merger Agreement or, if known, the material consequences of which were not reasonably foreseeable as of the date of the Merger Agreement; provided, however, that in no event shall any event resulting from or relating to any of the following give rise to an intervening event:

 

•

any acquisition proposal;

 

•

a change in the trading price of the Company’s common stock, in and of itself (however, the underlying reasons for such changes may constitute an effect);

 

•

the fact that, in and of itself, the Company exceeds any internal or published projections, estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period (however, the underlying reasons for such events may constitute an effect);

 

•

changes in GAAP, other applicable accounting rules or applicable law;

 

•

changes in the industry in which the Company or any of its subsidiaries operates;

 

•

changes in the general economic or business conditions in the U.S. or other jurisdictions in which the Company or its subsidiaries have operations;

 

•

compliance with or performance under the Merger Agreement or the transactions contemplated therein; or

 

•

the public announcement, execution, delivery or performance of the Merger Agreement, the identity of Parent or Merger Sub, or the public announcement, pendency or consummation of the transactions contemplated by the Merger Agreement (or the public announcement of any discussions among the parties related thereto).

Employee Benefits

Parent acknowledges that a “change in control” (or any similar phrase) within the meaning of the Company’s benefit plans, as applicable, will occur as of the Effective Time and further agrees that it shall or shall cause the Surviving Corporation to honor in accordance with their terms all of the company’s benefit plans that provide for severance and change in control obligations as in effect immediately prior to the Effective Time.

 

85

For a period of 12 months following the Effective Time, the Surviving Corporation will (and Parent will cause the Surviving Corporation to) provide to each employee of the Company who remains employed by the Surviving Corporation following the Merger, which we refer to as a “continuing employee,” (i) a base salary or wage rate, as applicable, and annual cash bonus opportunity that is no less favorable than that provided to such continuing employee immediately prior to the Effective Time and (ii) other employee benefits (including severance benefits, but excluding equity-based compensation and benefits provided pursuant to any defined benefit pension plans) that are, taken as a whole, substantially comparable in the aggregate to the other employee benefits provided to such continuing employee immediately prior to the Effective Time.

To the extent any Company benefit plan or other employee benefit plan or other compensation or severance arrangement of the Surviving Corporation or Parent is made available to any continuing employee on or following the Effective Time, the Surviving Corporation will (and Parent will cause the Surviving Corporation to) cause to be granted to such continuing employee credit for all service with the Company and its subsidiaries prior to the Effective Time solely for purposes of eligibility to participate, vesting and entitlement to benefits where length of service is relevant. However, such service need not be credited to the extent that it would result in duplication of coverage or benefits.

In addition, Parent will (or will cause the Surviving Corporation to) ensure that (i) each continuing employee shall be immediately eligible to participate in any and all employee benefit plans sponsored by the Surviving Corporation and its Subsidiaries (which we refer to as “new plans”) to the extent coverage under any new plan replaces coverage under a comparable Company benefit plan in which the continuing employee participated immediately before the Effective Time (which we refer to as “old plans”) and (ii) for purposes of each new plan providing medical, dental or pharmaceutical, vision and disability benefits to any continuing employee, all waiting periods, evidence of insurability requirements, physical examinations, pre-existing conditions limitations and actively-at-work or similar requirements of such new plan will be waived for such continuing employee and his or her covered dependents, and to the extent practicable any eligible expenses incurred by such continuing employee and his or her covered dependents during any unfinished portion of the plan year of the old plan ending on the date such employee’s participation in the corresponding new plan begins will be given full credit under such new plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such continuing employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such new plan, subject to Parent’s receipt of such information within two months of the closing of the Merger. To the extent Parent elects to have continuing employees and their eligible dependents participate in its employee benefit plans, program or policies following the Effective Time, following the Closing, the flexible spending plan maintained or to be established by Parent or its affiliates shall credit each continuing employee’s flexible spending account with the balance recognized by the Company immediately prior to Closing. Each continuing employee eligible to participate in the Parent flexible spending plan shall be permitted to continue his or her election in effect under the flexible spending account maintained by the Company for the remainder of the calendar year in which the closing date occurs, subject to the limitation on contributions contained in the related Company plan, and parent will, or will cause its affiliates to, honor any such election, and the Parent flexible spending plan will honor any claims incurred by a continuing employee during such calendar year that would otherwise be an eligible expense under the related Company benefit plan, whether or not such expense was incurred before, on or after the closing date.

Efforts to Close the Merger

The Company, Parent and Merger Sub have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with each other in doing, all things reasonably necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and each of the transactions contemplated by the Merger Agreement, including using reasonable best efforts to (i) cause all of the conditions to the closing of the merger set forth in the Merger Agreement to be satisfied as promptly as practicable, (ii) obtain, as promptly as practicable, and maintain all necessary actions or non-actions and consents from any governmental bodies, including CFIUS Approval, and

 

86

make all necessary registrations, declarations and filings with any governmental bodies that are necessary to consummate the Merger, (iii) resist, contest, appeal and remove any legal proceeding and to have vacated, lifted, reversed or overturned any order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, retrains the consummation of the transactions contemplated by the Merger Agreement and (iv) at the written request of Parent, obtain all necessary consents from third parties under any material contracts to which the Company or any of its subsidiaries is party in connection with the Merger Agreement and the consummation of the transactions contemplated hereby.

Notwithstanding the foregoing, in connection with obtaining CFIUS Approval or any other governmental approval, if any, Parent and Merger Sub, and any of their respective affiliates, shall not be required to agree to any term, take any action, or fail to take any action that (i) would reasonably be expected to have, individually or in the aggregate, a “Parent Material Impact” (as defined below) or (ii) would reasonably be expected to have any adverse impact or adverse effect upon any transaction, relationship or contemplated transaction of any nature between Parent, Merger Sub or any affiliate of Parent or Merger Sub and Versum or any affiliate of Versum.

For purposes of this proxy statement and the Merger Agreement, a “Parent Material Impact” means (i) an effect that, individually or in the aggregate, has or would reasonably be expected to (A) reduce the reasonably expected benefits to Parent and its subsidiaries of completing the Merger by $500,000 or more or (B) have an adverse effect on the business, financial condition, assets or results of operations of Parent and its subsidiaries, taken as a whole, by $500,000 or more, or (ii) any other effect that, individually or in the aggregate, has created, imposed or caused, or would reasonably be expected to create or impose or cause, Parent or its subsidiaries to incur any individual or collective liability or obligation in excess of $500,000.

Indemnification and Insurance

The Merger Agreement provides that the Surviving Corporation and its subsidiaries will (and Parent will cause the Surviving Corporation and its subsidiaries to) honor and fulfill in all respects the obligations of the Company and its subsidiaries under (i) the indemnification agreements between the Company or any of its Subsidiaries and any of their respective current or former directors, officers and employees, and any person who becomes a director, officer or employee of the Company or any of its Subsidiaries prior to the Effective Time and (ii) indemnification, expense advancement and exculpation provisions in the certificate of incorporation and bylaws or comparable organizational documents of the Company or any of its subsidiaries in effect on the date of the Merger Agreement.

The Merger Agreement also provides that, for a period of six years from the Effective Time, the Surviving Corporation and its subsidiaries will (and Parent will cause the Surviving Corporation and its subsidiaries to) cause the certificates of incorporation, bylaws or other organizational documents of the Surviving Corporation and its subsidiaries to contain provisions with respect to indemnification, exculpation and advancement of expenses that are no less favorable than the current provisions with respect to indemnification, exculpation and advancement of expenses contained in the Company’s and its subsidiaries’ organizational documents as of the date of the Merger Agreement. The Merger Agreement further provides that the Surviving Corporation and its subsidiaries will not, for a period of six years from the Effective Time, amend, repeal or otherwise modify such provisions in the organizational documents in any manner that would adversely affect the rights of the current or former directors and officers of the Company and its subsidiaries, except as required by applicable law.

From and for the six years following the Effective Time, the Company and the Surviving Corporation shall maintain in effect the directors’ and officers’ liability insurance in respect of acts or omissions occurring at or prior to the Effective Time, covering each person covered by the Company’s directors’ and officers’ liability insurance in force as of the date of the Merger Agreement, on terms with respect to the coverage and amounts that are no less favorable than those under the liability insurance in force as of the date of the Merger Agreement, provided that Parent and the Surviving Corporation shall not be obligated to pay premiums in excess of 300% of the amount paid by the Company for such coverage during its current coverage period, provided further, that if

 

87

the premiums do exceed that amount, Parent and the Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available for the cost of 300% of the amount paid by the Company for such coverage during its current coverage period.

Further, the Merger Agreement provides that, prior to the Effective Time, the Company will purchase a six year prepaid “tail” policy on the Company’s current officers and directors liability insurance and the Surviving Corporation will maintain the “tail” policy in full force and effect and continue to honor all obligations thereunder, in lieu of all other obligations of Parent and the Surviving Corporation to cover the obligations related to acts or omissions occurring at or prior to the Effective Time so long as such “tail” policy is maintained in full force and effect.

Other Covenants

Stockholders Meeting

The Company has agreed to duly call, convene and hold a special meeting of the Company’s stockholders as promptly as reasonably practicable after this proxy statement is cleared by the SEC for mailing to the Company’s stockholders for the purpose of voting upon the adoption of the Merger Agreement and approval of the Merger.

Stockholder Litigation

The Company will: (1) promptly advise Parent of any legal proceeding commenced, or, to the knowledge of the Company, threatened after the date of the Merger Agreement against the Company or any of its directors (in their capacity as such) by any of the Company’s stockholders relating to the Merger Agreement or the transactions contemplated thereby and (2) keep Parent reasonably informed with respect to the status thereof. Subject to the execution of a customary joint defense agreement, the Company will give Parent the opportunity to participate in and consult with the Company regarding the defense or settlement of any stockholder litigation (at Parent’s expense), and the Company shall not offer to settle any such litigation, nor shall any such settlement be agreed to without Parent’s prior written consent (not to be unreasonably withheld, conditioned or delayed).

Conditions to the Closing of the Merger

The respective obligations of Parent, Merger Sub and the Company to consummate the Merger are subject to the satisfaction or waiver (where permissible under applicable law) prior to the Effective Time of each of the following conditions:

 

•

the adoption of the Merger Agreement by the requisite affirmative vote of the Company’s stockholders;

 

•

the receipt of CFIUS Approval; and

 

•

the consummation of the Merger not being made illegal or otherwise prohibited by any law or order of any governmental body of competent jurisdiction.

In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permissible by applicable law) at or prior to the Effective Time of each of the following additional conditions:

 

•

the representations and warranties of the Company relating to organization and qualification, corporate power and enforceability, capitalization and the inapplicability of state anti-takeover statues being true and correct other than de minimis inaccuracies both as of the date of the Merger Agreement and at and as of the closing date as though made on the closing date (except to the extent expressly made as of an earlier date, in which case, at and as of such earlier date);

 

•

the other representations and warranties of the Company (without giving effect to any qualification as to “materiality,” “Material Adverse Effect,” “Material Impact” or similar qualifiers set forth therein,

 

88

except in the case of the term “Material Contract”) being true and correct as of the date of the Merger Agreement and on and as of the closing date of the Merger with the same force and effect as if made on and as of such date (except to the extent expressly made as of an earlier date, in which case, at and as of such earlier date), except where the failure to be so true and correct as of such date would not have, individually or in the aggregate, a Material Adverse Effect;

 

•

the Company having performed and complied in all material respects with the agreements and covenants to be performed or complied with by it under the Merger Agreement, or any breach or failure to do so having been cured;

 

•

there not having occurred and be continuing any effect that has had or would reasonably be expected to have a Material Adverse Effect; and

 

•

the receipt by Merger Sub of a certificate of the Company, executed by an executive officer of the Company, dated as of the closing date, certifying that the conditions described in the preceding four bullet points have been satisfied.

In addition, the obligation of the Company to consummate the Merger is subject to the satisfaction or waiver (where permissible by applicable law) at or prior to the Effective Time of each of the following additional conditions:

 

•

the representations and warranties of Parent and Merger Sub contained in the Merger Agreement (without giving effect to any qualification as to “materiality” or similar qualifiers set forth therein) shall be true and correct in all respects both at and as of the date of the Merger Agreement and at and as of the closing date as though made on the closing date (except to the extent expressly made as of an earlier date, in which case, at and as of such earlier date), except where the failure to be so true and correct as of such date would not, individually or in the aggregate, prevent the consummation of the transactions contemplated by the Merger Agreement or the ability of Parent and Merger Sub to fully perform their respective covenants and obligations under the Merger Agreement;

 

•

each of Parent and Merger Sub having performed and complied in all material respects with the agreements and covenants to be performed or complied with by it under the Merger Agreement, or any breach or failure to do so having been cured; and

 

•

the receipt by the Company of a certificate of Merger Sub, executed by an executive officer of Merger Sub, dated as of the closing date, certifying that the conditions described in the preceding two bullet points have been satisfied.

Termination of the Merger Agreement

The Merger Agreement may be terminated and the Merger and the other transactions contemplated thereby may be abandoned at any time prior to the Effective Time, whether before or after the adoption of the Merger Agreement by the Company’s stockholders, in the following ways:

 

•

by mutual written agreement of the Company and Parent;

 

•

by either the Company or Parent if:

 

•

the the Merger will not have been consummated on or before May 6, 2020, which we refer to as the “termination date,” provided that this right to terminate the Merger Agreement will not be available to any party whose material breach of its obligations under the Merger Agreement has been a principal cause of or resulted in the failure of the Merger to be consummated by the termination date (it being understood that Parent and Merger Sub shall be deemed a single party for purposes of this termination right);

 

•

any applicable law or order being enacted, issued, promulgated or granted that has the effect of making the Merger illegal or which has the effect of prohibiting or otherwise preventing the

 

89